INTERNATIONAL LEGAL ISSUES
IN
DIRECT RESPONSE MARKETING

Electronic Retailing Association Conference & Expo
October 14-17, 2001
Las Vegas, Nevada
USA

Introduction

This report is presented by the Global Advertising Lawyers Alliance ("GALA") to the Electronic Retailing Association ("ERA") in connection with its 2001 Conference held in Las Vegas, Nevada on October 14 - 17, 2001.

The purpose of the report is to present information from GALA members concerning laws and regulations applicable to direct response marketing in their home country which would be relevant to marketers in other countries. By "direct response marketing" we mean all forms of marketing involving a communication to a consumer that is designed to elicit a response from the consumer directly to the seller in the form of an order for that seller's products or services. Common forms of direct selling in the United States, e.g., include infomercials (generally thirty minutes in length), short form television commercials (generally two minutes in length), radio commercials, internet marketing, telemarketing, credit card syndication, direct mail, and product package inserts.

By necessity, this report can only touch on the broadest issues and concerns to the industry in any country. Clearly, this report cannot and is not intended to substitute for legal advice from an expert in the applicable laws and regulations. We believe that its value to marketers will derive from highlighting the issues that marketers should be aware of when considering whether to conduct a particular type of direct selling campaign in a given country. Nor is this report a substitution for local legal advice on specific marketing activities. Before engaging in any marketing campaign, a marketer should consult with legal counsel for advice on their proposed campaign.

Countries covered in this report include:

Australia Belgium France Germany

Ireland Italy Singapore Spain

Sweden Switzerland United Kingdom United States

 

INTERNATIONAL LEGAL ISSUES IN DIRECT RESPONSE MARKETING: CANADA Prepared by: Wendy Reed and Heenan Blaikie

