Guidance Published on EU Law Concerning Unfair Business-to-Consumer Commercial Practices

Just before the onset of the new year, a Commission Notice was published in the Official Journal which is relevant for Hong Kong sellers of consumer goods within the EU. The notice is titled “Guidance on the interpretation and application of Directive 2005/29/EC of the European Parliament and of the Council concerning unfair business-to-consumer commercial practices in the internal market”. This Directive constitutes the overarching instrument of EU legislation regulating unfair commercial practices in business-to-consumer transactions. It applies to all commercial practices that occur before, during and after a business-to-consumer transaction has taken place.

The Directive concerning unfair business-to-consumer commercial practices is horizontal in nature and protects the economic interests of consumers. Its provisions address a wide range of practices and are sufficiently broad to also catch fast-evolving products and sales methods. EU Member States are precluded from adopting stricter rules than those provided for in the Directive, even in order to achieve a higher level of consumer protection, unless so permitted by the Directive itself. This ensures uniformity throughout the EU’s internal market for traders and consumers alike.

The core aspects of the Directive relate to misleading actions and misleading omissions, when dealing with consumers. It is noted that the Directive prohibits misleading actions which are capable of deceiving the average consumer on a wide range of elements, including: the existence of the product offered; its main characteristics (e.g. its composition, method of manufacture, or geographical or commercial origin); the price or the manner in which it is calculated or the existence of a specific price advantage; as well as the nature, attributes and rights of the trader. Another provision clearly covers any commercial practice which ‘contains false information and is therefore untruthful’.

Information about the product’s ‘main characteristics’ must be provided in an invitation to purchase and before the conclusion of the contract. The Directive prohibits providing incorrect information about the main characteristics of a product if it is likely to cause the average consumer to take a transactional decision they would not have taken otherwise.

Hong Kong sellers will appreciate that the guidance provides several examples of real-life cases throughout its nearly 130-page text. One interesting example – on providing incorrect information about main characteristics – concerns IT products such as external hard disks, USB sticks, mobile phones and tablets offered by a trader. The storage capacity or memory is a major element of their main characteristics. A consumer authority has taken action against a trader who promoted storage capacities of IT products that differed significantly from the actual storage capacity of the products. Similarly, a consumer association launched a class action on the basis of investigations among different brands of IT devices that revealed a difference on average of one-third between advertised and actual memory.

A particular commercial practice, often referred to as ‘up to claims’, implies traders putting forward, as a marketing argument, the maximum benefit consumers can expect from the use of a product. An ‘up to claim’ may be found misleading if it does not reflect the reality of the offer made by the trader and if it is likely to cause the consumer to take a transactional decision they would not have taken otherwise. ‘Up to’ claims could be misleading if traders are not in a position to substantiate that consumers are likely to achieve the maximum results promised under normal circumstances.

Another example that is likely to interest Hong Kong sellers concerns the geographic origin of products. The Directive does not provide for any formal requirement to indicate the geographical (or commercial) origin of a product or its composition. However, such requirements may exist in sector-specific legislation (e.g., for foodstuffs). Nonetheless, misleading the consumer on such elements could fall under the general prohibition if such false or deceiving information is likely to make the consumer take a purchasing decision they would not have taken otherwise. For example: a company from the Dominican Republic was marketing its production of rum in the EU by making several references to Cuba on the bottles and in commercial materials. A national court held that mentioning a famous geographical location on a product whereas the product does not originate from that location constitutes a misleading commercial practice.

Questions have been raised also regarding the information about the composition of products, such as goods containing non-animal components labelled or marked with the term ‘leather’. For example: national courts have decided that it is misleading to market furniture that does not include any leather with claims that parts of the furniture are made of ‘textile leather’. The courts stressed that the average consumer would presume the presence of leather in such furniture.

The guidance also addresses ‘confusing marketing’, which is banned. Such a practice can occur in both offline and online sales channels. An example of this is the practice of designing the packaging of a product (or its ‘trade dress’) to give it the general ‘look and feel’ of a competing well-known brand. The risk posed by copycat packaging is consumer confusion and, consequently, the distortion of their commercial behaviour. For example: a trader names or brands its new sunglasses so as to very closely resemble the name or brand of a competitor’s sunglasses. This practice is likely to be in breach of the Directive if the similarity is close enough to confuse the average consumer, making them more likely to opt for the new sunglasses when, without such confusion, they otherwise would not have done so.

For several excellent examples of unfair commercial practices that have been addressed by the Member State competent authorities or national courts, as well as a wealth of other information on the EU Directive in order to stay up to date with its requirements, Hong Kong sellers are advised to peruse the EU guidance.