Prof Dr Susanne Augenhofer LL M Yale LL

Prof. Dr. Susanne Augenhofer LL. M. (Yale), LL. M. (FU Berlin) Humboldt University Berlin, Germany

Unfair Competition Law False advertising, false representation, false publicity/ propaganda Kunming, 14 th October 2010

Unfair Competition Law I. European legal frame work II. German legal frame work III. Examples IV. Conclusions

Unfair Competition Law „To things of sale a seller’s praise belongs. “ Shakespeare, Love’s labour’s lost, Act IV, Scene III

European legal framework – History • unfair competition law was not mentioned in the treaty (unlike antitrust law) • jurisprudence by the CJ on fundamental freedoms

UCL in Member States (MS) before EU legislation • originally developed in France from tort law: to protect competitors • Germany, Austria: unfair competition codes already in 1909/ 1923 • UK: no independent field of unfair competition law

UCL in MS before EU legislation different concepts of unfair competition law in MS, e. g. concerning the notion of the average consumer

European legal framework – History • Directive 84/450/EEC on misleading advertising protection of consumers, businesses and public interest

Example of comparative advertising www. eatmedaily. com

European legal framework – History • Directive 84/450/EEC on misleading advertising amended by • Directive 97/55/EC on comparative advertising protection of consumers, businesses and public interest

European legal framework – current legislation • Directive 2005/29/EC on unfair commercial practices (UCPD) protection of consumers • Directive 2006/114/EC concerning misleading and comparative advertising protection of businesses

European legal framework – current legislation • UCPD maximum harmonisation • Directive 2006/114/EC concerning misleading and comparative advertising minimum harmonisation, except rules on comparative advertising

Directive (Article 288 TFEU) “A directive shall be binding, as to the result to be achieved, upon each Member State to which it is addressed, but shall leave to the national authorities the choice of form and methods. ”

Degree of Harmonisation • Minimum harmonsiation MS have to meet the threshold, but can go further • Maximum harmonisation MS have to meet the threshold, cannot go further

CJ ruling Pippig/Hartlauer CJ ruled inter alia: Directive on comparative advertising provides for full harmonisation it does not denigrate competitor if price comparison is done frequently www. hartlauer. at

UCPD – Objective “to fully harmonise the law on unfair commercial practices harming consumer interests” but does not deal with:

UCPD – Objective but does inter alia not deal with: • questions of taste and decency • contract law • rules relating to health and safety aspects of products • not mere sales talk, e. g.

UCPD – Objective ATTENTION there additional rules which regulate certain aspects of advertising e. g. Article 2 No. 2 lit. d of the Directive on the sale of consumer goods: product has to have features stated in public statements, especially in advertising and labeling

UCPD – Scope „applies 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. ” What are commercial practices?

Commercial Practices (Article 2 lit. d) “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”.

CJ on sales promotions are governed by the UCPD therefore only prohibited if unfair under the UCPD cf. joint cases C-261/07 -C-299/07(Total Belgium) 23/4/09; C-304/08 (Plus) 14/1/10; opinion of the advocate general C-540/08 (Mediaprint) 24/3/10

Advertising self-regulation advertising industry commits itself to comply with certain rules self-regulation-organisations exist in almost all MS, but with different importance coordination through EASA (European Advertising Standards Alliance)

UCPD – Structure Big general clause Article 5 Small general clause Articles 6, 7 Articles 8, 9 Misleading UCP Aggressive UCP “Black list” Annex I

Unfair Competition Law II. German legal frame work 1. History 2. Current legislation 3. Excursion: advertising self-regulation

German unfair competition act (UWG) • first regulation in 1894 • first code from 1909 • new code in 2004 • amended in 2008 in order to implement the UCPD

UWG – Scope today protection of : • competitors • consumers • other market participants and • the public as such (cf. § 1 UWG)

UWG – Structure General clause § 3 Examples of unfair UCP § 4 Misleading UCP §§ 5, 5 a Comparative advertising § 6 “Black list” Annex I Unreasonable nuisance § 7

UCPD – UWG main difference I: UWG generally governs B 2 C as well as B 2 B relations makes sense – consumer protection and protection of competitors as “ 2 sides of the same coin”

UCPD – UWG main difference II: UWG generally governs questions of taste and decency