1. Lobbying 1.1 How can an association like ERA successfully lobby in your country to maintain a friendly regulatory environment? Hire a registered lobbyist. Possibly team up with an industry association (such as the Canadian Marketing Association, or the Direct Sellers Association, or others) if there is a particular issue that may be of equal interest to them. Consider a public relations campaign. 2. Laws and Regulations 2.1 Are any forms of direct response marketing prohibited in your country? Not per se. 2.2 What are the major restrictions in your country on direct response marketing, which sellers should be aware of? The marketing of certain products is highly regulated - e.g. foods, drugs, cosmetics, medical devices, dietary supplements, vitamins, etc. The manner of marketing is also regulated in many instances (eg: Infomercials are subject to pre-clearance prior to broadcast on most private broadcasters). Generally, direct sellers & sales persons are subject to licensing and/or bonding, sales persons may have to have identification cards in some cases, and/or other regulations in most provinces/territories. Generally, direct sales agreements must be in writing, contain prescribed cancellation wording, and prescribed cooling off periods. Promotional activities are regulated by both federal and provincial legislation. 2.3 Are there any laws or regulations pending in your country that could have an impact on direct response marketing? Yes·Privacy legislation, direct sales & telemarketing provisions of consumer protection legislation, Competition Act, and industry guidelines. (1) Telemarketing. Canadian Radio-television & Telecommunications Commission ("CRTC") has proposed implementation of existing telemarketing regulations across Canada, and has initiated a review of all telemarketing regulations, by way of public comment. Current proposals, if implemented, will, among other things, permit consumers the ability to block incoming telemarketing calls and which will require the establishment of a 'do not call' listing. (2) Privacy legislation. While the first phase of federal privacy legislation (the Protection of Personal Information and Electronic Documents Act) came into effect on January 1, 2001 (with future dates for implementation of other portions of this Act), the provinces are in the process of developing their own privacy legislation. Quebec already has similar legislation. (3) Direct Sales. The Province of Manitoba is considering special requirements for call centres (eg: relief from licensing if call centres meet industry association standards and/or are members of the provincial Call Centre Association, establishment of a reimbursement fund for satisfying valid consumer complaints), though Direct Seller legislation will apply to non-call centre direct selling activities. 2.4 Identify any governmental or regulatory agencies charged with regulating the direct selling industry in your country and the business sector(s) they regulate. Direct Selling Generally: Each provincial and most territorial Governments via Direct Seller provisions of the applicable Consumer Protection legislation which generally requires the licensing and/or bonding of direct sellers & sales persons, the content of contracts and other aspects of the direct sales relationship and the sales persons themselves. Industry Canada - administers the federal Competition Act, which prohibits false or misleading advertising and other deceptive marketing practices, and administers certain other packaging and labelling statutes and other product-specific statutes - e.g. the Precious Metals Marking Act and the Textile Labelling Act. Health Canada - administers the Food & Drugs Act and the Hazardous Products Act. Advertising Standards Canada - self-regulatory body for advertising in all media. 2.5 What are the current hot issues among regulators and enforcement agencies in your country that could have an impact on direct response marketers? Privacy legislation: Under the federal Protection of Personal Information and Electronic Documents Act ("PIPEDA"), organizations must amend their privacy practices and policies by the relevant date (see below) to ensure that personal information is not, among other things, collected, disclosed or used in any manner other than as consented to by the consumer. PIPEDA will affect all consumer communications (including marketing and promotional activities), require certain corporate infrastructure changes so as to ensure that personal information is managed properly, and may necessitate review of corporate and human resource documentation (including contracts, policies and procedures). Internet Advertising: The Competition Bureau recently released a draft guide for comment with respect to the compliance of internet advertising with the federal Competition Act. The draft guide provides practical tips on avoiding common pitfalls in the internet context and addresses the issues of liability for internet representations and jurisdictional issues arising from such advertisements. Consumer Internet Sales: The Canadian federal-provincial-territorial governmental working group responsible for Consumer Affairs recently approved an Internet Sales Contract Harmonization Template (the "Template") setting out a policy framework for new consumer protection legislation in the online context. It requires suppliers to disclose prescribed information to consumers, provides a procedure for cancellation of Internet sales contracts, and enables consumers in certain circumstances to request credit card issuers to cancel or reverse credit card charges incurred in connection with a cancelled Internet sales contract. The Template anticipates a new national standard of obligations and requirements for businesses engaged in on-line sales activities. While each jurisdiction will ultimately determine the specific scope of its legislation based on the Template, the provinces and territories have not yet committed to a timetable for any legislation. Natural Health Products: new regulatory framework being developed to govern thiscategory of product Deceptive telemarketing schemes & mail solicitations - receiving high enforcement attention. "Sale" Price claims Environmental Labelling & Advertising 2.5 Explain briefly what types of penalties may be imposed on marketers by these agencies for violating the laws. Generally: fines, imprisonment, injunctions. Privacy: Generally, revision of privacy practices. Specifically: The Privacy Commissioner is required to investigate every written complaint from individuals and (in most instances) is required to prepare a report setting out, among other things, his or her findings and recommendations, and any settlement reached by the parties. After a report has been issued, the complainant may apply to Federal Court of Canada for a hearing of the matter. PIPEDA provides that the Federal Court of Canada may, among other remedies, order an organization to publish a notice of any action taken or proposed to be taken to correct its practices and award damages to the complainant. 2.6 Can a company directly sue a competitor for false or deceptive advertising and, if so, what are the penalties if such a suit is successful? A company may sue under the Competition Act if the false or misleading statement is made knowingly or recklessly and the plaintiff has suffered damage. Other common law causes of action may be available in certain cases - e.g. if the advertising is disparaging of the compared product or defamatory. An action under the Trade-marks Act may also be available. "Penalties" in a civil action may include damages and/or an injunction. Action may also be taken against a false or deceptive advertisement by the Competition Bureau under the Competition Act or, in some cases, by provincial misleading advertising authorities under their consumer protection legislation. There are both civil and criminal provisions dealing with false or misleading advertising under the Competition Act, with penalties including "administrative penalties" and required public notices under the civil provisions to fines and imprisonment under the criminal provisions. An advertiser may also submit a complaint to Advertising Standards Canada ("ASC"), a self-regulatory body, and ask that an industry panel be convened to hear the complaint. If a complaint is upheld, the advertiser will be asked to remove or modify the offending advertising. Supporting media members may decline to run the advertising any further if the advertiser does not take the requested action. 