APPEAL WATCH: Lights, Camera, Action – Competition Tribunal applies drip pricing provision

In Canada (Commissioner of Competition) v Cineplex Inc., 2024 Comp Trib 5 [Cineplex], the Competition Tribunal (“Tribunal”) levied penalties of nearly $40 million dollars against Cineplex Inc., finding that Cineplex Inc. made price misrepresentations through its digital ticket purchasing platforms. The decision marks the first contested proceeding involving the recently enacted “drip pricing” deceptive marketing provision under the Competition Act, RSC, 1985, c C-34 [Act]. Cineplex Inc. has filed to appeal the matter to the Federal Court of Appeal (“FCA”), where the court will hopefully provide greater clarity on the provisions’ interpretation. 

Facts 

The Commissioner of Competition commenced an application in May 2023, alleging that Cineplex Inc had engaged in reviewable conduct under s.74.01(1) and 74.01(1.1) of the Act by promoting ticket prices online that were unattainable to consumers due to obligatory online booking fees (Cineplex, para 6). According to the Commissioner, the manner in which fixed, obligatory booking fees were added to online purchases constituted a false or misleading representation, and fell under the recently enacted “drip pricing” provision of the Act.

Drip pricing refers to conduct wherein a representation of price is made, however that price is unobtainable in reality due to the imposition of fees or charges later in the purchasing process. While this decision marks the maiden voyage of the new drip pricing provision, the Commissioner has pursued drip pricing claims in the past under the ordinary false or misleading representation provisions. 

Purchasing Tickets and the Booking Fee

Consumers may purchase tickets to Cineplex theatres through the Cineplex app, on the Cineplex website, or by visiting a Cineplex theatre in person. Online ticket purchasing, whether done through their website or app, required purchasers to first log in (Cineplex, para 116). Once logged in, consumers could navigate the Cineplex app or website and purchase tickets and select seats in advance of a screening. Consumers could see the various categories of tickets (adult, child, senior) and their corresponding prices which appeared identical to their in-person purchase counterparts (Cineplex, para 151). 

In late 2022, Cineplex implemented a $1.50 online booking fee to increase revenues and profit margins (Cineplex, para 120). The online booking fee applied to all tickets purchased through the Cineplex app or website up to a limit of four tickets. Members of Cineplex’s Scene+ program received a 50¢ discount ($1 per ticket), and members of Cineplex’s CineClub subscription programs had their booking fees waived (Cineplex, para 121). In contemplation of this booking fee, Cineplex’s market research suggested that a $1–2 increase in movie theater ticket prices is material to consumers (Cineplex, paras 122, 419). Since its inception in 2022, Cineplex Inc.’s online booking fee has generated revenues in excess of $38 million dollars (Cineplex, para 128).

During the ticket purchasing process, a “ribbon” would appear at the bottom of the consumer’s screen, showing the subtotal of their ticket purchase (Cineplex, para 151). This subtotal was the aggregate of the ticket price and the online booking fee — however no breakdown was provided (Cineplex, para 152). By clicking this “ribbon,” consumers could complete their entire transaction without seeing a ticket price breakdown or any explicit reference to the online booking fee (Cineplex, para 168, 170). 

Consumers could scroll to the bottom of the webpage which contained an indicator of applicable booking fees to their purchase (Cineplex, para 153). This indicator would reflect the booking fee levied on the consumer’s purchase based on the number of tickets chosen, and the consumer’s membership status. Next to this indicator was a small “information” button which, if clicked, showed the amount of the booking fees, that the online booking fees were non-refundable, and that online booking fees were capped at four tickets (Cineplex, para 154).

Issue

At issue before the Tribunal was whether Cineplex Inc. had engaged in a reviewable practice contrary to s.74.01(1.1) or alternatively, s.74.01(1)(a) of the Act. 

The Tribunal’s Decision 

The Tribunal considered whether the manner in which Cineplex advertised its ticket prices and administered its online booking fees fell within the ambit of s.74.01(1.1) — the Act’s newly enacted “drip pricing” provision — or constituted a false or misleading representation pursuant to s.74.01(1)(a) of the Act (Cineplex, para 218). 

As a preliminary matter, the Tribunal also considered submissions on the Act’s underlying objectives (Cineplex, para 222). Further, pursuant to s.74.03, the Tribunal considered both the literal meaning of Cineplex’s representations along with the general impressions they left with consumers (Cineplex, para 241).       

