When decisions of the Hungarian Competition Authority (HCA) appear in the news, those relating to cartels tend to be the most popular, due to the hefty fines associated with such cases. However, this tendency may mislead observers to think that the HCA's consumer protection activities are of less relevance. This update highlights the importance of such consumer protection cases and provides an overview of the most salient aspects of the HCA's related practice.
The HCA's portfolio has included consumer protection since the authority's establishment. The consumer protection activities of the HCA are based primarily on the Unfair Commercial Practices Act, which implemented the EU Unfair Commercial Practices Directive (2005/29/EC) into Hungarian law. The HCA is not the only authority in Hungary responsible for consumer protection; however, it is the authority that deals with consumer protection cases where market competition is materially affected by the alleged infringement. When assessing material effect, the company's size (net turnover) and the extent, time and characteristics of the allegedly infringing activity are considered; but in certain cases (eg, where the practice is carried out through nationwide media services), the material effect should be presumed. In addition, when establishing the competent authority for consumer protection issues, several other sectoral laws refer to the relevant provisions of the Unfair Commercial Practices Act (eg, the acts on medicinal products and food supply chains). Thus these cases may also end up in front of the HCA. On this basis, the HCA is engaged in extensive consumer protection activities.
The president of the HCA has also confirmed the relevance of consumer protection initiatives, highlighting in a recent article that the majority (approximately 55%) of all proceedings commenced by the HCA are related to consumer protection. In 2014 (when the HCA's latest report was published), out of the 128 HCA procedures commenced, 66 were related to unfair commercial practices, while only 17 related to anti-competitive agreements. The total fines imposed in 2014 for consumer protection violations amounted to just under Ft1.4 billion (€4.5 million). This amount is roughly one-quarter of the fines imposed for restrictive agreements; however, the data suggests that the frequency of unfair commercial practices and the accompanying risks make up for the lower fines. Further, fines of more than €300,000 in such cases are not without example in HCA practice. Several other aspects also make consumer protection cases highly burdensome – for example, the implementation of the sometimes severe and costly obligations imposed, not to mention the detriment to the violating company's reputation.
Consumer complaints and public notifications
Consumer protection proceedings are usually commenced on the basis of consumer complaints or public notifications. The HCA provides a straightforward complaint form on its website, accompanied by detailed guidelines. The complainant has the option to remain anonymous, as it may request the HCA to keep its identity confidential. Fully anonymous (ie, submitted without a name) complaints are also accepted by the HCA; however, they may be disregarded without further reasoning. Before commencing a procedure, the HCA considers (among other things) the gravity of the alleged infringement and whether competition is materially affected. On this basis, the HCA may commence the procedure or transfer the complaint to the competent consumer protection authority. This framework provides a straightforward way for any minor infringement to end up in front of the authorities.
Communication, statements and penalties
The HCA takes a thorough approach to the enforcement of consumer protection regulations; companies tend to fail to consider this in the course of preparing promotional campaigns or other forms of communication.
The consumer's decision-making process is protected in its entirety by the law. Therefore, both the factors informing the decision and any conduct affecting the decision (eg, components of the company's communication) may qualify as unlawful. At the same time, the communication must be assessed with respect to the overall effect of the statements made. In this regard, certain statements may be in line with the legal requirements in certain cases, while similar statements may prove unlawful in other cases. Regarding the overall effect, it is important to note that – in consumers' understanding – statements on components or ingredients of a product are viewed as statements on the entirety of the product. A communication may also be deemed unfair on the basis of a misleading omission of certain information. The HCA has also held that companies must account for the possible 'associated content' – that is, content which consumers may connect with the commercial communication by way of association.
The typical Hungarian consumer is price sensitive; therefore, statements in connection with the company's pricing (eg, on low or best prices) carry a high risk of being misleading. A simple statement on low prices may thus go a long way. Any information communicated to consumers must be proven by the company. In case of 'market-leading' statements, the company must prove such statements against all of its competitors. The HCA has further held that such evidence must be available to the company at the time of communication; it is insufficient to prove the statement within the framework of proceedings if the information was not available at the time of communication.
Non-price-related market-leading statements (eg, using the terms 'the most effective', 'unique' or 'revolutionary', or further positive comparisons with competitors' products) are also especially effective in influencing the decisions of consumers, as they convey the message that the products are exceptional on the relevant market.
Where infringement is established, the HCA may impose a fine of up to 10% of the company's previous year's net turnover (or that of the group, where applicable). Although fines relating to consumer protection are usually not excessive, the HCA is not reticent in its fining practices. It recently imposed a fine of Ft50 million (approximately €160,000) on Ryanair on the basis that the exchange system on the airline's website was misleading for consumers. The fine imposed on Vodafone for misleading consumers through omission of significant information in offers amounted to Ft110 million (€350,000). Spar received a fine of Ft43 million (€137,000) for misleading communication in the conditions of its "for every Ft5,000 spent you receive Ft500" promotional campaign. K&H Bank was fined Ft80 million (€256,000) for systematically providing in its marketing campaign that customers may receive interest of 7.8% with its saving options; the 7.8% interest was in fact possible, but only if the consumer fulfilled certain criteria. Therefore, the HCA found that K&H Bank had conducted misleading commercial practices. The legal framework also enables the HCA to establish the liability of the parent company or group in certain cases. In the Vitabalans case, the HCA involved the parent company in the procedure because it had had a direct interest in the sale of the products, even though the commercial practice was conducted by the Hungarian subsidiary. The companies' joint and several liability was established. In another case, the HCA established the amount of the fine based on the net turnover of the group of companies (although the infringement related to one of the members) and also explicitly included the secondary liability of the other group member.
Companies must be careful and prudent in their practices in order to prevent an HCA procedure from being commenced on the basis of a single complaint from an unsatisfied consumer. The HCA's in-depth practices and approach make this task challenging. From a consumer protection perspective, it is highly recommended to seek professional advice before the launch of an extensive promotional campaign or similar conduct.
For further information on this topic please contact András Nagy at Schoenherr by telephone (+36 1 8700 700) or email (firstname.lastname@example.org). The Schoenherr website can be accessed at www.schoenherr.eu.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.