Unfair EU Commercial Practices over the Past Year — Overview of EU Court of Justice Case Law
Over the past year, the EU Court of Justice (CJEU) has issued several rulings with respect to the application and interpretation of EU Directive 2005/29 concerning unfair B2C commercial practices and of EU Directive 2006/114 concerning misleading and comparative B2B advertising. An overview of these cases and a brief summary of the Court's findings can be found below:
European Commission v Kingdom of Belgium
Case C-421/12 of 10 July 2014
Directive 2005/29 carries out a complete harmonization at EU level of the rules concerning unfair commercial practices of undertakings vis-à-vis consumers. Accordingly, Member States may not maintain or adopt more restrictive national measures than those laid down in that directive, even where such measures are designed to ensure a higher level of consumer protection.
In the case at hand, the national legislation of Belgium imposed several restrictions upon retailers announcing price reductions (e.g. any announcement of a price reduction must refer to the lowest price applied throughout the month prior to the announcement of the price reduction, the price may not be announced as a reduced price for more than a month, etc.). This national legislation had the effect of prohibiting the announcement of price reductions whenever the strict conditions contained in that legislation were not met, regardless of their actual impact on consumers.
However, Directive 2005/29 establishes, in its Annex I, an exhaustive list of 31 commercial practices which are regarded as unfair 'in all circumstances'. Consequently, only these commercial practices can be deemed to be unfair without proceeding to an assessment of their actual impact on consumers.
Annex I of Directive 2005/29 did not include the practices relating to price reductions referred to in the Belgian legislation. The CJEU therefore concluded that, national rules of this nature, which provide for a general prohibition of practices not listed in Annex I, without requiring an individual analysis whether the practices are 'unfair', are unlawful and contrary to the objective of complete harmonization of the laws of the Member States pursued by the directive.
«4finance» UAB v Valstybinė vartotojų teisių apsaugos tarnyba and Valstybinė mokesčių inspekcija prie Lietuvos Respublikos finansų ministerijos
Case C-515/12 of 3 April 2014
Annex I of Directive 2005/29 includes commercial practices which are, in all circumstances, unfair and which do not require a case-by-case assessment. The prohibition of pyramid promotional schemes is one of these 'per se' prohibited unfair commercial practices.
In accordance with Annex I of Directive 2005/29, the prohibition of pyramid promotional schemes is based on three conditions. First, such a promotion is based on the promise that the consumer will have the opportunity of making a commercial profit. Next, the realization of that promise depends on the introduction of other consumers into the scheme. Finally, the greater part of the revenue to fund the compensation promised to consumers does not result from a real economic activity, but from the financial consideration required from new members.
In this case, it was apparent that, under the promotional scheme system, the bonuses paid to existing members were funded only to a very small extent by the financial consideration required from new members. In such a scheme, the CJEU said, it seems that the third condition is not met. That scheme did not, therefore, qualify as a pyramid promotional scheme in the meaning of Annex I of Directive 2005/29. The CJEU noted, however, that a practice that does not fall under the scope of Annex I, such as the promotional scheme at hand, may nevertheless be prohibited where a specific and concrete assessment by a national court leads to the conclusion that it is unfair, misleading or aggressive in the light of the criteria laid down in Articles 5 to 9 of Directive 2005/291.
Posteshop SpA - Divisione Franchising Kipoint v Autorità Garante della Concorrenza e del Mercato and Presidenza del Consiglio dei Ministri
Case C-52/13 of 13 March 2014
The Italian competition and market authority AGCM had found that a publication by Posteshop of advertising material seeking to promote its franchise network constituted misleading advertising. It prohibited any future publication and imposed a fine of EUR 100,000 on Posteshop. In its appeal, Posteshop claimed that it follows from the wording of Directive 2006/114 that the purpose of that directive is to impose penalties only in respect of acts constituting both misleading advertising and unlawful comparative advertising. It asserted that, since its advertising did not constitute comparative advertising, it could not be deemed to have infringed the directive.
The CJEU disagreed with Posteshop's position. The CJEU ruled that, with regard to the protection afforded to traders, Directive 2006/114 is to be interpreted as referring to misleading advertising and unlawful comparative advertising as two independent infringements. In order to prohibit and penalize misleading advertising, it is not necessary that that latter at the same time constitutes unlawful comparative advertising. Directive 2006/114 indeed has a dual objective which consists in protecting traders against misleading advertising and the unfair consequences thereof, on the one hand, and in laying down the conditions under which comparative advertising is permitted, on the other.
Trento Sviluppo v. Autorità Garante della Concorrenza e del Mercato
Case C-281/12 of 19 December 2013
Trento Sviluppo runs a number of large supermarkets in Italy. In its advertising leaflet, it announced a special promotion as part of which a number of products were put on offer at attractive prices. However, an Italian consumer complained that that commercial announcement was in his view inaccurate because, when he went to the supermarket during the validity period of the promotion, the product in question was not available. Trento Sviluppo was fined by the Italian competition and market authority, but appealed this decision.
