Commission Updates Guidance on Unfair Commercial Practices

On 25 May 2016, the European Commission published a draft updated guidance document to clarify the application of the EU’s Unfair Commercial Practices Directive (UCPD) 2005/29/EC. The UCPD protects consumers from misleading information or exposure to aggressive marketing techniques in business-to-consumer transactions.

The UCPD applies across all economic sectors, to products as well as services, both on and offline. Hong Kong advertisers, marketers, manufacturers and traders would thus find the guidance document relevant when they engage with EU consumers.

The scope of the UCPD is quite broad, but it concerns interactions by businesses with consumers and not with other businesses. It regulates unfair “commercial practices” (acts, representations and omissions) occurring before, during and after a business-to-consumer transaction directly connected with the sale or supply of a consumer product. For economically-driven laws, as opposed to those created for non-economic reasons (e.g. public health protection), the UCPD requires full harmonisation of Member States’ national regulations with these EU-wide rules. Thus, Member States may not adopt stricter or inconsistent rules to those in the Directive.

Pursuant to the Directive, Hong Kong businesses dealing with EU consumers should tailor their behaviour with a view towards the “average consumer”, a person considered to be a member within the group targeted by the commercial practice. Various linguistic, social and cultural features of the consumer should be taken into account when assessing the appropriateness of advertising messages. Language like “lifting” for firming creams was ruled to be misleading for German but not for other Member States’ consumers. Furthermore, higher levels of protection are afforded to the “vulnerable consumer”, such as children or the aged. Factors like disability or past conduct (e.g. poor creditworthiness) also warrant special consideration.

In general, commercial practices may be unfair when they cause or are likely to cause the consumer to take a transactional decision that he would not otherwise have taken. Prohibition of a specific commercial practice occurs on several grounds. A misleading or aggressive practice that is unfair is prohibited. Importantly, if the unfair commercial practice is found to be a “black list” practice as listed in Annex I, the practice is automatically prohibited.

On the basis of the “black list”, national enforcers need not assess the likely impact of the practice on the average consumer’s economic behaviour (the case-by-case test) in order to sanction the trader. The black list includes marketing products suggesting a physical benefit in human or animal bodies (e.g. improving sleep, reducing pain, decreasing wrinkles) where claims are unsubstantiated by scientific evidence. Unsubstantiated claims are banned as false claims. Potentially problematic products which could be of particular interest to Hong Kong sellers include clothing, cosmetics or aesthetic treatments.

Whether commercial practices are “aggressive”, as referenced above, is evaluated based on all circumstances, looking to the existence of harassment, coercion, physical force, or undue influence. “Misleading” information is evaluated not only by the factual validity of the information, but also by its method of presentation. Traders should note when presentations or omissions of information could likely affect consumer behaviour. Brand packaging causing confusion in consumers as to the product’s manufacturer, point of origin or other characteristics is also deemed misleading. Annex I includes specific blacklisted commercial practices involving confusing marketing.

Information must be communicated to consumers depending on the product and communication medium. Information on a product’s full price and its “main characteristics” should be prominently displayed. Where possible, the “total price” and not the entry level or base price should be disclosed before the consumer is bound contractually. Warnings like minimum age of use should be clearly visible, even online.

Traders may be required to disclose certain product characteristics on a case by case basis, like a product’s planned obsolescence. For example, omitting information regarding a washing machine’s weak drum suspension that is designed to break after a number of washing cycles may breach the UCPD. Existing EU legislation like the Ecodesign Directive establishes minimum requirements for estimated life-times of products and components of vacuum cleaners, light bulbs and more. A planned obsolescence not in conformity with the contract at the time of the product’s delivery to the consumer may be legally actionable under another EU law concerning statutory warranties (Directive 1999/44/EC).

The UCPD guidance document specially addresses specific sectors such as environmentally friendly products. In brief, traders making “green claims” must, first, present their claims in clear, specific, accurate and unambiguous terms. Additionally, traders must have evidence to support their claims and be ready to provide the evidence to enforcement authorities in an understandable manner. Employing the principles mentioned previously, any information should be non-misleading. Vague statements like “eco-friendly” are less likely to be misleading if presented instead as “eco-friendly: made with recycled materials”.

Commercial practices relating to a business-to-business (B2B) transaction or those which harm only competitors’ economic interests are not covered by the UCPD. However, Hong Kong businesses should be aware that B2B practices are partly regulated under the Misleading and Comparative Advertising Directive 2006/114/EC. Member States may choose to extend protection granted under the UCPD to B2B commercial practices via national laws.

Traders should design their commercial practices in a way that will be accepted across the entire EU. Traders must divulge to consumers any delivery restrictions before or at the beginning of the ordering process. If not, the trader’s activity could qualify as an unfair commercial practice.

Despite the dauntingly broad application of general and specific rules found in the UCPD, Hong Kong businesses will be able to benefit from the additional legal certainty that the updated guidance document provides.

For more information, see the Commission’s draft updated Guidance on the application of the Unfair Commercial Practices Directive.