“Section 74.06 of the Competition Act is a civil provision. It prohibits any promotional contest that does not disclose the number and approximate value of prizes, the area or areas to which they relate and any important information relating to the chances of winning such as the odds of winning. It also stipulates that the distribution of prizes cannot be unduly delayed and that participants be selected or prizes distributed on the basis of skill or on a random basis.
If a court determines that a person has engaged in conduct contrary to section 74.06, it may order the person not to engage in such conduct, to publish a corrective notice and/or to pay an administrative monetary penalty of up to $750,000 in the case of a first time occurrence by an individual and $10,000,000 in the case of a first time occurrence by a corporation. For subsequent orders, the penalties increase to a maximum of $1,000,000 in the case of an individual and $15,000,000 in the case of a corporation.”
(Competition Bureau, Promotional Contests Enforcement Guidelines)
“… Parliament does not happily abide gaming activities of any sort in Canada. The little it tolerates, it does so grudgingly. Section 206 [of the Criminal Code] is prohibitive in nature, not regulatory. The purpose of Parliament in enacting it was generally to outlaw gaming and lotteries, not just to ensure they would be run honestly. Subsection 206(1) creates a number of indictable offences proscribing a comprehensive range of gaming and gaming-related activities. Subsection 206(4) makes it a summary conviction offence to buy, take or receive a lot, ticket, other device mentioned in 206(1). Although s. 207 allows some tightly circumscribed exceptions to s. 206, it too contains a broad prohibition. Subsection 207(3) makes it an offence to do anything for the purpose of the conduct, management, operation of, or participation in a lottery scheme unless the doing of it is authorized by or pursuant to some provision of 207. Thus, even permitted lotteries must strictly adhere to the limits imposed by the terms and conditions of s. 207.”
(Re: Earth Future Lottery)
What laws govern promotional contests in Canada?
Promotional contests in Canada are governed by the Competition Act, the Criminal Code, privacy legislation and the common law of contract. In addition, Quebec has a separate regulatory regime governing contests.
What are the potential penalties for non-compliance?
Given that the improper operation of a promotional contest can lead to civil and/or criminal liability under the Competition Act, the Criminal Code, based on a contractual (i.e., common law) challenge or failure to comply with Quebec’s regulatory requirements, it is critical to review contests for legal compliance.
The penalties for contravention of the misleading advertising provisions of the Competition Act can also be severe, including civil fines of up to $750,000 (for individuals) and $10 million (for corporations) and court orders to cease the conduct, publish corrective notices or compensate (i.e., make restitution to) consumers.
For example, a Manitoba real estate investment company paid a penalty of more than $150,000 for operating a promotional contest allegedly in contravention of the promotional contest provisions of the Act. See: Resort Company Penalized for Running Misleading Contests.
What provisions of the Competition Act apply to contests?
The Competition Act for the most part requires that certain disclosure be made when conducting “any contest, lottery, game of chance or skill, or mixed chance and skill, or otherwise [disposing] of any product or other benefit …”
Some of the key requirements include: (i) disclosing the number and approximate value of prizes, (ii) disclosing the area (or areas) to which they relate (i.e., any so-called “regional allocation” of prizes) and (iii) any fact that may materially affect the odds of winning.
The Act also prohibits contest organizers from unduly delaying the award of prizes.
What are “short rules”? Are they mandatory?
Based on the disclosure requirements set out in the Act, most contest organizers provide a short version of a contest’s terms (frequently referred to as “short rules”) for all point-of-purchase materials regardless of media (i.e., in all print, online and other electronic media), with a full version of the contest rules available on request (and often on the contest organizer’s website).
Point-of-purchase disclosure typically includes the number and approximate value of prizes, any regional allocation, skill testing question requirement, information regarding the odds of winning and closing date for the contest.
While short, and usually straightforward, it is critical that the required statutory disclosure be drafted precisely and correctly. It is also important that the timing for the launch of a contest and promotional materials ensure that the necessary disclosure be included in all public marketing materials (e.g., print advertising, websites, social media pages, etc.).
Do other Competition Act provisions apply to contests?
Yes. In addition to specific rules relating to promotional contests under section 74.06, the “general misleading advertising” provisions of the Competition Actalso apply to the operation of contests in Canada.
The Competition Act also contains several other specific provisions regulating contests operated in the context of: (a) telemarketing (section 52.1) and (b) prize notices (section 53).
In this regard, section 52.1 of the Act prohibits telemarketers from conducting contests where: (a) the delivery of a prize (or other benefit) is or is represented to be conditional on prior payment or (b) adequate and fair disclosure is not made of the number and approximate value of prizes, the area or areas to which they relate and the odds of winning.
Section 53 of the Act prohibits prize notices sent by electronic or regular mail that give the general impression that a recipient has won (or will win) a prize and requires a payment (or incurring another cost) unless the recipient actually wins the prize or benefit and certain disclosure and other requirements are satisfied by the sender.
These include adequate and fair disclosure of the number and approximate value of prizes, regional allocation of prizes and any fact within the sender’s knowledge that materially affects the chances of winning (i.e., odds of winning). In addition, the distribution of prizes cannot be unreasonably delayed and there are requirements for the selection of participants and distribution of prizes.
Persons that violate section 53 are liable to fines, on summary conviction, of up to $200,000 and/or imprisonment for up to one year and, on indictment, to fines in the discretion of the court and/or imprisonment for up to 14 years. Several due diligence defences are, however, available under this offence.
What is the scope of the Competition Act’s misleading advertising provisions?
The criminal and civil misleading advertising provisions of the Competition Act(sections 52 and 74.01) prohibit representations to the public, for the purpose of promoting a product or any business interest, that are false or misleading in a material respect.
