Dutch court upholds Fortnite fine for UCPD violations

 While the "Digital Fairness Act" may or may not become a thing in the near future, it is interesting to see how regulators have started to perhaps gain more confidence in the enforcement of existing rules in the digital context. A most recent example comes from a Dutch decision published today in Epic Game's case against the Dutch Authority for Consumer and Market's decision to fine the Fortnite producer for a number of prohibited practices embedded in the game. 

According to the ACM, Epic Games exposed children to advertisements which directly exhorted them to buy a product (a banned practice under the UCPD's annex) and put them under pressure to decide about a complex and unclear offer within a short time (para 1 decision).

Epic Games had earlier accepted parts of the ACM's decision, in so far as it concerned timers in the Item Shop that created the false impression that an item or offer may soon run out or disappear. They challenged, however, 1) the existence of exhortation to purchase directed at children, as well as 2) the ACM's claim that the game's Item Shop was designed in such a way to create artificial scarcity, putting players under pressure to decide within a short period of time whether to buy certain items. 

As to the first point, this hinged on the interpretation of the text in the annex. From the judgment it appears that Epic Games wanted the District Court to decide on the ACM's assumption that "children" in the UCPD's annex covers all minors, which was challenged on the basis that it failed to differentiate between young children and older teenagers. The court considers that this distinction may matter for the amount of the fine but not for the question of whether the finding of an infringement was justified and hence declines to examine the issue in detail since Epic Games has not challenged the entity of the fine. Even without a detailed examination, this element in the decision may in fact embolden authorities, which have found it tricky to claim that practices constituted direct exhortation to buy directed at children whenever a product was not exclusively marketed to very small children. There was otherwise relatively little in the decision that tried to suggest that the practices at stake (see picture, from decision) did not constitute direct exhortation to purchase.

As to the second point, the ACM (see decision para 17 and sub-paras) was relying not on a direct prohibition but on a savvy reading of the general prohibition of unfair practices which go against "professional diligence" and distort the average consumer's decision making (art 5 UCPD). In this respect, the Court says, the ACM has understood professional diligence through "the principles and international rules on ethical design such as transparency and the avoidance of damaging or misleading design". The ACM also claims that professional diligence requires abstaining from exploiting behavioural pitfalls of consumers through so-called "dark patterns".  In particular, lack of transparency about the offer was due to a mix of several elements:  items potentially disappearing from the item shop, lack of information about the items' significance within the game and their rarity (which all connected to their price), all combined with time pressure (because the Item Shop content was refreshed every 24 hours), made it difficult for consumers/children to decide without excessive pressure. The Court has accepted the ACM's analysis and characterisation of the practice, rejecting Epic Games' contention that the analysis relied on the wrong test. 

A final challenge concerned the burden of proof: did the ACM need to prove that the concerned practices had actually influenced the behaviour of children as a result of the factors that its analysis identified? The Court finds that no proof has to be provided of actual influence: it is sufficient that the analysis makes it sufficiently plausible (aannemelijk) that these effects would occur. Among other things, the court points to ACM relies on research reporting that 37% of the kids playing the concerned version of the game (namely, Battle Royale) do make in-game purchases and that significant numbers of children who make in-game purchases regret their choices afterwards (see decision para 21.1). 

The confirmed fine amounts to 1.1 million euros. It is clear from the points raised in the case that Epic Games was here seeking to establish a principled precedent against the ACM's interpretation of the UCPD and their recent steps in digital enforcement. This may suggest that the decision will be appealed - which we should know within a few weeks. Interesting case in any event!

