ADVERTISINGAND MARKETING LAW

IN CANADA

Third Edition

Brenda PritchardSusan Vogt

LexisNexis*

TABLE OF CONTENTS

Foreword vAbout the Authors viiContributors List ixAbout the Association of Canadian Advertisers xiiiPreface xvAcknowledgements xv

Chapter 1: Principles of Advertising and Marketing Law. 1A. Introduction 1B. The Competition Act 1

1. The Competition Bureau of Industry Canada 5C. The Provincial Consumer Protection Acts — The

Jurisdictional Tug of War 7D. The Canadian Code of Advertising Standards 9

1. Consumer Complaints 92. Trade Disputes 103. Exclusions 104. The Code 11

(a) Accuracy and Clarity 11(b) Disguised Advertising Techniques 12(c) Price Claims 12(d) Bait and Switch 13(e) Guarantee 14(f) Comparative Advertising 14(g) Testimonials 15(h) Professional or Scientific Claims 15(i) Imitation 16(j) Safety 16(k) Superstition and Fears 17(1) Advertising to Children 17(m) Advertising to Minors 18(n) Unacceptable Depictions and Portrayals 18

Appendix A: Canadian Code of Advertising Standards —Self-Regulation of Advertising in Canada 20

Chapter 2: False or Misleading Advertising 35A. Introduction 35B. The Basic Principles 36C. Material Misrepresentations 37

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D. Outright Deceit 371. The General Impression 38

(a) Examples 3"E. Sins of Omission 39F. Mice Type 40

1. Examples 40G. Visual Innuendos 4lH. Comparative Advertising 42I. Critical Factors 42J. Enforcement: How Misleading Advertising is Curbed 43

1. Complaints to Regulators 432. The Competition Bureau 443. ASC Trade Dispute Procedure 454. Legal Proceedings 46

Chapter 3: Substantiating Advertising Claims: What YouNeed and When You Need It 47

A. Introduction 48B. The Law 48C. Types of Claims and Substantiation 50D. How Do You Substantiate? 50E. Guiding Principles 50

1. Governmental 502. The Canadian Code of Advertising Standards 52

(a) Accuracy and Clarity 52(b) Guarantees 53(c) Comparative Advertisement 53(d) Testimonials 53

F. Guiding Principles For Substantiating Claims 541. Case Law 542. Claim Substantiation 543. Relevant and Recent Case Law Concerning Claim

Substantiation 55(a) The Dead Bunny Case 55(b) Cell Phone Wars 55(c) The Imperfect Pie Crust Case 56(d) The Purest Baking Soda Case 56(e) The Mother's Milk Case 57(f) The Headache Case 57(g) The Moisture in your Bath Bar Case 58

G. Summary 581. Guidelines for Proper Substantiation 58

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2. The Law 593. Guiding Principles 59

Chapter 4: Worst Case Scenarios 61A. Introduction 61B. Fact Scenario 61C. Identifying the Legal Issues 63

1. False or Misleading Advertising in Violation of theCompetition Act 63(a) False and Misleading Environmental Claims 63(b) Lack of Claim Substantiation 64(c) Unfair Comparative Advertising 64(d) The Potential Fallout 64(e) What Could Have Been Done to Avoid These

Issues? 672. Breach of the Trade-marks Act 67

(a) The Potential Fallout 69(b) What Could Have Been Done to Avoid These

Issues? 703. Breach of the Copyright Act 70

(a) The Potential Fallout 71(b) What Could Have Been Done to Avoid These

Issues? 724. Misappropriation of Personality 72

(a) What Could Have Been Done to Avoid TheseIssues? 73

5. Class Action 73(a) What Could Have Been Done to Avoid These

Issues? 74D. Other Miscellaneous Issues 75

Chapter 5: Price and Credit Advertising 77A. Introduction 77B. "Free" or "Bonus" or "No Extra Charge" Claims 77C. Sales/Ordinary Price Claims 78

1. What was the Test Under the Old Act? 792. What is the Test Under the Current Act? 79

D. Establishing a Regular Price 79E. Sales 80F. What Happens When the Rules are Broken — Important Case

Law 81G. Special Kinds of Sales 83

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1. Special Buys/Manufacturer's Clearance 832. Possible Exceptions: Ordering Extra Quantities of

Existing Items 8 4

3. Bill C-10 - Amendments to the Competition Act 84H. Credit Advertising 85

1. The Challenge 8 5

(a) Harmonized Cost of Credit 8-*(i) A Brief History 85

(b) The Quebec Disclosure Rules 87(c) Harmonized Legislation in Canada 88

(i) Fixed Credit Advertising 89(ii) Open Credit Advertising 90(iii) Credit Card Advertising 90(iv) Advertising Interest-Free Periods 90(v) Lease Advertising 91

