Commissioner settles “Made in Canada” misleading advertising dispute

Canadian sportswear maker Moose International Inc. announced on December 6, 2016, that it had resolved its dispute with the Commissioner of Competition (Commissioner) over the accuracy of its claims that certain of its high-end parkas were made in Canada. The Commissioner had filed an application with the Competition Tribunal in April 2016 alleging the maker of Moose Knuckles-branded premium parkas breached the Competition Act’s misleading advertising provisions by improperly claiming that certain of its parkas were made in Canada.¹ The Commissioner alleged the parkas in question were “mostly manufactured in Vietnam and elsewhere in Asia…[when] only the finishing touches to the jackets, such as adding the trim, zippers and snaps, are done in Canada.”

Commissioner’s position

The case turned largely on the interpretation of the Commissioner’s bulletin on "Product of Canada" and "Made in Canada" Claims (Guidelines). The Guidelines provide that the Commissioner will not take issue with “Made in Canada” claims where the following three conditions are met:

• The last substantial transformation of the good occurred in Canada;
• At least 51% of the total direct costs of producing or manufacturing the good have been incurred in Canada; and
• The ‟Made in Canada” representation is accompanied by a qualifying statement, such as "Made in Canada with imported parts" or "Made in Canada with domestic and imported parts." This could also include more specific information such as "Made in Canada with 60% Canadian content and 40% imported content."

The Commissioner alleged the Moose Knuckles jackets in question did not meet these three conditions because:

• Canadian contribution to the jackets did not constitute a substantial transformation;
• Total direct manufacturing costs in Canada were less than 51% of the overall costs; and
• The “Made in Canada” claim had not been appropriately qualified. The statement “Made in Canada with imported textiles” on Moose Knuckles care labels was not sufficient.

Moose Knuckles’ position

The company vehemently denied the allegations and made four major arguments in its response to the Commissioner’s allegations. First, it claimed it fulfilled the criteria in the Guidelines, as over 51% of the production costs were incurred in Canada. Had it not settled, the case would have provided useful guidance on the types of costs that could properly be included for this calculation.

In the alternative, Moose claimed the Guidelines are not legally binding as the criteria set out above are not contained in the text of the Act. It also argued it did its due diligence by previously consulting and working with the Competition Bureau to comply with the Guidelines, which entitled it to rely on the due diligence defence in section 74.1 of the Act. Lastly, the company argued it was being used as a test case to see if the bureau can force Canadian manufacturers to comply with the Guidelines.

Commissioner’s reply

In his reply, the Commissioner denied that Moose obtained approval or guidance from the bureau before moving production to Vietnam and therefore it could not rely on the due diligence defence. Additionally, while the Commissioner does not dispute that the Guidelines are not legally binding, as with all bureau guidelines, they are intended to convey the Commissioner’s view of how to interpret the law, and are meant as useful tools for the tribunal and courts to consider in their analysis and to provide guidance to the industry. However, the Commission argued that even if the Guidelines were not considered, the “Made in Canada” claims should still be considered misleading based solely on the general principles of section 74.01 of the Act.

Mediated outcome

The matter had been set for a hearing in February 2017, but in separate press releases on December 6 and December 7, Moose and the Commissioner respectively announced the parties had resolved the matter through mediation and the terms of settlement are reflected in a consent agreement. The company must publish corrective notices, add qualifying language to its “Made in Canada” claims to accurately describe the origin of the garment, pay $750,000 to various charities over five years, and adopt a compliance policy to ensure the company complies with the Act’s misleading advertising provisions. The qualifying language for the parkas in question will state they are made in Canada using Canadian and imported components. The company, as is usual in consent agreements, did not have to admit it violated the Act.

In light of this outcome, parties intending to market their goods as having been made in Canada are reminded to review the Commissioner’s Guidelines.

The author wishes to thank Jaray Zhao, student at law, for her assistance in preparing this legal update.

Footnote

¹ Commissioner of Competition and Moose International Inc., CT-2016-004.