BEUC and NOYB oppose Meta's pay-or-consent model

Freepik

I am sure you have noticed that in early November, Meta launched paid subscriptions for its social media. Now you may choose to stop receiving targeted advertisements on Facebook and Instagram under one condition -  you have to pay €9.99/month on the web or €12.99/month on the iOS and Android versions of the apps. Of course, without payment, you can still use the services, but then you have to accept the personalised advertisements, which means you accept that your data is processed for this purpose. This Meta policy is the result of various disputes with European institutions and national supervisory authorities related to Meta's practices of processing users' personal data (including the July ruling in case C-252/21 where the CoJ criticised some of Meta's illegal approaches to personal data)*.

The very announcements of paid subscriptions have already triggered a wave of criticism. So it didn't take long for the first steps to challenge the legitimacy of the Meta's actions. A few days ago NOYB, which is a non-profit organization led by privacy activist Max Schrems, announced that it filed a GDPR complaint against Meta over "Pay or Okey". According to NOYB, such a "privacy fee" is not only illegal, since you cannot be forced to pay for exercising your fundamental right to privacy, but moreover, it risks having a domino effect and being taken over by other leading players in the digital services market as well. 

But this is not the only step against Meta's new practice. Today BEUC, which is a European Consumer Organization, also has voiced its opposition to this practice, stating that it is "an unfair choice for users, which runs afoul of EU consumer law on several counts and must be stopped". Thus, BEUC together with its 19 members filed a complaint on grounds of Meta engaging in unfair commercial practices in multiple ways. As BEUC stated, partially blocking the use of Facebook and Instagram until users have selected one option or the other constitutes an aggressive practice under European consumer law. What is more, opting for the paid subscription doesn't guarantee that a user gets a privacy-friendly option involving less tracking and profiling - user's personal data still may be collected and used but for purposes other than ads. More detailed assessment of Meta's subscription model you can find here. 

It remains to be seen how these actions will affect the Meta approach in the future. One thing is certain - the story will have its continuation, perhaps before the Court of Justice.

*The Court, inter alia, questioned Meta's legal grounds for processing personal data for personalization purposes, i.e. Article 6(1b) of the GDPR (the necessity of processing data for the performance of a contract), and Article 6(1f) of the GDPR (the processing of data on the basis of legitimate interests of the controller or a third party) - see paragraphs 97-126 of the ruling. 

We read *that* preliminary ruling request so you don't have to

Dear readers, 

as many others, I was mesmerised yesterday when a twitter user shared a preliminary reference (Italian version here - the English translation contains some mistakes so it's not super reliable right now) from the Italian Consiglio di Stato (that is the highest court in administrative matters, competent for final decisions on actions of the Italian Competition and consumer authority) bluntly asking the CJEU to renege on the UCPD definition of "average consumer". 

This is the bit from the reference that almost got viral: 

Should the concept of ‘average consumer’ referred to in Directive 2005/29/EC, understood as a consumer who is reasonably well informed and reasonably observant and circumspect — given that it is vague and flexible — be worded according to the best science and experience and thus refer not only to the classic concept of homo economicus, but also to the findings of the latest theories on bounded rationality, which have shown how people often act by limiting the information they need through decisions which appear ‘irrational’ when compared with those that would be taken by a hypothetically observant and circumspect person; findings that impose a need for greater consumer protection where — as is increasingly the case in modern market dynamics — there is a risk of cognitive influence?

Now, of course one could wonder whether the CJEU would want to venture into theoretical debates on appropriate consumer images. Utrecht colleague Catalina Goanta has suggested that the Court could answer the question in typical CJEU style, by referring to the margin of appreciation for national courts (+ statement that average consumer is not a statistical test) in the Directive's recital 18 and somehow quoting own case-law. 

