Editorial content: paid for? - AG Szpunar in Peek & Cloppenburg (C-371/20)

Let us look at another, more recent, case concerning activities of newspapers. On June 24 AG Szpunar delivered an opinion in the case Peek & Cloppenburg (C-371/20), which looked into practices of Grazia magazine and a possibility of an unfair commercial practice, as defined in Point 11 of Annex I to the Unfair Commercial Practices Directive (UCPD). 

Point 11 of Annex I to UCPD specifically prohibits the use of editorial content in the media to promote products, when a trader paid for the promotion without clarifying this fact in the content/images/sounds. A consumer should be able to easily identify any paid for/advertorial content.

Peek & Cloppenburg Düsseldorf (P&C Düsseldorf) company arranged with the Grazia fashion magazine to publish a double-page article inviting Grazia's readers to an exclusive shopping event called 'GRAZIA StyleNight by Peek & Cloppenburg'. This has been published under the title 'reader offer'. Their competitors - Peek & Cloppenburg Hamburg - claimed that there was an infringement of the prohibition resulting from Point 11 of Annex I UCPD (and as we all know, as long as consumers' interests are exposed to harm alongside the interests of the trader's competitors, UCPD framework may be used by competitors, too - para 33).

In preliminary remarks AG Szpunar first considers the character of the above-described commercial practice. He decides that it qualifies as a commercial practice as the trader - P&C Düsseldorf - initiated the practice and used it to promote its sales (para 22). The fact that they cooperated in organising this activity with the magazine and that magazine could benefit from the activity, as well, does not impact that assessment (para 23). AG Szpunar mentions further that it could be possible for the claim to be raised against both operators, as well as Grazia magazine would qualify as a trader, as well (para 24).

Question 1 - nature of payment

First, AG Szpunar considers whether the payment made by a trader for a promotional editorial content could be non-monetary. As literal interpretation does not provide a clear answer (para 45), AG Szpunar looks at systematic, teleological and historical interpretation next. From the point of protecting consumers against deceptive commercial practices (unidentified advertorial content), it should not matter in what form a trader paid for the editorial content. The possibility of consumer's harm is not influenced by the form of the payment (paras 49-50). Further, if it were possible to pay with non-monetary assets, it would be easy to circumvent the protection of the UCPD framework (para 60) and the scope of the prohibition in Point 11 of Annex I UCPD would be significantly restricted (para 58). The preparatory version of the Annex actually referred to payments or 'other reciprocal arrangement' (para 62) and AG Szpunar does not consider its removal from the final text as opposing a broad interpretation of payment (paras 64-66).

Question 2 - is a non-monetary payment consideration for the advertorial?

In the case at hand P&C Düsseldorf made available to Grazia magazine the rights to use images of its stores in the promotional content, which is what AG Szpunar perceives as the non-monetary payment that qualifies as consideration in the case (paras 73-74). It does not matter here, what was the percentage of the costs of publishing the editorial content that was paid for by a trader vs by a media operator as Annex I UCPD does not require any equivalence (para 75).

AG Szpunar then proceeds to consider whether a definite link between a benefit and promotion that needs to be found needs to be direct or could be indirect. It seems that there is some scope for flexibility in this assessment (para 78). Interestingly, AG Szpunar draws attention to the fact that the notion of 'editorial content' has not yet been interpreted by the CJEU (para 84), which is something for the national court to keep in mind.

One of the interesting elements of this opinion is that it promotes a broad understanding of the notion of 'payment' in the interpretation of yet another provision of European consumer law. Moreover, we should remember current debates on the misleading character of many promotional online activities, where the promotional/advertorial character thereof is not clearly identified (e.g. think of practices of digital influencers). Despite the possibly narrow scope of Point 11 Annex I UCPD (which scope will depend on the interpretation of the notion of 'editorial content'), this opinion and the forthcoming judgment may play a significant role in shaping the response to other promotional practices that could harm consumers.

