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Is There a One Size Fits All Reasonable Person Standard?
U.S. and Canadian Perspectives on Ad Interpretation
Presentation by
ABA Section of Antitrust Law,
Private Advertising Litigation Committee
Consumer Protection Committee
Privacy and Information Security Committee
March 1, 2013
3:00pm to 4:30pm ET
Moderator:
David Conway, Venable LLP
Panelists:
Brendan Ross, Canadian Competition Bureau
Richard Cleland, Federal Trade Commission
Bill Hearn, Davis LLP
John Villafranco, Kelley Drye & Warren LLP
Defining Deception:
U.S. FTC Act
Richard Cleland
Assistant Director
Division of Advertising Practices
Federal Trade Commission
Definitions
• Prior to 1983: Act or practice that has the
tendency or capacity to mislead or deceive
a substantial segment of the purchasing
public in a material respect.
• Post Deception Policy Statement: An act
or practice likely to mislead a consumer
acting reasonably under the
circumstances in a material respect.
Ordinary consumer vs.
reasonable person
• Ordinary consumer
–
–
–
–
–
–
–
Vast multitude
Modicum of intelligence
Ignorant
Unthinking
Credulous
May not stop to analyze
Governed by impressions
and general appearances
• Reasonable person
– Does not believe that
Danish Pastries are made
in Denmark
– Makes decisions based on
net impression
– Does not interpret ads in a
way that would be shared
by an insignificant or
unrepresentative few
Ad Interpretation
• Ad interpretation vs. belief
• “A reasonable interpretation is one that would be
shared by at least a significant minority of
reasonable consumers.” Pom, slip op. 7 (2013)
• A significant minority may be as few as 10%.
Telebrands Corp., 140 F.T.C. 278 (2005), aff’d,
457 F3d 354 (4th Cir. 2006))
Net Impression
• In determining what claim or claims an ad communicates
to reasonable consumers, it is necessary to look “at the
interaction between and among the constituent elements
of the ad to determine the ‘net impression’ that is
conveyed by the ad as a whole.” Telebrands Corp., 140
F.T.C. at 290 (2005), aff’d, 457 F3d 354 (4th Cir. 2006)).
• Not all elements of an ad are equally important, e.g.,
head lines vs. fine print; graphics vs. text.
Is there a difference?
• “merely articulates . . .existing legal principles”
• “an interpretation of a representation is not actionable
unless it is reasonable, or is shared by a significant and
representative segment of the population exposed to the
claim.
• “This reasonable consumer standard is not complicated;
it simply requires that we interpret ads as ordinary
consumers do.”
James C. Miller, III,
Chairman, Federal Trade Commission,
February 10, 1984
The Federal Trade Commission’s
“Reasonable Consumer”
Standard
John E. Villafranco
Kelley Drye & Warren LLP
A Flexible Standard
•
•
The “reasonable consumer” standard is flexible—a “reasonable”
interpretation depends on the target audience of the ad.
– “When representations or sales practices are targeted to a specific
audience, the Commission determines the effect of the practice on a
reasonable member of that group.” Policy Statement on Deception.
– The standard of “reasonableness” is lower for vulnerable groups, such
as children, the elderly, or the terminally ill.
– But also higher when the advertisement is directed towards a more
sophisticated and well-educated group.
This flexibility complements that in the substantiation requirement, which
mandates that advertisers have a reasonable basis for all claims, and
allows the FTC to balance the costs of mistakenly prohibiting truthful claims
against the costs of mistakenly allowing false claims.
Increased Legal Certainty
•
•
•
The FTC issued the Policy Statement on Deception “to provide a concrete
indication of the manner in which the Commission will enforce its deception
mandate.”
Defining the standard led to increased legal certainty and benefits for both
the regulator and the advertiser.
– It is easier for the FTC to examine an advertisement for a violation and
for the advertiser to evaluate his compliance with the standard.
When advertisers can measure compliance with a clear standard, the
overall level of deception in the marketplace decreases.
Consistent Application
•
•
•
Consistency in application of the reasonable consumer standard by the FTC
has led to consistency elsewhere.