(d) Disclosure Statements 92(e) Other Fundamental Changes Under the

Harmonized Rules 92(f) Rebates and the Wrye Decision 93(g) The Current Status — National Advertising 94(h) Additional Disclosure 95(i) Provincial Self-Regulation 95(j) A Note on Total Price 97

I. Class Actions in Quebec 98

Chapter 6: User Generated Content 101A. What is User Generated Content? 102B. What Legal Issues Need to be Considered Regarding UGC?.. 106

1. Contractual Issues 106(a) Risk Allocation 106(b) Minors 106(c) General 107

2. Copyright Issues 107(a) Copyright Basics 107(b) Ownership of Copyright 108(c) Copyright Infringement 109(d) Fair Dealing 112

3. Trade-mark Issues 113(a) Trade-mark Basics 114(b) Trade-mark Infringement 115

4. Privacy Matters 1175. New Media Broadcasting 118

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6. Viral Marketing 1197. Other Legal Issues 121

(a) Defamation 121(b) False or Misleading Advertising and Unfair

Practices 122(c) Misappropriation of Personality 122(d) Tort Liability and Criminal Acts 122(e) Sector-Specific Legislation 123

8. Principles for UGC Services 123C. Practical Matters 124D. Conclusion 126

Chapter 7: Green Marketing 129A. Introduction 129B. Self-declared environmental claims 130C. General Requirements for All Environmental Claims 130D. Vague and Non-specific Claims J32E. Sustainability Claims 133F. Claim Verification 133G. Life Cycle Analysis 134H. Use of Symbols 134I. Comparative Claims 136J. Requirements for Selected Environmental Claims 136

1. Recyclable 1372. Degradable 137

K. Enforcement 1381. Advertising Standards Canada (ASC) 138

Chapter 8: Contests and Promotions 139A. Introduction 139B. Cautionary Tales of Contest and Promotion Nightmares 139

1. Hold Your Wee for a Wii 1392. Finders Keepers, Losers Weepers 1403. Not So Lucky After All 1404. "Just Kidding" 1415. Thrilla in Manilla 1416. The Ticking Milk Bomb 1427. He Shoots! He Scores! 1428. The Clever Contestant 1429. Popsicle Points 14310. Charity Scam 14311. Scratch & Save 10% 144

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12. 15 Big Chances to Win! 14413. The Ground Rules 145

C. The Criminal Code 146D. The Competition Act. 149E. Contests, Coupons, Incentive Programs, Rebates and Other

Promotional Offers 1501. A through Z 150

Chapter 9: Advertising to Children 167A. Introduction 167B. Federal Requirements 167

1. The Broadcast Code for Advertising to Children 1672. Canadian Code of Advertising Standards 1693. Quebec 1694. Permitted Media in Quebec Child-directed Ads 1725. Privacy Issues 1736. Product Liability Issues 1757. Canadian Children's Food and Beverage Advertising

Initiative 175

Chapter 10: Packaging and Labelling 177A. Introduction 177B. Claims 177

1. Environmental Claims 178C. Contests 179D. Made in Canada 179E. Trade-marks and Copyright 179F. The Charter of the French Language 180G. The Marking of Imported Goods Order 181H. Textile Labelling Act 181I. The, Hazardous Products Act 181J. Product Liability 182K. The Consumer Packaging and Labelling Act 182

Chapter 11: Drugs and Natural Health Products 187A. Introduction 187B. Natural Health Products 188

1. Overview 188(a) General 188

C. Former Regulatory Status of NHPS 1891. The Need for Change in the Regulation of NHPs 189

(a) Regulatory Factors 189

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(b) Public Opinion 190(c) The Review 190

2. The NHP Regulations 191(a) Overview 191(b) Definition of an NHP 192(c) Product Composition 194(d) Product Representation 194(e) Product Format 194(f) Public Perception and History of Use 195(g) Product Licensing (Part 1 of the NHP Regulations) 195

(i) Product Licence Application 195(ii) Issuance of Product Licence 197(iii) Adverse Reaction Reporting 197(iv) Phasing in of Product Licensing 198

(h) Site Licensing (Part 2 of the Regulations) 198(i) Good Manufacturing Practices (Part 3 of the

Regulations) 199(j) Clinical Trials (Part 4 of the Regulations) 199(k) Labelling and Packaging (Part 5 of the