One could also expect the Court to go around the question, depending on the underlying issue. What was it, then? Based on the preliminary reference, which contains four more questions, it seems that the following has happened: 

- the authority has ordered Compass Banca, a credit institution offering jointly some consumer credit and an unrelated insurance, to grant consumers a 7-day "cooling off period" between signing the two contracts;

- this on the assumption/theory that selling the two products together would make consumers falsely believe that entering the insurance contract is a mandatory requirement for obtaining the desired credit;

- the Authority thus considers the practice as always unfair because, in essence, it appears to exploit a cognitive bias that the Authority has connected to "framing" - whereby the presentation of a product alongside a different one gives the consumer a different impression compared to a situation in which the product would be offered on its own (see question 2);  

- it seems that in this case the Authority has claimed that the bundling as such would be an aggressive practice, which the defendant company must have challenged, claiming that the contracts being signed at the same time should be consider as unproblematic considered that consumers get the express opportunity to withdraw from the insurance contract or confirm their choice during a devoted phone call (see the authority decision - in Italian - here); the defendant company's actions (hinted to at question 4) to limit the potential effects of the practice were not considered sufficient commitments to prevent the issuance of a fine;

- hence the Consiglio di Stato seems unsure whether the prohibition needs to be seen as a move akin to "blacklisting" the bundling practice, without considering whether the concrete practice at hand should be considered aggressive, or whether indeed the specific form of bundling - combining insurance and credit - can be considered as so bad that it would be for the company concerned to show that it does not concretely affect the autonomy of the average consumer (see question 5). Should it be seen as blacklisting, the Authority would have gone beyond the space left to national authorities under the Directive's maximum harmonisation standard. 

Looking at the case, it seems that there could be several ways for the CJEU to answer the question without entering into the specifics of the debate hinted to in the first preliminary question that caught all our attention yesterday - also depending on the submissions by the parties during the preliminary ruling proceedings. 

Concern with the overall "environment" in which consumers make decisions concerning, in particular, distance credit contracts is something that is really not specific to the Italian AGCM - the Dutch financial markets authority for instance has been for years advocating for a responsible "choice environment" in the provision of credit to consumers (see eg here), with a specific focus on framing effects. 

At the same time, should we wish for the CJEU to embrace "bounded rationality" as "best science" and "most recent insights"? Current debates in consumer psychology and social sciences seem to have already gone far beyond the idea of bounded rationality to account not only for cognitive limitations but also for social constraints, habits, motivations... not to mention, as Martijn Hesselink has observed in passing, of reinforcing the idea that when no obvious exploitation of cognitive bias is at stake, "homo oeconomicus" could actually be a viable standard. 

ECJ in Orange Polska: Signing a contract in the presence of a courier is not an aggressive practice

On 12th June the CJEU issued its judgement on the Orange Polska case (C‑628/17) on the meaning of the aggressive practices provisions in the Unfair Commercial Practices Directive. This blog previously reported on the AG opinion on the case. The facts of the case will be summarised here, but they are analysed in greater detail in that post. 

The referring court asked whether the practice in question, where in order to conclude a telecommunication contract the consumer has to make the final decision in the presence of the courier employee who is handing him the contract terms, should be considered an aggressive practice with the use of undue influence, according to art. 8 and 9 UCPD.

The Court draws attention to the fact that the context of each individual case needs to be taken into account for determining the existence of a practice that uses harassment, coercion or undue influence (paras 30-31). This case-by-case factual analysis seems to be necessary only for aggressive practices, rather than all kinds of unfair practices.

The Court goes on to clarify that only undue influence is relevant in this particular case (para 32). However, the wording of articles 8 and 9 UCPD doe snot appear to demand identifying whether a practice is aggressive due to the use of harassment, coercion or undue influence.Making reference to point 45 of the AG Opinion the Court pointed out that undue influence is not necessarily impermissible influence but influence which, without prejudice to its lawfulness, actively entails, through the application of a certain degree of pressure, the forced conditioning of the consumer’s will.

Tne Court stated that the fact that the consumer was asked to sign a contract in the presence of a courier without having been sent the contract beforehand, but having had the chance to access it online, cannot be considered an aggressive practice (para 40) on its own.In assessing whether the consumer actually had a chance to receive information prior to the courier's visit, the quality of information plays an important role. The mode of communication is key as the information provided on a trader's website may be superior to that included in a phone conversation (para 42). Still, while more detailed information may be available on line, one could argue that over the phone, consumers may be able to focus on the the questions more relevant for them.