All 50 states have laws prohibiting unfair or deceptive acts or practices,
some almost identical to the FTC Act.
– State regulators and courts enforce these “little FTC acts” using the
“reasonable consumer” standard.
– Other states apply the standard as well: the California Court of Appeal
extended the standard’s application to the Consumer Legal Remedies
Act (previously, the standard applied only to the Unfair Competition
Law).
The standard was also adopted by the Consumer Financial Protection
Bureau.
The Lanham Act
•
•
Federal courts apply the “reasonable consumer” standard in Lanham Act false advertising
cases.
Courts have used the standard primarily in three contexts:
–
–
–
•
(1) To determine whether a reasonable consumer could be misled by the advertisement at issue.
(2) In a puffery analysis, to determine whether a reasonable consumer would understand the
claim to convey opinion or fact.
• “[T]he alleged implied misrepresentations…were not actionable under the Act because they
constituted mere ‘puffery’ rather than factual claims upon which a reasonable consumer
would rely.” Cook, Perkiss and Liehe, Inc. v. N. Cal. Collection Service Inc., 911 F.2d 242,
244 (9th Cir. 1990) (emphasis added).
(3) To determine whether the claim was material to a reasonable consumer’s purchasing decision.
• “We…conclude that…representing a loan product as a ‘refund amount’ would affect a
reasonable consumer’s purchasing decision.” JTH Tax, Inc. v. H & R Block E. Tax Servs.,
Inc., 28 Fed. Appx. 207, 214 (4th Cir. 2002) (emphasis added).
• The Court’s conclusion was supported by evidence that 21.7% of consumers surveyed
indicated that use of the phrase “refund amount” would be more effective than use of the
term “loan,” and that the misrepresentation was material to consumers’ purchasing
decisions.
A showing that a “substantial portion” of the intended audience was misled by an implied
claim generally requires evidence that at least 15 to 20% of reasonable consumers
were misled.
The Cost of Unreasonableness
•
•
•
•
•
It is incredibly costly for an advertiser to ensure no unreasonable
interpretations of a claim.
All communication is subject to misinterpretation; some number will always
misinterpret a message, however straightforward.
Marketers already spend significant resources refining advertising to ensure
that they effectively convey their intended message.
Requiring advertising that cannot be misunderstood would result in
advertisements that are uninformative, do not convey substantive claims,
and therefore harm the public.
Comparative advertising, in contrast, encourages product improvement and
innovation and lowers prices.
The Supreme Court of Canada’s
Recent Decision in Richard v. Time
and its Possible Implications for Ad
Interpretation under Canadian Law
Bill Hearn
Davis LLP
Ad Interpretation Under Canadian Law
Richard v. Time, Supreme Court of Canada, 2012 - Why All the Fuss?
15
•
Context - Why are those advertising in and from Canada concerned about the decision?
•
Content - What did the Supreme Court say in the case about the “general impression test” and
“disclaimers in advertising”?
•
Possible Implications - What are the possible implications under the Competition Act for
advertisers and consumers of the Supreme Court’s decision?
•
Some Observations and Concluding Thoughts - What should advertisers do in the face of
current realities and uncertainties?
Richard v. Time - Context
► Canada has federal and provincial legal regimes prohibiting deceptive advertising and providing
sanctions against deceptive advertisers and remedies for their victims
► The basic rules common to all regimes are that:
• No person may make a representation to the public that is false or misleading in a material
respect
• Whether a representation is deceptive is determined by its literal meaning and its general
impression
• Whether a representation is material is determined by whether it could influence the
average consumer
► Of all regimes, Canada’s deceptive advertising law under the federal Competition Act is one of
the toughest and it has been getting even tougher. In recent years, it has become easier to violate
the rules and the costs of violations have increased significantly - in particular
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Richard v. Time - Context
• Since 1999, the Competition Act has provided for both a criminal offence and a civil
reviewable practice. It has also conferred a private right of action for damages
• Since 2009, the Competition Act has provided for tighter rules and bigger penalties and
provided for court orders respecting restitution
• Since 2010, the Competition Bureau has established a credible track record as a “strong
enforcer” - e.g.