Regulations) 200(i) Requirements 200

(1) Transition/Compliance 202D. Drug Advertising 203

1. Section B — Schedule A 2042. Name, Price and Quantity 2053. Child Resistant Packaging and Labelling 2054. Scientific Information in Advertising 2065. False, Misleading, Deceptive or Likely to Create an

Erroneous Impression 2076. Category IV Monographs/Labelling Standards 2117. Drug Labelling 211

E. Advertising Clearance 213Appendix B: Schedule "A": Diseases Section 3 of the Food and

Drugs Act 215

Chapter 12: Cosmetics Advertising and Labelling 217A. Introduction 217B. The Law 218C. Claims 219D. Labelling 222

1. Requirements for Outer Labels 2232. Requirements for the Inner Label 226

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E. Pre-Clearance. .227

Chapter 13: Food Advertising and Labelling 229A. Introduction 2 2 9B. Statutory Framework 229C. General Labelling Requirements 231

1. Required Information 231(a) Appearance and Position 231(b) Bilingual Requirements 232(c) Required Elements — Specific to Foods 232

D. Proposed Mandatory Allergen Labelling 233E. Nutritional Labelling 234

1. Mandatory Nutrition Facts 2352. Content 2363. Basics of Nutrition Labelling 2384. Location and Look of the Nutrition Facts Table 239

F. General Food Advertising Requirements 243G. Regulated Descriptive Terms 244H. Made in Canada/Product of Canada Claims 245I. Nutrient Content Claims 245

1. Vitamins and Minerals 2482. Fat 2483. Energy 2494. Carbohydrates 2495. Light 250

J. Diet-Related Health Claims 2501. Overview 2502. Permitted Diet-Related Health Claims 2513. Can You Make a Different Diet-Related Health

Claim? 2524. Using the Heart Symbol 254

K. Biological Role Claims of Nutrients 255L. Organic Claims 257M. Violation of the Food Labelling and Advertising

Requirements 258

Chapter 14: Regulation of Specific Sectors 259A. Introduction 259B. Alcohol Advertising 259

1. Alcohol Advertising and ASC 2602. Legislation and Guidelines 2603. Commonly Encountered Issues 268

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(a) Pre-approval Requirements 268(b) Pricing Restrictions 269(c) Free or Discounted Liquor 271(d) Combination Offers: Combining the Prices of Goods

and Alcohol 271(e) Contests 272(f) Miscellaneous Restrictions and Requirements 273

C. Automotive Advertising 2751. The General Rules 2752. Overall Impression 2753. Do Not Mislead the Average Purchaser 2764. Disclaimers 2775. Claim Substantiation 2786. Comparative Claims 2787. Price and Savings Claims 2798. Price Fixing 2809. Non-availability 28010. Offers 28011. Free and No Charge 28112. Fuel Efficiency 28113. Voluntary National Automobile Advertising Guidelines

("VNAA Guidelines") 2009 281D. Tobacco Advertising 288

1. History of the Tobacco Act 2892. Tobacco Act 2903. Advertising and Promotion 2904. Sponsorships 2915. Games, Lotteries and Contests 2916. Enforcement 2917. Health Warnings and Information 2928. Provincial Tobacco Legislation 292

Chapter 15: Trade-Marks, Copyright and Other Forms ofIntellectual Property 297

A. Introduction 297B. Trade-mark Law 298C. Trade-mark Registration 299

1. Costs 3002. Limitations 3003. Some Interesting Technicalities 3014. Marking and Policing 3025. Self-Help 303

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6. Domain Names 3037. Ambush Marketing 303

(a) Extension of the Law 304(b) Court Decisions 304(c) Ambush Ads and the Olympics 305

D. Copyright 3061. Copyright Protection 3072. Copyright Ownership 3073. Copyright Infringement 308

E. Patents, Industrial Designs and Trade Secrets 3091. Industrial Designs 3102. Trade Secrets 3103. The Bottom Line 311

Chapter 16: Misappropriation of Personality 313A. Overview 313B. Misappropriation of Personality 313

1. Involving the Famous 3132. Involving the Not-So-Famous 3153. Under Quebec Civil Law 315

C. Other Examples of Misappropriation of Personality 3161. Misappropriation of Personality and the Privacy Acts.... 3172. Misappropriation of Personality and the Deceased 319

D. Misappropriation of Personality and Liability Under theTrade-marks Act 319

E. Misappropriation of Personality in the United States andEurope 3201. United States 3202. Domicile: A Glimmer of Hope 3223. Europe 323

