BEUC files complaints against Tik Tok

 Today, BEUC and 15 national consumer associations have filed coordinated complaints against Tik Tok, a platform popular with older children and teenagers. The complaint joins items related to purported violations of the Unfair Terms Directive, the Unfair Commercial Practices Directive and the GDPR. 

Part of Tik Tok's business model is relatively specific - namely, the platform sells token that can be used to "give presents" to other users as a reward for the performances shown in their videos. BEUC complains that several of the terms regulating these tokens are in fact non-transparent and substantively unfair. The complaint seems to connect nicely to the recent European Parliament report by our very own Joasia Luzak and colleague Marco Loos calling for closer scrutiny of terms of service for online providers. 

The platform's young target audience is an important driver behind some of the concerns: hidden advertisement and harmful content are a particularly sensitive issue when minors are involved. Other complaints, such as Tik Tok's nonchalant approach to control over user generated content (see earlier news of users finding themselves included in ads without any previous knowledge or consent from their side) seem to reflect more general concerns with privacy and user control/copyright.

The choice to build up such a large coordinated complaint may be an attempt to circumvent earlier identified problems with enforcing the GDPR against Tik Tok - namely, the lack of clarity as to which authority would be competent under the Regulation's "one-stop-shop" rule. This problem was only partially addressed when the company decided to establish its data processing activities in Ireland, which is also the European data hub for many other tech companies. 

Ali Express and European consumer law

Since 2010, AliExpress has been connecting consumers outside of China with Chinese sellers willing to ship their products to their countries. I have no direct experience to share, but a look at the reviews on various comparison websites suggests consumers appreciate the great variety of products offered for very low prices and complain about terms of service, quality and delivery failures. 

Some complaints must have reached the Dutch consumer authorities Autoriteit Consumenten en Markten, which launched a coordinated enforcement action aided by the Dutch consumer association and the European Commission. The result is a commitment by Ali Express to bring its offer in line with European consumer laws, in particular (quoting from the Authority's press release):

• The cooling-off period (the right of withdrawal);

  

  image from pixabay.com

• Legal guarantees: EU rules regarding guarantees must be indicated, and complied with;
• Extra costs: it must be indicated whether any taxes or other fees need to be paid, for example customs duties at the border;
• Sellers: information must be provided about the identity of the seller.
• Ranking: it must be indicated whether payments have been made in order for a seller to appear higher in the search results. 
• General terms and conditions: these no longer violate the relevant laws;
• Complaints: information must be provided about where consumers can turn to if they have any complaints or disputes (no longer the Court of First Instance in Hong Kong, but in the consumer’s own country).  

While many of these past violations are substantive, the enforcement action apparently framed them as a  series of misleading commercial practices - probably because this is the easiest way for an enforcement authority to intervene. 

The above does not necessarily mean that you should now go and fill your home with 1-eur plastic unicorns - emotional spending in the pandemic is still more of a current threat than being unable to litigate in Hong Kong over your shopping misfits -, but in case you do, know that EU consumer rights now ostensibly apply on AliExpress too (when your counterparts is a professional, etc etc). 

Have a great week!

Unfair terms and supplementary rules after Dexia (Joined Cases C‑229/19 and C‑289/19): rolling a dice?

Dear readers, 

it has taken a while to figure out what made me puzzled at the Dexia decision which the CJEU rendered two weeks ago, but now I managed to put my finger on it. The decision concerns "share leasing" contracts, a speculative instrument whereby consumers - by and large - acquire shares from a bank and return them after some time, possibly making profit if the share price has (sufficiently) risen in the meantime. The contract made provisions for the case of early termination which essentially made it very likely for Dexia to make actual profit from such an event rather than just compensate its costs and missed gains. The combination of terms giving rise to such consequences was in principle declared unfair by the Dutch Supreme Court, leaving lower courts with some concerns.

On its face, despite the complexity of the underlying contracts, what the two Dutch courts had asked the CJEU was to more or less restate the (precedent-wise) obvious: 

• is a term which establishes a significant imbalance between the rights and duties of the parties, to the consumer's disadvantage, also to be considered unfair when on certain occasions it may (somewhat unexpectedly) turn to the consumer's advantage? (Yes)
• can a court replace a non-essential term of the contract which has been declared unfair by applying supplementary rules of national law? (No, unless for some reason said national law makes the contract invalid without the term and this is to the consumer's disadvantage). 

After looking back, there is indeed nothing new under the sun as concerns the first question: the Court had explained several times in the past (since Banco Primus at least! thanks @Anna van Duin for digging this up), and clearly repeats here, that a term's assessment under the unfair terms directive cannot depend on circumstances which will only emerge after the contract's conclusion. Rather it must be assessed in light of the way it affects the parties rights and duties, seen at the moment the contract is entered into. As the court states at para [57], a different conclusion would undermine the term's invalidity as mandated by the Directive's article 6, allowing courts to only disapply unfair terms when unfavourable circumstances arise while leaving them otherwise in place. 