The Court is taking a restrictive view on what can amount to an aggressive practice, as it is pointed out that even if a consumer did not have the chance to access the information beforehand, that is not enough to classify it as an aggressive practice (para 43). Instead, the key criterion is the conduct of the trader. It is stated that conduct, such as the one in the case in question where the courier asks the consumer to take his final transactional decision without having time to study, at his convenience, the documents delivered to him by that courier, cannot constitute an aggressive commercial practice (para 45).

What is needed is something additional to the conduct above that would make the consumer feel uncomfortable and confuse his thinking in relation to the transactional decision at hand. Some examples of what might be considered aggressive includes:'the announcement that any delay in signing the contract or amendment would mean that the subsequent conclusion thereof would be possible only under less favourable conditions, or the fact that the consumer would risk having to pay contractual penalties or, in the event of the contract being amended, would risk the trader suspending the service'(para 48).

Another example was that of the courier informing the consumer that, if he refuses to sign or delays in signing the contract or amendment that has been delivered to him, he could receive an unfavourable assessment from his employer could also fall within that same category; an example similar to point 30 of Annex I of the UCPD, where a trader informs the consumer that if he does not buy the product, his job or livelihood will be in jeopardy.

Unfortunately, the opinion of the AG was not followed in this case and the Court was not daring enough in its interpretation of the aggressive practices provisions, as it was in Wind Tre, even though it was often cited in the judgement. Contrary to the AG opinion, the judgement does not engage at all with the average consumer standard. The judgement fails to provide a comprehensive mechanism for interpreting the provisions or indeed promote our understanding of what kind of pressure is the consumer expected to withstand. Instead, it repeats the phrasing of art.8 on making the consumer take a transactional decision he would not have taken otherwise. 

With this judgement the concept of aggressive practices is interpreted in a restrictive manner, in an effort to balance consumer protection with commercial realities, thus failing to make use of the potential of the provisions.

Un

More transparency on hotel booking websites?

The UK's Competition & Markets Authority (CMA) announced yesterday that it has finalised its investigation into commercial practices of hotel booking websites (Hotel booking sites to make major changes after CMA probe). Under investigation were such well-known online companies as: Expedia, Booking.com, Agoda, Hotels.com, ebookers and trivago. Concerns that were raised and had been investigated pertained to a possibility of pressure selling, misleading discount claims, hidden charges and a suspicion that commission that these websites receive may impact the order, in which hotels are being shown on their websites. Overall, various online commercial practices might have misled consumers to believe that a certain hotel accommodation was either more popular or cheaper than the reality warranted. It was, therefore, questioned whether these companies might have been infringing the Consumer Protection from Unfair Trading Regulations 2008, which implemented the Unfair Commercial Practices Directive in the UK.

Since all of the above-mentioned companies co-operated with the CMA and agreed to voluntary undertakings, this means that the CMA did not proceed with its findings of any breaches of consumer law. Instead, the voluntary undertaking taken by these companies signifies their commitment to ensure in the future that certain principles will be observed, without admitting any fault in past dealings. All the promised changes should be made before 1 September 2019 and the CMA will expect these actions to be taken also by other websites in the same sector, who were not under investigation at the moment. The agreed on principles are as follows:

• search results: clarifying whether the order of results is influenced by the amount of commission a hotel pays to the website;
• pressure selling: currently, when using hotel booking websites, we often see information that other consumers are looking at the same hotel as we are and that there is only 1 room left, as well as showing us hotel accommodation that has already been sold out. This tactic may pressure consumers to rush with making a transactional choice, creating a scarcity condition. It can additionally be misleading, if other consumers are looking at the same hotel indeed but at renting rooms in it on other dates. This practice should now cease;
• discount claims: ensuring that all discount claims are based on non-misleading criteria and are actually available. This prevents hotel booking websites from offering 'discounts' based on comparing the offered price for a given room to the price of a more luxurious room in the same accommodation, or to a price for the same room but in high season;
• hidden charges: showing all compulsory charges up front, incl. taxes and fees.

