How to Avoid the Subscription Trap: New CAP Guidance
Authors: Nicola Conway and Stephen Rigby
Competitive markets and squeezed margins are forcing retailers to be more innovative in their advertising efforts. More frequently, we are seeing advertisements for "free trial" periods for goods and services, often leading automatically into fee-incurring subscription plans unless the customer has actively 'cancelled' during the trial period in accordance with applicable terms and conditions.
The European Commission has confirmed that this trial-to-subscription model is not inherently harmful, thus enabling retailers to implement such promotions. However, difficulties arise when a consumer unknowingly enters into a paid subscription plan following the expiry of a free trial period — commonly referred to as a "subscription trap".
To better protect consumers from subscription traps, the UK's Committee of Advertising Practice ("CAP") has issued non-mandatory but persuasive guidance to retailers to ensure that they do not fall foul of applicable advertising rules.
In summary, an advertisement will fall foul of the rules if it is likely to mislead or deceive consumers. Advertisements offering free trials should prominently state in clear and plain language (i) if a paid subscription starts automatically at the conclusion of the trial; (ii) the extent of any financial commitment if the subscription is not cancelled during the trial; (iii) how a customer can cancel during and post-trial; and (iv) any other significant conditions. Retailers are warned that merely stating "T&Cs apply" may not be satisfactory.
Guidance for Canadian Retailers Setting up Shop in the UK
Author: Nicola Conway
The UK has always been a strategic market for global retailers, with London being a popular City targeted by Canadian retailers. An increasing number of Canadian retailers have already entered the UK market in recent years (with brands including Lululemon Athletica and Herschel now well-established), and new brands are continuing to arrive, including Drake's October's Very Own and Canada Goose.
The three most common routes for Canadian brands to establish themselves in the UK are as follows:
- Incorporating a new UK company There are four main types of companies which can be created:
- Private companies limited by shares, where the members' liability is limited to the amount (if any) unpaid on the shares held by them;
- Private companies limited by guarantee, where the company does not have share capital and the members' liability is limited to the amount that they have agreed to contribute to the company's assets in the event that it is wound up;
- Private unlimited companies, where there is no limit to the members' liability; and
- Public limited companies, where the members' liability is limited to the amount (if any) unpaid on shares held by them (unlike the shares of private companies, the shares of a PLC can be offered for sale to the public).
Of the four types of companies, the most common trading entities established by overseas entities are private companies limited by shares, which are wholly owned by the overseas entity as a 'parent'. The benefits of setting up a brand new company are that it is relatively straightforward, and the brand is able to retain full and total control over the set-up, management and strategy.
Things to bear in mind when incorporating a company from scratch are that costs can be high, and there will be formation formalities to comply with (including registration with the Registrar of Companies, applying for licenses (where appropriate), registering for VAT with HMRC (where appropriate), etc.).
- Acquiring an already existing UK company There are two main methods of acquiring an existing UK target business:
- A share purchase, which involves the buyer acquiring all of the shares in the UK company and, thereby, the entire company (including all of its assets, liabilities and obligations); and
- An asset purchase, which involves the buyer purchasing only those individual assets making up the target company as desired.
The benefits associated with purchasing an already existing UK company is that the company is already formed and trading (or ready to trade).
Things to bear in mind are that extensive acquisition formalities and legal documents can lead to a lengthy and costly process, and once an acquisition is complete you may still need to rearrange or restructure the business to suit your needs.
- Establishing a joint venture A joint venture is a commercial arrangement that two or more independent entities enter into, and the three most common joint venture vehicles are:
- A Joint Venture Company ("JVC") which is a separate legal entity from the joint venture parties which set it up;
- A partnership (either a limited partnership or a limited liability partnership); and
- A contractual arrangement.
Things to bear in mind with a JVC are that it will typically be regulated under EU competition law which has the potential to impose onerous procedural requirements, foreign exchange controls may need to be considered, and cross-border joint ventures which involve different countries and different legal systems may lead to difficulties (for example there may be tension between the parties as to which law should govern the relationship).