AG Opinion on Kirschstein (C-393/17): UCPD is not to interfere with high quality of education

On 15th November 2018, AG Bobek delivered his opinion on Case C-393/17 Openbaar Ministerie v Kirschstein (Hereafter: Kirchstein). The case revolved around the application of the Unfair Commercial Practices and the Services Directive on the sector of higher education. As the AG succinctly points out, the underlying issue of this case is whether higher education programmes can be classified as 'services', and if so, what kind of services?


Facts of the case

Under Belgian law, and more specifically under Flemish law, only higher education establishments that have obtained an accreditation may award certain degrees. Doing so without that accreditation may lead to criminal prosecution resulting in a prison sentence and/or a fine.

Mr Freddy Kirschstein and Mr Thierry Kirschstein are involved in United International Business Schools of Belgium BVBA (‘UIBS Belgium’), a higher education institution that is not accredited by Flemish authorities. UIBS Belgium is affiliated with other education services companies from Switzerland (GES Switzerland) and Spain (GES Spain). UIBS Belgium, supports the courses of GES Switzerland in Belgium by providing courses in their Belgium campuses, with programmes that when completed, diplomas have 'master' in the title.

The Kirschsteins were fined on two occasions for breaking Belgian law by offering Master courses.

Questions referred

The following three questions were referred by the Belgian court to the ECJ, focusing on whether the Belgian law requiring that only accredited institutions contravenes the UCPD and the Services Directive, as being disproportionate.

(1)      Must Directive 2005/29/EC (the Unfair Commercial Practices Directive) be interpreted as precluding the provision in Article II.75(6) of the Codex of Higher Education of 11 October 2013 which imposes a general prohibition on non-accredited educational institutions using the designation “master” on the diplomas they award, where that prohibition is aimed at safeguarding a matter in the general interest, namely, the need to ensure a high standard of education whereby it must be possible to check whether the predefined quality requirements have effectively been met? 

(2)      Must Directive 2006/123 (Services Directive) be interpreted as precluding the provision in Article II.75(6) of the Codex of Higher Education of 11 October 2013, which imposes a general prohibition on non-accredited educational institutions using the designation “master” on the diplomas they award, where that prohibition is aimed at safeguarding a matter in the general interest, namely the protection of recipients of services?

(3)      Does the criminal provision applicable to educational institutions not recognised by the Flemish Government which award “master’s” diplomas pass the proportionality test in Articles 9(1)(c) and 10(2)(c) of [Directive 2006/123?’

AG Opinion

In an unusual turn of events, for preliminary references and AG opinions, there was need for a number of clarifications both in relation to the facts, as well as in relation to the applicable law.

In particular, an issue that is disputed also in the main proceedings was which entity awarded the 'master' diplomas in question. With the caveat that the facts are ultimately for the national court to decide, the AG makes certain assumptions:
1) there is a complex business structure between UIBS Belgium, GES Spain and GES Switzerland but it would appear that the teaching activities are carried out by UIBS Belgium, while the diplomas are administered first by GES Spain followed by GES Switzerland (para 32).
2) These three companies have never received accreditation for their study programmes, neither in Flanders, nor in any other country where they operate (para 33).
3) The study programmes in question did not receive any public funding and were entirely private (para 34).

Another disputed issue was the subject matter of the case; on the one hand it was argued that the questions referred to the ECJ centre around criminal sanctions, and criminal law is outside the scope of the EU law in question. On the other hand, it was suggested that the Court should limit itself to examining the sanctions and not the underlying issue of the accreditation process.

The AG chose a more measured approach admitting that even though the accreditation process and its compatibility with EU law is not the main focus of this case, nevertheless it is not possible to not address the accreditation issue indirectly in order to answer the referred questions (para 44).

The key element of the higher education services provided is the teaching and education activities provided by UIBS Belgium, rather than the issuance of certificates provided by the GES Switzerland (para 51). This is an important remark in terms of scope, as Switzerland falls outside the scope of the Services Directive.

