The European Court of Justice (ECJ) decided on January 14, 2010 (file no. C-304/08) that Directive 2005/29/EC concerning unfair commercial practices makes domestic legislation impossible according to which business practices linking participation of consumers in a raffle to the purchase of goods or the use of services are declared to be unfair competition.
This decision resulted from a reference by the German Federal Court of Justice. The German Court will have to decide on the following matter: The supermarket chain Plus gave its customers “points” when purchasing goods. The number of points depended on the value of the goods purchased. From a certain number of points a customer could participate for free in drawings of the German state-run lottery on two different days. A German consumer protection association took action against this because it took the view that this practice violated the provision in Sec. 4 no. 6 of the German Act Against Unfair Competition. According to this provision, it is illegal to link participation of consumers in a raffle to the purchase of goods or the use of services, unless the raffle by its nature is connected to the product or service.
This provision, according to the ECJ, violates European Community law. The rules regarding business practices vis-à-vis consumers were completely harmonized by Directive 2005/29/EC. Under Art. 4 of the Directive, the member states may not limit the free movement of services and the free movement of goods for reasons relating to the areas harmonized by the Directive. This means that member states may not provide stricter rules regarding the relationship between companies and consumers than does the Directive. The Directive, however, contains a final and complete list of all practices which under any circumstances are to be regarded as unfair without requiring an individual analysis (Art. 5 of the Directive in connection with Annex I). The prohibition on linking participation in the raffle to the purchase of goods or the use of services under Sec. 4 no. 6 German Act Against Unfair Competition is not mentioned in the Directive.
Consequently, according to the ECJ, the Directive is violated by this provision. According to the court, this analysis does not change just because Sec. 4 no. 6 German Act Against Unfair Competition provides for an exception for raffles which are inevitably linked to goods or services because this wording cannot replace the necessary analysis in the individual case as it constitutes a limited predefined exception.
This decision by the ECJ is a blow to German unfair competition law as applied for decades. The prohibition of linking raffles to purchases is one of the pillars of German unfair competition law and will now have to be considered to go against European Community law. At the very least, Sec. 4 no. 6 German Act Against Unfair Competition will in the future have to be interpreted in such a way that an individual analysis of whether unfair competition can be found will have to be undertaken contrary to the wording of the provision. The German Federal Court of Justice will have to take this into account in deciding the matter. Even if the decision by the ECJ will offer new possibilities to businesses to promote sales with the help of raffles or draws because this linking will now be possible, the terms and conditions of such raffles will still be scrutinized under general provisions of unfair competition law. The German Federal Court of Justice will now have the opportunity to define the criteria for a permitted linking.