F. Misappropriation of Personality and Fictional Characters 3231. Fictional Characters and the Trade-marks Act 3232. Fictional Characters and Copyright Law 324

(a) Fictional Core of Dramatic Characters 325G. Misappropriation of Personality and Passing Off 326H. Conclusion 327

Chapter 17: Competition Law Issues 329A. Overview 329B. Administration and Structure of the Competition Act 329C. Criminal Matters 331

1. Anti-Competitive Agreements (Conspiracy) 331

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2. Bid-rigging 3343. Price Discrimination — Predatory Pricing —

Promotional Allowances 3344. Double Ticketing 3355. Multi-Level Marketing and Pyramid Sales 3356. Referral Selling 3367. Price Maintenance 336

D. Reviewable Practices 3361. Bait and Switch Selling 3372. Sale Above Advertised Price 3383. Refusal to Deal 3394. Price Maintenance 3405. Exclusive Dealing, Tied Selling and Market

Restriction 3426. Abuse of Dominant Position 3437. Delivered Pricing 3458. Foreign Judgments and Laws 3469. Foreign Suppliers 34610. Specialization Agreements 34611. Anti-competitive Agreements 347

E. Conclusion 348

Chapter 18: Channels of Marketing Communications 353A. Overview 353B. Direct Marketing 353C. Laws Which "Directly" Affect Direct Marketing 354

1. The CMA Code Requirements Applicable to DirectMarketing 355

D. Other Things to Watch for in Direct Marketing 3561. Offers and Guarantees 3562. E-mail Marketing 3573. Spamming 358

(a) The Proposed New Electronic CommerceProtection Act 358

(b) Summary of the Anti-Spam and RelatedProvisions 358

(c) Enforcement 360E. Direct Selling 361

1. Licensing of Direct Sellers 3622. Buyer's Rights of Cancellation — "Cooling-off'

Periods 3623. Penalties for Breaches of Provisions 363

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4. Required Contents of Direct Sales Contracts 363F. Telemarketing 363

1. National Do Not Call List 366G. Out-of-home and Guerrilla Advertising 367

1. Complying with the Competition Act 3682. Advertising Outside Cities 3683. Advertising Inside Cities 3694. Guerrilla Advertising and the Criminal Code 3705. Word of Mouth and Viral Marketing 371

H. Sampling 3721. Practical Considerations When Sampling 3722. Pharmaceutical Industry 3723. Alcohol Industry 373

I. Multi-level Marketing 3731. Multi-level Marketing Plans 3732. Violations/Penalties 3743. Pyramid Schemes 374

J. Referral Selling 376K. Testimonial Advertising 377L. Advertising on the Internet 378

1. Competition Bureau Guidelines 3782. Telemarketing and Internet Advertising 3803. Jurisdictional Issues 3804. Consumer Protection Online 382

M. Trading Stamps 3831. Historical Background 3852. To Avoid Application of the Section 385

(a) The Definition 385(b) Services 386(c) Selling the Coupons 386(d) Electronic "Points" Programs 386(e) Agency Theory 387(f) Wrapper Exemption 387(g) Some Additional Comments on the Trading

Stamp Provisions 389(h) Provincial Legislation Regulating Trading

Stamps 3893. Gift Cards 390

Chapter 19: Privacy Law in Canada 393A. Introduction 393B. The Federal Legislation 394

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C. Consent 396D. Identifying Purposes 397E. What is the Punishment if you Infringe? 397F. Express vs. Implied Consent 398G. Collecting Personal Information from Children 406H. The Provinces 407I. Privacy Issues South of the Border 408

1. COPPA 4082. Living with Your Privacy Policy 410

J. Future Developments 412

Chapter 20: Uniquely Quebec Issues 4J5A. Introduction 415B. The Quebec Consumer Protection Act 415

1. Purpose of the Consumer Protection Act 4152. To Whom and When Does the CPA Apply? 4173. Legislative Intervention 4174. Labelling 418

C. Duty to Inform and to Comply With Representations MadeAbout Products 4181. Duty to Inform 4182. Compliance 4183. Warranty Representations 419

D. Prohibited Business Practices 4191. What is a Representation? 4202. False or Misleading Representations 4203. The Nature of the Goods 4214. The Physical Description of Products 4225. Collateral Representations 4226. Price Claims 4237. Warranties 4238. Disclosure of Important Factors 4239. Business Opportunities 42410. Unsolicited Goods 42411. Insufficient Quantity 42412. Emphasis on Premiums 42513. Terms and Conditions for Obtaining Gifts 42514. Distortion of Meaning, Data or Analyses 42615. Merchant's Identity 42616. Status of the Merchant, Manufacturer or Advertiser 426