The court of appeal had doubts as to whether the practice at issue could qualify as misleading under Directive 2005/29. For a commercial practice to be classified as 'misleading', it does not suffice that it contains false information or is likely to deceive the average consumer. Also required is that the practice is likely to cause the consumer to take a transactional decision that he would not have taken otherwise. In the case at hand, however, the consumer did not (could not) purchase the advertised product.
The CJEU confirmed that the concept of 'transactional decision' is broadly defined as 'any decision taken by a consumer concerning whether, how and on what terms to purchase'. That concept covers not only the decision whether or not to purchase a product, but also the decision directly related to that decision. Therefore, even the decision of the consumer to take a trip to the shop or to enter a shop based on the advertising can be qualified as a 'transactional decision', even if the consumer does not purchase the advertised product. Trento Sviluppo's advertising leaflet could thus be qualified as misleading under Directive 2005/29.
BKK Mobil Oil v. Zentrale zur Bekämpfung unlauteren Wettbewerbs
Case C-59/12 of 3 October 2013
The BKK, a health insurance fund established as a public law body which is part of the German statutory system, had published information on its website according to which its members risked incurring financial losses if they were to leave that fund for another. Germany's Federal Court of Justice was of the opinion that this information constituted a misleading practice within the meaning of Directive 2005/29. It was, however, uncertain whether the directive and therefore the prohibition which it lays down were applicable to BKK as a public law body entrusted with a task of public interest.
The CJEU found that it is clear from the drafting of Directive 2005/29 that the EU legislature has conferred a particularly broad meaning on the term 'trader', which refers to 'any natural or legal person' which carries out a gainful activity. It does not exclude from its scope either bodies pursuing a task of public interest or those which are governed by public law. In addition, the directive's aim of achieving a high level of consumer protection against unfair business-to-consumer commercial practices, and in particular against misleading advertising, requires that protection to be ensured independently of the public or private status of the body at issue or of its specific task.
Therefore, a public law body charged with a task of public interest, such as the management of a statutory health insurance fund, falls within the persons covered by the directive.
CHS Tour Services v. Team4 Travel
Case C-435/11 of 19 September 2013
CHS and Team4 Travel are two Austrian travel agencies. In its sales brochure for the 2012 winter season, Team4 Travel had described certain hotels as 'exclusive'. Team4 Travel indeed had concluded contracts for bed quotas with several hotels. However, it appeared that CHS also had bed quotas blocked in the same hotels and for the same dates as Team4 Travel. The hotels in question were, therefore, in breach of their contractual obligations to Team4 Travel.
CHS was of the opinion that the exclusivity statement contained in those documents infringed the prohibition of unfair commercial practices. By contrast, Team4 Travel contended that it had acted with the professional diligence required when drawing up its brochures and that it had not been aware of the contracts concluded between CHS and the hotels in question. The question thus arose whether, notwithstanding the misleading or aggressive nature of a commercial practice, the trader is permitted to establish, on a case by case basis, that he has not failed to his obligation of professional diligence.
The CJEU ruled that directive 2005/29 must be interpreted as meaning that, if a commercial practice satisfies all the criteria for being categorized as a misleading practice in relation to the consumer, it is not necessary to determine whether such a practice is also contrary to the requirements of professional diligence in order for it legitimately to be regarded as unfair.
Therefore, the sales brochures in which Team4 Travel incorrectly claimed to have the exclusivity on the dates indicated for certain accommodation establishments, constituted an unfair commercial practice even though the travel agency had done everything to secure the exclusivity it claimed.
1 In accordance with Article 5 of Directive 2005/29, a commercial practice shall be unfair if (i) it is contrary to the requirements of professional diligence, and (ii) it materially distorts or is likely to materially distort the economic behavior with regard to the product of the average consumer whom it reaches or to whom it is addressed, or of the average member of the group when a commercial practice is directed to a particular group of consumers.
Under Article 6, a commercial practice shall be regarded as misleading if it contains false information and is therefore untruthful or in any way, including overall presentation, deceives or is likely to deceive the average consumer, even if the information is factually correct, and in either case causes or is likely to cause him to take a transactional decision that he would not have taken otherwise.
Article 8 reads that a commercial practice shall be regarded as aggressive if, in its factual context, taking account of all its features and circumstances, by harassment, coercion, including the use of physical force, or undue influence, it significantly impairs or is likely to significantly impair the average consumer's freedom of choice or conduct with regard to the product and thereby causes him or is likely to cause him to take a transactional decision that he would not have taken otherwise.
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