•
•
•
•
•
Rogers (Chatr) - Seeking $10M AMP & restitution order, November 2010
Bell - Consent to $10M AMP, June 2011
Yellow Page Marketing - $9M AMP & restitution order, March 2012
Bell, Rogers, Telus & CWTA - Seeking $31M AMP & restitution, Sept. 14, 2012
ICPEN Sweep, Sept. 28, 2012
► And then, following tougher rules, bigger penalties and stricter enforcement … the final element
for the “Perfect Storm”: the Supreme Court’s February 2012 decision on deceptive advertising in
Richard v. Time under Quebec’s Consumer Protection Act and its possible application to the
Competition Act
17
Richard v. Time - Content
Background
► In 1999, Mr. Richard received in the mail an ad for a Time Magazine subscription that was in the
form of a “Sweepstakes Notification”
► The main representations in the ad were statements in uppercase and bolded font that included:
“Our sweepstakes results are now final: Mr. Jean-Marc Richard has won a cash prize of
$833,337!”
“A bank cheque for $833,337 is on its way to [Mr. Richard’s home address]!”
► The ad also contained in several places the following condition in fine print disclaimers that
purported to qualify the main representations:
“If you have and return the Grand Prize Winning entry …”
► The actual ad is shown on the following six slides
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Richard v. Time - Content
• Quebec Superior Court, 2007
►
Held that the ad “was specifically designed to be misleading” and violated several provisions of
Quebec’s Consumer Protection Act including the general deceptive advertising provision that reads
“No merchant, manufacturer or advertiser may, by any means whatever, make false or misleading
representations to a consumer.”
►
Quebec’s CPA also provides that “To determine whether or not a representation constitutes a
prohibited practice, the general impression it gives and, as the case may be, the literal meaning of
the terms used therein, must be taken into account.”
►
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Awarded $1,000 in compensatory damages and $100,000 in punitive damages
Richard v. Time - Content
• Quebec Court of Appeal, 2009
►
Reversed Superior Court and set aside damages award stating:
“The average consumer is not more naive than the average person. I imagine them
to be of average intelligence, of average skepticism and of average curiosity … They
know, I believe, that the advertisement is, somewhat by definition, boastful … The
documentation was not misleading to the average Quebecker who would not believe money to
fall from the sky, and would understand the concept of a sweepstakes. The language would
not mislead the average Quebecker to believe that winning was automatic.” *
* This is an unofficial translation from decision which was given only in French.
►
Held that the ad was not deceptive on the basis that a consumer with an average level of
intelligence, skepticism and curiosity would not have been misled
►
Departed from long line of judicial authority under Quebec’s Consumer Protection Act that the
general impression of an ad was to be determined by viewing it through the eyes of the credulous
and inexperienced consumer
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Richard v. Time - Content
• Supreme Court of Canada, 2012
►
Reversed Court of Appeal, confirmed the Superior Court’s award of $1,000 in compensatory
damages, awarded $15,000 in punitive damages (reduced from Superior Court’s $100,000 award)
and awarded Mr. Richard costs on a solicitor-and-client basis (still to be determined but likely to be
in the $350,000 - $450,000 range)
►
Recognized that both the Parliament of Canada (through the federal Competition Act) and the
Quebec legislature (through Quebec’s Consumer Protection Act) have tried to resolve the problem of
protecting consumers with the rise of the consumer society after World War II but expressly stated
that “We will not dwell here on the measures adopted by Parliament. Instead, we will be focusing on
the Quebec legislation and on how it has developed.”
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Richard v. Time - Content
• Supreme Court of Canada, 2012
►
Held that the “general impression” test for deceptive advertising under Quebec’s Consumer
Protection Act is as follows:
“… that of the first impression … the one a person has after an initial contact with the entire
advertisement, and it relates to both the layout of the advertisement and the meaning of the
words used.”
