The European Commission’s long-awaited interpretation of the Directive concerning unfair business-to-consumer commercial practices (UCP Directive) was finally published in the form of a Notice on 17 December 2021. Quite diligently, the Commission also published notices on the interpretation of other consumer protection Directives (e.g. on price indication and consumer rights) on the same day. The publication of these documents was all the more timely because, as we previously reported, national consumer protection regulations will change significantly on 28 May 2022 due to the transposition of the Omnibus Directive. One of the objectives of the Notices is to provide assistance to businesses, consumers and legal professionals in the interpretation of the regulations and the legal assessment of commercial practices pursued in a digital environment.

In this summary, Boglárka Priskin, Anna Pintér and Márton Kocsis, CERHA HEMPEL Dezső & Partners’ consumer protection experts, discuss certain elements of the Notice on the UCP Directive, while the rest of the Notices will be addressed in later summaries.

Why is the new Notice important?

“What we see every day working for our clients is that there are still major differences in the interpretation of certain provisions of the regulations that have transposed the UCP Directive into national law and in the severity of the punitive sanctions applied under such regulations, even though the Directive is based on the principle of maximum harmonisation. We hope that the updated Notice, which includes the latest case law of the ECJ up to the date of the Notice and also describes a few national cases, will prove to be a valuable tool that will enable national regulatory authorities to finally interpret the Directive (and the national regulations transposing it) in a uniform manner”, says Márton Kocsis, the head of CERHA HEMPEL’s competition law practice group.

The Notice has essentially retained the structure of the 2016 update to discuss the relationship of the UCP Directive with other Community legislation (such as the GDPR, or Articles 101 and 102 of the TFEU, which deal with certain fundamental principles of market competition), while it follows the structure of the UCP Directive (definitions, general clause, misleading and aggressive practices, black list, sector-specific rules) to describe the interpretation of various provisions and the latest case law. In the section where the Notice discusses sector-specific rules, the Commission expresses its views on online commercial practices that were not addressed in the 2016 version (such as the publication of search results, influencer marketing, moderation of user reviews, the use of “dark patterns”, etc.).

 Transactional decisions, dark patterns and consumer shaming: stricter rules

“When it comes to assessing whether a commercial practice is unfair, consumer protection authorities examine whether it is capable of distorting a consumer’s transactional decision. Authorities have applied a very broad understanding of the meaning of transactional decision, and such approach appears to have been confirmed by the Notice. The Commission argues in the Notice (which is not a piece of legislation and is therefore not binding on the authorities and courts of the Member States) that clicking on an online link or advertisement, the continued browsing of website or scrolling through a feed can also qualify as a transactional decision. Although the document provides a detailed description of certain online commercial practices that are subject to the UCP Directive, it fails to recognise that consumers have a greater awareness in connection with ads that target the average online consumer, because they have learned various techniques to protect themselves, such as checking price comparison sites, and they know that they can leave a site they don’t like with a single click of a button. Therefore, we believe that such a broad interpretation of transactional decisions ignores changing attitudes and behaviours”, notes Boglárka Priskin, a member CERHA HEMPEL’s consumer protection group.

On the other hand, the Notice states in connection with personalised advertising that the digital environment offers greater opportunities for companies to use data they have collected or otherwise acquired to develop personalised sales techniques that can easily manipulate a consumer based on their particular life situation. Consequently, the use of data that can allow conclusions to be drawn in connection with the vulnerability of a particular group of consumers for sales promotion purposes can qualify as an aggressive commercial practice.

The term “dark patterns” is applied to methods that can be used to manipulate consumers, such as the creation of a user interface where users are induced by the dark pattern to make decisions that they would not have otherwise made. For example, dark patterns include practices where a website is designed in such a way that the “buy” button is very conspicuously placed while the button to cancel the transaction is much less so, or where the position of ‘yes’ and ‘no’ buttons are strategically switched midway through the buying process to increase the chance that consumers will click as the website operator wants them to. The Notice also mentions “confirmshaming”, a practice whereby traders attempt to shame consumers if they do not make a choice that the trader wanted. The Notice states that if such practices are capable of distorting transactional decisions due the characteristics of the given pattern (e.g. unwanted solicitation, misleading or aggressive practice), they can qualify as unfair commercial practices. The Notice points out that pre-ticked boxes regarding the purchase of additional services may be in violation of not only data protection rules but the UCP Directive as well.