The potential penalties for misleading advertising can also be severe, and include civil fines of up to $750,000 (for individuals) and $10 million (for corporations) and court orders to cease the conduct, publish corrective notices or compensate consumers.
Does Canadian competition law apply to the Internet?
Yes. The Competition Bureau takes the position that the promotional contest provisions of the Competition Act, as well as the general misleading advertising provisions, apply to Internet marketing and advertising (see: Competition Bureau, Enforcement Guidelines, Application of the Competition Act to Representations on the Internet).
In this regard, the Bureau states that special considerations may apply in the online environment to ensure that the required statutory disclosure for promotional contests is met:
“Pursuant to section 74.06 of the Act, in contests designed to promote a product or business interest, adequate and fair disclosure must be made of certain information, including facts which materially affect the chances of winning. … The Bureau takes the position that all required disclosures must be displayed in such a way that they are likely to be read. In the context of representations made on-line, what is considered adequately displayed will depend on the format and design of the Web site. For example, a notice of a contest should not require readers to take an active step, such as sending an e-mail or placing a phone call, in order to obtain the required information. The Bureau does not consider clicking on a clearly labelled hyperlink as being an ‘active step.’”
What Criminal Code provisions apply to contests?
In addition to the promotional contest provisions in the Competition Act, theCriminal Code also governs contests in Canada (sections 206 and 207). In particular, the Criminal Code makes it a criminal offence to operate illegal lotteries.
What is an “illegal lottery”?
While the relevant provisions of the Criminal Code are complex and somewhat archaic, in general an illegal lottery consists of: (a) a prize, (b) chance and (c) consideration (i.e., something of value provided by contestants as a condition for eligibility or participation in a contest).
Why is a “no purchase necessary” option typically included in Canadian contests? Why is a skill-testing question requirement also typically included?
Based on the Criminal Code prohibitions of illegal lotteries, contest organizers often remove either the consideration element (e.g., offering a “no purchase necessary” entry option), chance element (e.g., adding a skill element, for example making the contest a skill contest or including a skill-testing question requirement).
It is worth noting, however, that the determination of what constitutes “consideration” and “chance” can be challenging and complex in some cases, and that what little case law exists is inconsistent and old.
Are contests contracts? What are the legal requirements?
In addition to the regulatory requirements of the Competition Act and Criminal Code, promotional contests have also been held to be contracts. As such, contests are also governed by the common law of contract in Canada.
For this reason, in addition to ensuring compliance with the statutory requirements of the Competition Act, Criminal Code, privacy law and Quebec legislation (if applicable), it is also important that the terms and conditions of a promotional contest be carefully drafted to reduce potential contractual liability.
This includes a careful review of short rules, long rules and winner release documentation to ensure that the terms are precise, enforceable and reduce the likelihood of a credible contractual challenge. Potential technical problems and other contingencies should also be addressed, including in relation to unavailability of prizes and technical problems arising from the operation of the contest (e.g., computer, Internet or server issues).
Does Canadian privacy law apply to contests?
Yes. Contest organizers should be cognizant of federal privacy law requirements, which include requiring consent for the collection, use, storage and disclosure of personal information collected in relation to the operation of a contest. This typically includes, for example, advising contestants as to how their personal information will be used and the contest organizer’s practices and policies in relation to the security (and destruction) of contestants’ personal information once a contest has closed.
What are some of the key practical considerations to operating a contest in Canada?
The following is a list of some of the key tips (though not an exhaustive check-list) for operating a successful contest in Canada:
Criminal Code. Take care to avoid the Criminal Code illegal lottery offences (e.g., provide a “no purchase necessary” entry option and skill element, such as a time-limited, multiple-step mathematical question).
Short Rules. Include “short rules” including all of the required Competition Actdisclosure requirements for point-of-purchase materials (e.g., print and in-store marketing, social media and Internet sites, packaging and labeling, television spots, etc.).
Long Rules. Ensure that precise “long rules” are prepared that reflect the details of the contest, cover potential contingencies (e.g., technical problems) and that set out the details of the promotion as clearly as possible – for example, eligibility requirements; how to enter; prize descriptions, number and values; draws and award of prizes; odds of winning; and indemnity and releases. Standard precedents, or rules downloaded from the web rarely accurately reflect a particular promotion. Like all law, counsel should not only understand what each provision means, but all rules should be relevant to the particular promotion. In this regard, contests are contracts, and so if you as a promoter want to rely on the rules in the event of an issue, they should be as accurate, clear and precise as possible.
General Misleading Advertising Provisions. Ensure that none of the advertising or marketing materials are generally false or misleading (i.e., comply with the “general misleading advertising” sections of the Competition Act). In this regard, contests in Canada must comply not only with stand-alone contest provisions of the Competition Act (under section 74.06), but also with the general misleading advertising sections of the Competition Act.
Checklists. If contests are part of your company’s regular marketing, consider developing an internal checklist to ensure that all key legal requirements are covered (check-lists are commonly used by contest and sweepstakes lawyers and in-house counsel that frequently run contests).
Quebec Considerations. Ensure that Quebec legal requirements are met for contests run in Quebec (or take care to make sure that eligibility is limited to Canadian residents, excluding Quebec).
Intellectual Property Consents. Consider whether consents are needed (and if necessary obtained) to reproduce 3rd party intellectual property – for example, trade-marks, logos, etc. – or to transfer ownership in contest materials – for example, where contestants create original material as part of the contest or promotion.
U.S. Advice. Seek U.S. legal advice if the contest will be open to U.S. residents (or limit the contest to Canada).
Other Competition & Advertising Rules. Consider whether other competition or advertising law rules may apply. For example, in addition to a stand-alone contest provision, the Competition Act also contains provisions governing deceptive prize notices, general misleading advertising and telemarketing that involves prizes.