Over the past two decades, Canadian law on truth in advertising has evolved significantly, with foundational cases shaping the standards for retailers across the country. The landmark Sears Canada case in 2005 was pivotal in establishing legal expectations for price representation under the Competition Act.

This case scrutinized Sears’ advertising practices and set the stage for continued developments in advertising law. Since then, the Competition Bureau has upheld these standards through ongoing case law, clarifying the requirements for “regular price” claims and consumer protection. This article explores the Sears Canada decision, the legal principles it introduced, and how recent cases have further defined truth in advertising in Canada.

The Sears Canada Case

Truth in advertising came to a head in a decision decided by the Competition Bureau. An expert legal panel discussion of the recent landmark decision by the Competition Bureau against Sears Canada—the first contested case to be decided by the Tribunal under the ordinary selling price provisions of the Competition Act—was one of the highlight sessions at the Canadian Institute's 11th Annual Advertising and Marketing Law Conference on January 25-26, 2005, in Toronto.

Truth in advertising came to a head in a decision decided by the Competition Bureau against Sears Canada—the first contested case to be decided by the Tribunal under the ordinary selling price provisions of the Competition Act—was one of the highlight sessions at the Canadian Institute's 11th Annual Advertising and Marketing Law Conference on January 25-26, 2005, in Toronto.

Sheridan Scott, Commissioner of Competition, had stated in a news release that the Sears Canada case is about "truth in advertising" and ensuring "that consumers get honest and accurate pricing information from retailers."

Sears Canada had claimed in advertisements in 1999 that consumers were getting a substantial discount on its tires in comparison to the regular price of its tires. The Competition Bureau launched an investigation into Sears Canada's marketing practices in April 2000, finding that very few tires had been sold at the regular price, bringing into question the issue of truth in advertising.

The Bureau's decision, handed down on January 24, 2005, ruled that Sears Canada had exaggerated the sale price of its tires by misstating their 'regular' price in an advertising campaign, contrary to the deceptive marketing provisions of the Competition Act. The Competition Act prohibits sellers from inflating the regular price of items to mislead consumers about the sale price of an item, unless the regular price representation meets either a volume or time test as contained in the provisions.

The  Sears Canada decision is significant as the first of its type and, in part, confirms the interpretative approach taken by the Commissioner to the provisions, but it has not necessarily provided comprehensive guidance on the application of these provisions on truth in advertising.

"The Sears case only considered one of the two tests contained in the provisions, commonly called the 'time' test," says Subrata Bhattacharjee. The time test basically asks whether the product in question has been offered at the original price or higher in good faith for a substantial period of time before or after making the sale price representation. The volume test, which looks to the quantity of the product that had been sold at the original price, was not considered by the Tribunal in its decision.

"Even with respect to the 'time test', the Tribunal may have overstated the meaning of the 'substantial' period of time for which products have to be previously offered in advance of making a sale price representation," Bhattacharjee says.

There is also a question of the Tribunal's finding on the meaning of 'substantial period' in the time test. According to the Tribunal, a product must be offered at the regular price for at least 50% of the time to meet the requirement that a product is being offered at a regular price for a 'substantial' period of time. A product being offered at the regular price for 45% of the time should also be considered a "substantial" period of time.

James Musgrove notes that, "If Parliament intended 'substantial' to mean majority, it could easily have said so. By using the word 'substantial' Parliament clearly signaled that there was no precise mathematical test which would apply to all cases contrary to the Tribunal's ruling here." Leaving it a bit subjective as to what truth in advertising would mean in this situation.

The Tribunal's findings also leave the question of what is 'good faith' unclear. According to the Tribunal, a retailer is offering a product for sale at regular price in 'good faith' if it genuinely believes that it was a price at which the goods would be purchased. But it is not an exact science, and, "It makes it very tricky for retailers to know with certainty if the regular price of a product would be considered by the Tribunal to be a price offered in good faith," says Musgrove. This begs the question of whether we can be certain of what is truth in advertising.

The decision also illustrates how long the Competition Bureau and the Tribunal process can take in adjudicating advertising cases. It took between five and six years for the Tribunal to reach its findings, with remedies to be resolved in another hearing.

"This is completely inappropriate in an advertising case," says Musgrove. "Advertising Standards Canada resolves advertising cases much faster—in a matter of weeks, not years." Because of this delay—almost six years after the fact—the Tribunal did not order corrective notices. Even with this delay, we may be closer to having more clarity on what is truth in advertising.

Recent Developments in Truth in Advertising (2024)

Since the Sears Canada case, there have been significant updates in Canadian advertising law that further illustrate the Competition Bureau's stance on truth in advertising. Recent cases include:

• Hudson’s Bay Company (2019): The Competition Bureau found that Hudson’s Bay had misled customers about mattress and box spring prices. The Bureau determined that the advertised “regular” prices were inflated as very few items were sold at those prices before promotions, enforcing stricter standards around price representation.

• Canada (Commissioner of Competition) v. Rakuten Kobo Inc. (2021): This case involved deceptive pricing practices for e-books. The court examined the extent to which price discounts adhered to the time and volume tests, providing further clarification on the requirements for truthful discount advertising.

• R v. Amazon Canada (2023): Amazon Canada faced scrutiny over alleged misrepresentations of regular prices. The Bureau emphasized that discounts must be genuine and reflect real sales history, reinforcing that advertised discounts should be supported by data on historical sales at regular prices.

These cases underline the ongoing commitment of the Competition Bureau to uphold truthful advertising and protect consumers from misleading promotions. Retailers must ensure that all price representations comply with the Competition Act by meeting either the time or volume test, with documentation available to substantiate claims.

Conclusion

The Sears Canada decision set an important precedent, but ongoing cases highlight evolving standards around truth in advertising. With newer cases, the Bureau continues to clarify expectations for retailers, signalling a move toward more stringent oversight and consumer protection. The Competition Bureau remains vigilant, ensuring that promotional practices remain honest and transparent, creating a fair marketplace for consumers in Canada.