The question remains whether we can expect these hotel booking websites to change their online practices more generally, not just for the UK consumers. This is something to pay attention to and re-check after September 2019.

AG Campos Sánchez-Bordona's opinion on Orange Polska (C-628/17): Signing a contract with the courier present can be undue influence under UCPD

On 30 January 2019, the AG Campos Sánchez-Bordona's opinion on case C-628/17 Orange Polska has been published. This is a case of great significance as it is the first one clarifying the meaning of aggressive practices and especially undue influence under the Unfair Commercial Practices Directive (UCPD). In the last year there has been a growing interest in aggressive practices with this being the second case on aggressive practices, following the judgment on Wind Tre, after the Directive being in force for more than 10 years. It is not clear why this is happening now, yet it is a welcome development. Perhaps it is telling that both these cases concern telecommunications companies.

Facts of the case

Orange Polska is a Polish telecommunications company which concludes service contracts with consumers through their website, using the following stages (the opinion also mentions sales via phone, yet the stages listed are relevant only for online sales):

1. Consumer’s visit to the website of the company where he can get informed on the offers of the company as well as access the standard forms.
2. Choice of product.
3. Send an order. What is highlighted about this is that the consumer does not consent to any statement that he has read the terms and conditions at this stage.
4. The order is executed with the courier service employee bringing the standard form contract to the consumers, along with any other appendices to sign.
5.  Contract is concluded when the consumer signs the contract and the declaration that he has reviewed all the documents is handed to him and he accepts their content. The signing needs to take place while the courier employee is there, otherwise the consumer needs to go to a physical shop or place a new order online.
6. The contract is activated.

Stage 5 of the ones listed above is the problematic one, especially the aspect that consumers have to sign the documents in the presence of the courier employee, meaning they might be pressured into signing without having the opportunity to review the documents in detail. That was the view of the Polish regulator who found the practice to be harmful to the collective interests of consumers. This administrative decision was disputed in the Warsaw courts with the decision being cancelled in the first instance only to be reinstated by the Court of Appeal. 

Referred questions

Finally the case reached the Supreme Court of Poland, which referred the following questions:

The Court asked whether the practice in question, where in order to conclude a telecommunication contract the consumer has to make the final decision in the presence of the courier employee who is handing him the contract terms, should be considered an aggressive practice with the use of undue influence, according to art. 8 and 9 UCPD.

The referring Court goes on to discern different scenarios the practice can be characterised as aggressive:

1. Always when the consumer has not been able to be informed of the content of the terms during the visit of the courier employee without hindrance.
2. Only when the consumer has not received the full terms in advance individually before the visit of the courier employee, even though he had the chance to access them online.
3. Only when from it can be deduced that the business is engaging in unfair practices aiming at impairing the freedom of choice of the consumer thereby causing him to take a transactional decision he otherwise would not have taken.

AG opinion

The decision on whether a practice is aggressive needs to be made taking into account all of its features and circumstances, as stated in art. 8 UCPD.

The phrasing used in the referred questions is contentious, such as the use of the word ‘always’. As the AG clarifies, only the practices included in ANNEX I of the Directive are meant to be always unfair. Given that the practice in question is not one of the blacklisted practices, then it cannot be said to always be unfair. (para. 42)

Sometimes classified as aggressive

One of the arguments put forward by the Orange Polska is that the practice cannot be characterised as using undue influence as it did not make use of illegal influence. The AG Campos Sánchez-Bordona in his opinion rejects this restrictive interpretation of the term ‘undue influence’ and states that undue influence is the influence which, regardless of its legality, leads in an active way, through the use of pressure, to the manipulation of the will of the consumer (para 45).

