On 19 November 2020 the Bulgarian Commission for Protection of Competition ("CPC") fined Olineza Premium OOD ("Olineza"), one of the biggest Bulgarian food producers, BGN 1,479,040 (approx. EUR 700,000) or 4 % of its 2019 turnover. The fine was imposed for the "misleading use" of the word "homemade" stated on the label of a mayonnaise product, and comes after almost three years of administrative and court proceedings.
Background / 2018 Decision and its repeal
The case was initiated before the CPC in 2017 upon request of Olineza's competitors and concerns the alleged misleading use of the "homemade" statement on the label of a mayonnaise produced by Olineza.
Under Bulgarian competition rules, misleading advertising is a form of unfair competition and could lead to a fine of up to 10 % of the turnover for the last financial year of the infringing entity, with the fines ranging from up to 5 % of the turnover for "mild" breaches, up to 8 % for not very severe breaches and up to 10 % for severe breaches.
In 2018, the CPC issued a decision that Olineza had not breached competition rules.
On appeal, however, the Supreme Administrative Court ("SAC") repealed the decision of the CPC from 2018 and returned the case to the CPC to impose a fine on Olineza.
According to the SAC, the food label is an advertisement and when a product is labelled "homemade mayonnaise", the end-consumer is misled about the ingredients from which the product is made.
The SAC explicitly stated that describing all ingredients on the product label (as Olineza did) may not lead to a different conclusion, since end-consumers have expectations that a product labelled "homemade" would contain the ingredients typical for a homemade product. On the contrary, Olineza's mayonnaise contained "egg powder", even though it is neither common for homemade production nor easily accessible for end-consumers.
As regards the detailed description of the ingredients on the label, the SAC stated that when end-consumers are choosing a product they would rely on the "homemade" statement and would not compare the labels of the competing products (made with the same ingredients). Therefore, Olineza gained a competitive advantage by using the "homemade" statement, even though its product was neither produced at home nor made according to a home recipe and with "home" ingredients.
Indeed, the 2020 decision of the CPC adheres to the instructions of the SAC to impose a fine.
We are surprised, however, that the regulator imposed a fine of 4 % of the turnover of the breaching entity (i.e. almost the maximum 5 % fine for a "mild" breach) even though there were some mitigating factors. In 2018 Olineza changed the name of its products to "premium mayonnaise" and notified the CPC accordingly, and the offering of the product was suspended almost two years ago.
It is also questionable whether the fine is proportionate to the character of the breach, especially considering the CPC's predominant practice of imposing 1 – 2 % for "mild" breaches.
Finally, we are surprised that the CPC used the 2019 turnover to determine the fine for a breach which ended in 2018.
Warning to other advertisers
Regardless of whether the fine imposed by the CPC was correctly determined or not, companies should be extra careful when using bold statements to advertise their products. The CPC already has a well-developed practice in place for sanctioning various "unfair" advertisements (e.g. a "best" or "homemade" product) and it should always be borne in mind whether it is worth using catchy phrases given the high fines and lengthy proceedings they may lead to.
Originally Published by Schoenherr, December 2020
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