Revised draft regulations under Canada's anti-spam legislation (CASL) have been issued by Industry Canada.  While the draft regulations provide some relief to businesses, Industry Canada has elected not to address concerns that CASL puts Canadian businesses at a competitive disadvantage.  Additionally, the draft regulations do little to reduce the material costs that legitimate businesses will need to incur to comply with CASL's prescriptive rules applicable to the use of electronic messaging and the installation of computer programs.  A summary of these rules can be found on Osler's CASL microsite.

Concerned businesses have until February 4, 2013 to submit written comments to Industry Canada regarding the draft regulations.


Exemptions for Classes of Commercial Electronic Messages

The draft regulations include four classes of commercial electronic messages which will be exempted from CASL's consent and form and content requirements. 

  • Business to business messages,
  • Messages sent in response to a request, inquiry or complaint,
  • Messages sent due to a legal obligation or to enforce a legal right, and
  • Messages accessed while roaming in Canada.

Details about these exemptions, including important limitations on when they apply, can be found here.    

Exemptions for Telecommunications Service Providers

Two exemptions for telecommunications service providers (TSPs) are included in the draft regulations.  TSPs will be deemed to have obtained express consent in respect of the installation of a computer program that is installed:

  • to prevent activities that contravene Canadian federal law if such activities present an imminent risk to the security of the TSP's network, and
  • to update or upgrade the TSP's entire network.

Definitions of Family Relationships and Personal Relationships

The definition of family relationship is unchanged from the initial version of draft regulations issued by Industry Canada in 2011. 

The definition of personal relationship has been revised by removing requirements that the individuals in the relationship have communicated within the prior two years and have met in person.  However, the validity of a "personal relationship" can now be assessed only by considering a number of contextual factors, such as the sharing of interests, experiences and opinions and the frequency of communications by the individuals.    

Partial Exemption for Third Party Referrals

The draft regulations include an exemption to CASL's consent requirement that will apply to "refer a friend" marketing programs.  Consent to send an initial commercial electronic message will not be required, so long as: (i) the individual making the referral has an existing business relationship, an existing non-business relationship, a personal relationship or a family relationship with the individual who sends the message, (ii) the referrer also has any of those relationships with the individual to whom the message is sent, and (iii) the message discloses prescribed information. 

Unknown Third Parties

The approach to obtaining consent on behalf of an unknown third party (e.g., an entity to which a mailing list will be sold) is unchanged from the initial version of draft regulations issued by Industry Canada in 2011. 

What the Draft Regulations Do Not Address

Of equal, if not greater, importance to what the regulations cover is what they omit.  The government has failed to address a number of critical issues identified during consultations with stakeholders.

PIPEDA Consent  

Many stakeholders argued that consents obtained under the Personal Information Protection and Electronic Documents Act (PIPEDA) should be valid as consent under CASL.  As an alternative, they argued that consents obtained under the PIPEDA standard prior to the coming into force of CASL should be "grandfathered".  These arguments were rejected by Industry Canada. 

Extraterritorial Application

Many stakeholders, particularly businesses in the technology sector and Canadian businesses with international operations, have pointed out that CASL will put them at a disadvantage when compared to their foreign competitors.  If, for example, a Canadian cloud service provider were to send commercial electronic messages or install computer programs from Canada, it will need to comply with CASL, even if the message is sent or the software is installed on behalf of a foreign business and the recipient of the message or both the user and owner of the computer are not in Canada.  To avoid the compliance costs associated with CASL, a foreign business will reasonably elect to work with a cloud services provider outside Canada.  Industry Canada has pointed to the "potential for abuse" by spammers in explaining why the draft regulations do not address this issue.  It is unclear to what extent Industry Canada considered options for mitigating abuse, while nonetheless protecting the competitive position of Canadian businesses.  

Unsubscribing from Transactional and Service Messages

The draft regulations do not clarify whether businesses must provide consumers with the opportunity to unsubscribe from receiving messages sent solely for transactional or service-related purposes.  While the commentary accompanying the draft regulations suggests that this issue may be addressed in future interpretation guidelines, guidelines are not binding on a court.

Exemption for Manufacturers

Industry Canada has rejected stakeholder arguments that manufacturers warrant a "regulatory solution" to the lack of certainty on whether they have an existing business relationship with purchasers of their products.

Impact on Jobs

By failing to address the extraterritorial issued described above, Industry Canada has essentially signalled to Canadian businesses that they will need to move jobs elsewhere.  Three scenarios help to highlight this point:

  • A Canadian company with international operations will reasonably do what it can to be placed on a level playing field with its international competitors.  If the international operations of a Canadian business can avoid the compliance costs associated with CASL by having electronic messaging and IT functions performed in a country other than Canada, it can be expected to do so. 
  • If a foreign business can avoid CASL by using a non-Canadian service provider, it will be a simple decision to hire the non-Canadian provider.  
  • If a venture capitalist is making a decision on whether to invest capital in a cloud services business in Canada or in a similar business in the United States, CASL will be a strong factor that favours the US investment. 

Each of these scenarios is likely to result in a loss of jobs in Canada.

Compliance Costs

While the new exemptions found in the draft regulations are helpful to businesses, overall the regulations do little to reduce the costs that will need to be incurred to comply with CASL's prescriptive rules.  As a result, unless Industry Canada decides to change direction following the comment period, most organizations will have no choice but to adopt expensive and disruptive changes to the processes they now follow when sending electronic messages or installing computer programs. 

Red Tape?

As more businesses begin to focus on their CASL compliance strategies, an increasing number are expressing surprise that Canada is implementing the prescriptive and inflexible rules found in CASL. 

While businesses are generally supportive of efforts to prohibit damaging and deceptive spam, spyware, malicious code, botnets and similar threats, they are asking why – at a time when technology is increasingly effective at filtering spam and when well-established business practices support consumer choice and privacy – they are being required to implement changes that will have a material impact on their cost of doing business.   

The level of surprise is even greater when they consider that these new rules are being implemented by a government that has made cutting red tape a key priority through a "red tape reduction plan." 

While the government's objective of reducing red tape is laudable, CASL can be viewed as a step in the opposite direction.  Notwithstanding that the government could have limited CASL's reach to specific, harmful activities, it elected to cast a much broader regulatory net.  Further, while Industry Canada could have used the draft regulations to mitigate the resulting unintended consequences, it has taken only limited steps in doing so. 

The comment period in respect of the draft regulations is likely to provide the last meaningful opportunity for businesses to express their concerns to government.  It is anticipated that the date on which CASL will come into force will be announced at the same time the "final" version of the Industry Canada regulations are issued.  This may be occur as early as the end of February.  

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