Unfair Commercial Practices Directive Q&A #2

EU Directive 2005/29/EC of 11 may 2005 concerning unfair business to consumer commercial practices

Required transposition date: 12 December 2007

Frequently asked questions on "misleading" and "aggressive" commercial practices

1. What is a misleading practice?

Before looking at the detailed definitions here it is important to remember three basic points.

The most important one of these is that misleading practices are a sub set of unfair commercial practices and they differ from general "unfair commercial practices" in that to establish a misleading commercial practice it is not necessary to show that it is contrary to the requirements of professional diligence or that it materially distorts consumers' economic behaviour.

The next basic point is that misleading commercial practices come in two forms, misleading actions and misleading omissions.

Thirdly, there is the "transactional decision" rule. This is that all misleading practices except the 23 specific misleading practices in Annex 1 must cause or be likely to cause the average consumer to take a transactional decision which he would not have taken otherwise.

What does average consumer mean?

It was defined in earlier drafts of the Directive, but in the final version there is no definition.

However recital 18 to the Directive tells us that the average consumer test is not a statistical test, so for example it is not to be assessed by a survey of the actual expectations of consumers. Rather it is based on the presumed expectations of the notional average consumer. The recital tells us that it will be for national courts and authorities to determine the reaction of the average consumer in a given case.

The DTI says that in its view, the average consumer benchmark does not mark a radical departure from current law, as it bears a strong resemblance to the reasonable person of English law or the man on the Clapham omnibus.

A transactional decision is defined, to summarise, as "any decision taken by a consumer concerning whether, how and on what terms to purchase a product".

Is this any different for example to the requirement in the Control of Misleading Advertisements Regulations 1988 that to be misleading an advertisement has to either injure a competitor or affect the economic behaviour of those to whom it is addressed?

It is unclear and again a chance to use consistent terminology has been missed by Brussels.

Now to the detail.

Looking first at misleading actions, there are three types of these, which to summarise are:

• Practices that are false or deceptive as to one or more of 7 aspects of a product (remember here that "product" is defined as covering both goods and services). These include main characteristics, broken down into 15 separate sub categories including availability, fitness for purpose and geographical or commercial origin, price and need for after sales service
• The second type of misleading action is marketing a product, including comparative advertising, which creates confusion with any products, trade marks, trade names or other distinguishing marks of a competitor
• The third type is non compliance by a trader with non aspirational commitments in a code of conduct which the trader has committed to be bound by and which the trader indicates in the commercial practice that he is bound by

Turning to misleading omissions, there are two broad categories. First there are those applicable to all commercial practices including brand/image advertising as well as invitations to purchase. Secondly there are omissions that are only in invitations to purchase.

In the wider first category, there are three sub species of misleading omission.
First there is the omission of material information that the average consumer needs to take an informed decision.

Secondly there is hiding or providing this material information in an unclear, unintelligible, ambiguous or untimely manner.

Thirdly there is failing to identify the commercial intent of the commercial practice. This would overlap for example with the requirement in the E Commerce Directive that the commercial purpose of unsolicited marketing emails must be clear forthwith on receipt.

Now let's look at the second broad category of misleading omissions. These relate only to invitations to purchase and here we are told that five core fields of information will in all cases be regarded as "material" The effect of this is that all invitations to purchase for instance mail order catalogues, online sales, DRTV or telesales must include disclosures in these core fields and not hide them or deal with them un-clearly, unintelligibly or ambiguously.

The fields are perhaps confusingly similar but not quite the same as the 7 for misleading actions. They include the main characteristics of the product to the extent appropriate to the medium and the product, the geographical address and identity of the trader and the price.

2. What sort of information is covered? 

See above and:

• Main characteristics of the product (e.g. benefits, risks, delivery, usage, quantity etc.)
• Existence or nature of product
• Price/Manner in which price is calculated
• Consumer's rights (e.g. right of replacement or reimbursement)
• Material information about the product that the consumer needs to take an informed transactional decision (N.B. omitting to provide this information constitutes a misleading practice)

3. What sort of businesses will this affect; is it mainly advertisers?

The Directive will affect all businesses involved in any way in B2C marketing, packaging promotion and sales including prize promotions, promotional gifts and incentives, DRTV, telesales, digital marketing, mail order/catalogue sales, all broadcast and non broadcast advertising.

