Canada (Commissioner of Competition) v Chatr Wireless Inc.: True Claims, but Inadequate Testing
On February 21, 2014, the Ontario Superior Court of Justice released its decision regarding remedies in Canada (Commissioner of Competition) v Chatr Wireless Inc., 2014 ONSC 1146 [Chatr]. This case stemmed from allegations by the Commissioner of Competition against Chatr Wireless Inc. (“Chatr Wireless”) in relation to claims made by the telecommunications company about it having fewer dropped calls than its competitors.
Factual Background and Judicial History
Chatr Wireless – a telecommunications company owned by Rogers Communications Inc. (“Rogers”) – stated on its website, in press releases, in media statements, in social media, and in the fine print of its handset packaging that it had “fewer dropped calls” than Wind Mobile in Calgary and Edmonton and Public Mobile in Toronto and Montreal.
The applicant, the Commissioner of Competition, alleged that these representations were made without Chatr Wireless having conducted adequate and proper tests to prove the accuracy of its claims. The applicant also argued that these representations were false and misleading.
Sections 74.01(1)(a) and (b) of the Competition Act, RSC 1985, c C-34 were central to the applicant’s claim. These sections state the following:
A person engages in reviewable conduct who, for the purpose of promoting, directly or indirectly, the supply or use of a product or for the purpose of promoting, directly or indirectly, any business interest, by any means whatever,
(a) makes a representation to the public that is false or misleading in a material respect;
(b) makes a representation to the public in the form of a statement, warranty or guarantee of the performance, efficacy or length of life of a product that is not based on an adequate and proper test thereof, the proof of which lies on the person making the representation;
Section 74.01(1)(b)’s ultimate objective “is the protection of consumers, competitive firms and competition from the harmful effects of untested performance claims” (Chatr at para 8). In short, performance claims must have a foundation in adequate and proper testing; merely knowing the claim is true on the basis of technological facts or expertise or any other basis is insufficient.
In August 2013, the court (2013 ONSC 5315) found that Chatr Wireless had breached the Competition Act by failing to conduct adequate and proper testing prior to making the “fewer dropped calls” representations; this was the case in both Montreal and Toronto against Public Mobile and Calgary and Edmonton against Wind Mobile. However, the court did not find that the respondents’ representations were false and misleading, particularly in light of the fact that post-claim testing substantiated the representation.
Nonetheless, Chatr Wireless was found by the court to have engaged in reviewable conduct because of its inadequate testing. This finding granted the court the ability to issue a wide variety of orders pursuant to section 74.1(1) of the Competition Act.
Section 74.1(3) of the Competition Act states that “if a person against whom a finding of reviewable conduct has been made exercised due diligence to prevent the conduct from occurring, no order can be made against them” (para 26).
Chatr Wireless argued that they were duly diligent; for example, the company inferred that certain technological facts about its network meant that it would perform better than the networks of Wind Mobile and Public Mobile. Chatr Wireless also argued that industry practice was to rely on drive test sampling to support performance claims and that testing is not required in every market. Publicity regarding network problems experienced by Wind Mobile and Public Mobile also factored into the respondents’ belief that its network had fewer dropped calls than these two companies.
The court was not persuaded by any of these arguments, and found that Chatr Wireless had not acted in a duly diligent manner; the respondent had an available method of testing the performance of its network, but still chose to advertise unsubstantiated claims.
Thus, the court considered two potential orders against the respondent: an administrative monetary penalty and a prohibition order.
Administrative Monetary Penalty
Like all orders under section 74.1(1) of the Competition Act, a monetary penalty must be imposed to promote compliance with the Act: an “administrative monetary penalty cannot be imposed with a view to punishment or deterring others who might contemplate making unsubstantiated performance claims” (para 51). In short, “the amount of any administrative monetary penalty ordered must be proportional with the nature of the person whose conduct one seeks to change” (para 12).
The applicant sought an order that Chatr Wireless pay a monetary penalty in the range of $5-7 million. The court found this submission to be unhelpful, as it “failed to take into account two key aspects that distinguish this case from others – that the false or misleading advertising portion of the application was not established and that subsequent testing substantiated the fewer dropped calls claim” (para 50).
The court considered an array of factors pursuant to section 74.1(5) of the Competition Act, which outlines factors to be taken into account when determining the amount of an administrative monetary penalty.
For example, the court considered the effect on competition, finding that competition was adversely affected because the market was exposed to the risk that the unverified performance claim might be false; this aggravated the amount of the monetary penalty. Rogers’ previous willingness to make aggressive representations prior to testing when it is under the belief that the representations are true was also viewed as an aggravating factor. The court also took into consideration Rogers’ financial position, as an “administrative monetary penalty will not foster compliance if the financial position of the noncompliant person is ignored” (para 64).
Many factors were not found to be aggravating because of the results of the respondents’ post-claim testing, such as the reach of the conduct within the relevant geographic market and the frequency and duration of that conduct, as well as the vulnerability of the class of persons likely to be adversely affected by the conduct.
Mitigating the amount of the penalty was the harm caused to Chatr Wireless by the conduct of Public Mobile and Wind Mobile. For example, Public Mobile’s President and CEO stated – in a conference attended by more than 500 people – that the Competition Commissioner had found that Public Mobile’s network dropped fewer calls than Chatr Wireless’ (this was false).
After considering penalties given in past cases, along with the above-mentioned factors, the court settled on a $500,000 administrative monetary penalty.
The Commissioner of Competition also sought an order under section 74.1(1)(a) of the Competition Act stating that Rogers cannot engage in substantially similar reviewable conduct.
The respondents argued that they suffered reputational harm as the result of these proceedings, and a prohibition order would only serve to unfairly compound that harm. Commencement of the proceedings was covered by over 60 broadcast media outlets, which the respondents argued damaged its reputation. The respondents “were also attacked by the new wireless carriers who used the commencement and existence of this application to try to obtain a competitive advantage” (para 84).
In considering the need for a prohibition order, the court – having agreed that the respondent had suffered reputational harm – stated that it “is reasonable to think that genuine Canadian corporations, such as the respondents, would not repeatedly risk reputational harm and that therefore the prospect of future proceedings will encourage compliance” (para 86).
Having completed its analysis, the court found that because a monetary penalty was imposed, it was not necessary to also impose a prohibition order.
Potential Impact of this Case
Canada (Commissioner of Competition) v Chatr Wireless Inc. provides helpful guidance in terms of remedies under the reviewable conduct provisions of the Competition Act. Moreover, this case demonstrates the importance of testing claims related to a product being promoted, and should force companies to think twice before making unverified claims in the market.