Hungary: Can We Possibly Achieve A Promotion That Is Legally Impeccable, Effective, And Attractive To Consumers? – Lessons From A HUF 40 Million Competition Fine

Last Updated: 16 October 2017
Article by Levente Antal Szabó

Considering that promotions are subject to rigorous legal regulation, even carefully planned campaigns might entail heavy fines. In connection with a recent issue that slipped into the limelight, one may wonder about the very existence of any promotion that is not threatened with a penalty of greater value than the profit expected by the advertising company. This topic was discussed with experts invited to a meeting organized by law firm Klart Szabó on 4 March 2016.

The exemplary fine of HUF 40 million imposed in the 'Pepsi case' was meant to encourage the market-players involved to use appropriate measures when organizing their advertising campaigns. Companies should also consider involving external experts when seeking compliance, as emphasized by Dr Árpád Hargita during his presentation dealing with practical aspects of imposing fines in consumer protection cases.

The topic of KLART's meeting was inspired by consumer protection and competition law related questions arising in connection with the recent HUF 40 million fine imposed on Fővárosi Ásványvíz-és Üdítőirari Zrt (Pepsi) by the Hungarian Competition Authority ("HCA"). According to the HCA decision, Pepsi's "Fun ball" campaign was unlawful because they ran out of stock during the promotional period and not all consumers could obtain the promotional ball advertised as a guaranteed present.

Dr Árpád Hargita, competition law expert at Klart Szabó, highlighted that the amount of consumer protection fines is rising from year to year. This clearly indicates the HCA's increasing activity and severity in those cases. In 2014, total fines imposed were close to HUF 1.5 billion, compared to 2013, when total fines were no more than HUF 587 million.

Moreover, the HCA's sanctioning procedure has changed recently. Since October 2015, calculating fines is based on a new method refined by communication No. 2/2015. The basis of the fine should equal the sum spent on advertising, as one can assume that the company promoting its products expects at least as much income as they spent on advertising. If the advertising cost is undetectable or not relevant, than the revenue deriving from the advertised product will serve as a starting point for the calculation. After defining the base amount, the HCA will consider mitigating and aggravating factors.

For instance, suppose a campaign is demonstrably fraudulent and intentionally misleading, or on the other hand, the company genuinely tries to follow best practice but accidentally makes a mistake. The HCA considers whether the company did its best to rectify the error or stood idly by, or whether it happened for the first time in the company's business practice or a recurrent deficiency can be identified. Finally, the decision will be influenced by other factors. For example, if the original purpose of the penalty is deterrence, then it must be high enough to be painful for the company. At the same time, the fine should remain proportionate to the error committed.

Dr Zsófia Bitai, an attorney-at-law with Unilever and one of the invited experts, said that the advertising message –"guaranteed gift" – should be considered as the key point. In a case where an advertising promise guarantees a gift, the customer is supposed to obtain the gift regardless of any other condition. Commercials often do not mention that in fact gifts are available only in limited quantities, whereas this is considered as an essential characteristic, significant information.

Dr Bitai pointed out that if the term "guaranteed" is the key message, then even if you note "subject to availability" on the promotional materials, this will not overwrite the promise implied by the term "guaranteed". This is evidenced by the fact that in the Pepsi case the HCA imposed a fine of HUF 40 million: even though the promotion featured the phrase "subject to availability", according to the HCA this did not offset the main message as to the "guaranteed" character of the gift.

With regard to this particular case, Dr Hargita empathized: although the fine imposed is seen as severe by the legal profession, the amount could have been even higher. That is, the HCA took into account as mitigating factors that the company was seeking to address customers' complaints, distributed substitute gifts, indicated on its advertising tools that promotional stocks had run out, and also stopped broadcasting its television advertising.

Dr Ildikó Fazekas, Secretary General of the Self-Regulation Association of Advertisers, summarized the lessons from the case: the risks associated with promotional campaigns might, in the long run, lead to companies not launching such risky campaigns at all. If so, ultimately consumers will lose: as evidenced by the rapid depletion of gift stocks, consumers appreciate these promotions. Every aspect of the situation is difficult for advertisers: creative space for their promotional ideas as well as the effectiveness of their campaigns is limited by current regulation. On the other hand, it is good news for advertisers that substantial steps taken to comply may be assessed as a mitigating factor by the HCA. These efforts will be considered substantial if the advertiser can prove that during preparation for the campaign they approached an independent, professional organization or expert (such as an attorney-at-law or law firm), who commented on the proposed promotion and creative materials and that the company also took into account the expert's opinion.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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