In order to decide whether the particular practice was aggressive, three relevant factors are listed. The AG correctly states that the weight placed on each of these factors will depend on the facts. Each one of these factors may be able to establish the aggressive character if it is intense enough, or there may be a need to combine the presence of all three to find the practice aggressive (para 53).

These factors are listed in para 52 of the opinion:

1. If the behaviour or the actions of the employee of the company are especially pressuring or aggressive.
2. If the consumer received in advance limited, fragmented or partial information or information that does not correspond to the one provided later by the courier employee. This element is enough to establish a misleading action or omission (as per art. 6-7 UCPD) and possible undue influence.
3. Finally, other unfair actions of a different nature would suffice, according to their potential for influencing the will of the consumer to amount to undue influence.

Relevant factors

While the facts are to be determined by the national court AG Campos Sánchez-Bordona is offering a helping hand by providing a list of relevant factors for deciding when a practice is aggressive.

The AG distinguishes between sales via phone and sales via the internet, as the circumstances call for a different approach.

In online sales, usually the consumer chooses to visit the website of the trader and nothing stops him from taking time to consider the different offers and terms. Conversely, on the phone, there is often an element of surprise and the consumer is passive (para 57).

Furthermore, there is a different average consumer in the two instances (para 58). The average consumer shopping online is considered to have a minimum level of familiarity with online processes and the ability to handle them at least until placing an order. On the other hand, the average consumer of phone sales may be less circumspect and well-informed and therefore in need of greater protection. The rationale for that is that it is easier to reach that consumer on the phone, as all that is needed is to take a call.

Also, the quality of the provided information is important, as one of the important features of aggressive practices are that they limit the freedom of choice of the consumer, as stated also in Wind Tre case (para 59). Since this is only the second case on aggressive practices ever, and AG Campos Sánchez-Bordona was involved in both, there is a frequent mention of the remarks made in Wind Tre (see the previous post on that case here).

It is essential that consumers are informed of the terms prior to the conclusion of the contract, as that is how they decide whether to commit to the contract. The AG Campos Sánchez-Bordona states that ultimately, there is a disparity between the information provided in online and phone sales with the information in the latter one being of a lower quality (para 62).

The important question is here whether the timing of the provision of information, in this case in the presence of the courier employee is enough to make the consumer take a transactional decision he would not have taken otherwise. This may be the case particularly if the consumer has doubts on whether the information provided by the courier employee is the same as the one they read online or were given by phone (para 66). This issue is exacerbated by the fact that the courier employee is not in the position to answer any questions on that matter and dissolve their doubts.

The behaviour of the courier is key in determining whether the practice would be aggressive. Every measure needs to be taken to alleviate any psychological pressure to the consumer to sign. This can be achieved by the employee not insisting that the consumer signs on the spot. Should the courier employee be linked to the trader (which was not the case here), there is a higher standard to adhere to as they should be able to answer questions. Furthermore, they should not imply that if the consumer does not sign they might face a penalty or less favourable terms in the future and should offer to visit on another day to allow consumers to read the terms in their own time (para 72).

These suggestions do not so much list what would classify as aggressive behaviour but rather what wouldn’t.

Conclusion

This is the most detailed interpretation of what constitutes an aggressive practice in the case law of the ECJ. It is a sorely needed guidance, going beyond the phrasing of art. 8-9 UCPD, which would assist regulators and traders. It reflects the difficulties in defining aggressive practices to the extent that they are tied to human behaviour. It remains to be seen whether the ECJ in its judgement will follow the AG’s opinion and how they will interpret the meaning of undue influence.

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.

