Not Just a Drop in the Bucket: Competition Tribunal Orders Record-Breaking Penalty for Drip Pricingby
On September 23, 2024, the Competition Tribunal ruled in favour of the Competition Bureau and found that Cineplex Inc. (“Cineplex”), the largest cinema chain in Canada, engaged in “drip pricing” by adding an online booking fee ranging from $1.00-$1.50 for tickets purchased online or through the Cineplex app. The fees were collected from June 2022 to December 31, 2023 (when the Competition Bureau initiated its investigation). The Competition Tribunal found that the online booking fee was misleading and contained drip pricing because the existence and the amount of the fee was not initially disclosed when consumers were making their purchases. Instead, it only became visible after the tickets were selected and the purchaser clicked to 'proceed' to the next screen.
Cineplex has been ordered to pay a record penalty of $38.5 million, equivalent to the amount it collected from consumers through the aforementioned $1.50 fee. Cineplex says it will appeal the decision to the Federal Court of Appeal.
What is drip pricing?
Drip pricing involves offering what appears to be low prices to attract consumers; but followed by the addition of further mandatory fees so that the original prices are unattainable. The mandatory fees can be for just about anything; including “processing fees”, “booking fees”, “cleaning fees”, “administrative fees”, to name a few. The issue occurs when such fees are not disclosed to the consumer accurately and clearly, including by being excluded from the advertised price and then are incrementally revealed during the purchasing process – i.e. “dripping” into the final price.
This practice is against the Competition Act (the “Act”), unless the additional fixed charges or fees are imposed by the government on purchasers, such as sales tax. Amendments to the Act came into force on June 24, 2022, which explicitly recognize drip pricing as a harmful business practice.
The Takeaway
This ruling marks the first case in which the Competition Tribunal has applied the recently-enacted drip pricing provisions, namely subsection 74.01(1.1) of the Act. It sends a strong message to Canadian businesses that it intends to enforce this new provision and the penalties for contravening it can be sever. To avoid potential drip pricing complaints and penalties, businesses should display their full prices upfront, including all incremental or additional fees.
If you have questions about your current advertising and marketing practices, in relation to drip pricing or any of the other recent additions to the Act, we’re happy to assist.