Services Directive

The AG devotes a great part of his opinion in this case to discuss whether higher education qualifies as a service under EU law. One way to do so is using the test established by the Humbel case.
The Humbel case, which referred to secondary education, drew the distinction between publicly and privately funded education, arguing that courses funded entirely or mainly by public funds cannot constitute services, while, on the other hand privately funded education establishments can be classified as services, as their activities are for profit (para 58).
However, the AG points out that criteria of the Humbel test are not well suited for today's higher education which spreads over a range of different activities, blurring the lines of that public-private education distinction.

The Services Directive further complicates the, seemingly clear-cut distinction of the Humbel case with the introduction of the category of non-economic services of general interest in art. 2(2), as an exception from the scope of the Directive.

The meaning of 'non-economic categories of general interest' is unclear as it seems to be another category of non-services (which would be excluded from the scope of the Services Directive in any case). The AG refutes the argument that higher education should fit in this category as that would amount to another block exemption, similar to the one in place for healthcare services, and maintains that the Humbel test would apply to determine whether a higher education programme qualifies as a service or not (para 71).

In the case in question, as UIBS Belgium is entirely privately funded, if the Humbel test were to apply, the courses offered would be considered as 'services' (para 89). The AG takes care to clarify that education has its specificities that can and should be retained, similar to healthcare, and is not in any way a regular service. In a highly polarised issue, such as education, he clarifies that considering some education programmes as services would also infer certain rights to them, such as the right to freedom of establishment, something that could be beneficial (para 99).

The next issue is whether the Services Directive is applicable in this case. The AG answers that in the positive, as the defining element of the service is the teaching, which is conducted in Belgium and according to the Xandvisser judgement there is no need for a cross-border element to engage the services directive in terms of freedom of establishment (para 106). That being said, it can be argued that the case is not purely of internal interest (para 107).

Since the Services Directive is applicable in this case, the substance of the question rests on whether the accreditation system of the Flemish government is consistent with the criteria laid down by art 9 and 10 of the Services Directive on accreditation systems.

According to art. 9(1) of the Services Directive the authorisation scheme need to be non-discriminatory, justified by an overriding reason relating to the public interest, and proportionate. The AG argues that the Flemish scheme in question fulfils all the above criteria and is fully justifiable and consistent with EU law (para 113). There has been no indication the system is discriminatory and ensuring a high level of university education is a legitimate public interest. Furthermore, the relatively low penalties for breach of the Flemish law were found to be proportionate.

Therefore, the answer to the second question must be that 'Directive 2006/123 must be interpreted as not precluding a national provision, which imposes a general prohibition on non-accredited educational institutions using the designation ‘master’s degree’ on the diplomas they award, as long as the accreditation procedure meets the conditions laid down in Article 9(1) of that directive' (para 119).

UCPD

The first question referred to the Court asks whether the accreditation system for higher education in Flanders is compatible with the UCPD.

The Belgian and Norwegian governments argued that the UCPD does not apply to education because the Flemish government is not a trader and because education is not consistent with the main objective of the UCPD as protecting economic interests of consumers (para 131).

However, the AG is clear that higher education does fall within the scope of the UCPD for a number of reasons, even though that may make governments uneasy.

Firstly, it is recognised, as seen above, that higher education programmes may constitute a service, as they have an economic dimension. Therefore it would be difficult to argue that suddenly that economic dimension disappears in the case of applying the UCPD (para 134). The AG argues that for engaging the UCPD the crucial point is whether the regulation in question affects the business-consumer relationship by limiting certain commercial practices (para 137). It is not important whether the primary aim of the regulation is in the public interest or not.

In the case in question, there is also a level of dispute as to which is the practice in question. It seems to focus on the advertisement of UIBS Belgium that they provide Master degrees.

The AG finds the prohibition of such a practice by the Flemish government consistent with the Directive and its aims, as it protects consumers from an unfair practice that is likely to distort their economic behaviour. Furthermore, the practice in question can be caught by Annex I of UCPD and more specifically, by points 2 and 4 on displaying  a quality mark without authorisation and claiming that a product has been authorised by a public body when it hasn't.

