Court and Parties

ONTARIO COURT OF JUSTICE DATE: 2021 03 29

BETWEEN:

HER MAJESTY THE QUEEN

— AND —

1806369 ALBERTA LIMITED (doing business as “ReviveYou Media”)

Before: Justice Rondinelli

Reasons for Sentence released on March 29, 2021

Counsel: G. Caracciolo, counsel for the Public Prosecution Service of Canada B. Heller, counsel for the Defendant

Rondinelli J.:

Reasons for Sentence

[1] On January 28, 2021, 1806369 Alberta Limited (doing business as “ReviveYou Media”) pleaded guilty before me to one count of false or misleading representations under s. 52(1) of the Competition Act. The Public Prosecution Service of Canada proceeded by indictment.

[2] Also on January 28, 2021, I delivered brief oral reasons for sentence, ordering 1806369 Alberta Limited to pay a fine of $15 million dollars, with detailed reasons to follow. These are those reasons.

Agreed Statement of Facts

[3] As part of the guilty plea proceedings, the following statement of facts were agreed upon.

[4] 1806369 Alberta is a company incorporated under the laws of Alberta on March 5, 2014, with a sole director and the registered trade name, “ReviveYou Media”. Though presently inactive, 1806369 Alberta was a display media buyer and advertiser of, among other things, diet pills offered on a trial basis.

[5] After being contacted in March 2013 by the Jumbleberry Interactive Business Group Limited (“Jumbleberry”) through its Business Development Manager (the “Jumbleberry BDM”), the person who would later become the sole director of 1806369 Alberta upon its incorporation began working with Jumbleberry as an affiliate (the “Affiliate”) through his company 1494861 Alberta Limited (doing business as DSV2 Media), pushing traffic for various offers, including those offered on a free-trial basis. An affiliate, also known as an affiliate marketer, is someone who is paid a commission in exchange for sales generated from the affiliate’s referrals.

[6] Affiliates “push” traffic to websites by buying space on various platforms (e.g., banner ads, social media) and placing advertisements. Once a consumer clicks on the link, they are typically brought to an “advertorial” page, promoting the product in question. If a consumer is interested in trying the product, the consumer clicks on a “call to action” button (such as “Claim Your Trial” or “Buy Now”) on links and banner ads posted on blogs, news sites, and in social media, and is funneled to a version of the website (referred to as “funneled” versions). These funneled websites are typically promoted by affiliates and are managed by the merchant. The merchant is the entity that is ultimately responsible for product supply and distribution, and customer service.

[7] Jumbleberry is an “affiliate network” and connects affiliates with merchants. Sales generation and acquisition is done by the affiliate network. Further, the affiliate network is responsible for making the webpages as effective as possible so as to be attractive to the affiliates, as affiliates will gravitate towards webpages with higher sales.

[8] On June 6, 2013, the Affiliate contacted Jumbleberry and put forward the idea of working with Jumbleberry on a “straight sale offer”, which in the context of online sales is a conventional sale without a product trial. Although the proposition was not appealing to Jumbleberry, the Jumbleberry BDM suggested that the Affiliate might consider working as a merchant with them on a trial offer. After extensive communications with the Jumbleberry BDM regarding the prospect of doing a trial offer, the Affiliate ultimately decided to go forward with the proposal with their health and dietary supplements: Supreme Garcinia Cambogia (“Garcinia”) and Pure Slim Cleanse/Pure Cleanse (“Cleanse”) (“the Products”).

[9] On February 6, 2014, domain names were registered for trysupremegarciniacambogia.com and trypureslimcleanse.com by the Affiliate. A third website, www.trysupremegarciniacambogia.net was registered at a later date (collectively, the “websites”).

[10] On March 5, 2014, 1806369 Alberta was incorporated for the purpose of operating the trial offer business with the Affiliate as the sole director. A second director was added on or about September 30, 2016. It is not alleged, nor is it admitted that this second director had any knowledge of or participated in the conduct alleged in the Information.