AG opinion in Wind Tre: aggressive practices require active conduct

On the 31^st of May the AG Campos Sánchez-Bordona's opinion in the Wind Tre cases (C‑54/17 and C‑55/17) was published. This is the first case where the meaning of aggressive commercial practices is discussed, making it highly important. Before Wind Tre the only ECJ case on aggressive practice was Purely Creative (C-428/11), in which one of the blacklisted practices was contested, without invoking art. 8-9 of the Unfair Commercial Practices Directive (UCPD, Directive 2005/29/EC).

In the Wind Tre case the issue of the relationship between sectoral legislation, such as the Universal Service Directive (Directive 2002/22/EC), as lex specialis to the UCPD and the general rules of the UCPD is discussed.

Facts of the case

The dispute concerned the marketing of mobile phones in Italy. The mobile phones came with SIM cards which had answering and internet services pre-installed, of which fact consumers had not been informed. It is important to note that there was no complaint as to the cost of these services or the information provided about their function, the complaint was about telecom companies omitting to inform consumers that these services were pre-installed.

The same practice was used by two companies, Wind Tre and Vodafone Italia, and 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.

The case reached all the way to the Council of State (Consiglio di Stato) which ruled in favour of the competence of the AGCM stating that the practice was aggressive within the meaning of the Italian Consumer Code (transposing the UCPD). It argued that even though sectoral legislation of the telecommunications sector was also breached, the case in question presented a ‘progressive harmful conduct’, which gave rise to a more serious infringement, thus making the application of the Consumer code, instead of the sectoral legislation, appropriate. (para 25)

Questions

     The Italian court referred 7 questions, which the AG Campos Sánchez-Bordona, with the agreement of all parties, summed up into the following two groups (para 32).

1.  Can the conduct of the telephone operators be classified as an ‘unsolicited supply' (as per point 29 of Annex I of the UCPD) or an aggressive commercial practice?
2. According to art. 3(4) UCPD should the UCPD cede to other EU rules, and, if so, to national provisions enacted in implementation of those rules?

The first group of questions refers is of a substantive nature as to whether the practice in question can be characterised as aggressive according to the UCPD; either using the blacklist of the UCPD, or by using art. 8-9 UCPD.

The second group of questions refers to the relationship between the UCPD and other EU sectoral legislation as lex specialis.

AG's Opinion

In answering the first question, AG Campos Sánchez-Bordona provides us with what has been the most detailed analysis of the elements of aggressive commercial practices by the Court to this day. 

Inertia Selling

He begins to first examine whether the practice in question can be caught by the blacklist, and specifically point 29 forbidding inertia selling. According to the AG, there are two conditions to satisfy simultaneously: 1) unsolicited supply and 2) unlawful demand of payment (para 44).

From the facts it can be established that the phone operator had not properly informed consumers on the pre-installed services on the sim card, meaning that consumers could use them without configuring them. AG Campos Sánchez-Bordona examines whether this supply, of which consumers were not informed of, qualifies as ‘unsolicited supply’. In his opinion ‘unsolicited’ means more than not being provided with essential information on a service, it means that the consumer was not aware of its existence (para 48).

The AG finds that a consumer (and not the average consumer) has no reason to expect that services have been preinstalled, if he has not been informed thereof and which he has to opt out of by using a process which he is likely to be unaware of (para 53).

Hence, whilst in this case unsolicited supply is possible, the AG does not find the same for the demand for payment. In his opinion not any demand for payment could fulfil the conditions of point 29, but it needs to be an undue request for payment. The referring court specifies that there was no complaint as to the cost of the services or the information about them, only about the lack of information about the pre-installation.

AG Campos Sánchez-Bordona argues further that the average consumer could expect that the SIM card purchased would be able to provide him with services about the costs of which he has been informed. 
It is worth noting that the AG makes reference to the average consumer in the context of the blacklist, where the average consumer test is not meant to apply. This goes to show that the blacklist does not offer the legal certainty promised.

Based on the above reasoning, point 29 of Annex I of the UCPD on inertia selling is not applicable. The next step is to examine whether the practice can be caught by art. 8-9 UCPD.