Conclusion

 
This case revolved around the controversial topic of higher education and a lot of the opinion was devoted to establishing whether higher education can and does fall within the scope of the Services Directive and the UCPD. This is to be expected as Member States are highly protective of higher education and its special aims. In an eloquent opinion, AG Bobek explains that it is not an all or nothing situation, but there should be a measured approach in deciding when to apply these Directives, and when it is appropriate to consider higher education institutions as service providers engaging in commercial practices. While the objective of maintaining a high level of university education is a noble and necessary one, it is important to recognise that higher education is a sector that is transforming and that EU law will need to catch up with that.

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 agrees with Advocate-General on the interpretation of UCPD in a B2B context

Today the Court of Justice ruled on the case C‑295/16 Europamur Alimentación SA which dealt with a highly interesting issue of whether and under what circumstances the CJEU has jurisdiction to interpret the Unfair Commercial Practices Directive 2005/29/EC with respect to a business-to-business practice. I have commented on the case in an earlier post, noting that the reasoning provided by the Advocate-General in support of the Court's jurisdiction was open to question. Nevertheless, the Court appeared to be conviced by the arguments put forward by its advisor and considered itself competent to rule on the case. Following this conclusion, the ruling on the substance - relating to a national rule imposing a per se prohibition of selling at a loss - did not come as a surprise.

Facts of the case

The request was made in the proceedings between Europamur Alimentación, a Spanish wholesaler, and a local authority for commerce and consumer protection, in which the former questioned the legality of an administrative penalty imposed upon it. Europamur argued, inter alia, that the sanction was contrary to EU law as it was based on a national provision which should have been amended in the process of UCPD implementation.

The provision prohibited the practice of "selling or offering to sell to the public at a loss" unless either of the two exceptional circumstances occurred: (i) the objective of the trader engaging in the practice was to match the prices of one or more competitors with the ability materially to affect that person's sales, or (ii) the sale involved perishable goods which would shortly be unfit for use. The act did not clarify if the said prohibition referred to B2B transactions only, or to B2C sales alike. A separate section clarified, however, that it also applied "to entities engaging in wholesaling, whatever their legal nature".

If applied in a business-to-consumer context (i.e. to a practice "directly connected with the promotion, sale or supply of a product to consumers") the provision would, without doubt, be in conflict with the full harmonisation approach of the UCPD, and particularly with its Article 5(5) according to which the black list of commercial practices regarded as unfair in all circumstances, contained in Annex I, should apply in all Member States and could only be modified by revision of that Directive. The CJEU had previously interpreted this framework as precluding national laws establishing a general prohibition on certain commercial practices, other than those included in the Annex, in so far as they were pursuing objectives relating to consumer protection (most recently in C-343/12 Euronics Belgium). 

Court's ruling

The CJEU began its analysis by reaffirming that the UCPD was applicable only to practices which directly harm consumers' economic interests and, therefore, did not apply to transactions between traders. It went on to argue, however, that this did not undermine its jurisdiction in the case at hand. 

Crucial from this point of view is para. 29 of the judgement which reads as follows:

29 The Court has repeatedly held that it has jurisdiction to give preliminary rulings on questions concerning provisions of EU law in situations where the facts in the main proceedings fell outside the scope of EU law, but where the provisions of EU law had been rendered applicable by national law, which, in dealing with situations outside the scope of EU law, followed the same approach as that provided for by the latter (see, to that effect, judgments of 18 October 2012, Nolan, C‑583/10, EU:C:2012:638, paragraph 45, and of 15 November 2016, Ullens de Schooten, C‑268/15, EU:C:2016:874, paragraph 53). In such a situation, it is clearly in the interest of the European Union that, in order to forestall future differences of interpretation, provisions taken from EU law should be interpreted uniformly (judgment of 18 October 2012, Nolan, C‑583/10, EU:C:2012:638, paragraph 46 and the case-law cited).

