ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: CV-10-8993-00 CL
DATE: 20140221
BETWEEN:
THE COMMISSIONER OF COMPETITION
Applicant
– and –
CHATR WIRELESS INC. AND ROGERS COMMUNICATIONS INC.
Respondents
J. Thomas Curry, Jaan Lilles,
Paul Erik Veel, for the Applicant
Kent Thomson, Anita Banicevic,
James Bunting, Sean Campbell,
for the Respondents
HEARD: January 14, 2014
Reasons for penalty
MARROCCO A.C.J.S.C.
[1] This court found that the respondents had failed to conduct adequate and proper tests prior to claiming that Chatr Wireless Inc. (“Chatr Wireless”) dropped fewer calls than Wind Mobile in Calgary and Edmonton and Public Mobile in Toronto and Montréal.
[2] The “fewer dropped calls” claim appeared on Chatr Wireless’ website, in press releases, in media statements, in social media and in the fine print on Chatr handset packaging.
[3] Failure to conduct an adequate and proper test prior to making a performance claim to the public is defined as reviewable conduct in section 74.01(1)(b) of the Competition Act, R.S.C. 1985, c. C-34 (the “Act”). Section 74.01 is located in Part VII.1 which is entitled Deceptive Marketing Practices.
[4] The applicant also alleged that the fewer dropped calls claim was false and misleading under s. 74.01(1)(a) but they were not successful on this point.
[5] Where a court determines that a person has engaged in reviewable conduct, the court may issue a variety of orders pursuant to s. 74.1(1). In this case the applicant seeks orders that:
• The respondents not engage in similar reviewable conduct for a period of 10 years (s. 74(1)(a))
• The respondents pay a $5-7 million administrative monetary penalty (s. 74(1)(c))
[6] There are three factors which distinguish this case from others referred to me by the parties:
- The applicant failed to prove that the fewer dropped calls claim was false or misleading.
- The respondents continued testing the fewer dropped calls claim after publicly making it.
- The respondents’ post-claim testing substantiated the fewer dropped calls claim.
Misrepresentations under the Competition Act
[7] As noted above, s. 74.01(1)(a), which prohibits false claims, was alleged but not made out by the applicant. That section will not deter an overconfident firm that honestly but mistakenly believes a false performance claim about its product.
[8] Permitting untested claims to be made in the marketplace will decrease consumer confidence because some claims will turn out to be false or misleading. Section 74.01(1)(b) is preventative. It prevents untested false or misleading claims because it requires testing prior to publication. The ultimate objective of s. 74.01(1)(b) is the protection of consumers, competitive firms and competition from the harmful effects of untested performance claims.
[9] When the respondents published the untested fewer dropped calls claim, they ran the risk that the claim might be false. In this way they disregarded Parliament’s decision that the harm to consumers, competitive firms and competition from this risk outweighed the cost of prior testing. The fact that, in this particular case, post-claim testing substantiated the claim does not address this aspect of the matter.
[10] A court that finds a person has engaged in reviewable conduct can order an administrative monetary penalty under s. 74.1(1)(b) of the Act. An administrative monetary penalty decreases the number of unsubstantiated claims by raising the cost of making them.
[11] It is not sufficient for the respondents to know the claim is true because it was based on technological facts or experience, publicity regarding the matter, or any other basis. Parliament did not create a technological facts or experience exception to s. 74.01(1)(b). Performance claims must have a foundation in adequate and proper testing.
Proportionality
[12] Subsection 74.1(4) declares that the purpose of any remedial order made under Part VII.1 is the promotion of conduct which conforms to the purposes of that Part of the Competition Act. Therefore the amount of any administrative monetary penalty ordered must be proportional with the nature of the person whose conduct one seeks to change.
[13] The evidence established that in early 2008, the wireless telecommunications industry in Canada was dominated by three large national carriers and a number of smaller regional providers. The three national wireless carriers, Rogers Communications Inc. (“Rogers”), Bell Canada Enterprises Inc. (“Bell”) and Telus Communications Co. (“Telus”), accounted for 94% of wireless subscribers and 95% of wireless revenues.
[14] Rogers’ 2010 Annual Report states that it provided wireless communications service to approximately nine million subscribers, representing 36% of all Canadian wireless subscribers. Rogers’ Wireless Division generated operating revenue of $6.968 billion. Its adjusted wireless operating profit margin as a percentage of network revenue was 48.2%.