So far, so good. Dutch courts, in fact, love to disapply rather than invalidate terms, so we can understand how the constellation at hand would require extra persuasion on the side of the Court of Justice - next to, let us be honest, the fact that the terms had been used in a vast number of contracts. 

Now, on to the the second question, which turns out to be a bit more complicated. The Hague court of appeals asked whether, after invalidating the terms in the agreement, it could apply rules of general contract law allocating damages arising from termination of a contract between the parties to determine the respective position of Dexia and its client as a result of the termination.

We do know since Kásler that courts can only replace an unfair term with a national supplementary provision when the contract would be invalid otherwise (and this would be to the consumer's disadvantage). However, what is a supplementary rule? from Kanyeba we know that general rules on damages do not count as supplementary rules and can thus be applied instead of a penalty clause - subject of course to the claimant invoking them and providing that they suffered damages. Furthermore, in Caixabank, the Court had recently validated the application of statutory rules on the allocation, between parties, of necessary notary fees. It had done so, notably, without even referring to its case-law, just apparently finding it plain that this must be possible. What, thus, distinguishes the rules in Dexia from the ones which were considered applicable in Kanyeba and Caixabank?

It seems that the rules allocating contractual damages in this case, and in particular the way that they had been operationalised in case-law, establishing that damages would be as a rule split 2/3-1/3 between bank and consumer, fulfil most closely the notion of supplementary rules of national law that has been implied in the case-law so far. They are clearly rules of contract law, they are non-mandatory, and indeed they supplement not only the contract but also general rules on damages. Not applying them, also (contrary to what would have happened in Caixabank), does not leave a problematic gap. They just make the consumer's situation more advantageous. 

The feeling remains, however, that we are still not done with this kind of questions. With national courts still struggling on questions as apparently moot as the first one in this case, how can we expect any clarity on an objectively more complicated matter? If the CJEU keeps showing no willingness to help by looking more systematically at its own case-law, we can expect more confused national courts to ask for help in the coming times. 

Updating the Unfair Contract Terms Directive for digital services - new study for the European Parliament

If you have missed this on the Twitter feed, the European Parliament has just published a study 'Update the Unfair Contract Terms Directive for digital services', which was prepared by prof. Marco Loos (University of Amsterdam) and dr Joasia Luzak (University of Exeter) in December 2020. The study analyses various common terms and conditions (from the ones surrounding the conclusion of a contract through terms on copyright and data protection) in light of their compliance with the UCTD, but also e.g. GDPR, discusses online transparency and possible sanctions for unfair terms. A serious of recommendations are made, from changing the indicative list in the Annex to the UCTD to a black list or a grey list, suggestions as to what terms should be added to these lists to address digital practices, and what additional obligations should be imposed on digital service providers.

CMA's paper on algorithms & online platforms: comprehensive report on benefits and perils of AI regulation

The UK Competition and Market’s Authority recently published a report on the consequences of the online platforms’ use of algorithms (‘sequences of instructions to perform a computation or solve a problem’) for consumer protection and for competition (here). This report builds on the CMA’s 2018 paper on pricing algorithms (here). The report starts by highlighting that the increasing sophistication of algorithms usually means decreasing transparency. The CMA’s report acknowledges the benefits of algorithms to consumers, such as the possibility to save consumers’ time by offering them individualized recommendations. Additionally, algorithms benefit consumers by increasing efficiency, effectiveness, innovation and competition. However, the main goal of the report is to list (economic) harms caused to consumers as a result of algorithms.

The report highlights that big data, machine learning, and AI-based algorithms are at the core of major market players such as Google (e.g. their search algorithm) and Facebook (e.g. their news’ feed algorithm). The CMA also acknowledges that many of the harms discussed in this report are not new but were made more relevant by recent technological advances. Finally, the report acknowledges that the dangers brought by algorithmic regulation are even greater where it impacts consumers significantly (such as decisions about jobs, housing or credit).

The harms discussed in the report deal mainly with choice architecture and dark patterns (e.g. misleading scarcity messages on a given product or misleading rankings). Additionally, personalization is depicted as a particularly dangerous harm, since it cannot be easily identified and because it manipulates consumer choice without that being clear to consumers. Personalization is also worrying because it targets vulnerable consumers. In particular, the CMA is worried about possible discrimination as a result of personalization of offers, prices and other aspects.

Personalized pricing implies that firms charge different prices to different consumers according to what the firm (and their algorithms) think that the consumer is willing to pay. While this has some benefits – like lowering search costs for consumers, the CMA warns that consumers might lose trust in the market as a consequence of personalized pricing practices. While some personalized pricing techniques are well-known – such as offering coupons or charging lower prices to new customers, others are more opaque and harder to detect. Non-price related personalization is also described as potentially harmful, such as personalized search results rankings or personalized recommendation systems (e.g. what videos to show next). In particular, the CMA warns that these systems may lead to unhealthy overuse or addiction of certain services by consumers and to a fragmented understanding of reality and public discourse.

