Advocate General opines on retailer comparative advertising

Who: Advocate General Saugmandsgaard ØE

Where: European Union

When: October 2016

Law stated as at: 16 November 2016

What happened:

The case that introduced the issues…

In December 2012, in a TV ad campaign Carrefour Hypermarchés SAS (“Carrefour“) compared the prices of 500 leading brand products in its shops with those in competitors’ outlets.  They then also offered to reimburse consumers twice the price difference if they found cheaper prices elsewhere. ITM Alimentaire International SASU (“ITM“) was one of the competitors Carrefour compared its prices to.  Both entities own both supermarkets and hypermarkets and typically, the prices charged in hypermarkets can be lower than those charged by supermarkets due to economies of scale and other factors such as location.

During the TV campaign, the ITM shops selected for the purpose of comparisons were all supermarkets whereas the Carrefour shops were hypermarkets. ITM therefore objected and brought legal proceedings against Carrefour before the Tribunal de Commerce de Paris for damages and injunctive relief due to the methods of comparison employed by Carrefour.  The French Commercial Court found in ITM’s favour which prompted Carrefour to appeal and this in turn led to the French appeal court referring the following questions to the ECJ:

• Must the rules on comparative advertising in Misleading and Comparative Advertising Directive (2006/114/EC) (the “MCAD“) be interpreted as meaning that a comparison of the price of goods sold by retail outlets is permitted only if the goods are sold in shops having the same format or of the same size?
• Does the fact that the shops whose prices are compared are of different sizes and formats constitute “material information” within the meaning of the Unfair Commercial Practices Directive (2005/29/EC) (the “UCPD“) that must necessarily be brought to the knowledge of the consumer?
• If so, to what degree and/or via what medium must that information be disseminated to the consumer?

A summary of the applicable laws…

The ECJ was asked to provide an opinion regarding the application of the following legislation:

1. MCAD

This legislation provides that comparative advertising shall be permitted when: (a) it is not misleading, either under the MCAD or the UCPD; and (b) it objectively compares one or more material, relevant, verifiable and representative feature of those goods and services, which may include price.

The MCAD defines misleading advertising as: “any advertising which in any way, including its presentation, deceives or is likely to deceive the persons to whom it is addressed or whom it reaches and which, by reason of its deceptive nature, is likely to affect their economic behaviour or which, for those reasons, injures or is likely to injure a competitor“.

2. UCPD

Under the UCPD, a commercial practice is misleading if, in relation to one or more specified elements (which include the price or the manner in which the price is calculated, or the existence of a specific price advantage), that practice either contains false information and is therefore untruthful, or in any way deceives or is likely to deceive the average consumer, even if the information is factually correct, and, in either case, the commercial practice causes, or is likely to cause, the consumer to take a transactional decision that he would not have taken otherwise.

Furthermore, the UCPD defines misleading omissions as being a practice that, in its factual context, taking account of all its features and circumstances and the limitations of the communication medium, omits material information that the average consumer needs, according to the context, to take an informed transactional decision and thereby causes or is likely to cause the average consumer to take a transactional decision that he/she would not have taken otherwise.  A practice is also likely to be considered a ‘misleading omission’ when a trader hides or provides in an unclear, unintelligible, ambiguous or untimely manner such material information or fails to identify the commercial intent of the commercial practice if it is not already apparent from the context.  As before, this would also then need to cause or be likely to cause the average consumer to take a transactional decision that he would not have taken otherwise.

The Advocate General’s decision…

The Advocate General’s opinion focused on the following points:

• as a general principle, the rules on comparative advertising in the MCAD do not prevent the operator of a hypermarket from comparing the prices charged in its own shops with those charged in competing shops having different formats or sizes (e.g. supermarkets or local shops) provided that: (a) the goods chosen for the comparison are comparable; (b) the comparison is not misleading; and (c) the comparison is objective;
• information about the size and format of the shops in which the advertised goods are sold is not necessarily “material information” under the UCPD, the omission of which would be misleading. However, it may constitute material information (and this will be a matter for the national court to decide) where: (a) the advertiser and its competitor belong to retail chains which each have shops of identical or similar formats or sizes AND (b) the selection of the shops for the comparison has the effect of artificially creating or increasing any difference between the prices charged by the advertiser and by the competitor; and
• however, in this particular case where the advertiser and the competitor belong to retail chains which each have shops of identical or similar formats or sizes, a comparison of the prices in shops having different formats or sizes may be misleading and not objective in nature. Information about the size and format of the shops whose prices are being compared may be material in this context and, if so, it should be referenced in the ad.

Picking up on the third point in more detail, the Advocate General’s view was that where both an advertiser and its competitor belong to retail chains which each have shops of identical or similar formats or sizes, the advertiser may not compare the price it charges in a shop of one format (such as a hypermarket) with the price charged by its competitor in a shop with another format (e.g. a supermarket) where:

1. in the light of all the relevant circumstances of the case, and in particular in the light of the information in or omissions from the advertising at issue, the transactional decision of a significant number of consumers to whom that advertising is addressed is likely to be made in the mistaken belief that: (a) all the shops in those retail chains have been taken into account in calculating the general price level and the amount of savings which are claimed by the advertising; and (b) accordingly, those consumers will make savings of the kind claimed by the advertising by regularly buying their everyday consumer goods from shops in the advertiser’s retail chain rather than from shops in the competitor’s retail chain; or
2. where the selection of the shops used for the purpose of the comparison has the effect of artificially creating or increasing any difference between the prices charged by the advertiser and by the competitor.

It will now be for the French Commercial Court to decide whether either of these situations applies in the case between Carrefour and ITM for a ruling in relation to that particular comparative advertising campaign.

Why this matters:

The good news for retailers is that the Advocate General acknowledges that in so far as an advertiser is capable of benefiting from economies of scale as a result of the size, format or number of retail outlets they have and as a result they are able to charge prices lower than those of their competitors, they should be able to derive marketing benefits from this and promote this fact to consumers.  However, when a direct comparison is being made with a named competitor, it is important to then consider the make-up of that competitor’s retail chain and ensure that any comparison made does not then become misleading.

Another important takeaway from this opinion is that the Advocate General felt that where a national court determines that the information about the sizes and formats of retail outlets whose prices are compared is “material information” for the purposes of the UCPD, then to avoid a misleading omission, such information must be contained in the advertisement itself.  We shall have to see what the national courts may suggest regarding the form such information should take (for instance, a weblink to a separate microsite where information explaining and verifying a comparison can be found, or onscreen disclaimer wording setting out the basis of a comparison during the ad perhaps).

Finally, this is clearly an opinion from the Advocate General rather than a decision by the national court which then forms legal precedent.  However, as we have seen many times in the past, national courts often agree with the Advocate General and so this could be how this case is resolved back in France now.  In any event, retailers will be pleased with the indication given that in principle, prices charged in one type of retail outlet can be compared with prices charged in another type of retail outlet.  This may be something that retailers’ future campaigns can build upon.