The EU Unfair Commercial Practices Directive will be in force in the UK in April 2008. Lurking within its wide ranging provisions are new rules that could criminalise a number of not uncommon prize draw and competition practices. Nick Johnson enters the lottery.
Who: Promoters, Trading Standards
When: April 2008
Law stated as at: 30 October 2007
The Consumer Protection from Unfair Trading Regulations 2007 are expected to go onto the statute books by 12 December 2007, as the UK's implementation of the Unfair Commercial Practices Directive.
From the way that the Regulations, likely to come into force in April 2008, have been described, you might be forgiven for viewing them as relevant only to businesses engaged in "sharp practices", aggressive time-share selling and the like.
However, there are some key ways in which the Regulations will have a real, practical impact on businesses of all kinds. Over the coming months, www.marketinglaw.co.uk will examine a number of these. This month, we look briefly at how the draft Regulations in their current form may impact those involved in running prize promotions.
Two specific practices are outlawed as "commercial practices which are in all circumstances considered unfair" (see list in Schedule 1 of the draft Regulations):
19. Claiming in a commercial practice to offer a competition or prize promotion without awarding the prizes described or a reasonable equivalent.
31. Creating the false impression that the consumer has already won, will win, or will on doing a particular act win, a prize or other equivalent benefit, when in fact either – (a) there is no prize or other equivalent benefit; or (b) taking any action in relation to claiming the prize or other equivalent benefit is subject to the consumer paying money or incurring a cost.
Practice 19 will make it imperative that promoters include suitable wording in their terms and conditions so as to ensure that substitute winners can be selected in place of the original winner if he or she cannot be located within a particular time. In the absence of suitable provisions to cover this eventuality, the promoter can be left in a real quandary if the first name picked out of the hat does not immediately respond to email messages or telephone messages. (Should the promoter risk civil action from the initial winner by picking another name from the hat? Or should it run the risk of criminal prosecution under the Regulations for not awarding a prize at all?)
Will contingent prize promotions be illegal?
The wording of practice 19 also raises the question as to whether it will be permissible to run prize promotions where it is made clear that prizes are only offered on a contingent basis (and hence may not all be awarded). Most on-pack "instant win" promotions for instance are run on the basis that a finite number of winning packs are in circulation and that prizes are only awarded to those who (a) notice that their pack is a winning pack; and (b) make the effort to claim their prize. Will this long-standing – and entirely transparent – promotion mechanic become illegal when this new legislation comes into force?
As for practice 31, parts of this sit a little oddly with the Gambling Commission's guidance as to the lotteries law analysis of prize delivery costs. The Commission has indicated, perhaps surprisingly, that it would not consider a requirement for a winner to pay normal delivery costs to take receipt of a prize to be a "requirement to pay" for the purposes of the Gambling Act 2005. But it looks like this may now breach the Regulations. Or would a suitably prominent disclosure as to the delivery costs save the day?
Will breaching CAP Code have wider implications?
Finally, a point that has a far wider potential application than just the world of prize promotions. The draft Regulations don't just outlaw the 31 identified practices set out in the Schedule. They also ban "unfair commercial practices" generally. These are defined as practices which contravene the "requirements of professional diligence" and which "materially [distort] or [are] likely to materially distort the economic behaviour of the typical consumer with regard to the product". If compliance with the self-regulatory CAP Code is taken as indicative of the "requirements of professional diligence", then will we see the CAP Code's requirements potentially taking on the force of criminal law? In the case of prize promotions, the CAP Code's requirements (including that prizes in draws must be awarded in accordance with the laws of chance and under the supervision of an independent observer) seem to have been regarded by some promoters as irrelevant or voluntary: witness the recent high-profile stories as to compliance failures in TV programme draws. Going forward, that may be a dangerous assumption to make…
Why this matters:
If you thought that the new Regulations would not impact on your business's practices, think again. The new legislation will introduce some sweeping changes to the way that advertising, marketing and promotions are regulated in the United Kingdom. Look out for further articles on particular aspects (including the impact of the Regulations on branded content, the status of self-regulatory codes, comparative advertising, inertia selling and omissions) over the coming months.