Additionally, the use of algorithms harms competition since it can exclude competitors (e.g. through platform preferencing, via ranking, of their own products). Through exclusionary practices, dominant firms can stop competitors from challenging their market position. A prominent example of this is that of Google displaying its own Google Shopping service in the general search results page more favorably than competitors that offer similar services. Finally, the CMA report zooms in on algorithmic collusion, or the use of algorithmic systems to sustain higher prices.

The report also highlights the obstacles brought by lack of transparency, particularly when it comes to platform oversight. The CMA warns that this lack of transparency and the misuse of algorithms may lead consumers to stop participating in digital markets (e.g. deleting social media apps). This justifies, in the CMA’s opinion, the regulators’ intervention. In particular, the CMA considers that regulators can provide guidance to businesses as to how to comply with the law or to elaborate standards for good practices. Overall, the report brings attention to the fact that many laws in place do not apply to algorithmic regulation, such as to discrimination in AI systems. Moreover, the CMA highlights that the application of consumer law to protect consumers against algorithmic discrimination is still an unexplored area.

The report ends with a call for further research on the harms caused by algorithmic regulation. The CMA suggests techniques to investigate these harms that do not depend on access to companies’ data and algorithms, such as enlisting consumers to act as ‘mystery shoppers’ or through crawling or scraping data from websites. The CMA also suggests specific investigation techniques when there is access to the code.

Overall, this is an extremely comprehensive report that not only explains the biggest consumer harms brought by AI regulation but also contains several practical examples, as well as concrete methodological suggestions for further research and for better enforcement. Definitely a recommended read for both academics and practionners alike.

Unsolicited supply of drinking water: unlikely inertia selling - CJEU in Stichting Waternet (C-922/19)

Today the Court of Justice issued a judgment in the Dutch case Stichting Waternet (C-922/19), which required examination of the concept of unfair commercial practices in light of providing public services, such as water supply. Stichting Waternet is a water supply company, which exclusively provides drinking water in the area of Amsterdam. The consumer in the given case moved to Amsterdam in Sep 2012, but did not notify the company of his move. The previous occupant at the address continued paying the water bill until January 2014. Stichting Waternet found out about the new occupant in November 2014, sent him a welcome letter then and proceed to issue monthly invoices, which, however, remained unpaid until November 2016, when the company decided to sue for past payments. 

The controversial issue in this case was whether a contract could be found between the parties, considering that the consumer did not explicitly agree to the water supply from Stichting Waternet. If not, this could be an example of inertia selling, where the service was provided to the consumer unsolicited and the consumer could then be justified in not paying for it, even if they used the service.

The CJEU leaves the matter of contract formation to the national laws to address, as neither the UCPD nor the Distance Selling Directive (then binding Directive 97/7) regulated this issue (paras 40-42, 44-45). Whether a contract could have been formed without the express consent of the consumer is then to be determined under Dutch law.

However, the CJEU does look into the matter whether this situation could qualify as an unsolicited supply of services to consumers, which pursuant to the UCPD would be prohibited as inertia selling. The CJEU makes a lot of disclaimers as to whether the assessment of the Dutch water supply company's commercial practice could be considered an example of inertia selling. Dutch courts should consider whether this matter is not fully regulated by national law (para 48), as well as whether the practice follows from the application of provisions of Dutch law (in case: Drinkwaterwet) that aim to protect economic interests of consumers (para 52). This would determine the applicability of the UCPD to begin with. 

Inertia selling is an example of an aggressive commercial practice that is prohibited in all circumstances. Protection of consumers against aggressive commercial practices aims at ensuring average consumers' freedom of choice in contract formation (paras 55, 57). The CJEU does not think that in the given case the consumers' freedom of choice has been infringed and, therefore, does not find it likely that this practice could qualify as an example of inertia selling. This follows from the fact that consumers generally do not have a choice of water supply provider in Amsterdam, that the supplier is obliged to provide prices to consumers in a cost-covering, transparent and non-discriminatory manner, proportionately to water consumption, and that average consumers know that they are connected to the public water supply network and that water is supplied against payment (paras 59-60). It was also obvious that the water supply company tried to personally inform consumers about the contract's terms and was obliged to provide the water supply service to them, which could not be disconnected due to non-payments before further actions were taken (para 58).

Overall, this case distinguishes then from the ruling in the Wind Tre case (C-54/17 and C-55/17, see our comment here). Considering the reasoning of the Dutch Supreme Court it is likely that the CJEU's answer to the posed questions will lead the Dutch Supreme Court to decide that the practice of the water supply company did not fall within the scope of the UCPD. This was already suggested as the practice is not perceived as harming economic interests of consumers nor limiting their freedom of choice (for reasons mentioned above) and further there is no competition on the water supply market in the Netherlands.