E-Commerce and the Virtual Shopaholic



Mark Katz for The Lawyers Weekly

June 4, 2010

Online commerce continues to soar in popularity. Forecasts estimate that use of the Internet to purchase goods and services will grow 21 per cent year-over-year in 2010 alone, notwithstanding the recent economic downturn. Indeed, while the pace of online sales slowed somewhat in the last year, growth in e-commerce still managed to outstrip the growth in sales of "brick and mortar" stores.

Online shopping is popular in Canada as well. According to the most recent Statistics Canada data available, the value of online shopping grew 62 per cent in Canada between 2005 and 2007. And this growth is expected to continue, as consumers become increasingly comfortable with shopping online and retailers invest more in their e-commerce operations.

Not surprisingly, the growth of e-commerce has been accompanied by a host of legal issues, including issues involving competition and consumer protection legislation. In some cases, the issues raised are entirely novel; in others, it is a question of how to apply long-standing rules to this new form of commerce.

The fundamental question boils down to one of trust. For example, about one half of all Canadians surveyed expressed hesitation about using their credit cards to make online purchases because of security concerns. Even shoppers who had purchased online said that they were still worried about using their credit cards when purchasing via the Internet.

The goal of competition enforcement in this area, therefore, is to combat the types of practices that can undermine the integrity of online shopping and thus erode consumer confidence in e-commerce as a viable and competitive option.

Fraud

The Internet opens up a wealth of information to consumers. Unfortunately, the free flow of information online also means greater opportunity for all forms of fraudulent marketing. The Canadian Competition Bureau estimates that Internet scams have risen an alarming 77 per cent since 2005, costing the Canadian economy millions of dollars each year. Some of the most popular scams involve advertisements for jobs that promise high income for little effort; bogus promotions for health care products touting "breakthrough" results; fraudulent business or investment opportunities; and supply and merchandise scams that result in billings for products that were never ordered or ordered but never received.

Endorsements and testimonials

Endorsements and testimonials are commonplace in advertising because they allow advertisers to promote their products on the basis of recommendations from third parties. However, the explosion in popularity of social media and other Internet forums (such as blogs) can now make it difficult for consumers to decide when a review or endorsement is truly independent.

Recognizing the importance of this issue, the U.S. Federal Trade Commission (FTC) issued revised guidelines in 2009 to address online endorsements. According to the FTC, bloggers and similar "word of mouth" marketers must disclose any "material connections" they have to the seller, including if they received free samples in exchange for providing a review.

The Competition Bureau has not yet updated its own analogous guidelines to deal specifically with online endorsements, but the general rule that applies in Canada is also that endorsements must disclose any relationship between the endorser and the advertiser.

Disclaimers

The use of disclaimers is another issue that takes on added and particular importance with the advent of online commerce. Generally speaking, it is appropriate to use disclaimers to clarify what otherwise might be an ambiguous representation or to support an otherwise incomplete claim.

The concern with disclaimers used on websites is that they be as clear and conspicuous as possible. For example, the Competition Bureau suggests that online disclaimers be placed, where possible, as close to and on the same screen as the representations to which they relate, and that they be presented in technology-neutral format so that consumers can view them regardless of the particular hardware or software being used. Disclaimers may also have to be repeated on multiple pages of a website.

Spam

Canada ranks fourth in the world in terms of producing spam (or unsolicited junk e-mail), but is one of only four OECD countries (and the only one in the G8) without specific spam legislation. Legislation was introduced in Parliament to address this shortcoming, but "died" on the order page when Parliament was prorogued in December 2009 and has not yet been re-introduced.

The proposed legislation sought to prohibit sending (or causing or permitting to be sent) commercial electronic messages without the recipient's express or implied consent. The proposed legislation also contained prohibitions directed at the use of "spyware" and other means to illicitly obtain private information without consent (such as "phishing" ). The proposed legislation would also have amended the Competition Act to expressly extend the various prohibitions against misleading advertising to electronic messages and to introduce a private action for damages suffered as a result of any contravention.

The above represents only a partial list of competition/consumer protection issues raised by the explosion of online commerce. Other topical issues include "behavioural advertising" (tracking information about customers' preferences to create targeted advertising), selective distribution practices (suppliers prohibiting distributors from selling their products over the Internet in order to minimize price erosion) and multi-jurisdictional enforcement (given the borderless nature of the Internet).

These and other issues will be occupying the attention of competition authorities, including the Competition Bureau, for some considerable time to come.

Mark Katz is a partner in the Competition & Foreign Investment Review Group of Davies Ward Phillips & Vineberg LLP in Toronto.

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