Prices on e-commerce platforms, social media influencers and the use of big data are trending right now under the deceptive marketing provisions of Canada’s Competition Act.
With an interim Commissioner now at the helm, the Competition Bureau just released its Annual Plan for 2018-2019. For the third year running, it cites enforcement of the Competition Act in the digital economy as the first of the Bureau’s stated priorities.
Tantalizingly, the Bureau’s plan also notes its intention to appoint a Chief Digital Enforcement Officer and to build its “digital enforcement capacity to better understand and protect Canadian consumers against new and evolving technologies that have the potential to impede competition and innovation, such as pricing algorithms and blockchain technologies.”
Accurate Online Prices
Can the consumer actually buy it at that price? That’s a central question when the Bureau investigates online pricing representations.
The Bureau has directed a lot of recent enforcement energy to so-called “drip” pricing, mostly on websites. The worry is that online retailers display an initial low price for a product or service—and the consumer is hooked. If the consumer is then required to pay additional charges that are not disclosed alongside the initial represented price, but are revealed a few clicks later, the Bureau may find that the first represented price was false or misleading.
In four cases in the past two years, the Bureau concluded that a retailer’s online price representations offended the Competition Act due to its step-by-step disclosure of the overall cost of a product or service. In all four instances, the Bureau concluded that the initial website price offered to consumers was false or misleading because it was not “attainable” due to mandatory additional fees.
Three settled cases concerned prices offered on the websites of rental car companies. To avoid lawsuits, they entered into separate registered consent agreements, paid hefty financial penalties totaling over $5 million, and had to make changes to how their respective platforms disclosed the additional costs and fees added to their advertised per-day rental fee.
The fourth, a lawsuit against a group of live event and ticketing companies, started early in 2018 and may ultimately provide guidance from a judge on the Competition Tribunal. At issue are the website prices for tickets to concerts and other events, together with the service fee, facility fee, order processing fee and other charges added before a consumer pays the final tally.
A Competition Tribunal ruling in the ticket case could address a number of key issues applicable to many e-commerce platforms:
- When the consumers sees the initial represented “price” of the item, must the online retailer simultaneously tell the consumer about all other fees and charges that will be added? Or can some or all of those additional costs be disclosed prior to payment, as the consumer clicks towards checkout?
- Does the nature of the additional charges matter? For example, is there a difference between mandatory additional charges and optional services the consumer may choose to add? What if the charges are imposed by or payable to a third party—either a government (e.g., sales taxes) or someone providing a service related to the product?
- Is it enough to disclose the existence of additional charges at or near the start of the “buy-flow”, and disclose the actual additional amount or percentage to be charged a click or two later?
- Does the Competition Act assume consumers are “credulous and inexperienced” as the Commissioner argues? Or should we assume consumers have some understanding and experience with online shopping?
“Influencers” on Social Media
Like the FTC in the United States, the Bureau has noticed the influence of celebrities and other personalities in the marketing of products on social media.
Celebrity marketing of products is hardly new—remember athletes on cereal boxes? Key concerns on social media for influencers and retailers alike are the disclosure that the influencer is promoting the product, and (as usual) ensuring the accuracy of the content. It is important to remember that the Competition Act provisions apply in law both to those who actually do the promotion and to those who “permit” it to be done (such as the retailer or manufacturer).
Data Collection and Use
A Bureau paper issued in 2018 on big data and innovation discusses how consumers may be misled during the collection of their personal data, and in the later use of their data.
One deceptive marketing concern is accuracy during the data collection—for example, not misleading consumers about what is being collected and the purpose of doing so. As of yet, the Bureau has taken no formal enforcement action in this area.
Then there is how the data may be used. The Bureau makes two interesting points about the use of data reflecting consumers’ online behaviour:
- Personalized advertising content derived from such data may be very valuable and beneficial to consumers. However, rich data sets may also enable targeting certain vulnerable consumers. The theft or misuse of financial data is an example, as it may enable fraud.
- Data sets may be used by manufacturers or retailers to make performance claims—for example about the quality or durability of their product. Data is already being collected from industrial equipment and will soon do so from our appliances (via the Internet of Things). Will that data qualify to support “adequate and proper testing” of a performance claim under the Competition Act?
Accurate Sale Prices
In 2015, the Bureau reinvigorated its enforcement of the ordinary selling price (OSP) provisions in the Competition Act. As explained in Retailer Pricing Strategies: Back to School under the Competition Act, they apply if a retailer wishes to offer consumers an advertised price that compares the retailer’s current price to its own ordinary price or to the price ordinarily offered by suppliers generally in the market.
The application of these provisions, as interpreted by the Bureau, is technical and can be very onerous. The Bureau also asserts a wide jurisdiction: it applies the OSP provisions to retail prices offered to Canadian consumers on websites, whether the bricks and mortar business (if any) is located inside or outside Canada.
A major consumer e-commerce platform entered a formal settlement and paid a penalty of $1 million to resolve OSP allegations in 2017. An ongoing lawsuit against a prominent Canadian retailer over mattress OSP representations started in 2017 and is now scheduled for hearing at the Competition Tribunal in May–June, 2019.
Algorithms and Blockchain
No one has yet been charged criminally or sued under the Competition Act for using an algorithm to fix prices or coordinate prices.
The Bureau’s February 2018 paper discusses the use of algorithms to enter and implement illegal cartel agreements, and to monitor compliance with the agreement after it is made. The paper recognizes that pricing algorithms may not only soften the rivalry between firms, but may also enhance price competition. Many antitrust lawyers, economists and academics have also weighed into the algorithm debate, through articles and conference panels.
Blockchain issues, on the other hand, are just emerging. The Bureau makes no mention of blockchain in its 2017 or 2018 discussion papers. Given the Bureau’s focus on building trust in the digital economy, and the intended trust-building purposes of blockchain technology, it will be interesting to see the Bureau’s concerns when they are made public.