2.7 Does your country recognize the concept of "class actions" whereby a law firm can represent all consumers within a particular "class" and sue a marketer for false or deceptive advertising? Yes, class actions are available in certain provinces. If so, what are the penalties if such a suit is successful? The result may include damages and/or an injunction. 3. Consumer Privacy Issues 3.1 What is the current law in your country relating to privacy of personal information? The federal Protection of Personal Information and Electronic Documents Act ("PIPEDA") sets out rules governing the collection, use and disclosure of personal information in the private sector, came into effect on January 1, 2001. Phase 1 of PIPEDA, which was in effect as of January 1, 2001 applies to federal works, undertakings or businesses, and organizations that disclose personal information for consideration on an inter-provincial or international basis. Phase 2 will be in effect as of January 1, 2002 with respect to personal health information. Phase 3 will be in effect as of January 1, 2004 for all other organizations. Quebec has had its own statute relating to the protection of personal information for some time, and many provinces are in the process of developing their own provincial privacy legislation. PIPEDA sets out rules governing the collection, use and disclosure of personal information in the private sector. Organizations must amend their privacy practices and policies by the relevant date to ensure that personal information is not, among other things, collected, disclosed or used in any manner other than as consented to by the consumer. The term "personal information" is defined broadly to mean information about an "identifiable individual", but does not include the name, title or business address or telephone number of an employee of an organization. The definition captures many types of information, including e-mail addresses, user names, passwords of web users, as well as certain demographic, financial, profile and transactional data. Privacy notices and internal policies and procedures will need to be developed and prominently disclosed to consumers. PIPEDA will affect all consumer communications (including marketing and promotional activities), require certain corporate infrastructure changes so as to ensure that personal information is managed properly, and may necessitate review of corporate and human resource documentation (including contracts, policies and procedures). 3.2 Does the law distinguish between information collected on the Internet and information collected through other marketing methods, e.g., by telephone or by mail? The scope of PIPEDA is broad and technologically neutral. As such, the legislation would generally apply to an organization's personal information practices in both the on-line and off-line contexts. 3.3 Does the law distinguish between different types of personal information, e.g., name and address vs. financial information such as consumer credit card numbers? If so, how are they distinguished? What restrictions exist on the transfer of credit card or bank account information for marketing purposes? Generally, PIPEDA does not distinguish between the different types of personal information, except in the case of differentiating the types of consent required, depending generally on the following factors: the reasonable expectations of the individual; the circumstances surrounding the collection and disclosure of the personal information; and the sensitivity of the personal information involved. [Also see 3.1 above] 3.4 Does your country require "opt in" or "opt out" as the method for the consumer to grant consent to disclosure of their personal information? Currently both "opt in" and "opt out" methods are used by marketers but, as indicated above, "opt in" should be used for more sensitive information. 4. Specific Marketing Methods The following marketing methods are currently under scrutiny in some countries, e.g., the United States. The discussion below indicates the extent to which such marketing methods are scrutinized in the reporting country, and if so, what legal restrictions apply: 4.1 Free Trial Offers and Free to Pay Conversion Offers. A marketing plan whereby the consumer accepts an offer to try a product or service free of charge for a specified time period, e.g., 30 days, prior to purchasing. At the end of the trial period, the consumer is automatically charged or billed for the product or service (usually on a credit card), unless he or she takes affirmative action to cancel. This requires a more detailed consideration of the facts. 4.2 Continuity Plan Offers. A marketing plan whereby the consumer agrees to receive periodic shipments of products or services unless and until the consumer affirmatively declines a periodic shipment or cancels his participation in the plan. The consumer is billed for each shipment of product or service. This requires a more detailed consideration of the facts. 4.3 Automatic Renewal Offers. Generally a feature in a subscription or club membership offer whereby the subscription or membership is automatically renewed at the end of the initial term and each subsequent term unless the consumer affirmatively cancels. In general, provided it is clearly understood by consumers and they have the right to take action to cancel further participation, there is no legal restriction. 4.4 Revenue Enhancement Programs. Also known as an "up-sell" offer, this marketing method presents to a consumer multiple product offers from different marketers on one telemarketing call. Typically, the consumer agrees to the first offer and provides their credit card number. The telemarketer then "up-sell" the consumer with additional offers. If the consumer accepts the additional offers, the consumer's credit card number is provided to the other marketers. Provided all other guidelines are followed, there is no legal restriction to up-selling per se. 5. Specific Product Categories 5.1 What special laws or regulations apply in your country to the direct marketing of products or services in the following categories: 5.1.1 Dietary supplements Key laws include the Food & Drugs Act and the Competition Act. Health Canada has created 3 "Directorates" each focusing on specific areas to ensure compliance with the Food & Drugs Act and regulations. For instance, dietary supplements plus diet & weight loss products will be subject to review by the HEALTH PRODUCTS AND FOOD BRANCH (HPFB) INSPECTORATE, while pharmaceutical drugs & medical devices will be regulated by the THERAPEUTIC PRODUCTS DIRECTORATE (TPD). A new regulatory framework is being developed for Natural Health Products. 5.1.2 Diet/Weight Loss products See answer 5.1.1. 5.1.3 Drugs See answer 5.1.1. 5.1.4 Electro-muscle stimulators See answer 5.1.1. 5.1.5 Health and fitness products See answer 5.1.1. 5.1.6 Beauty products See answer 5.1.1. 5.1.7 Travel offers In addition to the false and misleading advertising laws, certain provinces have legislation relating to the travel industry. National transportation legislation may also need to be considered in certain circumstances. 5.1.8 Magazine subscriptions We are not aware of any special laws applying additional rules for the direct marketing of magazine subscriptions. 6. Extended Liability 6.1 Traditionally only the marketer is held liable, although ad agencies and other parties may be liable as well in certain circumstances. 7. Advice to Foreign Marketers 7.1 Speak to qualified legal counsel in Canada comfortably in advance of your proposed launch to ensure that the product itself can be sold, that its branding will not infringe, and that proposed advertising is in compliance with the myriad of legislation affecting marketing across Canada. Failure to do so could result in removal of the product, public relations repercussions, fines, possible criminal sanctions, or costs incurred to amend or correct advertising.