Unlike the CAP Code for example there will be a direct effect on product labelling, point of sale material and website content outside banner ads.

4. What sort of leeway do broadcast advertisers have; and would this extend to web advertisers as well?

Article 7.3 states that where the medium used for the practice imposes limitations of space or time these and any measures taken by traders to make information available to consumers by other means will be taken into account in deciding whether information has been omitted.

This is echoed by Article 7.4 (a) dealing with the core material information which traders must include and not be unclear about in invitations to purchase.

For the main characteristics of a product, these must be given "to the extent appropriate to the medium and the product"

Clearly both these savings will be available in spot direct response TV ads though not necessarily in longer TV shopping station infomercials.

It seems likely that web advertisers will be able to call them in aid, given the ease with which disclosures can be made in that medium and can be just a click away.

5. Can you give any examples of recent cases or scenarios that might now be considered a misleading commercial practice?

• advertising ring-tones on TV without making it clear that the service is subscription based rather than one  off payment
• deliberate look-alikes
• bogus closing down sales

6. What impact is the directive likely to have on advertising and marketing practices?
(Please include reference to preamble, paragraph 6)

In its recent consultation paper the government tells us that the Directive's adoption will not add significant new burdens on businesses. It is framed as general duty NOT to trade unfairly. It does not contain positive obligations, it goes on, that businesses would need to demonstrate to prove that that they are trading fairly.

This does not seem entirely consistent, for example with the obligations to make clear, prescribed material disclosures to avoid a misleading omission.

Also in some ways it might be said to reduce the regulatory burden on traders.

What I mean here is that because the directive is a maximum harmonisation measure, a number of relevant UK laws will need to be amended to bring them into line with the unfair commercial practice definitions.

This will mean for example that the Trade Descriptions Act 1968 and the misleading price indications Part III of the Consumer Protection Act 1987 will need to include the requirement that the description or price indication will materially distort or be likely to materially distort the economic behaviour of the consumer, something that is not a requirement as of now, except to the extent for instance that to a false trade description must already be "false to a material degree" to be the subject of a successful prosecution.

7. How are consumers in the UK currently protected against such practices?

Protection comes principally from 8 sources:

• Trade Descriptions Act
• Consumer Protection Act
• Sale of Goods Act
• E commerce regulations
• Distance selling regulations
• The CAP and BCAP Codes
• Common law of contract

7a. How far are the provisions already covered by existing advertising and trading practice codes?

(This will probably overlap quite significantly with the question above) CAP code covers fair amount.

Legislation such as Trade Descriptions Act 1968 and Part III of Consumer Protection Act 1987 (misleading price indications), Consumer Credit Act 1974 and Consumer Protection (Code of Practice for Traders on Price Indications) Approval Order 2005 all cover unfair commercial practices currently.  This UK legislation will have to be amended to conform with the principles of the Directive and ensure "maximum harmonisation".

8. Do these requirements relating to the information place a burden on businesses; or are the requirements somehow contained? 

The Directive will not add significant new burdens on businesses as it is framed as a general duty not to act unfairly.  The Directive does not contain positive obligations that businesses would need to demonstrate to prove that they are trading fairly.

9. How far will the provisions extend to, say, labelling, information on websites or print catalogues?

To the extent that labels contain brand names incorporating product claims e.g "Slimquick" or straplines or other material containing product claims/information, there will be a direct effect and as they are clear examples of invitations to purchase mail order catalogues and on line sales will also be affected.

10. Bearing in mind marketing and advertising timescales and product development cycles, what advice would you give to clients now?

Transposition into UK law has to occur by 12 June 2007 for compliance with the Directive deadline. The DTI says "these laws will come into force in December 2007."

I would suggest that by the end of 2006, armed maybe with draft regulations and guidance from the DTI, all affected businesses should be auditing their practices to ensure they are well placed to comply.

11. What is an aggressive commercial practice?

An "Aggressive" practice is construed as that which makes use of harassment or coercion in order to impair the average consumer's freedom of choice when making a transactional decision. Examples of aggressive practice include:

• The use of threatening or abusive language;
• The exploitation of any specific misfortune or circumstance of such gravity as to impair the consumer's judgment, of which the trader is aware, to influence the consumer's decision with regard to the product;
• A threat to take legal action which cannot legally be taken.

May 2006