SIM cards with pre-installed services can be an aggressive practice: CJEU on Wind Tre

On 13th September, which was a busy day for consumer law cases, the ECJ published its judgement on the Wind Tre case (C-54/17 and C-55/17).

Wind Tre concerns the Unfair Commercial practices directive and in particular, aggressive commercial practices, which have been the subject of very few cases, therefore this judgement is meant to be illuminating as to the meaning of the aggressive practices provisions.

This blog reported on the AG opinion on this case, published on 31st May 2018. It is interesting to see that the judgement has departed from the AG opinion, yet managed to steer clear out of some of the more thorny issues.

Facts of the case

In Italy, two companies Wind Tre and Vodafone Italia, sold mobile phones with SIM-cards with pre-installed answering and internet services. Consumers were not informed about the pre-installed services, thus leaving them exposed to charges.

The Italian Market Authority (Autorità Garante della Concorrenza e del Mercato, hereafter AGCM) imposed fines on the two companies for engaging in an aggressive practice. The telecom companies challenged that decision in court, claiming that the AGCM lacked competency to impose fines stating that the telecommunications authority (Autorità per la Garanzie nelle Comunicazioni, hereafter: AGCom) was responsible instead. This argument was based on art. 3(4) UCPD stating that in case of a conflict between the UCPD and other sectoral rules on unfair commercial practices, the latter will prevail and apply.

Questions referred

Seven questions were referred to the ECJ, which, following the approach of the AG placed them in groups.

The first two questions  were summed up as whether the conduct of the traders, where SIM cards on which specific services such as internet browsing services and voicemail services had been pre-loaded and pre-activated, without first sufficiently informing the consumer of that pre-loading and pre-activation, nor of the cost of those services, can be characterised either as an aggressive practice according to art.8-9 UCPD or as inertia selling, as per point 29 of Annex I of the UCPD.

The remaining questions referred to whether 'Article 3(4) of Directive 2005/29 must be interpreted as precluding national rules under which conduct constituting inertia selling, within the meaning of Annex I, point 29 of Directive 2005/29, such as that at issue in the main proceedings, must be assessed in the light of the provisions of that directive, with the result that, according to that legislation, the ARN, within the meaning of the Framework Directive, is not competent to sanction such conduct' (para 57).

  

Inertia selling and average consumer

The judgement set out the conditions for finding a practice to be aggressive and focuses freedom of choice of the consumer. 'For a service to be solicited the consumer must have made a free choice' (para 45). Furthermore the information provided must be clear and adequate and certainly information on the price is considered necessary for an informed decision (para 47). Interestingly, ECJ frames aggressive practices around information, which bears the question: what then distinguishes aggressive from misleading practices?

The Court found that selling SIM cards with pre-installed internet and voicemail services without first sufficiently informing the consumer of the pre-loading, pre-activation and cost of theses services would be conduct falling within the term 'inertia selling' (para 56).

Thus, the Court did not follow the AG opinion, also clarifying that whether there was 'concious action' or 'active conduct' on behalf of the consumer, is irrelevant for deciding whether a practice has been aggressive (para 49). This is a welcome clarification, as following the 'active conduct' requirement set by the AG would have made the conditions too restrictive and departed from the letter of the law, as the UCPD itself requires no such condition.

However, the judgement was more complex than simply establishing that such conduct falls under inertia selling. There is the caveat that it is for the referring court to verify whether such conduct took place. This is surprising as the main facts of the case, which are that the services were pre-installed and consumers were not informed of that fact are not disputed.

What is even more puzzling is that the decision refers to the conduct of the average consumer. The referring court has to verify whether the average buyer of a SIM card might be aware of the fact that it automatically contains such pre-installed services that incur additional fees (para 52). While this condition would make sense if art.8 UCPD was applied, the average consumer concept does not apply to the blacklist and in this case to inertia selling. 

It seems like there is no escaping the average consumer, yet the Court does not provide any guidance as to how that test is to be applied. It limits itself to referring to rec.18 UCPD as stating that the reaction of the average consumer is to be established by the referring court (para 52). However, there is nothing in recital 18 or anywhere else that restricts the ECJ from deciding on the behaviour of the average consumer. Contrary to that, it does state that national courts and authorities should decide taking into account the case law of the Court of Justice. Yet, it seems like the ECJ is refraining from offering (much needed) guidance to the national courts.

Relationship between UCPD,  Universal Service Directive and Framework Directive

Art. 3(4) UCPD states that in cases of conflict between the UCPD and other EU rules regulating specific aspects of unfair commercial practices (lex specialis), the latter are to prevail. 

