UNFAIR COMMERCIAL PRACTICE Marko Baretić Faculty of Law University of Zagreb

DEVELOPMENT  Directive 84/450/EEC on misleading advertising  Directive 97/55/EC amending Directive 84/450/EEC to include comparative advertising  Directive 2005/29/EC (unfair commercial practice)  Directive 2006/114/EC on misleading and comparative advertising

MAIN CHARASTRISTICS  Innovative rules CONCEPTUALY, IN TERMS OF CONTENT, TERMINOLOGY AND STILE – EXTREMELY COMPLEX REGULATIONCONCEPTUALY, IN TERMS OF CONTENT, TERMINOLOGY AND STILE – EXTREMELY COMPLEX REGULATION  State imposed rules – part of a legal system  Horizontal rules  Public law rules – market regulation  Rules with preventive function  General rules

INNOVATIVE CONCEPT  New concept of regulation aiming at creating: an overall regulationan overall regulation  Horizontal rules an all-European autonomous regulationan all-European autonomous regulation  which departs from well-established national concepts of unfair practices regulation  autonomous terminology Inescapable and “future-proof” regulationInescapable and “future-proof” regulation

STATE IMPOSED RULES  Regulation of unfair commercial practices: VoluntaryVoluntary  Industry level  Commercial community level MandatoryMandatory  National level  Supranational level  Directive 2005/29/EEC is aimed at creating mandatory public law rules (state imposed rules), at the European level These rules are without prejudice to voluntary rules (deontological codes of conduct) of regulated professionsThese rules are without prejudice to voluntary rules (deontological codes of conduct) of regulated professions

HORIZONTAL RULES  Rules of the Directive 2005/29/EC apply to:  every product  every service  every commercial sector  every industry sector  every type of practice  every type of communication  every mode of trading

PREVENTIVE RULES  Rules aimed at preventing traders from using unfair commercial practices  Irrelevant whether the practice have caused any harm to any consumer or whether it actually caused any consumer to take wrong transactional decision The possibility to ban even the practice which is likely to materially distort economic behaviour of consumersThe possibility to ban even the practice which is likely to materially distort economic behaviour of consumers

GENERAL RULES  Rules embodied in the Directive 2005/29/EEC should apply only if there are no specific community rules on unfair commercial practice In the case of conflict between the provisions of this Directive and other Community rules regarding specific aspects of unfair commercial practices, the latter shall prevail and apply to those specific aspects. (Art. 3/4)In the case of conflict between the provisions of this Directive and other Community rules regarding specific aspects of unfair commercial practices, the latter shall prevail and apply to those specific aspects. (Art. 3/4)

AUTONOMOUS EUROPEAN REGULATION  New type of regulation which should by applied and interpreted autonomously, without recourse to national legislation, national concepts, national tradition  To that purpose autonomous terminologyautonomous terminology  Consumer, trader, product  B2C commercial practices  “to materially distort the economic behaviour of consumers”  Professional diligence  Invitation to purchase  Undue influence  Transactional decision  Average consumer Autonomous concept of unfairness of commercial practicesAutonomous concept of unfairness of commercial practices

DEFINITION OF UNFAIR COMMERCIAL PRACTICE  Autonomous definition  Inescapable and “future-proof” definition  Conceptually complex definition Three levels of definitionThree levels of definition  GENERAL  GENERIC  SPECIFIC (CASUISTIC)

DEFINITION – GENERAL LEVEL  A commercial practice is unfair if: It is contrary to the requirements of professional diligenceIt is contrary to the requirements of professional diligence It materially distorts or is likely to materially distort the economic behaviour with regard to the product of the average consumer whom it reaches or to whom it is addressed, or of the average member of the group when a commercial practice is directed to a particular group of consumersIt materially distorts or is likely to materially distort the economic behaviour with regard to the product of the average consumer whom it reaches or to whom it is addressed, or of the average member of the group when a commercial practice is directed to a particular group of consumers

DEFINITION – GENERAL LEVEL  Four elements of the general level of the definition Commercial practiceCommercial practice Practice contrary to the requirements of professional diligencePractice contrary to the requirements of professional diligence Material distortion of the economic behaviour of consumerMaterial distortion of the economic behaviour of consumer An average consumerAn average consumer

DEFINITION – GENERAL LEVEL  Commercial practice Any act, omission, course of conduct or representation, commercial communication including advertising and marketing, by a trader, directly connected with the promotion, sale or supply of a product to a consumers

DEFINITION – GENERAL LEVEL  Practice contrary to the requirements of professional diligence Professional diligence – the standard of special skill and care which a trader may reasonably be expected to exercise towards consumers, commensurate with honest market practice and/or general principle of good faith in the trader’s field of activity