The Act’s Objectives

Upon hearing submissions from the parties on the underlying objectives of the Act’s deceptive marketing provisions, the Tribunal concluded that their aims are: 

to enhance and protect the proper functioning of markets, so markets are not distorted by misinformation; to protect consumers from purchasing goods or services based on inaccurate information; to encourage competition on the merits by incenting firms to provide accurate and truthful information to the public, particularly as to the price of goods and services, for the benefit of both consumers and honest competitors; and to support the production and supply of higher quality goods and services at lower prices. (Cineplex, para 233).

General Impression

Pursuant to s.74.03, the Tribunal must consider the literal meaning and the general impression conveyed by representations reviewed under s.74.1 (Cineplex, para 241). While the literal meaning of Cineplex’s price representations were uncontested, disagreement arose over the applicable legal test to determine the general impression conveyed by the representations (Cineplex, at 243). The Commissioner, relying on the case Richard v. Time Inc., 2012 SCC 8, argued that the representations should be viewed through the eyes of the “credulous and inexperienced consumer” (Cineplex, para 244). Cineplex argued that the relevant perspective was that of the “average consumer” (Cineplex, para 244). 

After examining past jurisprudence and considering the goals of the Act, the Tribunal concluded that the applicable perspective under s.74.01 and s.74.03(5) is that of the “ordinary consumer” (Cineplex, para 278). The Tribunal added that this standard was dynamic and could adjust to the nature of a representation, the characteristics of the members of the public to whom the representation was made, and the nature of the product or service being represented (Cineplex, para 278). 

The Tribunal ultimately concluded that the ticket page on Cineplex’s website and app left the general impression that consumers could purchase tickets at the price stated on the page (Cineplex, para 286). In arriving at this conclusion, the Tribunal considered the short average time consumers spend purchasing tickets (averaging approximately 3 minutes), the low dollar value of the purchase, the website’s design, and the dynamic nature of the ticket page (Cineplex, para 293). These factors suggest that consumers are unlikely to be overly scrutinous or devote heightened attention to their purchase, and as such would be unlikely to perform the “mental math” required to parse the online booking fee from the subtotal shown in the “ribbon” (Cineplex, at para 294). The Tribunal accepted the Commissioner’s evidence that the general impression conveyed by the page was based on the information “above the fold” presented to consumers instantly upon visiting the page, and not the totality of information available if a consumer scrolled to the bottom of the page (Cineplex, para 298). 

The Tribunal accepted expert evidence that the “ribbon” created a false-floor effect, making it appear as if a consumer were at the bottom of the webpage when they could, in fact, continue to scroll (Cineplex, para 182). This effect was compared to information “below the fold” of a physical newspaper, which readers cannot see at first glance (Cineplex, para 172). The Tribunal accepted further expert evidence that consumers typically do not scroll down further when they fail to see further information of value (Cineplex, para 174). 

74.01(1.1) – The “Drip Pricing” Provision

S.74.1(1.1) of the Act was introduced in June of 2022 to capture the practice of “drip pricing,” The amendment clarifies that, for the purposes of making out a false or misleading representation under s.74.01(1)(a), the making of a representation of price that is not attainable due to fixed obligatory fees constitutes a false or misleading representation (Cineplex, para 309). 

Interpreting the new provision, the Tribunal considered the following questions (Cineplex, paras 344, 359, 376, 384):

1. whether Cineplex’s online booking fee was “fixed and obligatory,” 
2. whether the price advertised on the ticket page was unobtainable, and 
3. whether s.74.01(1.1) is a “complete code” of drip pricing conduct.

On the first issue, the Tribunal rejected Cineplex’s argument that their online booking fee was not fixed and obligatory (Cineplex, paras 358, 375). The Tribunal rejected arguments that the fee was not fixed because it varied based on consumer type and the number of tickets purchased by the consumer, placing weight on the fact that the quantum of the fee has gone unchanged since its inception, and that the fees paid by Scene+ members are advertised as being discounted from the ordinary booking fee (Cineplex, paras 349–351). Similarly, the Tribunal rejected arguments that the fee was not obligatory because consumers could avoid it by purchasing tickets in person (Cineplex, para 365). The Tribunal held that the relevant inquiry was whether the fee was obligatory for consumers who wished to purchase tickets through the website or app (Cineplex, para 367). The Tribunal noted that the website’s design did not adequately inform consumers of the choice to purchase tickets in person or to purchase online for an additional fee (Cineplex, para 371). 