The question here is whether such conflict indeed exists, and the Court agrees with the AG that conflict is a strong term one that 'goes beyond a mere disparity or simple difference, showing a divergence which cannot be overcome by a unifying formula enabling both situations to exist alongside each other without the need to bring them to an end' (para 60). Furthermore, it only refers to conflicts between EU rules, and not national rules (para 59).

The Court cites previous case Polkomtel which found that the Framework Directive and the Universal Service Directive (hereafter:USD) do not provide for full harmonisation of consumer protection aspects. (para 64). Furthermore, while art. 20(1) USD sets information requirements for traders it does not regulate inertia selling and in any case, art. 1(4) USD sets out that the directive is without prejudice to EU consumer protection rules.

Therefore, the Court finds that in this case, there is no conflict between the UCPD and these two Directives.

This is a very interesting judgement, not only for what it includes, but also on what it failed to include. While this was an opportunity to shed light on aggressive practices and the average consumer, it seems like the ECJ let it pass by.

CJEU in C-191/15: the law applicable to an action for an injunction and to the material assessment of contract terms is determined by different legal bases

Last Tuesday the Court of Justice also had its say on an extensive number of legal issues lying at the interface of consumer law, private international law and data protection. The judgment in case C-191/15 Verein für Konsumenteninformation v. Amazon EU shed some light on the following aspects:

• the law applicable to an action for an injunction concerning the use of unfair terms in consumer contracts;
• the law applicable to the assessment of a particular contractual term;
• unfairness of a choice of law clause provided for in general terms and conditions;
• the law governing the processing of personal data in the e-commerce context. 

Circumstances of the case

The dispute arouse around several contractual clauses imposed unilaterally by Amazon EU in contracts concluded via its website. An Austrian consumer organization, Verein für Konsumenteninformation (VKI), questioned the compliance of these clauses with the Austrian laws on unfair terms and brought an action for an injunction before a national court to prohibit their use. The courts, however, faced procedural difficulties in establishing the law applicable to the case. These were linked to the fact that the defendant only had its registered office in one Member State (here: Luxembourg), but concluded contracts with consumers from multiple countries (including Austria) – a situation not uncommon in the digital market. Furthermore, it was not clear whether the fact that an action for an injunction concerned the use of unfair terms in a contract could lead to a conclusion that the case itself referred to contractual obligations. This raised the fundamental question of whether the applicable law should be established according to Regulation 593/2008 on the law applicable to contractual obligations (Rome I) or Regulation 864/2007 concerning non-contractual obligations (Rome II).

Judgment of the Court

Law applicable to an action for an injunction may differ from the law applicable as the law of the contract

In its judgment the Court decided to separate a collective action for an injunction to prohibit the use of an allegedly unfair term from the assessment of the term itself, and concluded that in the former case the Rome II regulation should apply, while in the latter Rome I was decisive.

This finding is supported by the need to maintain systemic coherence – not only between the legal acts governing the applicable law (Rome I and Rome II regulations) and jurisdiction (Brussels I regulation, Brussels convention), but also between collective and individual actions.

It follows that, for both collective and individual actions for injunctions, the applicable law should in principle be established on the basis of Rome II, while the examination of the underlying contractual terms should be carried out according to the law designated as applicable based on Rome I.

While the interpretation of CJEU may indeed lead to a situation where the law applicable to an action for an injunction would be different from the law applicable to the contract itself, the analysed judgment highlighted two important safeguards in this respect.

First of all, the Court noted that the law applicable to non-contractual obligations, which arise from the use of unfair terms, should be established on the basis of Article 6(1) Rome II. According to this provision applicable law is the law of the country where competitive relations or the collective interests of consumers are, or are likely to be affected. The Court noted that – in the case of injunctions for the protection of consumers’ interests brought by consumer organisations – this would, in principle, be the law of consumers whose interests are represented by the claimant. This at least partially aligns with the law established for consumer contracts according to Article 6 Rome I regulation (i.e. regarding the protection granted by mandatory provisions of the law of consumer's country).

The Court also expressed criticism as to the possibility of bypassing the rule of Article 6(1) through a reference to Article 4(3) Rome II. The trader would therefore have a hard time trying to demonstrate “a manifestly closer connection” to the law of his country. What is more, the Court explicitly noted that a choice of law clause included in general terms and conditions did not have any effect in that regard.

In its judgment the CJEU also briefly addressed two other questions, relating to the issues indicated at the beginning of this post.

