Germany: Liberalisation Of German Competition Law New Rulings On Prize Competitions And Rights Of Exchange

Last Updated: 3 January 2001
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The German Federal Court of Justice is now taking a far more liberal stand on competition law, this being evident most notably from its Orient-Teppichmuster (Oriental carpet pattern) ruling pronounced on October 20, 1999. Following this judgement, advertising claims are assessed by reference to the perception of a reader of average intelligence and knowledge, which substantially limits the scope of the prohibition of misleading advertising in future as compared to the situation in the past.

This trend has been continued in two further recent judgements:

1 - The announcement of prize competitions by retailers is permitted in principle under competition law. The Court did, however, express concern from the point of view of undue baiting and psychological pressure to purchase if the customers have to actually enter the store to take part. This ruling was qualified in a judgement dated February 17, 2000 (Space-Fidelity Peep-Show) in a case concerning a competition offering "take-home prizes" which was held over a period of four weeks in a consumer electronics superstore, and for which customers had to physically enter the store to take part.

The Federal Court of Justice denied that the competition acted as an excessive lure for customers, arguing that competitions of this kind are so common and consumers so accustomed to them that one cannot normally assume that attractive prizes are going to tempt consumers to make indiscriminate purchases. The appeal exerted by the offer of prizes was normally not enough to bring the competition in conflict with competition law. This was still the case, the Court argued, even if consumers made a chance purchase or bought something - without being under any psychological pressure to do so - to 'justify the time and costs' they had invested in going to the store. Competitions could only be assumed to constitute an overly great enticement if they influenced customers in such a way that they failed to examine the quality and price of the goods.

The Federal Court of Justice also takes the view that the mere fact that consumers may feel occasioned to make some purchase or other does not make the competition illegal from the point of view of unlawful psychological pressure. For this type of pressure to be present a retailer would have to influence customers to such an extent, using un-called-for means, that they feel obliged to buy something at least out of propriety. According to the established practice of the Federal Court of Justice, this is more likely to be the case in small shops where customers are directly addressed by sales staff. The situation is different with large stores where customers usually have to actually ask for assistance, rather than being offered it straight away. Even if customers do have to approach a sales person in stores of this kind to ask about a prize competition, the aspect of psychological compulsion to buy only comes into play if the shop tries to influence customers' purchasing decisions to such an extent that they practically have no alternative but to accept the goods offered. The Federal Court of Justice considers that simply buying something on the off-chance or out of a feeling of propriety is not enough because the customer could just as easily have decided not to make the purchase.

In practice this means that

  • the aspect of excessive baiting is probably not normally going to play any real part, even if attractive prizes are offered,
  • the aspect of psychological compulsion to purchase is going to come into play only in exceptional cases, depending on the type of store.

2 - The grant of rights of exchange is permitted in principle. The practice of granting customers the right to exchange or return goods purchased was regarded by the Federal Court of Justice and many other courts as a kind of unlawful free gift. This stance was already qualified somewhat in a judgement of July 2, 1998 and in a more recent judgement pronounced on June 29, 2000 (Möbel-Umtausch-recht (right of exchange for furniture)) the Federal Court of Justice held that a right of exchange for furniture was admissible - it ruled that, provided they are unused, furniture and other articles could be exchanged within a period of three months if the customer was not satisfied with them - giving them therefore a right of exchange, not return! The Federal Court of Justice assumed that economically speaking a right of exchange of this kind was justified because of the circumstances specific to the retailing of furniture, the main consideration being that there is a high risk of customers making a wrong decision when it comes to purchasing furniture. Even though customers can view the items in the store, there is always the possibility that the furniture will ultimately prove unsuitable due to the different layout of the room and different lighting, or that there will be problems assembling or fitting the furniture due to structural reasons, or that the new items will not fit in with items of furniture the customer already has or purchases elsewhere. The Court also considered that three months was a legitimate period of time, but stressed that it was important that the items should still be unused so that customers did not benefit unfairly by being able to use the goods and then exchange them.

In practice this means

  • that retailers now have far more scope for granting customers rights of exchange.

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