DEFINITION – GENERAL LEVEL  Material distortion of the economic behaviour of consumer To materially distort the economic behaviour of consumers’ means using a commercial practice to appreciably impair the consumer’s ability to make an informed decision, thereby causing the consumer to take a transactional decision that he would not have taken otherwise Transactional decision means any decision taken by a consumer concerning whether, how and on what terms to purchase, make payment in whole or in part for, retain or dispose of a product or to exercise a contractual right in relation to the product, whether the consumer decides to act or to refrain from acting

DEFINITION – GENERAL LEVEL  Material distortion of the economic behaviour of consumer This rule is without prejudice to the common and legitimate advertising practice of makingThis rule is without prejudice to the common and legitimate advertising practice of making  exaggerated statements Gillette – the best for the menGillette – the best for the men  or statements which are not meant to be taken literally Red Bull – gives you the wingsRed Bull – gives you the wings

DEFINITION – GENERAL LEVEL  The concept of average consumer Abstract conceptAbstract concept Objective evaluationObjective evaluation  To be evaluated in accordance with the interpretations of the ECJ A consumer who is reasonably well-informed and reasonably observant and circumspect, taking into account social, cultural and linguistic factors (18 of the Preamble) To be determined with regardTo be determined with regard  The consumers whom the practice reaches  The consumers to whom the practice is addressed  The consumers who are average member of the group to which the practice is directed

DEFINITION – GENERIC LEVEL  Formed on the basis of past experience with unfair practices  Two types of unfair practices Misleading commercial practicesMisleading commercial practices Aggressive commercial practicesAggressive commercial practices  Ill-adapted to changes of commercial practice

DEFINITION – GENERIC LEVEL  Misleading commercial practice Misleading actionsMisleading actions  If it contains false information and is therefore untruthful or in any other way deceives or is likely to deceive the average consumer, even if the information is factually correct Misleading omissionsMisleading omissions  If it omits material information that the average consumer needs, which makes him to take transactional decision that he would not have taken otherwise Account shall be taken of all features of practice and circumstances including the limitations of the communication mediumAccount shall be taken of all features of practice and circumstances including the limitations of the communication medium

DEFINITION – GENERIC LEVEL  Aggressive commercial practices If it by harassment, coercion and undue influence it significantly impairs or is likely to significantly impair the average consumer’s freedom of choice or conduct with regard to the product and thereby causes him or is likely to cause him to take a transactional decision he would not have taken otherwiseIf it by harassment, coercion and undue influence it significantly impairs or is likely to significantly impair the average consumer’s freedom of choice or conduct with regard to the product and thereby causes him or is likely to cause him to take a transactional decision he would not have taken otherwise  Use of harassment, coercion and undue influence in practice – shall be determined taking into account: timing, location, nature and persistencetiming, location, nature and persistence the use of threatening or abusive language or behaviourthe use of threatening or abusive language or behaviour the exploitation by the trader of any specific misfortunethe exploitation by the trader of any specific misfortune onerous or disproportionate non-contractual barriers imposed by the trader where a consumer wishes to exercise rights under the contractonerous or disproportionate non-contractual barriers imposed by the trader where a consumer wishes to exercise rights under the contract any threat to take any action that cannot legally be takenany threat to take any action that cannot legally be taken

DEFINITION – SPECIFIC LEVEL  Black list of  Misleading commercial practices Claiming to be a signatory of conduct when the trader is notClaiming to be a signatory of conduct when the trader is not Claiming that the trader is about to cease trading or move premises when he is notClaiming that the trader is about to cease trading or move premises when he is not Falsely claiming that a product is able to cure illnesses, dysfunction or malformationsFalsely claiming that a product is able to cure illnesses, dysfunction or malformations …  Aggressive commercial practices Creating the impression that the consumer cannot leave the premises until a contract is formedCreating the impression that the consumer cannot leave the premises until a contract is formed Conducting personal visits to the consumer’s home ignoring the consumer’s request to leaveConducting personal visits to the consumer’s home ignoring the consumer’s request to leave Explicitly informing a consumer that if he does not buy the product or service, the trader’s job or livelihood will be in jeopardyExplicitly informing a consumer that if he does not buy the product or service, the trader’s job or livelihood will be in jeopardy …

PROHIBITION OF UNFAIR COMMERCIAL PRACTICE  Unfair commercial practices shall be prohibited  Enforcement Collective protection of consumersCollective protection of consumers  civil or administrative proceedings Penalties for infringementsPenalties for infringements  must be effective, proportionate and dissuasive