The Commission has taken notice of influencers and gamers, and prohibits lock-ins

“The issue of ‘influencer marketing’ is addressed by the Commission for the first time, and the Notice makes it clear that the content produced by influencers to promote products and services can in many cases involve misleading practices. The Commission notes that it is not necessary that the influencer should receive monetary payment in order for the relevant content to have a commercial element; any form of consideration (including unsolicited gifts) is sufficient. In order to avoid a breach of the regulations, the commercial element/nature of influencer content must be disclosed clearly and appropriately in the light of its context, placement, timing, duration, language, target audience, etc., and that such disclosure must be made in connection with all content that includes a commercial element. In what could be termed as a somewhat surprising development and perhaps as a too strict interpretation, the Commission argues that influencer marketing can also qualify as an aggressive practice in some cases, on the grounds that the relationship between an influencer and their audience is one based on trust and personal connection. The Commission also notes (and correctly, we believe) that this is particularly relevant in the case of vulnerable consumers, such as children. Advertising that targets children is subject to even more stringent rules” points out Anna Pintér, an Associate at CERHA HEMPEL and a member of the firm’s consumer protection team.

The Commission also applies a strict approach to video, mobile and online games. The Commission argues that the publishers of games can be guilty of misleading or aggressive commercial practices if the existence of in-game promotions and advertisements are not made sufficiently clear for payers and are not distinguishable from gameplay. For example, this requirement also dictates that the prices of virtual products must also be displayed in a real currency, and that a purchase must not be made without the player’s express consent even if the payment method is saved as a default setting. The requirement to provide appropriate information also means that when a publisher offers access to a game that is still in development, it must clearly state what benefits consumers can expect from the development process. Also, a game can only be advertised lawfully as free if it offers a reasonable and appropriate gaming experience even without in-game purchases. The practice of urging players to execute micro-transactions (make low-value purchases) at critical points in a game can also qualify as an aggressive practice. If a game involves elements of gambling (e.g. prize wheels, loot boxes, etc.), their presence should be disclosed clearly and in a manner that it is clearly distinguishable from gameplay, including an explanation of the probabilities of receiving a (random) item.

The Notice devotes a separate section to the phenomenon known as “consumer lock-in”, i.e. the situation where consumers experience difficulties in changing providers and where limitations are placed on the opportunity for such changes due to the limited interoperability of digital devices. The Commission points out that a passage in the UCP Directive on one of the factors that should be taken into account in the determination of whether a commercial practice qualifies as aggressive can also be applied to such situations. Under the relevant provision, a trader’s imposition of any onerous or disproportionate (non-contractual) barriers when a consumer wishes to exercise rights to terminate a contract or to switch to another product or another trader may qualify as an aggressive practice. However, such an infringement and others similar to it can be avoided by providing advance information to consumers about the compatibility of digital devices and products with other devices. Although this is the first time that consumer lock-in as a phenomenon has been included in the Notice, the Commission previously addressed the issue in connection with the Digital Markets Act and the Digital Content Directive.

Application in Hungary

“It is important to note that the approach used by the Hungarian Competition Authority, the competent national regulatory agency, is forward-looking in the sense that they have examined practices that will be blacklisted after 28 May 2022 in the light of the current regulations. Such practices include automated ticket sales examined in the recent Viagogo case or the moderation of consumer opinions examined in the Hermina Bau case. The evaluation of whether these and other practices in the digital sector comply with consumer protection rules will probably be easier now with the addition of new chapters to the Notice, but this does not mean that businesses will find it easier to comply with the stricter requirements. However, if our hopes are realised and the UCP Directive is indeed interpreted consistently across the EU as intended by the Commission, awareness of the Notice will help Hungarian businesses as well as companies that operate in several Member States achieve voluntary compliance, which can also result in the avoidance of increasing fines”, adds Márton Kocsis in conclusion.

Authors: Boglárka Priskin, Anna Pintér and Márton Kocsis, CERHA HEMPEL Dezső & Partners’ consumer protection experts

The post Price Cuts, Discounts, Online Commerce and the Digital Economy – Compliance, What Art Thou? appeared first on Versenyben vagyunk - a CERHA HEMPEL versenyjogi blogja.