Significant joint ventures in the UK are often structured as JVCs; joint venture parties will typically transfer assets or entire businesses to the JVC in return for an issue of shares by the JVC. The benefits associated with a JVC are that it gives the joint venture parties complete control over the relationship with customers and the overall strategy, whilst the limited liability nature of the JVC enables unconnected joint venture parties to structure their combined enterprise in a way that limits their exposure to third parties and to each other.
Selective Distribution Is Not Dead, at Least for Cosmetics
Authors: Kathie Claret and Emmanuelle Mercier
A shift in favor of selective distribution networks in French case law?
On September 13th 2017, the French Supreme Court ruled in favor of French cosmetics company Caudalie in a case regarding the prohibition imposed by Caudalie on its approved distributors to sell Caudalie products on-line via a marketplace platform.
The battle between Caudalie and eNova Santé (the company monitoring the marketplace “1001pharmacies.com” that was selling Caudalie’s products), started in November 2014 when Caudalie brought proceedings against the 1001pharmacies.com marketplace platform to prohibit them from selling Caudalie products via their on-line website on the grounds that 1001pharmacies.com were not an approved distributor of Caudalie, and those pharmacies which were approved Caudalie distributors were authorized to sell on-line only via their own internet sites, as opposed to via on-line marketplaces, and therefore that the activity of 1001pharmacies.com was “manifestly illicit”” (see our April 2016 EU Retail News update).
The Paris Commercial Court had ordered 1001pharmacies.com to remove all references to Caudalie’s products from its website. On appeal however, the Paris Court of Appeal ruled that the prohibition imposed by Caudalie on its approved distributors to sell on-line via a marketplace platform was likely to constitute a hard-core restriction of competition.
Finally, the French Supreme Court held that the Paris Court of Appeal had failed to demonstrate that the sale of Caudalie products on online marketplaces did not constitute a “manifestly illicit” disturbance resulting from the violation by eNova Santé of Caudalie’s selective distribution network, thus ruling in favor of Caudalie.
A decision reinforced by recent EU case law
The Coty decision of the Court of Justice of the European Union (CJEU) dated 6th December 2017 (Case C-230/16 - Coty Germany GmbH v Parfümerie Akzente GmbH) brought clarification as to whether or not a supplier of certain luxury goods running a selective distribution network can lawfully prohibit agreed distributors from selling the products on a third-party internet platform, such as Amazon or eBay.
The CJEU reaffirmed the criteria that a luxury selective distribution network must meet to comply with EU law. Further, the Court found that a clause prohibiting authorized distributors in a selective distribution network of luxury goods from using on-line marketplace platforms to sell the products, does not violate EU Competition Law provided that i) the said clause has the objective of preserving the luxury image of the goods in question, ii) it is laid down uniformly and applied in a non-discriminatory fashion and iii) it is proportionate to the objective pursued.
However, the scope of the decision of the CJEU in the Coty Germany case could be deemed to be confined to the luxury sector and the Paris Court of Appeal in Caudalie v. eNova Santé to which the case was remanded might decide that Caudalie’s products do not belong to the luxury sector.
A New Year for Online Businesses: DOJ Ends 2017 by Withdrawing Website Accessibility Rulemaking
Authors: Heather Goldman and Merrit Jones
2017 was a busy year for retailers and businesses with an online presence, as they faced a wave of demand letters and lawsuits alleging that their websites are inaccessible to the visually impaired and/or hearing impaired in violation of Title III of the Americans With Disabilities Act of 1990 (the "ADA"). As we have previously reported, courts across the country weighed in on the issue throughout the year. To bring an end to 2017, the Department of Justice ("DOJ") withdrew its proposed rulemaking for accessible websites.
In July 2010, the DOJ announced an Advanced Notice of Proposed Rulemaking related to the issuance of new regulations to cover the accessibility of websites of public accommodations. While businesses with an online presence were waiting for those regulations to be promulgated, plaintiffs began taking the issue to the courts, resulting in a patchwork of conflicting decisions. As we previously reported, in July 2017, the DOJ placed the website accessibility regulations on its "Inactive List." And now, most recently, the DOJ has withdrawn the proposed rulemaking. Its Notice withdrawing the website accessibility rulemaking states that the DOJ is "evaluating whether specific technical standards are necessary and appropriate to assist covered entities with complying with the ADA."