Self-regulation in Germany • by the so-called Werberat (which must not be confused with the Wettbewerbszentrale) • of less importance compared to e. g. Italy or UK • code covers mainly questions of taste and decency (not misleading advertising)

UCPD – Structure • “big” general clause (Article 5) • two “small” general clauses: Ø misleading UCP (Article 6, 7) Ø aggressive UCP (Article 8, 9) • Annex I (“black list”)

UCPD – Structure Does a CP violate Annex I? if not, Is it misleading / agressive? if not, Does it violate the general clause? if not CP is fair

UCPD – “black list” CP which are prohibited under all cirsumstance no case to case assessment required no. 1 -23: misleading CP, no. 24 -31 aggressive CP

UCPD – “black list” Examples I “Claiming to be a signatory to a code of conduct when the trader is not. ” “Displaying a trust mark, quality mark or equivalent without having obtained the necessary authorisation. ” “Claiming that a code of conduct has an endorsement from a public or other body which it does not have. ”

UCPD – “black list” Examples II „Using editorial content in the media to promote a product where a trader has paid for the promotion without making that clear in the content or by images or sounds clearly identifiable by the consumer (advertorial). ” e. g. “product reviews” written by employees

UCPD – “black list” Examples III “Describing a product as "gratis", "free", "without charge" or similar if the consumer has to pay anything other than the unavoidable cost of responding to the commercial practice and collecting or paying for delivery of the item. ”

UCPD – misleading commercial practices • Misleading actions (Article 6) • Misleading ommissions (Article 7)

Misleading actions (Art. 6 no. 1) contains false information and is therefore untruthful, or in any way, including overall presentation, deceives or is likely to deceive the average consumer, even if the information is correct with regard to certain elements and causes or is likely to cause him to take a transactional decision that he would not have taken otherwise

Misleading actions (Art. 6 no. 1) False information regarding: • • • existence or nature of product main characteristics of product price trader’s identity consumer’s rights

Average consumer According to consumer is the CJ the average “reasonably well-informed and reasonably observant and circumspect”, taking into account social, cultural and linguistic factors

Transactional decision (Article 2 lit. k) “any decision taken by a consumer concerning whether, how and on what terms to purchase, make payment in whole or in part for, retain or dispose of a product or to exercise a contractual right in relation to the product, whether the consumer decides to act or to refrain from acting“ objective criteria

Misleading actions (Article 6 no. 2) • providing information generally misleading • creating confusion with competitors’ products • failing to honour firm and verifiable commitments made in a code of conduct

Misleading omissions (Article 7) Trader omits material information that the average consumer needs, according to the context, to take an informed transactional decision; or hides or provides material information in an unclear, unintelligible, ambiguous or untimely manner; or fails to identify the commercial intent of the commercial practice if not already apparent from the context and

Misleading omissions (Article 7) and this causes or is likely to cause the average consumer to take a transactional decision that he would not have taken otherwise medium used has to be taken into account

Misleading omissions – invitation to purchase (Article 7 no. 4) material information, if not apparent from the context: • characteristics of the product • identity of the trader • price including taxes • special terms and conditions (e. g. delivery, existence of right to withdraw)

UCPD – aggressive CP (Article 8) freedom of choice or conduct of the average consumer is significantly impaired by harassment, coercion, including the use of physical force, or undue influence and thereby causes him or is likely to cause him to take a transactional decision that he would not have taken otherwise

UCPD – general clause (Article 5) “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…”

UCPD – general clause “professional diligence” (Article 2 lit. h) “means the standard of special skill and care which a trader may reasonably be expected to exercise towards consumers, commensurate with honest market practice and/or the general principle of good faith in the trader’s field of activity“

Iphone I (Higher Regional Court Hamburg, file number 5 U 185/08) „Free internet“ – but Vo. IP excluded court: misleading CP www. electricpig. co. uk

Opel up to 160. 000 km = lifelong guarantee? www. opel. de

Conclusions UCPD is an important step towards European unfair competition law, but still limited scope and many general clauses which ask for uniform interpretation by the CJ German UWG influenced by UCP, but still broader personal and factual scope

THANK YOU FOR YOUR ATTENTION! Prof. Dr. Susanne Augenhofer LL. M. (Yale), LL. M. (FU Berlin) Humboldt University Berlin, Germany susanne. augenhofer@rewi. hu-berlin. de