Advertising to children is not prohibited as such, but care must be taken to ensure that it does not directly address or motivate children to buy or use a product or service. It is also prohibited to encourage children to persuade their parents to buy the advertised product for them. The standard requirement is therefore that advertisements for children should avoid the use of “get” / “collect” / “look for” / “buy” or any similar terms. Advertisements for children that do not comply with these rules are considered infringements by law, without any assessment by the relevant authority (in most cases the HCA) of the role that the advertisement may have played in the child’s (or parent’s) decision to purchase. Under this – so-called blacklisted – statutory definition, persons under the age of 14 are considered to be children, but the HCA also considers the 14 to 18 age group as vulnerable consumers, particularly sensitive to the influence of advertising, and applies a stricter criteria when assessing advertising targeted at them.

In proceedings against Bayer, WALMARK and Béres, which ended with fines totalling HUF 78 million, the HCA found certain advertisements promoting children’s vitamins produced by the companies and packaged with little gifts (Actival Kid, Marslakócska, Supradyn Kids) unlawful. The investigated advertisements were broadcast on children’s channels; they used first names and imperative expressions and visuals suitable for attracting the attention of children. From the combined assessment of these aspects the HCA concluded that the advertising directly sought to motivate children to obtain vitamins and related gifts.

Nearly at the same time as the above mentioned cases were closed, the HCA published its guidelines on advertising to children in early 2020. The technical paper aims to explain to market participants the circumstances the HCA takes into account when assessing whether an advertisement was targeted at or reached children, as this is one of the conditions for finding an infringement. The guidelines also explain what criteria the HCA will consider when assessing whether an advertisement contained a direct invitation to purchase a particular product or service. The latter must be proved by HCA in order to find an infringement. It is advisable to consult with a professional in advertising law before broadcasting advertisements targeted at children to reduce any consumer protection risks. The legal advice can help the advertiser to understand whether the planned marketing communications comply with the complex legal conditions for advertising to children as well as the HCA’s case law and guidelines.

Most recently, in the Bongo case, the HCA found that Global AQA Pty Ltd, an Australian company, had directly invited adolescents to use the “Ask Bongo” Q&A game in an unlawful way. In its decision, the HCA ruled that the Bongo service was promoted on channels (such as High School YouTube series, influencer ads on Tik Tok and Instagram etc.) where it could easily reach adolescents. The contents published by vloggers and influencers are particularly convincing and effective in promoting a given service to adolescents. The HCA has also put forward what it expects businesses to do in order to prevent advertisements for direct use of a service to reach children (e.g. excluding children’s channels, targeting on YouTube). The advertisements examined included direct invitations with the phrases “swipe up”, “send”, encouraging adolescents to ask Bongo questions via (premium rate) text messages, while even sending their personal data to the operator. Another problem with the influencer advertisements promoting Bongo was that, contrary to the requirements by the HCA, the social media posts did not make it clear that the influencer was getting payment in return for promoting the game. The ads also did not include the price of the service and the main features of the data processing, which should have been important factors in the decision to participate in the game.

In the case of the influencer advertisements investigated in the proceedings, the HCA found not only Global AQA Pty Ltd. liable for infringements related to advertising to children and advertising disguised as editorial content, but also the marketing agencies that participated in the designing, the production and the communication of the advertisements. By law, the liability of companies involved in the designing and production of advertisements (agencies) can be established if the display of the advertisement is itself infringing. The agency may be exempted from liability on the condition it proves it was only following the instructions of the client (advertiser). The HCA also found that the marketing agencies were liable because the agencies could have detected and filtered the content sent to children, as they selected the influencers, the communication channels and consulted them on the content and graphics of the posts and/or videos, yet the agencies did not take any steps to filter the content. The HCA fined four of the six marketing agencies under investigation and ordered them to develop compliance policies to avoid future infringements.

One of the companies against which the HCA terminated the procedure, on the advice of our law firm, pointed out in its comments on the investigation report that the influencer advertisements presented in the report were not related to the company and therefore it could not be held liable for the infringement on the basis of the data available to the HCA. The HCA agreed with our client’s arguments and terminated the procedure against it. Therefore, even if your company is already subject to proceedings by the HCA, we recommend that you consult a professional at least close to the end of the procedure, so that the HCA’s attention can be drawn to any evidence gaps or other facts/circumstances that may be favourable to your company. It is important to see that the HCA examines marketing agencies as a matter of priority and expects proactivity from them in order to avoid consumer protection infringements. This is why all agencies must make a special effort to ensure that their advertising complies not only with the letter of the law but also with the case law of the HCA. The experts in our firm’s Competition & Compliance group will be happy to assist you.