The withdrawal of the rulemaking means that while the number of website accessibility lawsuits continues to rise, retailers and other businesses with an online presence will have to continue to look to the patchwork of decisions being issued by the Courts for guidance.
Included in the patchwork of decisions are the following noteworthy opinions we previously reported on:
- Access Now, Inc. v. Blue Apron, LLC In November, a New Hampshire federal court denied online food delivery servicer Blue Apron's motion to dismiss, finding that Blue Apron's website was a place of public accommodation — despite the fact that Blue Apron operates only online and has no traditional brick and mortar locations. More information regarding the decision can be found here.
- Reed v. CVS Pharmacy, Inc. In October, in one of the first cases to hold that the ADA applies to mobile apps as well as websites, the U.S. District Court for the Central District of California rejected CVS’s argument that it should dismiss the case because there are no legally binding standards for website and mobile accessibility, stating that the lawsuit "asks the court to make exactly the same sort of accessibility determinations that it regularly makes when evaluating the accessibility of physical locations." The ruling, which can be found here, has fueled other complaints and settlements regarding mobile apps.
- Gil v. Winn-Dixie Stores, Inc. In June, the U.S. District Court for the Southern District of Florida ruled, following a bench trial, that Winn-Dixie's website violated the ADA even though no purchases can be made through the website. In so holding, the court applied the Website Content Accessibility Guidelines ("WCAG") 2.0, a standard developed by a private industry group. Winn-Dixie has appealed, and numerous retail and business associations have filed amicus curiae briefs, including the National Retail Federation, the Chamber of Commerce of the United States of America, and the American Bankers Association. More information can be found here.
- Gorecki v. Hobby Lobby Stores, Inc. Also in June, the U.S. District Court for the Central District of California denied Hobby Lobby's motion to dismiss and held that the retailer's website constitutes a "public accommodation" under the ADA. In so holding, the court noted that the website allows consumers to purchase products, search for store locations, view special pricing offers, obtain coupons, and purchase gift cards. The court also relied on DOJ regulations requiring public accommodations to use auxiliary aids and services to "communicate effectively" with disabled customers. Additional analysis can be found here.
- Robles v. Dominos Pizza LLC In March, the U.S. District Court for the Northern District of California held that it would violate Dominos' due process rights to find that its websites violate the ADA when the DOJ has still not promulgated regulations defining website accessibility. The plaintiff has filed an appeal. Further analysis can be found here.
- Andres Gomez v. Bang & Olufsen America, Inc. In February, the U.S. District Court for the Southern District of Florida granted Bang & Olufsen’s motion to dismiss. In doing so, the court relied on cases concluding that a website that is wholly unconnected to a physical location is generally not subject to ADA. More information can be found here.
Beware New Rules on Gender Stereotyping in Adverts
Authors: Nicola Conway and Millie Webb
Gender stereotyping has become an increasingly controversial topic in recent years, leading the UK's Advertising Standards Authority ("ASA") to undertake a thorough review of the damaging effects of its inclusion in advertising.
Typical gender stereotyping scenarios would include depictions of a family creating a mess and leaving the clean-up to the mother, or a man trying and failing to undertake simple parental or household tasks.
ASA has now published a report acknowledging that harmful stereotypes in advertisements have the potential to "restrict the choices, aspirations and opportunities of children, young people and adults". Whilst ASA already bans ads that objectify and/or sexualize women, it now recognizes the need to take a tougher stance on gender stereotyping, even where subtle.
As a consequence of ASA's report, the UK's Committee of Advertising Practice ("CAP") has announced that in order to tackle harmful gender stereotypes in advertising and clarify what is acceptable moving forwards; new rules, guidance, training and advice will be introduced into the UK Advertising Codes later this year following a period of consultation in the spring.
Advertisers should now be taking to steps to ensure not only that they are in compliance with the current rules, but also that they are prepared for incoming changes. Failure to do so may lead to banned ads and therefore wasted costs, reputational damage, loss of prime advertising slots, and referral to Ofcom or Trading Standards.