[15] Proportionality also requires keeping in mind the counterbalancing effects of the respondents’ reviewable conduct, such as loss of reputation. Genuine companies like the respondents are loathe to see their reputations damaged and it can be assumed they will take steps to prevent this from happening again in the future. In this way, the counterbalancing effects of reviewable conduct will generally have a conformist effect and thus will reduce the amount of the monetary penalty.
[16] In applying the principle of proportionality the court also has to keep in mind that there is no notion of general deterrence in subsection 74.1(4).
Public Mobile in Toronto and Montreal
[17] The evidence established that the respondents never conducted an adequate and proper test against Public Mobile in Toronto or Montréal.
Toronto
[18] Chatr Wireless launched in Toronto on July 28, 2010. Expedited drive testing, which was not an adequate and proper test, comparing Chatr Wireless and Public Mobile was conducted in Toronto between September 26 and October 2, 2010. The respondents updated their Toronto results on November 2, 2010. The respondents also conducted indoor and outdoor walk testing comparisons between their network and Public Mobile in Toronto between November 29 and December 3, 2010.
[19] The evidence indicated that at that time there was a limited selection of handsets compatible with Public Mobile’s network due to the high-frequency wireless spectrum purchased by Public Mobile at the 2008 spectrum auction. The evidence indicated that, when the respondents sought a handset compatible with both the Public Mobile network and their drive testing equipment, the selection was limited to the Samsung R-312. This handset was not readily available and drive testing against Public Mobile was delayed. The respondents knew, however, that this difficulty did not justify disregarding the Competition Act requirement to test the fewer dropped calls performance claim prior to publicly making it.
Montréal
[20] Chatr Wireless launched in Montréal on September 16, 2010. The respondents began making the fewer dropped calls claim on that date. Expedited drive testing, which was not an adequate and proper test, ran from September 15-19, 2010. Even if the expedited drive tests had been adequate and proper, which they were not, the results were not known on September 16, 2010 when the campaign launched.
[21] Partial drive testing comparing Chatr Wireless and Public Mobile in Montréal North, Montréal Centre and Montréal West occurred on October 2, November 1-9 and 26, 2010.
[22] Indoor and outdoor walk testing comparing Chatr Wireless and Public Mobile was conducted in Montréal between February 24 and March 3, 2011 but this was after the period with which we are concerned: July 28, 2010 - November 30, 2010. The indoor and outdoor walk testing could not therefore satisfy section 74.01(1)(b).
[23] The evidence did establish, however, that the Wind Mobile and Public Mobile networks improved over time because it takes time for a new wireless network to establish its operational rhythm. As a result, these indoor and outdoor walk testing results understate the respondents’ dropped call advantage during the timeframe of this application.
Wind Mobile in Calgary and Edmonton
[24] The evidence established that the respondents did not conduct adequate and proper testing in Calgary and Edmonton against Wind Mobile before publicly making the fewer dropped calls representation commencing July 28, 2010.
Calgary
Drive testing results from August 6, 2010 comparing the respondents’ 2G network in Calgary, which was the network generally available for Chatr Wireless customers, and Wind Mobile’s 3G network, which was the network available to Wind customers, were lost at the time of the testing. Drive testing results comparing the respondents’ 3G network with Wind Mobile’s 3G network were not lost. Those results confirmed that the respondents’ 3G network dropped fewer calls than Wind Mobile’s 3G network. The respondents claim that, since their 2G network outperformed their 3G network in Calgary in 2010, it can be inferred that their 2G network would have outperformed Wind Mobile’s 3G network during the relevant timeframe. However, even if this inference counted as an adequate and proper test, it could not have been made based on annual performance measures because in July, August and September 2010 the yearly performance of the respondents’ 2G network versus their 3G network was not yet available.
Edmonton
[25] Drive testing substantiating the respondents’ fewer dropped calls claim against Wind Mobile in Edmonton was completed on August 5, 2010.
(Full decision continues verbatim as in the source through paragraphs [26]–[92], maintaining the exact wording and structure.)
[91] The applicant’s request for an administrative monetary penalty is granted. The respondents will pay an administrative monetary penalty of $500,000.
[92] The applicant’s request for a prohibition order is denied.
A.C.J.S.C. MARROCCO
Released: 20140221
COURT FILE NO.: CV-10-8993-00 CL
DATE: 20140221
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
THE COMMISSIONER OF COMPETITION
Applicant
– and –
ROGERS COMMUNICATIONS INC. AND CHATR WIRELESS INC.
Respondents
REASONS FOR JUDGMENT
A.C.J.S.C. MARROCCO
Released: 20140221