Reliance on Supplier Price Information Cost Amazon $1 Million for Contravention of Ordinary Price Provisions

Trust, but Verify

On January 11, 2017, Amazon.com.ca, Inc. entered into a consent agreement with the Commissioner of Competition following the Competition Bureau’s investigation into Amazon’s pricing representations. The consent agreement alleges that Amazon contravened the ordinary price provisions of the Competition Act and engaged in false and misleading representations contained in electronic messages. As part of the consent agreement, Amazon has agreed to pay an administrative monetary penalty of $1 million, as well as costs of $100,000.

The outcome of this case clearly indicates that operators of e-commerce omni-channels cannot simply rely on pricing information provided from suppliers. Rather, they must proactively take steps to verify the information before making ordinary price claims on their website or in their electronic messages.

Background

In August of 2015, the Bureau launched an investigation into Amazon’s pricing representations on www.amazon.ca for the period between May 27, 2014 and May 1, 2016 (the Relevant Period). Amazon’s website often compares its prices to the regular or list price of items and shows consumers the savings they could obtain if they purchase on the Amazon website (Savings Claim Representations).

Under the ordinary price provisions of the Act, statements regarding comparative “original” or “regular” prices must be accurate and not create the false impression that the advertised price is a bargain. To be valid, the ordinary price must meet either the time or volume test as required under the Act. To meet the time test, the product must be offered for sale at the claimed ordinary price for a substantial period of time prior to making the discount claim. To meet the volume test, a substantial volume of the product must have been sold at the claimed ordinary price prior to making the discount claim.

Following its investigation, the Bureau concluded that the Savings Claim Representations were misleading, as the ordinary prices that were listed created the impression that the prices offered on Amazon’s website were lower than the prevailing market prices when this was not, in fact, the case.

The Bureau also concluded that since the Savings Claim Representations were also included in emails to customers, Amazon had contravened the CASL-related provisions of the Act. These provisions prohibits the making of false and misleading representations in “any electronic message.”
Amazon cooperated fully and took a number of voluntary and proactive steps to address the conduct during the Bureau’s investigation. These steps included: (i) initiating changes to its pricing practices prior to being aware of the Bureau’s investigation; (ii) suppressing the list prices of certain products across all platforms where such products were offered; and (ii) adopting and implementing a corporate compliance program.

Lessons Learned & Key Takeaways

It is important to note that Amazon relied in good faith on its suppliers to provide the list prices cited on its website. However, it did not take steps to validate the list or ordinary prices provided by its suppliers against the prices generally available in the market to ensure that they were valid comparator prices. In short, the Bureau’s position and the result in this case make it clear that the adage, “trust, but verify” applies when relying on information provided by third parties regarding ordinary prices.

This case clearly imposes a significant compliance obligation on retailers to validate price information provided by suppliers before making ordinary price claims. Accordingly, retailers will need to determine how best to manage this obligation – either through the use of internal measures or by contractually requiring suppliers to ensure that the list or ordinary price information they provide meets either the time or volume test as set out in the Act.

In addition, this case reiterates that the enforcement of the ordinary price claims provisions of the Act remains a Bureau enforcement priority, as does taking steps to ensure consumers’ trust in the digital economy.

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