►
Ignored the disclaimers that were “inconspicuous” and “buried in a sea of text” and, with
respect to the average consumer for determining the general impression of an ad, expressly rejected
the standards of:
• the consumer with an average level of intelligence, skepticism and curiosity, and
• the careful and diligent consumer
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Richard v. Time - Content
• Supreme Court of Canada Decision, 2012
►
Instead, applied the “credulous person” standard describing it as the standard of:
“… ordinary hurried purchasers, that is, consumers who take no more than ordinary care to
observe that which is staring them in the face upon their first contact with an advertisement” …
put another way, “not … people who never notice anything but [people] who take no more
than ordinary care to observe that which is staring them in the face.”, and
“… the credulous and inexperienced consumer - i.e., not “a well-informed person” … but
“someone who is not particularly experienced at detecting falsehoods and subtleties found in
commercial representations”.
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Richard v. Time - Content
• Supreme Court of Canada Decision, 2012
►
Elaborated on this standard stating:
“The words “credulous and inexperienced” therefore describe the average consumer for the
purposes of the [Quebec Consumer Protection Act]. This description is consistent with the
legislature’s intention to protect vulnerable persons from the dangers of certain advertising
techniques. The word “credulous” reflects the fact that the average consumer is prepared to
trust merchants on the basis of the general impression conveyed to him or her by their
advertisements. However, it does not suggest that the average consumer is incapable of
understanding the literal meaning of the words used in an advertisement if the general layout
of the advertisement does not render those words unintelligible.”
►
Note that the ordinary meaning of “credulous” includes an element of “gullibility”. For instance,
from the Canadian Oxford Dictionary, 2nd Edition, 2004:
• credulous: adjective 1. too ready to believe; gullible. 2. (of behaviour) showing such
gullibility … [Latin credulous from credere believe]
• gullible: adjective: easily persuaded or deceived; credulous
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Richard v. Time - Content
• Supreme Court of Canada Decision, 2012
►
In doing so, described the Quebec Court of Appeal’s 2001 judgment in Turgeon v. Germain
Pelletier (that the Court of Appeal in Richard v. Time seemed to ignore) as:
• a “landmark decision” on the appropriate test for assessing the deceptive nature of an ad
under Quebec’s Consumer Protection Act, and
• a decision that (i) is consistent with the Quebec legislature’s objective of protecting
consumers from deceptive advertising, (ii) follows Quebec court decisions in the 1980’s and
1990’s including P.G. Quebec v. Louis Bédard Inc. and (iii) has been subsequently followed
by Quebec courts in four major class action cases under Quebec’s Consumer Protection
Act - namely:
- Adams v. Amex Bank of Canada (2009)
- Marcotte v. Bank of Montreal (2009)
- Marcotte v. Desjarsdin (2009)
- Riendeau v. Brault & Martineau (2010)
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Richard v. Time - Possible Implications
►
The Supreme Court’s decision has possible implications for (i) the “general impression” test in
determining whether ads are deceptive and (ii) the appropriate use of disclaimers in ads
►
Arguably, (i) the “credulous” person standard in Richard v. Time should be limited to Quebec’s
Consumer Protection Act and (ii) it is bad law and bad policy to extend that standard to the deceptive
advertising provisions of the Competition Act
SHOULD LIMIT DECISION TO QUEBEC CONSUMER PROTECTION LAW
►
Strictly speaking, in Richard v. Time, all the Supreme Court did was apply the longstanding
“credulous person” standard under Quebec’s Consumer Protection Act that the Court of Appeal
mistakenly ignored when it applied the “reasonable person” standard
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Richard v. Time - Possible Implications
IT IS “BAD LAW” TO EXTEND DECISION TO FEDERAL COMPETITION LAW
►
Since at least the mid-1970’s, the “reasonable person” standard has been applied by courts
consistently in numerous deceptive advertising decisions across Canada under
