Amazon to pay $1,000,000 to Competition Bureau for Unsubstantiated Sales Prices

February 24, 2017 | Kelly Harris, Eugenia (Evie) Bouras

Amazon has agreed to pay a $1,000,000 administrative monetary penalty and $60,000 in Competition Bureau costs, following the Bureau’s conclusion that Amazon did not substantiate its sale prices.

Vendors, lenders and lessors should take special care when setting and advertising prices and making cost of credit representations in their advertisements, particular over electronic messages.

Misleading pricing claims continue to be an area of high risk for enforcement by the Competition Bureau (Bureau), which is the Canadian regulator of deceptive marketing and advertising practices.  Particularly at risk are deceptive pricing representations advertised over email, as these are subject to specific misleading advertising prohibitions under the Competition Act (Act) that were enacted as part of  Canada’s Anti-Spam Legislation (CASL). These email-specific obligations are in addition to the broader legal requirements applicable when sending commercial electronic messages in general, which are generally governed by CASL. Pricing compliance is further complicated in the context of regulated products, such as consumer advertising that triggers cost of credit disclosures.

The Amazon Case

The Bureau and Amazon.com.ca, Inc. (Amazon) have entered into a consent agreement regarding unsubstantiated sales prices. The Bureau alleged that Amazon had been comparing its sale prices to a market list price in Amazon’s mobile app and online/email advertising. In the ads, Amazon’s lower sale price was displayed next to the crossed out market list price, arguably creating the general impression that Amazon was offering the product at a discounted price. Under the terms of the consent agreement, Amazon has agreed to comply with legislative ordinary price provisions and prohibitions against making false or misleading representations, as described in more detail below.

Background

Unsubstantiated sale prices fall under the Deceptive Marketing Practices division of the Act. Section 74.01 (2) of the Act prohibits any materially false or misleading representation to the public as to the ordinary sale price or regular price of a product. The Bureau’s administrative position is that an ordinary sale price representation can be substantiated by meeting either the volume test or the time test (both as established by the Bureau). Notably, these prohibitions do not require any person to be actually deceived or misled by the price representations.

For the time test, the seller must be able to prove that it offered the item at that regular price for a substantial period of time, and that it sold enough volume of the item at that price “in good faith”. In general, this means that retailers must offer the item at the regular/ordinary price for at least 50% of the time, on a rolling six-month basis. It also requires that retailers sell a “good faith” volume of items at that regular price.

There are several factors that the Bureau would consider in assessing whether a product was offered for sale in good faith, including whether the product was openly available in appropriate volumes, the reference price was based on sound pricing principles, the reference price was a price that the supplier fully expected the market to validate, as well as the volume of actual sales.

The volume test is much harder to satisfy; it requires that the supplier proves that a substantial volume of the product was sold at the regular price or higher within a reasonable period of time.

Additionally, since Amazon was listing its sale prices in email advertisements, the Bureau relied on Section 74.011(2) of the Act, which prohibits materially false or misleading representations contained in commercial electronic messages. There are similar provisions under the Act enacted under CASL which specifically prohibit making false or misleading representations in locator information, or in the sender information or subject matter of a commercial electronic message. The Bureau has started to rely on these provisions in its recent enforcement actions, showing the importance of the digital economy to current Bureau investigations.

The Bureau’s findings

In this case, the Bureau found that Amazon’s list prices were not substantiated. As a part of the Bureau’s inquiry, it examined Amazon’s sale and promotion of 12 Blu-ray movies. The inquiry revealed that in a two year time period other suppliers had not sold a substantial volume of Blu-ray movies at Amazon’s list price or higher, as required under the volume test. The investigation also revealed that other suppliers in the market had not offered the movies for sale at the Amazon list price (or higher) in good faith for a substantial period of time (as required under the time test). Therefore, the Bureau concluded that Amazon compared its sale prices to false market prices which, in turn, also triggered the application of Section 74.011(2), since the emails also contained those false price representations.

Amazon is not the only organization to have entered into a consent agreement with the Bureau regarding price representations, and in particular, those related to the digital economy. Recently, the car rental companies Budget and Avis entered into a consent agreement regarding deceptive pricing representations that included an administrative monetary penalty of $3,000,000. The Bureau’s recent track record is a warning to every retailer, supplier and advertiser of any size to consider the Act’s provisions before offering a sale or discount on their products and services, and particularly when advertising such representations online or in an email.

Disclaimer

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