A choice of law clause that is not sufficiently detailed may be considered unfair

On the first point, the Court held – importantly – that a choice of law clause included in general terms and conditions can be considered unfair if it leads the consumer into error by giving him the impression that only the law of that Member State applies to the contract. From this it follows that the trader should inform the consumer – in plain and intelligible language – about the implications of Article 6(2) Rome I, i.e. the fact that the consumer cannot be deprived of the protection afforded to him by mandatory provisions of the law of his habitual residence.

Criteria for establishing the law governing the treatment of personal data: having an establishment in a Member State and processing data in the context of this establishment’s activities

The last question was raised - and answered - somewhat on the sidenote, but in fact touched upon an issue of great relevance from the data protection point of view, i.e. whether an online trader that concludes contracts with consumers resident in several Member States needs to comply with the data protection rules of all Member States to which its commercial activities are directed, or only the one in which its establishment is situated. Unfortunately, the CJEU did not go into much detail in its reply, but mainly recalled its previous case law on this matter, and repeated the criteria that need to be taken into account by national courts. It should be noted, though, that the Court shared the view of the Advocate-General and pointed out that “while the fact that the undertaking responsible for the data processing does not have a branch or subsidiary in a Member State does not preclude it from having an establishment there within the meaning of Article 4(1)(a) of Directive 95/46, such an establishment cannot exist merely because the undertaking’s website is accessible there”. Explicit reaffirmation of the recent judgment in Weltimmo case provides further clarity on the question of which national law applies to particular data processing operations. Finally, it seems that the CJEU's interpretation will remain valid under the General Data Protection Regulation, which includes a very similar wording (the data protection angle of the case is also specifically followed elsewhere).

Concluding remark

The judgment in case C-191/15 is certainly welcome as it gives more clarity on several important issues relating to three different areas of law, which have a direct impact on the e-commerce market. At the same time, it is only one step towards clarifying the application of Rome I and Rome II regulations to activities undertaken by the participants of the digital market. In the light of the continuous development of this sector and its regulatory environment (e.g. the recently proposed regulation on geo-blocking) further guidance might soon be needed. 

"Günstige Preise": Advocate-General's Opinion in Amazon EU case (C-191/15)

Amazon EU, the European branch of a well-known e-commerce company, has been accused of using unfair terms by the Verein für Konsumenteninformation (VKI), an Austrian consumer organisation. Amazon EU has its seat in Luxembourg, but it operates in Austria via www.amazon.de, a German website promising "Günstige Preise". The general conditions of sale contain a choice of law for the law of Luxembourg, which VKI says is unfair. Now solve the riddle: what law is applicable to the dispute between VKI and Amazon EU?

http://curia.europa.eu/jcms/jcms/Jo2_7026/fr/

Advocate-General Henrik Saugmandsgaard Øe, who was appointed last year, presented his solution to this riddle yesterday (see the full opinion here, in French), following a preliminary reference from the Austrian Oberster Gerichtshof. He breaks it down into three questions:

1. On the basis of which rules on the conflict of laws should the applicable law be determined: Rome-I or Rome-II? In other words, does the underlying issue of law concern a contractual or a non-contractual obligation?
2. Follow-up question: what law is applicable?
3. Is the choice of law at issue unfair (within the meaning of Directive 93/13)?

The case brought against Amazon EU by VKI is an action for an injunction for the protection of consumers' interests (Directive 2009/22). Although VKI acts in the collective interests of Austrian consumers, the Advocate-General's proposed answers are relevant as well for website users all over Europe.

If you are mainly interested in the (potential) unfairness of a choice of law, you can jump directly to the third heading below. For our readers with an interest in private international law, we will also discuss the more technical matter of Rome I vs. Rome II and the practical consequences.

1. Rome I or Rome II (paras. 32-66)?

The first question is relevant, because the Rome I Regulation (593/2008) would lead to the applicability of the law of Luxembourg, while the Rome II Regulation (864/2007) would lead to the applicability of the law of Austria. VKI claimed that Amazon EU's general conditions of sale violated, among other things, the Austrian Konsumentenschutzgesetz and Datenschutzgesetz on consumer protection and data protection respectively. The Handelsgericht Wien and the Oberlandesgericht Wien had both determined the applicable law in accordance with Rome I. However, as the Advocate-General points out, VKI acts in the general interest and its action for an injunction is abstract and preventive, i.e. forward-looking; it is not connected to specific individual consumer contracts. VKI is not a party to the contracts with Amazon EU, nor is there a contract between Amazon EU and VKI itself. VKI's right to bring an action has been assigned to it by law and its goal is to prevent the use of unlawful terms. In the context of jurisdiction (the Brussels I Regulation), the Court of Justice had already decided that such an action cannot be qualified as a "contractual obligation" (Henkel, C-167/00). The Advocate-General proposes a parallel interpretation of Rome I. He rejects the view that a "symmetry" is necessary between an action for an injunction on the one hand and an individual action - based on a concrete and existing contract - on the other, because of the different and supplementary nature of both actions. In this respect, he refers to Article 5 of Directive 93/13, which gives separate rules of interpretation for individual actions. Indeed, in the context of this Directive, the Court of Justice distinguishes between individual and collective actions (see, e.g., our blog here). Hence, the applicable law should be determined on the basis of Rome II.