Transgender Advertising — Should Brands Promote Political and Cultural Agendas in Ads?
Author: Nicola Conway
Throughout 2016 and 2017, we have seen a significant increase across the globe — if not a formal debut — of transgender themes in advertising campaigns. Not all ads have been well-received, and the three examples summarised below can be used as case studies for brands considering transgender inclusion in their marketing efforts.
In Heineken's 2017 digital film entitled 'Worlds Apart', six strangers are paired with their polar opposites to debate hot topics. We see one transgender woman paired with a man who believes that transpeople are "odd" and that "if you are a man you are a man and if you are a woman you are a woman". The pair discuss their views over a beer, and the ad concludes with the man accepting that gender is not always "black and white" and recognising the transgender woman as "a girl".
On the one hand, the ad has been praised for raising social awareness about transgender rights and provoking an important conversation (whilst importantly refraining from mentioning the brand name Heineken throughout the film or featuring the beer until over half-way through). The ad has been described by some of the online community as "non-judgmental" and "full of meaning and context". On the other hand, it has received backlash for allowing the free and uncensored expression of transphobia (from the man) which could suggest that it is 'ok' to be transphobic and that transphobia deserves equal consideration.
Vicks' 2017 digital film entitled 'Touch of Care' features a transgender mother-daughter relationship, and a statement that the brand "want[s] consumers to recognise that everyone has a right to a family and that wherever there is care, there is a family". The film was produced by Publicis Communications, whose Chief Strategy Officer has since been quoted saying "great brands don't just reflect safe and accepted norms, instead they dare to set agendas in culture at large".
The ad has been championed by some of the online community for boldly tackling the topic of transgender rights in India, and has been described as "powerful and touching" and "absolutely beautiful". At the same time, the brand as a whole has been criticized for attempting to insert itself into intensely sensitive political issues which are beyond its expertise and influence.
Dove's 2017 ad entitled 'RealMoms' attempts to redefine motherhood and what it means to be a 'good' mother. It introduces six families raising children, one of which features a transgender mother who confidently states that "there's no one right way to do it all".
Much of the online community has expressed admiration for Dove refusing to draw out the transgender mother as any different from the other mothers included in the ad, and appreciation for its theme that "there are so many ways to be a mom" and that you should "do what fits your family". However, the YouTube video has received far more 'dislikes' than 'likes' - having received only 790 'likes' as compared with 5,456 'dislikes' as at 6 June 2017.
Should you promote your brand's political and cultural agendas in your ads or should you play it safe?
None of the ads discussed above have been without public critique, and a brand choosing to broadcast its political and/or cultural views through its ads should be aware that it will inevitably provoke criticism along the way. In particular, a brand may find itself irreversibly 'picking a side' in a societal debate, and should carefully consider any effect that such affiliation may have on the success and future of the brand.
Tips for UK brands choosing to promote political and/or cultural opinions through ads
- Avoid feeding stereotypes and/or causing offence. The UK's Advertising Standards Authority ("ASA") and Committee of Advertising Practice ("CAP") have created guidance for brands dealing with sexual orientation and gender identity in non-broadcast media. In particular, ads must not contain anything that is likely to cause serious or widespread offence (especially offence on the grounds of race, religion, gender, sexual orientation, disability and age). Ads which ridicule characters based on their gender identity or sexual orientation, or which use stereotypes in a way which may demean groups or individuals or place them in a negative light, are likely to be considered offensive or harmful. With that in mind, brands should be conscious of the content, tone and execution of an ad and its potential to reinforce negative stereotypes.
- Do not misrepresent the group you purportedly support. It is not advisable to guess how a particular demographic or community feels or how they wish to be understood. Brands should take care to ensure that they accurately and truly represent the group which they endeavour to support (which can often be assisted with the input and feedback of representative focus groups). Failing to do so may alienate not only that particular group, but the public generally.
- Only support causes that your brand genuinely cares about. Brands are commonly called out for chasing provocative or controversial causes which create a widespread stir or have the greatest potential to increase sales. To prevent a campaign from being labelled 'attention seeking', brands need to show the public that they are not using progressivism for profits or purely commercial reasons, and that their intentions are honest.