The Court subsequently agreed with the assessment of the AG that the contested Spanish provision should be regarded as a transposition of the UCPD. It observed, in particular, that the prohibition of selling at a loss applied in the same way to sales between wholesalers and retailers and to sales between retailers and consumers. Existence of a specific section extending the analysed prohibition to cover wholesalers, as well as the importance of consumer protection rationale in its application, were cited in support of this finding. As a result, the UCPD was interpreted as "precluding a national provision, such as that at issue in the main proceedings, which contains a general prohibition on offering for sale or selling goods at a loss and which lays down grounds of derogation from that prohibition that are based on criteria not appearing in that directive".

Concluding thought

It is indeed likely that the national provision at issue should have been amended in the process of UCPD implementation. It may be wondered, however, whether a failure to clean up a messy framework (the question of selling at a loss was also addressed in Law 3/1991 on unfair competition) should indeed be perceived as a an act of transposition beyond directive's material scope. Intertwinement of competition and consumer protection rationales is of course nothing new, hence the importance of the "direct link" criterion. Ironically enough, even the Advocate General, whose reasoning has largely been taken on board by the Court, observed that the transposition of the UCPD in the national law at issue occurred "mistakenly". As usual, the ruling is highly fact-specific. Broader consequences as regards the CJEU jurisdiction beyond the scope of the interpreted measure are therefore yet to be seen.

Can CJEU interpret UCPD in relation to a B2B practice? Bold opinion of Advocate-General in C-295/16

Earlier today the Advocate-General Saugmandsgaard Øe delivered a very interesting (if not to say contestable) opinion in case C-295/16 Europamur Alimentación. At first sight the case deals with a rather unoriginal question: can national legislation establish a general prohibition on certain commercial practices irrespective of the black list laid down in the Annex I of Directive 2005/29/EC (hereinafter UCPD). Nevertheless, the importance of the case goes well beyond the actual questions referred.

Background of the case

The contested Spanish provision, set out in the Law 7/1996 regulating retail commerce, provided that "selling or offering to sell to the public at a loss shall be prohibited" unless two exceptional circumstances occur. The act did not seem to clarify if the said prohibition referred to B2B transactions only, or to B2C sales alike. What was clear from a further part of the provision, however, was that it also applied "to entities engaging in wholesaling, whatever their legal nature". 

If the law applied to a B2C transaction, there would be no doubts about its non-compliance with the UCPD (see AG's opinion in paras. 53-65 supported by the earlier case law of the CJEU: C-304/08 Plus Warenhandelsgesellschaft, C-540/08 Mediaprint Zeitungs- und Zeitschriftenverlag, C-288/10 Wamo and, particularly, C-343/12 Euronics Belgium). What made the commented case stand out was the character of the underlying dispute: it did not relate to direct consumer sales, but rather to sales by a wholesaler, Europamur, to a number of small retailers, who were themselves reselling household and food products to consumers. This, reportedly, allowed small retailers to compete against superstores and large distribution chains. Based on the applicable Spanish law the Europamur was nevertheless fined EUR 3 001 on account of having sold certain products marketed by it at a loss thus infringing the interests of competitors and consumers. The question appeared: can the CJEU interpret UCPD in relation to a business-to-business practice like the one at hand? 

Admissibility of the request

Not surprisingly, the main part of the opinion concerned the admissibility of the request for a preliminary ruling. Doubts stemmed from the fact that consumer protection was one of the objectives pursued by the national provisions applicable to the main proceedings. This was clear from the preamble of the contested measure, national case law and administrative provisions according to which the amount of the fine was to be set. As mentioned above, if applied to a business-to-consumer transaction, the provision would certainly have fallen within the scope of the UCPD. However, as seen among others from recital 6, Article 2(d) and Article 3(1) of the directive, as well as existing case law of the CJEU and the updated Guidance document (though not cited by the AG), the scope of that directive does not extend to commercial practices which relate to a business-to-business transaction. This well-established reading of the directive was reasserted by the Advocate-General in para. 42 of the opinion. So far so good.

