Be honest or beware, watchdog says

In the recent cases against Forzani and Sears, the allegations were similar. The bureau said the retailers misled consumers by advertising what amounted to phony discounts. To qualify as a sale price, under the Competition Act, the product must have been offered at the full price for at least half the time.

The Toronto Star
February 7, 2005

Be honest or beware, watchdog says
Sears, Forzani have felt the bite of Sheridan Scott. Retail council says proposed penalties are way too tough.
Dana Flavelle

In the year since Sheridan Scott took over as Canada's competition watchdog, the federal agency has turned up the heat on major advertisers.

Since last January, the competition bureau has won a tribunal decision against Sears Canada Inc. and an out of court settlement against Forzani Group Ltd., the sportswear retailer that operates Sport Mart and Sport Chek.

Now, it's investigating Bell Mobility, the wireless telephone service provider.

All three cases centre on the issue of whether consumers were misled through advertising. The penalties so far have gone as high as $1.7 million, in the Forzani case, although the company did not admit guilt.

And the bureau is looking to get even tougher by seeking amendments to the federal Competition Act that would make misleading advertising cases easier to prosecute, raise the maximum fine to as much as $15 million, and for the first time provide restitution to consumers.

In other words, a money-back guarantee for consumers misled by false advertising claims. You bought an abdominal exercise machine that didn't actually improve your muscle tone? If the bureau can prove to the tribunal the ads were misleading, you'd be in line for a refund, Scott explained in a telephone interview Friday.

All of which begs the question is Scott the next big defender of consumer interests? Superficially, she doesn't appear to fit the bill. Described by colleagues as a hardworking, detail-oriented lawyer with deep roots in regulatory affairs in both the private and public sectors, her style is much different from her combative predecessor.

Konrad von Finckenstein grabbed headlines and ruffled feathers when he openly disagreed with his federal masters on such high profile issues as bank mergers and Air Canada's takeover of Canadian Airlines.

In comparison, Scott is seen as more pragmatic, more interested in getting results than scoring points.

"She would like to pursue a path that is less confrontational and more consensus-building," says Roger Ware, an economics professor at Queen's University whose specialty includes anti-trust legislation. How that difference in style might translate into policies, Ware said it's too early to tell.

Many of the cases she's handled so far were originally launched by her predecessor, he noted. In the case of Bell Mobility, Scott isn't even involved because conflict of interest guidelines prevent the former chief regulatory officer at Bell Canada from prosecuting cases involving her former employer for the first 12 months.

But some of Canada's largest advertisers have a far different view of the bureau under Scott's watch.

"We find that today they are much more aggressive in enforcing the different sections of the act," says Diane Brisebois, president and chief executive officer of the Retail Council of Canada.

"We've heard a lot more complaints from our members about that this year."

Bill C-19 is a huge issue for retailers, Brisbois added. "These penalties are wildly out of proportion with the offences committed."

The council plans to appear before the parliamentary committee that's reviewing the bill to argue their case, she added. "It's totally unacceptable and unconstitutional."

Among other things the bill would:

  • decriminalize certain provisions of the act, which were rarely enforced because they were so hard to prove.
  • dramatically increase the civil penalties for violating the act.
  • provide for restitution for consumers for the first time.

"It sound like they're putting more teeth into it, which is a good thing," said Mihkel Tombak, a professor in the University of Toronto's Rotman School of Management. Penalties for misleading advertising have been rising dramatically in the United States, he noted. "I think they've learned their lesson from past cases," he said, where the fines were little deterrent because the gains were so much higher.

In the recent cases against Forzani and Sears, the allegations were similar. The bureau said the retailers misled consumers by advertising what amounted to phony discounts.

To qualify as a sale price, under the Competition Act, the product must have been offered at the full price for at least half the time.

But retailers say they find the definition of what constitutes a regular price difficult and confusing. Forzani settled out of court last summer without admitting any guilt, while Sears fought the commission and lost at the quasi-judicial competition tribunal.

In the case of Bell Mobility, the bureau is concerned that a $6.95 a month "system access fee" is being misrepresented to the public as a mandatory government charge, according to sources close to the probe.

Scott's description of the impetus for the amendments contained in Bill C-19 goes like this:
"The amendments are intended to better balance the interests of consumers, small and medium-sized enterprises, and large businesses."

It's not far off her description of her role as the competition chief. Asked if she sees herself as the champion of consumer interests, she replies: "I see myself as the enforcer of the Competition Act. All Canadians benefit from choice, innovation and competitive pricing."


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