E. Credit Advertising 426F. Advertising to Children 426

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G. Ads Involving Government Cheques 427H. Distance Contracts 427I. Contracts Entered Into by Itinerant Merchants 428J. Charter of the French Language 428K. Conclusion 431

Chapter 21: Advertising Agency Services Agreements 433A. Overview 433B. The Parties 433C. Defining the Terms and Rules of Interpretation 436

1. Term 4372. Product Definition, Territory and Exclusivity 4373. Services 4384. Compensation 4405. "Most Favoured Nations" 442

D. Privacy and Confidential Information 443E. Agency and Independent Contractor 445F. Ownership 449G. Insurance and Indemnities 452H. Termination 454I. Other Provisions 456

Chapter 22: Negotiating a Talent Agreement 457A. Overview 457B. Top Ten Lessons 457

1. Find the Right Agent 4572. Find Out if the Talent is Available and Interested 4583. Discuss Exclusivity Up Front 4584. Don't Forget About Withholding Tax for Non-Canadian

Residents 4585. Canadian Immigration 4596. Avoid Double Jeopardy — Have Either the Agency or

the Client Enter Into the Contract — Not Both 4607. Creative Approval and Creative Input — Be Sure

You Secure All Rights! 4608. Beware the Morality Dilemma 4619. Union Contracts 46110. ACTRA, ACTRA - Read All About It 46211. UDA/Quebec Production 46312. Jurisdiction — Make it Canadian 46513. Personal Service Corporations — Be Sure the

Performer is Personally Bound 465

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Chapter 23: Immigration Issues in Advertising and Marketing 467A. Relevant Terms and Regulations 467B. Temporary Entry and Temporary Work in Canada 469

1. Entry Without Requiring a LMO or Work Permit 471(a) Business Visitors - Working for a Non-Canadian

Employer 471(b) Tools of the Trade 472

2. Performing "Work Activities in Canada in the PerformingArts/Film/Television/Radio/Music Industries" Without aLabour Market Opinion or Work Permit 472

3. Work Without a Labour Market Opinion but Requiringa Work Permit 474(a) Specific Information Technology (IT)

Specialists 474(b) NAFTA Information Technology Specialists 474(c) Film Co-productions with Canada and Another

Country — Filmed in Canada 474(d) Significant and Cultural Benefit to Canada 475(e) Significant Benefit and NAFTA—Intra-company

Transferees 4754. Work With a LMO and Work Permit 476

C. Entering the United States for "Work" Related Activities 4771. NAFTA 477

(a) Business Visitor 477(b) Professional 478(c) Intra-company Transferee 478

2. General Information on the O-l Visa—EntertainmentIndustry 478

3. Application and Supporting Documents 479(a) U.S. Petitioner/Sponsor Required 480(b) Labour Consultation — Labour and/or

Management Organizations 480(c) Expeditious Handling for O-l Candidates in the

Arts, Entertainment and Athletics 481(d) Employer Liability to Pay for Return

Transportation in the Event of EarlyTermination 481

4. PVisa 481Appendix C: Documents Required by a Business Visitor

on Entry/Application 483

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Chapter 24: Canadiana Issues 485A. Overview 485B. The Mounties — Dudley Do-Right Goes Commercial 485C. The Maple Leaf 486D. Product of Canada —Food Alert 486E. Perils of Flag Waving 487F. Paper Money — Counterfeit Alert 487G. Three Coins in the Fountain 488H. O Canada 488I. Puffery and Hyperbole 488J. Wanted Personalities — Dead or Alive. Are They

"Well-Dead"? 489K. Talent Issues 489L. Quebec 489M. Comparative Advertising — The Hidden Copyright Issue 490N. Prescription Advertising — Not In Canada You Say? 490O. Canadian Tobacco Advertising — Up in Smoke 491P. Metric Measurement 491Q. The Canadian Sense of Humour 491R. Want Some Free Drugs? 491S. Canadian Sweepstakes/Contest Anomalies 491

1. The Skill-Testing Questions 4912. The Order of Mathematics 4923. Terminology 4924. Can I Force a Purchase? 4925. Instant Win and the "Kraft" Clause 4926. The Regie and Quebec 4937. Contests Directed at Children 493

T. "New" for a Year 493U. "Proper" Canadian Spelling and Pronunciation 494

Appendix D: Regulator and Trade Association Contact Information ...499

Index 505