(i) consumer protection laws in many Canadian provinces other than Quebec (such as British
Columbia, Alberta and Ontario) and
(ii) federal competition laws
►
Since the Alberta Court of Appeal’s 1971 decision in Imperial Tobacco (referred to in Richard
v. Time), there have been many deceptive advertising decisions under federal competition law (first
under the Combines Investigation Act and then under its successor statute the Competition Act) that
have applied the “reasonable person” standard
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Richard v. Time - Possible Implications
►
For instance, see:
•
•
•
•
•
•
•
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Viceroy (1975, Ontario Court of Appeal)
Lowe (1978, Ontario Court of Appeal)
International Vacations (1980, Ontario Court of Appeal)
Purolator vs. UPS (1995, Ontario Superior Court)
Telus v. Bell (2006, British Columbia Superior Court)
Maritime Travel v. Go Travel (2009, Nova Scotia Court of Appeal)
Telus v. Rogers (2009, British Columbia Court of Appeal)
Richard v. Time - Possible Implications
► The purposes of the Competition Act are much broader and more varied than the purposes of
Quebec’s Consumer Protection Act - namely, the Competition Act’s purposes are to maintain and
encourage competition in Canada in order to
• promote the efficiency and adaptability of the Canadian economy,
• expand opportunities for Canadian participation in world markets (while at same time
recognizing the role of foreign competition in Canada),
• ensure that small- and medium-sized enterprises have equitable opportunity to participate in
the Canadian economy, and
• provide consumers with competitive prices and product choices
► Under the Competition Act, the Competition Bureau, the Competition Tribunal and the Courts
must consider more than consumer protection; they must also consider impacts on markets and
between competitors
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Richard v. Time - Possible Implications
► See Competition Bureau’s 1990 Misleading Advertising Bulletin (“MAB”) article entitled
“Asterisks, Disclaimers and Other Fine Print”:
• “Greater leeway may be allowed in cases where it is reasonable to assume that consumers
will carefully consider all available information, i.e., where the class of persons likely to be
reached by the representation is a more sophisticated target audience (citing
International Vacations (1980, Ontario Court of Appeal)
• “The general impression conveyed will be considered in the context of the nature of
the audience, the nature of the advertisement, and the characteristics of the product.”
• When determining the appropriate size of a disclaimer, “the nature of the target audience
should be taken into account”
►
See also the Competition Bureau’s 2003 and 2009 Enforcement Guidelines entitled
Application of the Competition Act to Representations on the Internet:
• “ … to determine the general impression conveyed by the representation, businesses should
adopt the perspective of the average consumer who is interested in the product or service
being promoted.”
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Richard v. Time - Possible Implications
IT IS “BAD POLICY” TO EXTEND DECISION TO FEDERAL COMPETITION LAW
► What’s “good policy”? In an increasingly globalized consumer market, should Canada not be looking
at (and, if thought fit, harmonizing with) what the counterparts to its competition law authorities elsewhere
in the world are doing?
► US - FTC Policy Statement on Deception, 1983 - A deceptive ad is examined from the perspective
of a “consumer acting reasonably in the circumstances”
► UK - Office of Fair Trading’s Guidance on Consumer Protection from Unfair Trading, 2008 Whether a commercial practice breaches the prohibitions relating to misleading and aggressive practices
will be judged by reference to the “average consumer” - i.e., the notional average consumer whom the
commercial practice reaches or to whom it is addressed
► EU - European Court of Justice’s Case Law on the Average Consumer - The concept of the
average consumer has been developed in the case law of the European Court of Justice. The “average
consumer” should generally be assumed to be reasonably well informed and reasonably observant and
circumspect, taking into account social, cultural and linguistic factors
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Richard v. Time - Some Observations
and Concluding Thoughts
WHAT’S AN ADVERTISER TO DO?
