Beware of the Risks in Doing Business Online

Any U.S. business targeting Canadian consumers online must comply with changing legislation. Law firm BLG offers tips for minimizing legal and reputational risk

TORONTO--(BUSINESS WIRE)--Consumers are sharing increasing amounts of personal information over the Internet and frequently, this data is being misused. The law in Canada is evolving to keep pace with development on the Internet and the professionals at Borden Ladner Gervais LLP (BLG) say it can be difficult to keep up, leaving any business in any country targeting Canadian consumers exposed to liability.

“Overall, the business community is facing increased scrutiny, and it is important companies understand the risks they face”

“Overall, the business community is facing increased scrutiny, and it is important companies understand the risks they face,” said Barbara McIsaac, counsel and member of BLG’s Advertising, Marketing and Sponsorship Group and National Leader of BLG’s Privacy and Access to Information Group. “In the last few months, Canada has seen significant developments in how consumer privacy is being protected online. Any business in any location that targets Canadian consumers will want to take note or risk serious financial and reputational implications.”

Below are some of the most recent measures taken by Canadian authorities, all of which will significantly impact how businesses will operate when dealing with Canadian consumers online:

• Canada passes toughest anti-spam legislation in the world

Canada’s anti-spam law has been passed, is expected to come into force in 2013, and will affect any business that sends commercial electronic messages to Canadian consumers. While the legislation is called “anti-spam” it extends far beyond bulk electronic communications and will apply to businesses, local or foreign, sending even a single unsolicited e-mail, text, or instant message to Canadian customers or potential customers. Currently there is a consultation on Industry Canada’s latest revised draft of the Electronic Commerce Protection Regulations to the anti-spam legislation; the deadline for comments is February 4, 2013.

Implications for businesses? Hefty penalties for violations - up to $1 million for individuals and $10 million for organizations.

• Canadian study finds websites in breach of privacy laws

In a Privacy Commissioner of Canada research study conducted this past summer, almost 25 per cent of the websites tested – and some of the most popular sites targeting Canadians – were seriously crossing privacy lines, leaking personal information to third parties unbeknownst to the people affected. While the Canadian Privacy Commissioner’s reaction was relatively gentle in this instance, it is expected that many more websites are in violation and more extreme measures could follow should companies not take heed.

Implications for businesses? Serious compromise of reputation if Canadian Privacy Commissioner chooses to name offending parties.

• Stringent guidelines for companies engaged in online behavioural advertising

The Canadian Privacy Commissioner has released guidelines for any business engaged in online behavioral advertising (OBA) – the practice of profiling and delivering advertisements targeted to a user’s interests. All advertisers, browser developers, and website operators are impacted by these new regulations which require businesses to ensure their practices are transparent by obtaining user consent, avoiding tracking children and children’s websites, and destroying user information once it is collected and used.

Implications for businesses? Controversy around the “big brother” effect of OBA could negatively impact reputation and damage consumer trust. Businesses will want to tread lightly if engaging.

• Competition Bureau clamps down on misleading advertising

In the last few months, a number of organizations have been reprimanded by the Canadian Competition Bureau for misleading advertising practices. In the U.S. and Europe these types of claims are being driven by consumer class actions, often resulting in costly litigation and penalties. All this to say that in this online world, consumers are banding together, demanding greater transparency across the board, and companies will have to oblige.

Implications for businesses? Companies charged with misleading advertising face significant reputational risk, and class actions can be extremely costly. Canada is seeing more class actions as it continues to mimic the legislative environment of the U.S.

“Businesses should also be aware that consumer protection legislation varies from province to province, and exists at the federal level. Some Canadian provinces require that specific information be disclosed to a consumer prior to accepting an internet agreement, for example,” said Robert Deane, partner and the Vancouver Regional Leader of BLG’s Advertising, Marketing and Sponsorship Group and Privacy and Access to Information Group. “Failure to comply could give consumers the right to cancel the agreement. The same applies in certain provinces if a supplier fails to provide a copy of the internet agreement. Businesses should be examining provincial nuances to consumer protection legislation as well.”

To reduce their exposure to liability risk and keep pace with the changing online environment, BLG recommends U.S. businesses take the following steps:

1. Conduct an internal audit to account for all the functions where Canadian customers’ personal information is collected, used and / or disclosed by the organization. Consider relevant third parties such as distributors or marketing agencies, and the location of any external servers.

2. Establish procedures to ensure that the collection, use or disclosure of personal information comply with Canadian requirements.

3. Ensure transparency by obtaining customer’s consent for use and disclosure of personal information at the time of collection. Provide enough information to allow all customers to make an informed choice. Establish a convenient procedure for opting out of, or withdrawing consent.

4. Clearly communicate and educate relevant employees on policies that need to be implemented as a result of changing Canadian requirements. Consider holding staff training sessions to ensure everyone is clear on both the guidelines and the risks. Put into place a gate keeping process to ensure that established procedures for monitoring compliance are being followed.

5. Check with (in-house) legal counsel before launching any advertising campaigns or engaging in any formal consumer engagement activities and ensure they have the opportunity to review policies and/or any materials before they are distributed to the Canadian market.

6. Review online contracts and procedures to determine whether they satisfy legislative requirements.

7. Obtain insurance to protect the business, corporate directors and officers from liability where possible.

About Borden Ladner Gervais LLP
Borden Ladner Gervais LLP (BLG) is a pre-eminent full-service, national law firm focusing on business law, commercial litigation and intellectual property solutions for our clients. With more than 750 lawyers, intellectual property agents and other professionals in six Canadian cities, BLG assists clients with their legal needs, from major litigation to financing, advertising and marketing, privacy, and patent registration. For further information, visit blg.com

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