A money-back guarantee (also known as a satisfaction guarantee) is an advertising statement by which a company offers the consumer a full refund provided that the product is returned within a specified time limit.
Money-back guarantees reduce the barrier for purchase considerably and help to build trust, which makes them an extremely powerful marketing tool. Experience shows that in the long run additional sales promoted by money-back guarantees clearly outweigh what the company may lose from consumers taking advantage of refunds. No wonder that money-back guarantees have become increasingly popular in direct marketing across all media and on a global scale.
Due to their effectiveness, money-back guarantees tend to be closely monitored by competitors – and the legal risks involved must not be underestimated.
B. Case Law
1. When localising advertising campaigns in Europe, companies
should be aware particularly of the risk that the guarantee might
match with the consumer's statutory right of withdrawal for
distance and off-premises contracts as set out in Article 9 of the
EU Consumer Rights Directive (2011/83/EC).
In March 2014, the German Federal Court of Justice ruled that a 14-day-money-back guarantee may be considered misleading. Given that the consumer had a right of revocation within 14 days in distance sales anyway, the promotion presented a guarantee which did not go beyond the consumer's statutory rights. Given that the respective provision under German unfair competition law implements no. 10 Annex I of the Unfair Commercial Practices Directive (2005/29/EC) being part of the "black list" of practices prohibited in all circumstances, corresponding decisions would have to be expected in other European member states.
Even though companies are not deprived from offering "independent" money-back guarantees as such by this decision, in order to withstand any attacks under unfair competition law, the advertisement has to clearly indicate that the guarantee does not affect the consumer's statutory rights, but rather constitutes an additional commitment of the company providing increased benefits to the consumer.
2. This leads us to the second big "pitfall" with
respect to money-back guarantees: Transparency.
Under German case law, money-back guarantees qualify as sales promotions (altogether with price reductions, premiums or gifts) which may be considered unfair under section 4 no. 4 UWG, if they do not clearly and unambiguously state the conditions for taking advantage of such benefits.
The German Federal Court of Justice found in 2009 that a breach of transparency rules would exist, where the terms and conditions of the guarantee are merely printed on the inside of a product's packaging (a yoghurt drink in the relevant case), since the consumer would not open the packaging and thus not be provided with the essential information before purchasing the product. A mere reference to a website, where more detailed information could be found, would not suffice either.
In the very same judgment, the German Federal Court of Justice put clear that the scope of the seller's duty to provide information may differ depending on the relevant media. With respect to TV advertising, the judges stated that under certain circumstances (e.g. everyday product, no surprising content of the T&Cs, easy-to-remember domain name), a sole reference to a website may be considered sufficient.
What also plays an important role in the overall assessment is the fact that nowadays, European consumers are deemed to be perfectly aware of their statutory right of revocation and would thus expect a money-back guarantee to place them in a much better position. Based on this assumption, the District Court Berlin found in 2013, that, as a rule of thumb, the less benefit the guarantee offered as compared with standards under statutory law, the more information is required vis-à-vis the consumer.
3. Last but not least, companies have to be aware of the fact that in the individual case, a money-back guarantee may be understood as suggesting that the seller commits itself for a certain success of the product. This has been repeatedly found by courts in particular in the field of health-related advertising. In this context, money-back guarantees may be perceived as statements of effectiveness, which are often considered misleading under section 5(1) German Act against Unfair Competition or specific regulations of drug advertising law.
There are various legal risks involved with money-back guarantees which very much depend on the individual circumstances of the advertising and its environment, all of which we cannot even begin to cover in this article. Thus, the three "pitfalls" outlined above are only examples to raise awareness that money-back guarantees should not simply be translated into local language when working on global campaigns. In each case, advertisers need to understand those statutory revocation rights the consumer enjoys under the local jurisdiction. It is necessary that the relevant guarantee goes beyond such statutory rights and that the statement may not be considered non-transparent or misleading either.
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.