►
If an advertiser is caught in the crosshairs of a Competition Bureau investigation (or worse
litigation), contend that the “credulous” person standard applies only in respect of Quebec’s
Consumer Protection Act, not the Competition Act
►
That said, see position Commissioner of Competition seems to be taking in litigation against
Rogers in Chatr Case
►
In these circumstances, the prudent advertiser should consider putting the general impression
of, and disclaimers in, its advertising under the scrutiny of the “credulous” person test … not to
concede that the standard applies to the Competition Act but rather for the advertiser to mitigate, to
the greatest extent possible, its deceptive advertising law compliance risk
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Richard v. Time - Some Observations
and Concluding Thoughts
SOME RISK MITIGATION STRATEGIES FOR ADVERTISERS TO CONSIDER
►
When reviewing a proposed ad for legal clearance, assume that consumers are gullible (or at
least trusting)
►
When using a disclaimer (especially one in fine print), evaluate the general impression of the
ad on the assumption that the disclaimer will not be read
►
If a disclaimer must be used, then the disclaimer should be clear, prominent, and likely to be
read by at least the reasonable person, if not the credulous one
SOME POSSIBLE IMPLICATIONS OF SUCH STRATEGIES FOR REGULATORS TO CONSIDER
►
If a risk-averse advertiser determines that a particular ad fails the “credulous” person test and
can’t be tweaked to pass it, then that advertiser may chose not to put the offer in the marketplace
►
Such restraint may have the effect of stifling innovation in ads, and if so this may not be a good
thing for consumers (at least the “reasonable” ones), let alone competition
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Richard v. Time - Some Observations
and Concluding Thoughts
WHITHER DISCLAIMERS IN ADS?
► “Resting Not Dead” - Disclaimers are not dead. They remain relevant and an important arrow in
an advertiser’s quiver. That said, given the current uncertainty surrounding the potential reach in
Canada of the Supreme Court’s decision in Richard v. Time, risk-averse advertisers may want to
give disclaimers a rest for the time being
► But to be used properly, disclaimers must not contradict the main message of the ad and must be
clear, prominent and likely to be read by at least the reasonable person
► Disclaimers seem to be essential and to offer practical solutions that fairly balance the interests of
advertisers and consumers in the context of certain ads
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Richard v. Time - Some Observations
and Concluding Thoughts
► For instance, in ads for offers on complex products and services that involve many options each
of which may affect price and/or where most consumers will wish to purchase different combinations
of products and services - e.g., offers on (i) bundled mobile telephone, Internet and TV services, (ii)
airline tickets and vacation packages and (iii) car finance and leasing arrangements, to name a few
► For years, such solutions have been upheld by courts and regulators in Canada*, excluding
Quebec (as well as in the US, UK, & EU) by attributing at least a “reasonable degree of
sophistication” to the notional “average consumer” when determining the general impression of the
impugned ad
* Again, not only under federal Competition Act but also under Canada’s provincial consumer
protection laws outside Quebec (e.g., in British Columbia, Alberta and Ontario)
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Richard v. Time - Some Observations
and Concluding Thoughts
WRAP UP
► Historically, the leading cases and the Competition Bureau’s enforcement policies have imputed
to the notional “average purchaser” a level of discernment that has varied based on factors such as:
• the type and complexity of the product/service/offer, and
• the sophistication/vulnerability of the audience targeted and of the audience likely to be
reached by the ad
► Presently, it is an open question whether the credulous person standard for the “general
impression” of an ad in Richard v. Time will be applied to the federal Competition Act or whether it
will be restricted to Quebec’s Consumer Protection Act
► Even if the reasoning in Richard v. Time is not adopted in future Competition Act cases, it will
likely be argued to be relevant until such time as a court rejects it
• Perhaps this rejection will happen as soon as in the Chatr Case (for which the trial resumes
this month). Stay tuned …
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It’s About Time: Fine Print and
Disclaimers Under the
Competition Act
Brendan Ross
Major Case Director & Strategic Policy Advisor
Misleading Advertising & Labeling
Competition Bureau Canada
The Competition Act:
General Prohibition:
• The Competition Act contains criminal and civil
provisions which prohibit making false or
misleading representations when promoting the
supply or use of a product or any business
interest.
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Recent Bureau Enforcement Action:
• “…were hidden from consumers in fine-print
disclaimers.”
• “…buried in the fine print…”
• “…fees that had not been adequately
disclosed…”
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Fine print and the general prohibition:
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The Hypothetical Consumer:
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Assessing the General Impression:
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Assessing the general
impression:
• “Literacy - the ability to understand and
then use information - is a fundamental
skill. It is essential not only for participating
fully at work, but for everyday life as well
(e.g., for choosing products when grocery
shopping).”
• Indicators of Well-Being, Learning – Adult
Literacy, HRDC, www4.hrsdc.gc.ca
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