The Court of Justice (formerly known as the European Court of Justice-don’t ask) has pronounced against a German ban on purchase-to-enter prize promotions. Does this mean curtains for Northern Ireland’s ridiculous failure to align its promo laws with Great Britain? Osborne Clarke Cologne’s Thao Tran and Jan Hellenbrand enter for free.
Topic: Promotion marketing
Who: Plus (retail store chain) and the Centre for Combating Unfair Competition
When: January 2010
Where: Germany and The Court of Justice of the European Union (formerly the European Court of Justice)
Law stated as at: 25 March 2010
One of the most popular sales promotions are prize draws, especially in the form of combined offers where consumers may only enter the draw if they buy goods or use services. Under German law, however, these offers are subject to restrictions in the German Act against Unfair Competition (Gesetz gegen den unlauteren Wettbewerb – UWG).
Sec. 4 UWG provides examples of unfair practices; as per Sec. 4 No.6 UWG, making the entering of a competition dependent on the purchase of goods or the use of services shall in any case be unfair and thereby illegal, irrespective of the circumstances of the individual case.
On January 14, 2010, based on a reference for a preliminary ruling by the German Supreme Court (Bundesgerichtshof – BGH), the European Court of Justice (now renamed the Court of Justice of the European Union- “CJEU”) ruled that national legislation prohibiting in principle the linkage between entering a competition and the purchase of goods or the use of services, without taking the circumstances of the individual case into account, is not in line with the EC-Directive 2005/29/EC concerning unfair business-to-consumer commercial practices in the internal market.
Background of the CJEU decision
The German retail store chain Plus Warenhandelsgesellschaft mbH (Plus) ran a sales promotion allowing customers to collect “points” with every purchase of products. If they collected 20 points, the customers could participate in the National Lottery for free. The Centre for Combating Unfair Competition considered this to be unfair as in Sec. 4 No.6 UWG and applied for a Cease and Desist order. After losing before courts of lower instances, Plus appealed to the BGH who made the reference to the CJEU.
In its reasons, the CJEU emphasised that the EC-Directive serves the purpose of harmonisation of national legislations on unfair commercial practices impairing consumers’ interests. Therefore, member states were not allowed to exceed the level of consumer protection given by the EC-Directive. In its so-called “black list” of unfair practices – Annex 1 – the EC-Directive stipulates certain practices that are considered unfair in any case. With all other practices the principle of proportionality required an evaluation case-by-case. Since combined or “purchase to enter” offers are not mentioned in the “black list”, they may not be prohibited per-se – as it currently is in Sec. 4 No. 6 UWG – but must be reviewed on the individual case.
Consequences for German Jurisdiction
Bound by the principles of effet-utile, the BGH is now obliged to honour the CJEU decision. To do so, there are two options:
(i) the BGH may still apply Sec. 4 No.6 UWG but also has to decide whether the combined offer meets standards of professional care and whether the consumers’ freedom of choice is perceptibly influenced by taking the individual circumstances into account; or
(ii) the BGH may decide to not apply Sec. 4 No.6 UWG and evaluate combined offers only in the light of Sec. 4 No.1 UWG. This stipulates commercial practices to be unfair if a consumer is influenced in such an inappropriate and impertinent manner that the decision to purchase is no longer based on rationality.
Obviously, the threshold for (ii) is much higher. Following (i) the Plus sales promotion is likely to be considered unfair while in the light of (ii), it is not. In its reference, the BGH indicated to qualify the sales promotion as unfair but made no further binding statement.
Why this matters:
Businesses are now generally free to make combined offers. Despite the new given freedom, due to the case-by-case-approach and with yet no reliable jurisdiction, businesses in Germany should remain careful as, depending on the individual circumstances, combined offers may still constitute an unfair practice and therefore be subject to warnings and Cease and Desist orders.
Before running such draws, German businesses need to diligently review the individual circumstances in order to avoid any impairment of consumers’ interests. To be on the safe side, businesses in Germany should, in addition to their combined offers, provide customers with a free entry route, i.e. entering the prize draw without the requirement of buying goods or using services.
Consequences for Northern Ireland
The verdict also calls into question the continued enforceability of equivalent laws in Northern Ireland. Unlike the rest of the UK, where most “purchase to enter” prize draws have been to all intents and purposes quite legal since the coming into force of the Gambling Act 2005, the gambling and lottery laws of Northern Ireland have not been changed.
This means in that province, up until this CJEU verdict at any rate, a purchase to enter prize draw will likely be contrary to law unless there is a genuine, realistic and unlimited alternative free entry route. Now, there has to be real doubt as to whether this Northern Ireland any prosecution launched in Northern Ireland in respect of a promotion of a prize promo mechanic.
Osborne Clarke, Cologne