Famous French distributor sentenced for prohibited and misleading advertising linked to promotional offers

Who: Paris Court of appeal
Where: France
When: 24 April 2019
Date law stated: 2 August 2019

What happened:

Last April, the Paris Court of Appeal ordered a well-known French distributor to compensate one of its competitors for acts of unfair competition.
In 2015 and 2016, the distributor had broadcast television commercials, which its competitor argued were in violation of:

  • a 1992 French decree prohibiting distributors from advertising on television for commercial promotional operations taking place entirely or mainly on national territory;
  • the regulation on misleading commercial practices, resulting from the Directive 2005/29/CE, as regards the lack of sufficient stocks of products;
  • the same regulation on misleading commercial practices, with regard to the claims “elected best chain of stores” and “best chain of stores”.

As regards the first ground, the distributor was accused of having broadcast television advertisements for promotional operations in violation of Decree n°92-280. The distributor argued that this decree prohibiting advertising by retail chains for their promotional activities was contrary to Directive 2005/29/EEC on unfair commercial practices. It therefore asked the Court to refer a question to the Court of Justice of the European Union for a preliminary ruling on the conformity of the decree.

However, the Court rejected the reference for a preliminary ruling, ruling that the purpose of the French decree limiting advertising media for promotional sales by distributors was not to protect consumers but to safeguard media pluralism by ensuring that television does not constitute the essential advertising medium to the detriment of other media.

The Court also considered whether the sales covered by the television advertisements constituted “promotional operations“. In that regard, the Court referred to a note from ARPP (the French advertising self-regulatory organization) on “Distribution and television advertising“, which provided an interpretation grid for that regulation. Although that note is not strictly legally binding, the Court noted that it results from a use of the profession that is binding on the actors.

In the present case, the ARPP specified that the price advertised in a television advertisement must be normal, stable and sustainable, with a minimum of 15 weeks for the price and available stocks to be maintained. However, the products in question were generally offered for sale for a maximum of four weeks, without restocking, meaning that these sales could be assimilated to promotional operations that could not be the subject of television advertising.

The second legal basis was a simple application of the provision (resulting from the Unfair Commercial Practices Directive) that presumes misleading the practice of “offering to purchase products or provide services at a specified price without revealing any plausible reasons that the trader might have for thinking that he cannot provide himself or have another trader provide them, the products or services in question or products or services equivalent to the price indicated, for a period and in quantities that are reasonable having regard to the product or service, the extent of advertising for the product or service and the price offered“.

The Court considered that by advertising products with low stocks, the distributor was aware that it could not supply the products for a reasonable period of time. The Court therefore found (albeit without further explanation of the decision) that the distributor had engaged in conduct likely to substantially distort the economic behaviour of the average consumer and had therefore committed an unfair competitive practice against its competitor.
Finally, on the third ground, the Court considered that the allegations of “elected best chain of stores” and “best chain of stores” constituted misleading commercial practices, in particular since the methodology used did not guarantee an objective “election” and resulted from consumer calls financed by the participating brand itself to obtain the maximum number of votes. More specifically, with regard to the label “best chain of stores”, the Court considered that it induced a comparison with other brands, for which no element made it possible to certify the veracity.

Finding against the distributor, the Court ordered it to pay the competitor €3 million.

Why this matters:

The advertisements in question fall under two different offences which the Court takes care to distinguish: one is aimed at preserving the attractiveness of the various media, irrespective of whether or not the advertising is unfair, while the other is aimed at protecting consumers and punishes the unfairness of large-scale advertising for products which will only be available for a short time in stores. Finally, the use of the ARPP’s note, the application of which is considered relevant here, makes it possible to qualify as “promotional operations” sales that are not presented as such.

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