[11] The Jumbleberry BDM referred 1806369 Alberta to a developer, (the “Developer”) who was familiar with Jumbleberry’s offers and who could provide technical assistance. The Developer was responsible for the technical aspects / coding of the websites. Jumbleberry, after consultation with 1806369 Alberta, provided the design and compliance layout of the websites.

[12] With 1806369 Alberta’s knowledge and consent, Jumbleberry developed, and the Developer wrote the code for, “bank pages” or “safe sites” (referred to as “root” versions). Root versions are websites accessed by typing in the main Uniform Resource Locator (URL) and/or performing a simple search engine internet search. In addition, Jumbleberry developed, and the Developer wrote the code for, the “live pages” (the funneled versions).

[13] Root versions of the websites were created to meet the requirements of payment processors, banks or other entities that seek to minimize consumer complaints caused by consumers who did not know how the offers function. The root versions of the websites for Garcinia and Cleanse were submitted to the payment processor for review prior to “going live”. The types of requirements imposed by the banks and payment processors include how prices, terms, and conditions are disclosed, and what corporate contact information is presented.

[14] Both the root and the funneled versions of the websites used language such as “risk-free trial”. However, the funneled versions made additional representations that consumers “just pay a small shipping fee”. The true terms of the offer, including the recurring monthly charge, were disclosed in the terms and conditions section of the websites, which were presented in a location or in a way that was not readily apparent to the consumer (e.g., greyed-out font, small print).

[15] Nearly all sales on the websites were made through the funneled pages.

[16] On May 14, 2014, 1806369 Alberta signed a “Master Service Agreement” with Jumbleberry. The agreement sets out that the advertiser, defined in the contract as 1806369 Alberta Ltd. DBA ReviveYou Media, shall be solely responsible and liable for content. Under the terms of this Master Service Agreement, Jumbleberry created the websites at issue for its client, ReviveYou Media.

[17] At all times relevant to the investigation that has led to these proceedings, 1806369 Alberta had authority, direction and control over www.trysupremegarciniacambogia.com, www.trysupremegarciniacambogia.net, and www.trypureslimcleanse.com. Although others had access to the websites and were able to make changes to them, they could not do so without the approval and authorization of 1806369 Alberta.

[18] Jumbleberry built the websites for 1806369 Alberta as part of their service and introduced it to various service providers within the industry.

[19] In June 2014, Jumbleberry launched traffic to the websites. In effect, as of that date, Jumbleberry promoted ReviveYou Media’s offers to their affiliates so that they could begin pushing traffic to the websites.

[20] The websites promoted the sale of the Products.

[21] Consumer complaints indicated that the websites created the general impression that a consumer could order a free trial and only pay for the shipping fees with no further obligations.

[22] Notwithstanding that general impression, consumers who completed the purchasing process were signing up for a monthly subscription of the Products, at the price of $99.95 USD per month (for Garcinia) and $89.95 USD per month (for Cleanse) if not returned 14 days (for Garcinia) or 18 days (for Cleanse) from the date ordered. As indicated above, the true cost of the offer was disclosed in terms and conditions that were not readily apparent to consumers, or located in a place and in a font/colour that is not readily apparent to consumers.

[23] Complainants indicate that they acted based on the representations of a “free trial” and had they known the true nature of the offer, they would not have made the purchase.

[24] The purpose of the websites was to promote and sell monthly subscriptions of the Products.

[25] The websites were accessible to the public on the internet, through desktop computers or mobile devices, and were mostly accessed when consumers clicked on ads or hyperlinks placed by affiliates in blogs, social media, etc.

[26] 1806369 Alberta was aware of consumer complaints regarding the misleading nature of the representations. Consumers with complaints could contact a 1-866 telephone number listed on the Products or send complaints to the P.O. Box listed on the Products, which was the address of the fulfillment house, which shipped and held the licence for the Products. Consumer complaints that were sent to the P.O. Box listed on the Products were forwarded to the attention of ReviveYou Media. 1806369 Alberta did not alter the websites in response to these complaints, but rather, dealt with any consumer complaints as they arose.