On the second issue, the Tribunal found that the represented prices were not attainable due to the online booking fee (Cineplex, para 379). The Tribunal again noted that the relevant inquiry was whether the tickets were obtainable at the represented price through the same channel the representations were made — in this case, the app or website —, and found that nothing on the app or website suggested that the represented prices were only available in person (Cineplex, para 379). 

Accordingly, the Tribunal concluded that Cineplex’s price representations on the ticket page of its website and app constituted a false or misleading representation under s.74.01(1.1) (Cineplex, para 383). 

Finally, the Tribunal rejected arguments that s.74.01(1.1) constitutes a “complete code” which precludes residual analysis of Cineplex’s conduct under the ordinary misleading representation provision. The Tribunal held that the drip pricing provision was not a standalone provision, and that failure to make out a false or misleading representation under 74.01(1.1) does not preclude the Tribunal from analyzing that same conduct under 74.01(1)(a) (Cineplex, paras 388–391). 

74.01(1)(a) — False or Misleading Representation 

While the majority of the parties’ submissions focused on the application of the new drip pricing provision, the Tribunal found that Cineplex’s representations nevertheless constituted false or misleading representations under s.74.01(1)(a) (Cineplex, para 396). Relying on many of the same factual findings, the Tribunal noted that consumers could complete their entire ticket purchase without ever realizing they had paid an online booking fee (Cineplex, para 396). The initial price displayed on the ticket page and the “deceptive and unexplained” gap in pricing seen in the subtotal “ribbon” both stemmed from Cineplex omitting information about their booking fee (Cineplex, para 404). 

Remedy 

Pursuant to their findings, the Tribunal imposed an Administrative Monetary Penalty of $38.978 million and made an order prohibiting Cineplex from engaging in the reviewable conduct or substantially similar reviewable conduct for 10 years (Cineplex, paras 430–431, 478). While the Tribunal noted that it was entitled to order restitution to consumers, it refrained due to the practical considerations in distributing such an order to consumers in this case (Cineplex, paras 458, 452, 454–455). 

Analysis 

I believe the Tribunal’s interpretation of the newly enacted provision is consistent with both the existing jurisprudence on drip pricing pursued under s.74.01(1)(a), and the overall thrust of the recent amendments to the Act. While the Act — as suggested by Little J — is not exclusively concerned with consumer protection, his interpretation nonetheless upholds the goals of protecting consumers from inaccurate or misleading information, and promoting competition by disallowing competitors to gain advantages through potentially deceitful representations. 

While the monetary penalties imposed by Little J are considerably higher than those imposed in past drip pricing cases, the 2022 amendments to the Act have significantly bolstered the Tribunals range of available penalties. While prior the amendments monetary penalties were capped at $10 million for initial orders, the amendments significantly raised the ceiling for penalties. As noted by Little J, it remained open to him to impose a penalty up to three times the benefit Cineplex Inc. derived from its representation — in this case, $116.9 million (Cineplex, paras 458-459). Given the wide discretion available to Little J, the penalty imposed appears reasonable and consistent with Parliament’s intentions of deterring anti-competitive conduct.  

Recent developments in Canadian competition law have undoubtedly changed the enforcement landscape for businesses. Given that the Act has evolved to address the issues faced by modern consumers and competitors, interpretations such  Little J’s substantiate the thrust of this evolution, precluding businesses from evading the Act on the basis of mere technicalities. 

The Tribunal’s decision raises new risks for businesses operating online sales portals in Canada. In particular, while Little J fell short of suggesting that the new drip pricing provision goes so far as to require “all-in” pricing representations from retailers, his decision arguably comes close to imposing such a requirement. However, in the ever-expanding online marketplace consumers find themselves in, the Tribunal’s decision promotes competition by precluding businesses from acquiring a competitive edge by deceiving consumers. Furthermore, due to the dynamic nature of online sales portals such as Cineplex’s, the ease and cost of avoiding potential misrepresentations suggest that this newly introduced risk will not be an onerous one for businesses to mitigate. 

On appeal, the FCA will likely provide additional insight into the interpretation of the new drip pricing provision. While the impact of the FCA’s decision on the Tribunal’s findings is yet to be seen, it will nevertheless play an important role in setting out the applicable legal framework for assessing drip pricing claims. This is particularly important in light of the incoming private rights of action for deceptive marketing provisions, which will come into force in the summer of 2025.

This article was edited by David Lia