The avuncular Arrow shirt president coped with the legal unpleasantness surrounding him in the oppressive Toronto courtroom 22 years ago by clinging to the familiar rituals that defined his corporate existence.
“This won’t do,” a discombobulated Norman Matheson said, as he sidled up to me during a break and cast a judgmental eye on my fraying collar, from which a reportorial necktie hung at half-mast. “A gentleman always is seen in a crisp, new shirt.”
Matheson seemed numbed over the events that led to his company – apparel manufacturer Cluett, Peabody Canada Inc. – having to rub shoulders with the scofflaws and tosspots who inhabit the criminal courts.
The Cluett, Peabody price-fixing case showed corporate Canada what can happen when a company gets caught playing fast and loose with the federal Competition Act. In addition to the broadside on its good name, the manufacturer got hit with fines totalling $20,000.
Memories of Arrow came back to me this month when it was announced that The Forzani Group Ltd. and the Competition Bureau have signed a consent agreement in which the Calgary company agreed to settle an inquiry into its advertising practices by paying $1.7 million.
This levy, a record high, included a $1.2-million penalty and $500,000 to defray investigation costs.
The bureau, which enforces the Competition Act, began its Forzani inquiry in September 2003. It alleged that Forzani Group Ltd. (FGL) – Canada’s largest sporting products retailer with 217 corporate stores and 174 franchise stores from coast to coast – violated the “ordinary price” provision of the act through its Sport Chek and Sport Mart newspaper advertising.
By basing its pursuit of this case on this section, the bureau opted for civil prosecution instead of trying to obtain a criminal conviction on a more serious misrepresentation charge. This gave both the feds and the defendant access to more ways the matter could be resolved – in this case, a negotiated settlement.
The Forzani Group probe began last year with the feds seizing documents from Forzani’s offices. Sheridan Scott, commissioner of competition, accused the company of advertising bogus “sales” after an analysis of the evidence by investigators.
Specifically, the Competition Bureau alleged:
* Forzani’s ads exaggerated the products’ “ordinary” prices.
* These so-called “ordinary” prices were higher than the manufacturers’ suggested retail prices.
“Although FGL included a disclaimer . . . intended to inform consumers that the original prices did not represent prices at which the products were ordinarily sold, the bureau was of the view that the disclaimer was insufficient . . .” says the consent agreement, dated July 6.
The settlement acknowledges that Forzani’s acquiescence does not constitute any admission of wrongdoing. “FGL settled this matter in good faith on the advice of counsel to avoid the greater expense to FGL of protracted litigation,” Forzani Group said in a news release.
Almost as soon as the ink dried on the signatures, FGL and the bureau had a public spat over what was agreed to.
“The Forzani Group Ltd. . . . has agreed to stop misleading consumers,” the bureau said July 6 in a news release given nationwide publicity.
But Forzani Group agreed to no such thing, having insisted that it did nothing wrong in the first place, and it issued veiled threats of legal action.
“The consent agreement makes clear that FGL admits no wrongdoing and it most certainly does not admit misleading consumers,” the company said in a release.
The Competition Bureau is becoming more aggressive in its watchdog role after a long period of relative inactivity inspired by budgetary constraints through most of the 1990s.
Women’s clothing retailer Suzy Shier Inc. signed a $1-million consent agreement last year after failing to get the message from an ordinary selling price misrepresentation charge that netted it a $300,000 fine in 1995.
And Sears Canada Inc. continues to face a similar legal action launched in 2002 in connection with tire sales advertising.
“There’s always going to be people who choose to stretch the law too far,” says Brian Lemon of Winnipeg, the bureau’s assistant deputy commissioner for the Prairie region.
Misleading advertising hurts honest competitors as much as it does the company’s unwitting customers.
In my work as director of trade practices at the Better Business Bureau of Southern Alberta, I occasionally get calls from businesspersons who complain about how their shady competitors are drawing business away from them.
“There’s a fine line, sometimes, between creative marketing and misleading advertising,” Lemon says.
Ottawa made some aspects of Competition Act enforcement less onerous in 1999 when it converted several criminal offences into civilly actionable matters, making such cases easier and more flexible to handle.
Gone was the requirement to prove the case beyond a reasonable doubt. This now could be done on the balance of probabilities.
Lemon said the bureau receives some 30,000 complaints per year.
When choosing businesses to be singled out, the bureau uses a combination of criteria: Volume of complaints, impact on the marketplace and vulnerability of the victims (i.e.: seniors, immigrants).
It’s a reasonably safe bet, therefore, that the feds won’t target you if you’re a mom ’n’ pop operation in Horsefly, northern B.C. (though your year-round “sale” of gumshoes could land you in hot water with provincial consumer protection regulators).
But the risk of running such ads is very real for any business and any cheap, tawdry financial rewards can be far outweighed by the eventual damage to the company’s treasury and good name.
The bureau says advertisers often are surprised to learn that it is not a valid defence that they did not intend to mislead their customers.
“Be aware that the bureau is out there and doing everything it can to vigorously ensure that these kinds of practices don’t continue,” Lemon says.
ADVERTISING TIPS
* Avoid fine-print disclaimers.
* Avoid vague terms or phrases.
* Keep in mind the “public” includes stupid people as well as smart people.
* Ensure that you have reasonable quantities of the advertised item.
* Make sure your employees know the law.
* Don’t use the words “sale” or “special” unless prices truly have been slashed.
* Don’t run a “sale” for a long period or repeat it every week.
Source: Competition Bureau
(Brock Ketcham can be reached at brock@businessedge.ca)