Author: dr. Boglárka Priskin

The post The Hungarian Competition Authority keeps an eye on advertisements for children appeared first on Versenyben vagyunk - a CERHA HEMPEL versenyjogi blogja.

Only now, only in our store, only for this price! Or not?

As our experts have elaborated in detail, it is already unlawful to claim untruthful discounts, but even stricter rules will apply to the communication of “price cuts” to consumers across the whole EU from May 2022. On the other hand, the increasingly strict HCA was already “after” claims such as those that the company in the present case used; for example, during a broadcast of “Ékszer TV”, the original price of a so-called “hand cleaning package” was listed as HUF 60 000, but the HCA’s investigation found that in reality, these products were never sold for that price before.

Many may question why this should be a problem, as consumers did not pay more for the product than they would have paid without the discount being advertised. Márton Kocsis points out that a high, but untruthful discount, presented by means of a fictitious starting price may prompt consumers to make a transactional decision (in fact, an unintended purchase) that they might not have made in the absence of the misleading discount level (i.e. the fake “original price”). Consumer protection law therefore strictly prohibits such practices. The lawyer’s advice therefore is this: only ever use prices in advertisements and commercials that were actually used in the past.

Hurry up, it’s almost gone! Is it really?

The HCA also found that the producer of the “Ékszer TV” programme had engaged in a so-called aggressive commercial practice when, by making false statements, it urged consumers to purchase the advertised products as soon as possible (before being able to compare them to substitute products). According to the HCA, the programme included, for example, the following statement: “There are shortages in Europe, we are doing the impossible!” This statement proved to be untrue later on: the HCA’s investigation revealed – Márton Kocsis presumes – by analysing purchase prices and contacting the relevant suppliers, that the company under investigation was in fact able to obtain the products on the same terms throughout the entire epidemic wave, which it nevertheless constantly advertised as “last items“.

Aggressive commercial practices are one of the most serious infringements under EU consumer protection law, notes Mr Kocsis. As a reminder: Booking.com was fined HUF 2.5 billion by the HCA for various infringements that included such aggressive commercial practices. The hotel booking giant advertised its rooms in a way that distorted consumers’ transactional decisions by placing pressure on them (“hurry up, last one at this price!”).

So, what is worth paying attention to?

Mr Kocsis points out that both price discounts and the communication of stock information to consumers can be done in a legal and compliant manner. Care must be taken to ensure that both the factual content of the claims (i.e. what the previous price was before the advertisement and what stock levels the business has) and that the presentation / creative elements of the messages (visualisation, sound and light effects, font colour and size etc.) complies with the current consumer protection rules. It is advisable to seek the assistance of an expert prior publishing such claims, as it is always significantly cheaper than the legal costs associated with a subsequent HCA investigation and a possible fine.

It is interesting that the HCA terminated the proceeding against ATV, the host broadcaster (TV channel) of the “Ékszer TV” programme, despite the fact that according to the Act on the Prohibition of Unfair Commercial Practices, “anyone who makes a commercial communication available to the public by any suitable means, or who creates a commercial communication or provides other services in connection with it in the course of his or her independent economic activity, is also liable for an infringement arising from the manner in which the commercial communication is presented.” Broadcasters or marketing agencies can only be exempted from these strict liability rules if they can prove that they have acted in accordance with the instructions of the client (advertiser, producer, trader, etc.). It is therefore worth seeking legal advice in the advertising sector even for those who act only as an advertising service provider.

Although the reasoning of the HCA’s decision is not yet available to the public, it will obviously provide further lessons for advertisers, concluded the head of Competition & Compliance at CERHA HEMPEL Dezső.

Author: dr. Márton Kocsis

The post “Want masks quickly?” – The Hungarian Competition Authority strikes again at untruthful and aggressive advertisements in the market of health products. appeared first on Versenyben vagyunk - a CERHA HEMPEL versenyjogi blogja.