False and Misleading Claims Around COVID

We see it everywhere these days, and not just on social media. They’re touted by leaders and people in positions of power. False claims of prevention and treatment for COVID-19 are proliferating, and pose a danger to Canadians.

The Competition Bureau is aware of this and is monitoring the marketplace to ensure safety in messaging. They have already issued compliance warnings, including:

  • making claims that herbal remedies, bee-related products, vitamins, vegetables or other food and drink products can prevent COVID-19 infections; and
  • making claims—without first conducting the testing required by law—that certain UV and ozone air sterilization systems, as well as certain air filters or air purifiers, will effectively kill or filter out the virus.

Misleading claims are also prohibited under the Food and Drugs Act, which prevents under s. 3(1) impressions that a food can prevent treat or cure a disease. However, this is limited to a list of diseases found in Schedule A.1, which obviously does not include COVID-19 (unless classified under “Acute infectious respiratory syndromes”).

Barbara Von Tigerstrom describes in the Manitoba Law Journal the two main rationales for front-of package labelling as:

  1. a greater impact on consumers than the nutrition or detailed labelling
  2. ensuring greater consistency and credibility in labelling to avoid confusion and misleading information.

The civil provisions under s. 74.01(1)(b) of the Competition Act prohibit making representations about the performance or efficacy of a product, where such claim is not based on adequate and proper testing. Where a product makes claims in regards to COVID-19, it’s unlikely that it would meet this threshold of adequate and proper testing, given the ongoing and continuing uncertainties around the virus. A general impression test is used to interpret representations, found in s. 74.03(5), beyond just literal meanings to determine whether it is false or misleading.

The predecessor to these provisions can be found in early additions to the Criminal Code in 1914. Vaughn Black argues in the Ottawa Law Review that the goals was to create an obligation on the state to police market activities, and to supplement existing criminal offences such as fraud and obtaining money under false pretenses.

The Royal Commission on Price Spreads in 1935 recommended amendments to these provisions, and stated in the Report of the Royal Commission on Price Spreads on page 236,

Measures for consumer protection, it must be borne in mind, are not for the benefit of the consumer alone, but constitute a safeguard also for the honest and reputable manufacturer and merchant. Price competition can only operate fairly and equitably between products of known worth. Much vicious price cutting would be checked if the purchaser were informed in clear terms of the exact nature of the commodity or service.
[emphasis added]

Misleading claims remained a criminal offence until 1969, with minimal use, until it was transferred to the Combines Investigation Act, the predecessor to the current Competition Act, created in 1986. The Competition Act was amended in 1999 to add Deceptive Marketing Practices under Part VII.1. Today there are dozens of matters investigated by the Competition Tribunal under these provisions.

In The Commissioner of Competition v. Imperial Brush Co. Ltd. and Kel Kem Ltd. (c.o.b. as Imperial Manufacturing Group), the Commissioner referred to this legislative history to assert that the objectives is to “redress the societal harm caused by insupportable claims respecting specified product characteristics within the knowledge of a supplier unless borne out by proof of prior substantiation.”

The Tribunal heard that the goal is to provide “protection of consumers, competitors and the proper functioning of the market from the harm caused by misleading claims that may go undetected or unchallenged absent the substantiation requirement”.

Justice Phelan accepted the Commissioner’s position that the objective of these provisions was the protection of consumers, competitors, and the proper functioning of the market, specifically by preventing the harm caused by unsubstantiated representations,

[71] In her submissions, the Commissioner referred in particular to the harm resulting from “asymmetric information”. That is to say the problem facing consumers who lack complete information about products that they might potentially purchase. Sellers, on the other hand, are presumed to have superior information on product attributes.

[74] The Commissioner has summarized, in an accurate manner, the essential elements… as follows:

The provisions on misleading advertising in the Competition Act counter what is known as the problem of “asymmetric information” – the fact that sellers presumably have much better information about their product’s attributes than do consumers. In a well-functioning market economy, consumers base their purchase decisions on their knowledge of the qualities and prices of products offered by competing firms. Armed with this knowledge, they make trade-offs to maximize their utility. One consumer might be willing to pay less for a lower-quality product, another might be willing to pay more for a higher-quality product. Both of these consumers will obtain what they see as the ideal outcome. The result of this is to provide an incentive for firms to create quality and variety in the market, by making higher-quality products that can demand a higher price, and lower-quality products that can sold at a discount. The long-run effect of this is to encourage innovation in the economy through an incentive to improve product quality.

The Ontario Court of Appeal also reviewed these provisions in R. v. Stucky, concluding that false and misleading information was not restricted to the public in Canada, and could apply to operators in Canada marketing outside the country. The court stated,

[39] Both the Crown and Mr. Stucky agree that the primary object of the Act is to protect Canadian businesses. Indeed, one of the express purposes of the Act is to encourage competition “in order to expand opportunities for Canadian participation in world markets”. Also, the Act is intended to discourage forms of commercial behaviour that are viewed as detrimental to Canada: see General Motors of Canada Ltd. v. City National Leasing1989 CanLII 133 (SCC)[1989] 1 S.C.R. 641, at p. 676. Law-abiding Canadian direct mail companies doing business abroad would suffer reputational damage and lose business opportunities if Canada did not punish Canadian companies who make misleading representations to persons outside Canada…

[40] …there is evidence in the legislative debates that Parliament was, historically, concerned with the success of Canadian business abroad. For example, the Minister of Justice in 1960, the Hon. Davie Fulton, commented in the House of Commons Debates, May 30, 1960, at pp. 4342 that the Canadian economy was dependent on “successful competition in international as well as domestic markets”, and that anti-combines legislation should take into account the “economic climate” in which Canada exists. As noted, Canadian businesses operating in foreign markets risk damage to their reputation when other Canadian businesses acting abroad engage in misleading representation. By using its prosecutorial powers to combat such conduct, the Canadian government promotes the Act’s goal of encouraging Canadian business success worldwide
[emphasis added]

Manufacturers or suppliers that identify potentially misleading practices related to COVID-19 are encouraged to take corrective action to ensure compliance. The Competition Bureau has a Corporate Compliance Program that can be of assistance.

Comments are closed.