2. What law is applicable (paras. 67-81)?

Pursuant to Article 6(1) Rome II, the law applicable to a non-contractual obligation arising out of an act of unfair competition shall be the law of the country where competitive relations or the collective interests of consumers are, or are likely to be, affected. The Advocate-General puts forward that "unfair competition" includes the use of unfair terms which are likely to affect the collective interests of consumers. Therefore, Austrian law is applicable. Furthermore, the Advocate-General argues that the exception of the general lex-loci-damni-rule in Article 4(3) Rome II - when the tort/delict is "manifestly more closely connected" to another country - should not be applied, because it should not be possible to circumvent Article 6(1) by seeking a closer, personal link between the parties, for example the existence of a contract. He refers again to the argument that an action for an injunction is not connected to individual consumer contracts. 

What are the practical consequences? The action for an injunction is governed exclusively by Austrian law. An individual action would be governed by the law of Luxembourg, on account of the choice of law in the general conditions of Amazon EU. According to the Advocate-General, consumers in Austria would nevertheless still be protected by mandatory provisions of Austrian law. Pursuant to Article 6(2) Rome I, a choice of law may not have the result of depriving consumers of the protection afforded to them by virtue of the law that would otherwise have been applicable, i.e. the law of the country of their habitual residence. This had also been the conclusion of the Oberlandesgericht Wien: consumers cannot lose the protection they enjoy under Austrian law, in particular the Konsumentenschutzgesetz.

So far, so good. However, if we follow the Advocate-General's reasoning that the action for an injunction is not connected to individual consumers and that the underlying issue of law concerns a non-contractual obligation, then we may conclude that consumer associations such as VKI cannot rely on Rome I. Interestingly, the Advocate-General subsequently refers to Article 6(2) Rome I in order to determine whether the choice of law at issue is unfair in the relation between the consumer and the seller. 

3. Is the choice of law unfair (paras. 82-104)?

In the Advocate-General's opinion, a choice of law is not in itself unfair because it may be disadvantageous to consumers. A choice of the law of another country may nevertheless have a chilling effect, deterring consumers to bring an action against the seller. They are presumably unacquainted with the laws of that country; the laws of their own country are in general more familiair and accessible, if only because of the language, and can thus be more easily invoked. The Advocate-General considers it especially important that consumers are informed in a clear and understandable manner about their rights; contractual terms should not be misleading. Terms containing a choice of law must be sufficiently transparant, in that they should specify unambiguously that consumer still have the possibility to invoke mandatory provisions of the laws of their own country (under Article 6(2) Rome I), in particular those laws which implement the acquis regarding consumer protection and which may - in case of minimum harmonisation - offer even a higher level of protection than required. If no explicit reference to the laws of the consumers' own country, they could get the incorrect impression that the contract is governed only by the law of another country. This may cause a significant imbalance to the detriment of consumers, which is unfair in the sense of Directive 93/13.

Thus, the Advocate-General de facto introduces a new requirement for a choice of law in consumer contracts, by connecting Article 5 of Directive 93/13 - providing that terms must always be drafted in plain, intelligible language - to Article 6(2) Rome I. This does not mean that all potentially applicable mandatory provisions should be listed, but consumers should at least be notified that they cannot lose the protection afforded to them under the laws of their own country.

Data protection (paras. 105-128)

Lastly, the Advocate-General addresses the question which law is applicable to the processing of personal data under Directive 95/46. Pursuant to Article 4(1) of this Directive, the territory of the Member State on which the controller is established is decisive. It is up to the national court to assess whether Amazon EU can be said to have an "establishment" in Austria, and whether the processing of personal data is perhaps more closely connected to activities in Germany. 

Concluding remark
So far, Amazon EU does not seem to have changed its general conditions of sale yet (see the Verkaufsbedingungen, the screenshot below was made on 3 June 2016):

Article 10 also contains a forum choice for the courts of Luxembourg, but explicitly states that consumers can submit claims either in Luxembourg or in the EU Member State where they live (cf. Brussels I). It would be to Amazon EU's credit if they would follow the Advocate-General's opinion and add a similar clarification for the choice of law for the law of Luxembourg.