The federal Competition Act, as the name implies, aims to ensure that there is fair and open competition in Canadian marketplaces. The Act creates the position of Commissioner of Competition, who is head of the Competition Bureau and is responsible for enforcing the Competition Act (and also the Consumer Packaging and Labelling Act for products other than food). The Commissioner's job is to ensure that mergers, anti-competitive behaviour and the like don't undermine competition.

Part of his or her mandate involves taking action against companies that commit various types of consumer frauds. For example, the Competition Bureau frequently deals with telemarketing fraud and similar scams. It also issues numerous warnings about products or services about which false advertising claims are being made.

Until recently, provisions of the Competition Act with respect to misleading advertising were enforced solely through the criminal courts. That is, if the Commissioner, following an inquiry, decided there was sufficient evidence against a company or companies to warrant it, the case was handed over to the Attorney General of Canada for criminal prosecution.

In 1999, a new section was added to the Act to allow the Competition Bureau to take civil action against those engaging in misleading advertising, referred to in that case as "reviewable conduct". In cases, such as the 'light' and 'mild' complaint, where violations of both criminal and civil provisions are alleged, it is up to the Commissioner to decide which type of court, if any, to take the matter to.

The Act explicitly allows the Commissioner to pursue both criminal and civil action in the same case.

Two sections of the Competition Act are of particular relevance in this case.

Section 52 creates a criminal offence:

52. (1) No person shall, for the purpose of promoting, directly or indirectly, the supply or use of a product or for the purpose of promoting, directly or indirectly, any business interest, by any means whatever, knowingly or recklessly make a representation to the public that is false or misleading in a material respect.

(1.1) For greater certainty, in establishing that subsection (1) was contravened, it is not necessary to prove that any person was deceived or misled.

[…]

(2) For the purposes of this section, a representation that is

(a) expressed on an article offered or displayed for sale or its wrapper or container,

(b) expressed on anything attached to, inserted in or accompanying an article offered or displayed for sale, its wrapper or container, or anything on which the article is mounted for display or sale,

(c) expressed on an in-store or other point-of-purchase display,

(d) made in the course of in-store, door-to-door or telephone selling to a person as ultimate user, or

(e) contained in or on anything that is sold, sent, delivered, transmitted or made available in any other manner to a member of the public,

is deemed to be made to the public by and only by the person who causes the representation to be so expressed, made or contained, subject to subsection (2.1).

[…]

(4) In a prosecution for a contravention of this section, the general impression conveyed by a representation as well as its literal meaning shall be taken into account in determining whether or not the representation is false or misleading in a material respect.

(5) Any person who contravenes subsection (1) is guilty of an offence and liable

(a) on conviction on indictment, to a fine in the discretion of the court or to imprisonment for a term not exceeding five years or to both; or

(b) on summary conviction, to a fine not exceeding $200,000 or to imprisonment for a term not exceeding one year, or to both.

Section 74.01 deals with misleading advertising as a civil matter:

74.01 (1) A person engages in reviewable conduct who, for the purpose of promoting, directly or indirectly, the supply or use of a product or for the purpose of promoting, directly or indirectly, any business interest, by any means whatever,

(a) makes a representation to the public that is false or misleading in a material respect;

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Various penalties may apply to companies or people involved in reviewable conduct, under the terms of s. 74.1:

74.1 (1) Where, on application by the Commissioner, a court determines that a person is engaging in or has engaged in reviewable conduct under this Part, the court may order the person

(a) not to engage in the conduct or substantially similar reviewable conduct;

(b) to publish or otherwise disseminate a notice, in such manner and at such times as the court may specify, to bring to the attention of the class of persons likely to have been reached or affected by the conduct, the name under which the person carries on business and the determination made under this section, including

(i) a description of the reviewable conduct,

(ii) the time period and geographical area to which the conduct relates, and

(iii) a description of the manner in which any representation or advertisement was disseminated, including, where applicable, the name of the publication or other medium employed; and

(c) to pay an administrative monetary penalty, in such manner as the court may specify, in an amount not exceeding

(i) in the case of an individual, $50,000 and, for each subsequent order, $100,000, or

(ii) in the case of a corporation, $100,000 and, for each subsequent order, $200,000.

[…]

(4) The terms of an order made against a person under paragraph (1)(b) or (c) shall be determined with a view to promoting conduct by that person that is in conformity with the purposes of this Part and not with a view to punishment.