Intellectual property and misleading advertising in Canada
March 13, 2013

Canadian advertising and marketing laws are designed, in part, to protect the public against misleading advertising. In its most widely understood form, misleading advertising occurs when a claim about a product or service is materially false or misleading in an attempt to persuade the consumer to buy it. This general understanding stems from the language of the Competition Act, the principal legislation governing misleading advertising.

However, misleading advertising also raises unique legal issues in many other areas of law, including, notably, intellectual property. Thus, to comply with the Canadian regime governing advertising and marketing laws, businesses must evaluate their marketing and advertising strategies from a perspective that goes beyond the provisions of the Competition Act and include considerations under various intellectual property statutes as they relate to marketing and advertising.

Typical perspective on misleading advertising. Most discussions on misleading advertising start with the Federal Competition Act, which is Canada’s principal legislation governing misleading advertising.

The Competition Act contains two provisions related to misleading advertising: Section 74.01 (which is a civil provision) and Section 52 (which is a criminal provision). Under both provisions, for advertising to be misleading it must be proven that: (i) a representation has been made to the public, (ii) to promote a product or business interest, (iii) that is literally false or misleading (or with a false or misleading general impression), and (iv) that the claim is “material” (i.e., likely to influence a consumer into buying or using a product or otherwise altering their conduct).

In addition, the criminal provision, Section 52, requires evidence that the false or misleading statement was made with intention: that is that it was made “knowingly or recklessly.” Absent evidence of “intent,” the advertisement may still be caught by the civil provision, Section 74.01. The criminal track and civil track are mutually exclusive. Once proceedings have begun under one track, one cannot switch to the other.

It should be noted that Section 36 of the Competition Act confers a private right of action to any person who has suffered loss or damage as a result of a breach of one of the provisions under Part VI of the Competition Act or as a result of the failure of a party to comply with an order issued by the Competition Tribunal or any other court under the Competition Act. Section 52, described above, is found within Part VI of the Act.

Given that the prohibition of misleading advertising is really centered on protecting the public from dishonest or fraudulent rivalry in trade and commerce, a.k.a. “unfair competition,” it is to be expected that that the Competition Act would be the primary body of law that serves to address such behaviour. However, the protection of the public and competitors against unfair competition is also supplemented by other federal and provincial laws, including those that pertain to intellectual property law.

Misleading advertising and intellectual property. It is hardly surprising that intellectual property law is also concerned with misleading advertising given that misleading advertising often involves falsely suggesting a “connection” between a trader’s wares or services and a particular characteristic about those wares or services (e.g. the quality of the services, where the wares are made or by whom) when in fact such a “connection” does not exist. Frequently, the “connection” being deceptively claimed is the subject of one or more types of intellectual property rights.

Consistent with the above, there are intellectual property law provisions in Canada aimed at limiting deceptive marketing practices. An example of an intellectual property provision that carries a prohibition against deceptive marketing practices is Section 7 of the Trademarks Act, which reads as follows:

7. No person shall

(a) make a false or misleading statement tending to discredit the business, wares or services of a competitor;

(b) direct public attention to his wares, services or business in such a way as to cause or be likely to cause confusion in Canada, at the time he commenced so to direct attention to them, between his wares, services or business and the wares, services or business of another;

(c) pass off other wares or services as and for those ordered or requested;

(d) make use, in association with wares or services, of any description that is false in a material respect and likely to mislead the public as to

(i) the character, quality, quantity or composition,
(ii) the geographical origin, or
(iii) the mode of the manufacture, production or performance of the wares or services; …

Section 7, read as a whole, is in essence a type of code of conduct for traders, the purpose of which is to protect the public from misleading representations about a trader’s own wares and services or those of a competitor. In the context of misleading advertising, the most readily relied-upon provisions are Section 7(a) and Section 7(d) of the Trademarks Act.

Section 7(d) is similar to the provisions of the Competition Act by prohibiting a trader from making materially false or misleading statements about the character, quality, quantity, composition, geographical origin or mode of manufacture, production or performance of its own wares or services.

Section 7(a) takes the prohibition against materially false or misleading statements further, extending the prohibition to statements made with respect to a competitor’s business, wares or services. One situation in which Section 7(a) often arises is with respect to allegations made publicly that suggest or imply that the actions of another trader are infringing a party’s intellectual property rights. As an example, in S & S Industries Inc v Rowell, [1966] SCR. 419 (SCC), a patent owner took out an advertisement in a trade magazine that implied that the actions of a competitor infringed its patent rights. In the end, the competitor’s activity was found not to infringe and the patent owner was held liable for the loss suffered by the competitor as a result of the false statements and was ordered to pay damages, an award which was upheld on appeal to the Supreme Court.

To prove an action under Section 7(a), there must be evidence of (a) a false or misleading statement, (b) tending to discredit the business, wares or services of a competitor, and (c) resulting damage. There is no need to prove that the false or misleading statement was made maliciously (i.e., knowingly or with intent to injure). The absence of an “intent” requirement is in contrast to the common law tort of trade libel, which is otherwise generally akin to the Section 7(a) prohibition in that it prohibits false statements that disparage the nature of another trader’s business. However, the common law tort of trade libel also requires proof that the false statements were made maliciously (i.e., with knowledge of the falsity of the statements or with malice or intent to injure, or that the defendant lacked reasonable grounds for believing that the statements were true).

The prohibitions against misleading advertising in the Trademarks Act, discussed above, do not represent a comprehensive overview of the possible intellectual property implications that may relate to misleading advertising. By way of example, other considerations may include:

  • Patent-protected products: While the Canadian Patent Act does not require a patentee to mark its products as being the subject of patent protection, Section 75(c) of the Patent Act does prohibit traders from claiming that their products are “patent protected” when they are not in fact covered by a patent in Canada.
  • Copyright or trademark infringement: The use of copyright-protected material or of another’s trademark in advertisements without the permission of its owner can constitute infringement. For example, to draw a comparison to a competitor’s services, advertisements may wish to incorporate a competitor’s trademark so as to identify the comparative reference. However, such use could constitute trademark infringement and/or copyright infringement (if there is a design element to the mark such as a logo, label, design or three-dimensional figure).
  • Geographical indications: Geographical indications (“GIs”) are a particular form of intellectual property and are most often protected as a certification mark or trademark. Marking goods with a particular GI identifies the good as originating from a particular place and further as possessing the qualities, reputation or characteristics attributable to that place of origin (i.e. Champagne from the Champagne region of France, Stilton Cheese, etc.). Advertisers may not use protected geographical indications in promotional material if such use is likely to mislead the public as to the true origin of the products.

Conclusion. Marketing and advertising are by definition competitive functions in any business, and the desire to be distinguished from the competition and to attract buyers oftentimes leads companies to exaggerate or misstate the benefits or characteristics of a product or service that they offer – which can cross the line into the realm of deception with potentially significant negative results. The understanding of the Canadian regime governing advertising and marketing laws requires an understanding of a wide array of applicable laws and regulations beyond the provisions of the Competition Act into areas such as intellectual property law and its various statutes.

Andrea C. Kroetch, Ottawa

The preceding is intended as a timely update on Canadian intellectual property and technology law. The content is informational only and does not constitute legal or professional advice. To obtain such advice, please communicate with our offices directly.

web design toronto Rebel Trail