[27] 1806369 Alberta engaged a customer service company specializing in online campaigns whose systems were designed to optimize and maintain client revenue. In other words, customer service would offer alternatives to the consumer other than obtaining a full refund. If however, the consumer insisted on obtaining a refund, or threatened to lodge a complaint (e.g., to the Better Business Bureau, their credit card company and/or law enforcement), a full refund would be granted. The consumer would often opt to keep the product and pay a lesser amount rather than return the product and receive a full refund.

[28] On July 26, 2017, 1806369 Alberta informed Jumbleberry that they were winding down the trial business owing to financial difficulties, and gave instructions to pause all traffic sources. The funneled sites would have become inactive at that time. The root sites remained live until they were taken down in 2018.

[29] 1806369 Alberta admits the foregoing facts pursuant to section 655 of the Code solely for the purposes of dispensing with their proof at trial in this proceeding.

[30] 1806369 Alberta acknowledges, on the basis of the facts set out above with respect to the conduct alleged in the Information, that all constituent elements of an indictable offence under subsection 52(1) of the Competition Act have been established.

[31] 1806369 Alberta had sales of the Products of approximately $19.6 million (USD) in Canada for the period, June 2014 to October 2016.

[32] Upon hearing of the Competition Bureau’s investigation, 1806369 Alberta approached the Competition Bureau and expressed a desire to settle the matter. Resolving the matter outside of court has saved the Commissioner considerable costs of further investigation and litigation.

The Joint Position

[33] Experienced counsel have jointly submitted that a fine totaling $15,000,000 be imposed. In R. v. Anthony-Cook, 2016 SCC 43, the Supreme Court of Canada held that a trial judge should not depart from a joint submission on sentence unless the proposed sentence would bring the administration of justice into disrepute or is otherwise contrary to the public interest. The Court noted at para. 34, “[r]ejection denotes a submission so unhinged from the circumstances of the offence and the offender that its acceptance would lead reasonable and informed persons, aware of all the relevant circumstances, including the importance of promoting certainty in resolution discussions, to believe that the proper functioning of the justice system had broken down.”

[34] Although Anthony-Cook dealt with a joint position in a criminal proceeding, I am of the view that the principles stipulated in Anthony-Cook apply in this case. In R. v. Benlolo, the Court of Appeal observed at para. 14 that Parliament made two significant changes to the Competition Act in 1999: (1) it changed the misleading advertising offence from a strict liability offence to a full mens rea offence, and (2) it added provisions that could be used by the Competition Bureau for civil enforcement to stop misleading advertising business practices without the need to resort to the criminal law.

[35] By proceeding by indictment in this case, the Public Prosecution Service of Canada was of the view that the circumstances of this offence warranted criminal prosecution. As such, the proposed joint submission should be considered within the Anthony-Cook matrix.

[36] The seriousness of the offence before the court cannot be overstated. A great number of consumers were impacted by this “subscription trap” that netted approximately $19.6 million dollars (USD). The mistrust of the digital economy that would flow from the company’s actions is an aggravating factor that may have enduring repercussions. The pandemic has crystalized our dependence on a digital world – from schooling to work and everything in-between. In the digital economy world, that dependence is primarily based on trust. Consumers are entitled to expect that they will receive items or services that are fairly represented to them when they decide to make a purchase.

[37] Turning to the mitigating factors, 1806369 Alberta Limited has pleaded guilty and has no prior record. Resolution discussions began before charges were even laid, saving a great deal of time both in the investigation and the prosecution of this offence.

[38] In considering the joint position, I cannot overlook the fact that 1806369 Alberta Limited does not have the ability to pay the proposed fine. However, I agree with the parties that it is important to impose a significant fine that constitutes more than an effective licence fee or part of the cost of doing business: See Benlolo, supra, at para. 41. It remains important for courts to denounce breaches of the Competition Act and send a message of deterrence to those individuals and companies tempted to engage in unlawful competition.

[39] In my view, the proposed $15,000,000 fine is sufficient to satisfy the principles of deterrence and denunciation.

Conclusion

[40] For the above reasons, I accede to the joint submission and impose a fine of $15,000,000 payable within 2 years.

[41] Finally, as requested by the parties, a prohibition order is made under s. 34(1) of the Competition Act for 10 years.

Released: March 29, 2021 Signed: Justice Rondinelli