Business, Canada, Internet
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Competition Bureau clamping down on online misleading advertising

The Competition Bureau is keeping a watchful eye on the digital world.

The Commissioner of Competition, Matthew Boswell, has made it plain that one of his priorities is to investigate and clamp down on false and misleading advertising online, and build trust in the digital economy through enforcement, “a key element of our vision.”

FlightHub Group Inc., a Montreal-based online travel agency, found out recently that the Competition Bureau is walking the talk.

The Competition Bureau is investigating the firm’s marketing practices after receiving complaints from thousands of consumers, a month after the state of California announced that it launched a lawsuit against the firm for alleged “unscrupulous business practices, designed to fleece the average consumer.” The lawsuit, filed in California Superior Court, accuses the company of “swindling its customers for years” with practices such as charging “deceptive, false, and hidden fees,” advertising enticing airfares that don’t exist and failing to deliver prompt refunds.

The federal watchdog is making similar allegations. It alleges that FlightHub made millions of dollars in revenues from hidden fees it charged to consumers for flight-relate services such as hidden fees for seat selection and cancellation and rebooking rights for flights. The travel agency also allegedly conveyed the general impression that consumers who made a seat selection in advance would have their seat secured for them by the airline when in fact FlightHub does not secure consumers’ seat preferences with airlines, without charging consumers a fee for seat selection. It also allegedly gave consumers the impression they were purchasing flights at a particular price when in fact the firm at times increased the cost of flights after consumers selected their flights.

The disclaimers and fine print in the terms and conditions directly contradict the representations made by the firm, according to the Commissioner, and it does not “alter or cure the general impression conveyed by the false or misleading representations,” according to a court document, which adds that FlightHub is cooperating with the Competition Bureau’s investigation.

“This demonstrates the Bureau’s clear position that it will not allow parties who advertise online to escape misleading general impressions on disclaimers and fine print that realistically are not read by many customers,” notes Denes Rothschild, an antitrust and competition lawyer with Borden Ladner Gervais LLP.

In a clear indication that the Competition Bureau is planning to increase its enforcement actions and use of injunctions, the watchdog also executed search warrants and entered into a new kind of agreement with FlightHub. In what some legal experts believe is a first, the Competition Bureau registered a “temporary consent agreement.” This agreement is binding on FlightHub Group Inc. until the investigation into FlightHub’s practices is resolved either through a final consent agreement, a decision by the Competition Tribunal, or at a time agreed between FlightHub and the Commissioner. Under terms of the temporary consent agreement, FlightHub has “voluntarily” applied changes to its websites to “address the Commissioner’s concerns.”

But questions linger over whether temporary consent agreements are valid, “given that it does not contain a definitive statement that the Commissioner has concluded that the alleged inappropriate conduct has been engaged in,” according to James Musgrave, co-chair, competition and antitrust practice, at McMillan LLP in Toronto.

“However given that it is unlikely that there is an impacted person likely to challenge the validity of a temporary consent agreement, that might explain why the Bureau and FlightHub would choose such a mechanism.”

FlightHub’s decision to enter into a temporary consent agreement also suggests that they concluded they would have unlikely been able to defeat a motion for temporary order that could have been brought by the Competition Bureau to implement changes before a trial, adds Rothschild.

Another indication that the Competition Bureau means business in terms of policing conduct online is its use of search warrants to seize records at FlightHub’s headquarters. The Competition Bureau normally uses search warrants in cases where it alleges outright fraud or scams, points out Musgrave. In cases dealing with misleading advertising, the Competition Bureau tends to reach out to the parties and uses requests for information or production orders.

“Businesses should take note that the Bureau is willing to utilize all of its investigative techniques when appropriate, and that parties are alleged to have engaged in misleading conduct might be at risk of the Bureau arriving unannounced at their doors to seize relevant documents and records,” says Musgrave.

The FlightHub investigation, coming on the heels of a settlement with Ticketmaster, underscores that the Competition Bureau will keep close tabs on the digital economy. In June Ticketmaster L.L.C., TNow Entertainment Group, Inc. and Ticketmaster Canada LP agreed to pay a $4 million penalty and $500,000 for costs incurred by the Competition Bureau during its investigation into allegedly misleading pricing claims in online ticket sales. As part of a consent agreement registered with the Competition Tribunal, the companies will also establish a compliance program to ensure their advertising complies with the law and will implement new procedures to prevent advertising issues in the future. The consent agreement has the force of a court order and will be binding for a period of 10 years.

“We have always faced challenges and disruption,” remarked Boswell in a speech this May before the Canadian Bar Association Competition Law Spring Conference. “But now, we face them in the context of a rapidly changing and disrupting digital economy. (We) will continue to prioritize investigating misleading representations made online and collaboration on borderless digital conduct, in keeping with the digital economy focus.”

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