UK: ECJ rules on Application of Unfair Commercial Practices Directive to Consumer Promotions

Last Updated: 15 November 2010
Article by Susan Barty and Stuart Helmer

The ECJ has held that national legislation which prohibits, in all circumstances, the offering of "bonuses", such as a sample, a free gift, a sum of money or a competition entry, in order to promote the purchase of goods or services, is incompatible with the Unfair Commercial Practices Directive.

Article 4 of the Directive expressly provides that Member States may not adopt stricter rules than those provided for in the Directive (so-called "maximum harmonisation"), even in order to achieve a higher level of consumer protection.
 
Austrian law on unfair competition stipulates a blanket presumption of unlawfulness in respect of the offering of bonuses to promote the purchase of goods, in this case a daily newspaper.  However, this commercial practice does not fall within the exhaustive list of 31 practices presumed unfair in all circumstances under the Directive.  The ECJ therefore held that it should be assessed for unfairness on a case-by-case basis.  On the facts, the ECJ held that while entry into the competition acted as an incentive to buy the newspaper for some people, that did not make it an automatically unfair commercial practice. 

This does not mean that promoting the sale of products with bonuses will always be lawful. However, the case highlights the maximum harmonisation provisions of the Directive.  Member States should not ban outright practices that could be acceptable in certain circumstances.

To view the article in full, please see below:



Full Article

The Unfair Commercial Practices Directive

The Directive established a single pan-European regulatory framework to govern unfair commercial practices, harmonising unfair trading laws in all EU Member States. The UK has implemented the Directive by way of the Consumer Protection from Unfair Trading Regulations 2008.

Article 3(1) of the Directive states:

"This Directive shall apply to unfair business-to-consumer commercial practices, as laid down in Article 5, before, during and after a commercial transaction in relation to a product".

Article 5(2) of the Directive states:

"A commercial practice shall be unfair if:

(a) it is contrary to the requirements of professional diligence, and

(b) it materially distorts or is likely to materially distort the economic behaviour 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."

Article 5(5) of the Directive states:

"Annex I contains the list of those commercial practices which shall in all circumstances be regarded as unfair. The same single list shall apply in all Member States and may only be modified by revision of this Directive."

Facts

An Austrian daily newspaper organised a competition involving a vote for "footballer of the year". The paper invited the public to participate in the competition by voting online or through voting slips published in the paper. A rival publisher objected and applied to the Commercial Court in Vienna for an injunction to end the competition. Following appeals from both parties, the proceedings were stayed and the court referred two questions to the ECJ:

1) Whether Articles 3(1) and 5(5) of the Directive must be interpreted as preventing a national provision which lays down a general prohibition on sales with bonuses and is designed not only to protect consumers but also pursues other objectives, such as, for example, the safeguarding of pluralism of the press and protection of the weakest competitors.

2) If the answer to the first question is yes, whether sales with bonuses must be regarded as unfair commercial practices within the meaning of Article 5(2) of the Directive, merely because that chance is, for at least some of those to whom the promotion is addressed, the decisive reason for buying the newspaper.

Question 1

The ECJ first considered whether incentivising sales with bonuses constituted a commercial practice within the meaning of Article 2(d), and was therefore subject to the Directive.

Article 2(d) sets out a wide definition of what constitutes a commercial practice:

"Any act, omission, course of conduct or representation, commercial communication including advertising and marketing, by a trader, directly connected with the promotion, sale or supply of a product to consumers".

The ECJ therefore found the offer of a bonus constituted a commercial practice within the meaning of the Directive.

Annex I to the Directive sets out an exhaustive list of commercial practices which are to be regarded as unfair in all circumstances. The offering of bonuses to promote the purchase of products did not fall within this list. Therefore, the ECJ held that, under the Directive, such a commercial practice requires a case-by-case analysis based on the facts.

The Austrian government argued that national provisions at issue did not fall within the scope of the Directive because they were established to maintain the pluralism of the press in Austria. However, this is not one of the permitted derogations from the Directive. The ECJ found that the national provisions also had the purpose of providing protection to consumers.

As the Directive is a maximum harmonisation directive, the ECJ concluded that it had to be interpreted as preventing a national provision which lays down a general prohibition on sales with bonuses without a case-by-case analysis. This is the case even where that national legislation is not only designed to protect consumers but also pursues other objectives.

Question 2

The ECJ held that the possibility of participating in a prize competition, linked to the purchase of a newspaper, did not constitute an unfair commercial practice simply on the ground that, for at least some of the consumers concerned, the possibility of participating in a competition represents the factor which influences their purchase of that newspaper. It is something that the courts may take into consideration when making an assessment of fairness and may ultimately lead a court to decide that the practice materially distorts or is likely to materially distort the economic behaviour of the consumer within the meaning of Article 5(2)(b) of the Directive. However, by itself, it does not constitute an unfair commercial practice.

Summary

This is an important decision in respect of the new pan-European consumer protection regime created by the Directive. The decision is a reminder that national provisions that go further than required by the Directive, and which thus breach the principle of "maximum harmonisation", are prohibited. It was for this reason that UK legislators repealed significant areas of consumer protection legislation when implementing the Directive.

The ECJ has also made it clear that unless a commercial practice falls within the list of 31 "always unfair" practices, unfairness must be assessed on a case-by-case basis taking into account all of the relevant facts and circumstances.

This decision does not mean that the combining of a purchase with a competition will never be an unfair practice, only that it must not automatically be regarded as unfair. It emphasises the need to apply only the criteria set out in the Directive to commercial practices to determine if they are lawful.

To access the full judgement click here

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 15/11/2010.

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