Aggressive Practices

The focus is on the practice in question being one of omission of information.

AG Campos Sánchez-Bordona looks to the factors of art. 9 UCPD to determine what would qualify as a practice using the notions of: harassment, coercion or undue influence. Out of art. 9 UCPD the AG deduces that harassment and coercion cannot be applied in this case as they require ‘active conduct, which is not present in the case of an omission of information’ (para 64).

It is not clear how the AG reaches that conclusion, as the factors of art. 9 UCPD apply for all three categories of harassment, coercion and undue influence without distinction. Also, even the omission of information requires an active choice of the trader to omit that information, so one could argue that active conduct is not entirely absent.

The AG continues to examine solely whether the practice can be caught under the concept of undue influence. Undue influence is the only one defined in UCPD in its art. 2(j), unlike harassment and coercion.

Undue influence refers to exploitation of a position of power which significantly limits the ability of the consumer to make an informed decision. The AG differentiates between two different kinds of positions of power (para 67):

1. Exploitation of a position of power which allows the trader to infringe the consumer’s freedom when it comes to buying a product.
2. Position of power held by a trader who, following the conclusion of the contract, may claim from the consumer the consideration which the latter undertook to provide on signing the contract.

Consequently, the AG defines a position of power in undue influence as both applying in pre-sale and post-sale conditions. What is to be noted is the focus on the fact of the conclusion of a contract, of consideration of the terms, that is the use of contract law terms through which aggressive practices seem to be defined. However, aggressive practices are broader than that, to the extent that they cover all transactional decisions of the consumer and are not limited to the decisions to enter into a contract.

The opinion explains that the aim of prohibiting aggressive practises is, in essence, protecting the freedom of contract, as consumers should be bound only by obligations that they freely entered into. So the criterion is whether the omission of information about the pre-installation impaired the freedom of choice of the consumer to the extent, where he accepted contractual obligations he would not have otherwise (para70).

AG Campos Sánchez-Bordona found the practice not to be aggressive, as according to him, the practice was not sufficient to impair the freedom of the consumer to such an extent that he would not have entered the contract. The AG does not elaborate on how he reached that conclusion or what is the standard against which it is weighed. This view of aggressive practices appears to raise the standard, making it more difficult to show that impairment of the freedom of choice of the consumer is indeed significant enough.

Lex specialis

Given the answer to the first two questions, there was no reason to examine the rest, on the conflict of law, yet the AG did submit his observations.

In these he makes the accurate observation that the UCPD is not designed to fill the gaps that sectoral legislation leaves; instead it offers its own stand-alone system of protection which exists in parallel with the sectoral legislation (para 94). This sets the tone also for art. 3(4) UCPD that should be interpreted strictly as focus should be on maintaining a high level of protection. Therefore, art. 3(4) UCPD is better conceptualised as regulating conflict between provisions and not systems of sectoral legislation (para 111). In this case, it means that the existence of sectoral legislation that covers aspects of unfair commercial practices does not preclude the application of the UCPD.

AG Campos Sánchez-Bordona didn’t find a conflict in this case between the UCPD and the Universal Service Directive, but rather the need for them to be applied jointly (para 129). The Universal Service Directive regulates the information requirements, which are crucial for determining whether there was unsolicited supply as per point 29 of the Annex I of the UCPD.

Conclusion

This is an intriguing case, as it is the first of its kind for aggressive practices in the UCPD. It reveals contrasting interpretation of the UCPD notions and objectives between the Member States and AG Campos Sánchez-Bordona. Italian authorities viewed aggressive practices as a tool for penalising the abuse of power by the trader. The AG on the other hand interpreted the same provisions focusing on protecting consumers' contractual freedom, especially as applied to the decision to enter into a contract. It remains to be seen what the Court will decide and this blog will follow the developments with great anticipation.