In a series of recent decisions, the European Court of Justice (ECJ) held that national provisions laying down a general prohibition on sales with bonuses are precluded under the Unfair Commercial Practices Directive. The respective Austrian provision has been found as precluded by the Directive.
“Buy 2, get the 3rd for free!” “Get a free laptop with your newspaper subscription!” “Get a ten Euro-purchase voucher when buying our product!” “Get a free car-wash with every 10th full tank!” “Get a free mobile phone with every new network contract!”
- Prohibition of Sales with Bonuses
In the past, legislatures saw a need to prohibit sales with bonuses. The objectives were threefold:
- Protection of competitors, as weaker competitors may not be able to give the same bonuses.
- Protection of consumers, because an effective price/value comparison may be tainted.
- Protection of the fairness of competition in general, because consumers should not be attracted by bonuses but make their purchase decision according to the value or quality of the product or service.
In Austria, a very strict prohibition of sales with bonuses with only very limited exceptions is provided for under unfair competition law (Sec 9a(1)(1) Austrian Act against Unfair Competition; UWG).
In 2001, the European Commission made an attempt to regulate sales promotions in the EU with a proposal for a regulation concerning sales promotions in the internal market. Yet, in 2005, the European Commission withdrew such proposal. Consequently, many of the interested circles believed that sales with bonuses will not be addressed by EU-law in the near future. They erred:
In 2005, a directive concerning unfair business-to-consumer commercial practices in the internal market (the above-cited Unfair Commercial Practices Directive) was enacted. Such directive provides for a broad regulation of activities, which are dealt with by na-tional legislations concerning unfair competition. It sets out the criteria on the basis of which unfair commercial practices are to be prohibited. The directive further expressly provides that member states may not adopt stricter rules than those provided for in the directive, even in order to archive a higher level of consumer protection.
- The ECJ Cases
In a line of cases the ECJ was asked by national courts for a preliminary ruling on whether the Unfair Commercial Practices Directive applies to sales with bonuses and whether general prohibitions on sales with bonuses are precluded under the directive.
The ECJ held that, indeed, sales with bonuses are regulated by the Unfair Commercial Practices Directive and that national legislation must comply with the conditions set forth in the Unfair Commercial Practices Directive. According to the Directive, a commercial practice is unfair if it is contrary to the requirements of professional diligence and materially distorts or is likely to materially distort the economic behavior of the average consumer with regard to the product. Such practices are prohibited where, having regard to their nature and the factual context, they cause or are likely to cause the average consumer to take a transactional decision that he would not have taken otherwise.
Only certain specific practices, contained in an exhaustive list annexed to the directive, are regarded as unfair “in all circumstances”. Consequently, except for the annexed specific commercial practices, for a finding of a prohibition of a commercial practice as unfair a case-by-case assessment applying the criteria set forth in the directive must be made. Consequently, in the first case decided in April 2009, the ECJ held that a Belgian statute imposing a general prohibition of combined offers made by a vendor to a consumer is precluded by the directive.
In a next step, the ECJ was asked by reference of the German Bundesgerichtshof whether a general prohibition falls within the scope of the directive even though its main purpose is the protection of competitors, not consumers. The ECJ held that as long as the protection of consumers is also intended by a statute, such falls within the scope of the directive. Therefore, the ECJ held the German general prohibition of commercial practices under which the participation of consumers in a price competition or lottery is made conditional on the purchase of goods or use of services is precluded by the directive.
Finally, in the latest reference brought forward by the Austrian Supreme Court, the gen-eral prohibition of sales with bonuses provided by sec 9a(1)(1) UWG was at issue. The statute was also held to be precluded by the directive. The justification brought forward by the Austrian government that, in the case at issue, the Austrian statute essentially pursues the maintenance of pluralism of the press in Austria, was not accepted by the ECJ.
As a consequence of the decisions of the ECJ, the Austrian general prohibition of sales with bonuses should no longer be applied by the Austrian courts. It is now the task of the Austrian legislator to amend the current provision as soon as possible so that it complies with the requirements imposed by the Unfair Commercial Practices Directive.
This brings to an end a long-standing uncertainty for companies promoting their products or services in Austria. The general prohibition of sales with bonuses in sec 9a(1)(1) UWG theoretically outlawed most of the sales promotions common internationally. In practice, notwithstanding the legal prohibition, such promotions widely took place in Austria; the law was disregarded on a large scale. This may have also been caused by the fact that the criteria bringing a sales promotion under the general prohibition could not be under-stood anymore. Further, the application of the prohibition and the narrow exceptions cre-ated by the Austrian courts during the last years were often not sound. Also, in certain cases the general prohibition had already been weakened by the Austrian Supreme Court through a case-by-case creation of exceptions.
This unfavorable situation for doing business in Austria has now finally ended. In future, sales with bonuses will have to be assessed according to the general rules of unfair com-petition law.
A shorter version of this article was originally published in the schoenherr roadmap`11 - if you would like to receive a complimentary copy of this publication, please visit: www.schoenherr.eu/roadmap