The Advocate-General nevertheless went on to argue that the request should be admissible. Critical from this point of view is paragraph 43 of the opinion which reads as follows:

"43. However, according to settled case-law, the Court may find that it has jurisdiction to answer questions referred to it for a preliminary ruling even if the provisions of EU law in respect of which an interpretation is sought do not apply to the facts in the main proceedings, where those provisions have been directly and unconditionally rendered applicable by domestic law. Where, in regulating situations outside the scope of the EU measure concerned, national legislation seeks to adopt the same solutions as those adopted in that measure, it is clearly in the interest of the European Union that, in order to forestall future differences of interpretation, provisions taken from that measure should be interpreted uniformly. Accordingly, the Court is required to ascertain whether there are sufficiently precise indications to enable that reference to EU law to be established, in the light of the information provided in that regard in the request for a preliminary ruling". 

This may be true, yet the ensuing interpretation of the relevant domestic legislation carried out by the AG failed to convince me that the concept cited above (perhaps arguable in itself) should be applied to the case at hand. In particular, the Advocate-General inferred, despite the assertions of the Spanish government to the contrary, that the fact that contested national provisions were not amended by the subsequent Spanish act implementing Directive 2005/29/EC was a "conscious decision" aimed to transpose that directive into the domestic legal order. This conclusion was reached irrespective of the fact that, in the said transposition process, amendments to a different national act prohibiting sales at a loss, Law 3/1991 on unfair competition, were introduced. Ironically enough, the AG even went as far as to say that, in his view, transposition of the UCPD in the contested Law on retail commerce, in consequence of which provisions of the Directive were supposedly rendered applicable to situations which did not fall within its scope, occurred "mistakenly" (para. 45). As a result, the Advocate-General concluded that provisions of the UCPD "were, at least in part, reproduced in the relevant rules of Spanish law" and "should be given a uniform interpretation by the Court, in order to forestall possible differences of interpretation in that regard and given that the reply to the questions referred seems to be decisive for the resolution of the dispute in the main proceedings" (para. 51). The request should therefore, in his view, be admissible. As to the proposed ruling on the substance the AG concluded, unsurprisingly, that UCPD should be interpreted as precluding national legislation such as that at issue in the main proceedings.

Concluding remark

The Advocate-General Saugmandsgaard Øe certainly deserves credit for not shying away from bolder interpretations. After all, this is what protects the European case law from the dangers of path dependence. However, the stakes in the case at hand are particularly high - following the advice of the AG could be seen as a serious encroachment of the Luxembourg court on the competence of national legislator. It remains to be seen if the CJEU follows the proposed line of reasoning or rather goes against its advisor as it has already done before (see e.g. our earlier comment on case C-119/15 Biuro podróży Partner). One thing is certain: case C-295/16 Europamur Alimentación is definitely worth following. 

Lucky4All pyramid scheme in lotteries - CJEU in Nationale Loterij (C-667/15)

Last week, on December 15th, the CJEU also gave its judgment in a Belgian case Nationale Loterij (C-667/15) that concerned pyramid promotional schemes as unfair commercial practices. The black list in Annex I to the Unfair Commercial Practices Directive 2005/29/EC clearly marks in its point 14 as an unfair commercial practice, under any circumstances, 'establishing, operating or promoting a pyramid promotional scheme where a consumer gives consideration for the opportunity to receive compensation that is derived primarily from the introduction of other consumers into the scheme rather than from the sale or consumption of products'.

Nationale Loterij organises public lotteries in Belgium and it filed a complaint against Lucky4All scheme as a prohibited pyramid promotional scheme. Lucky4All allowed lottery players of Nationale Loterij to form groups and play together, thus increasing their winning chances. Ultimately, through eight pyramid levels, 9841 combinations could be played at the same time. Existing members pay an initial contribution of 10 euro and a monthly contribution of 43 euro, allowing to purchase 10 lottery combinations a week. The purchase would be conducted by a representative of the scheme and he would also share the winnings, if any. 50% of the winnings would go to the member who came up with the winning combination, 40% would go to members in higher levels of the scheme (incl. Lucky4All scheme itself) and 10% would be reinvested. The winnings would be capped at 1 million euros. Belgian courts were not sure whether the last condition of the Annex I (also reiterated in previous 4finance judgment of CJEU, C-515/12) was met in this case, namely, whether compensation paid out to existing members of the Lucky4All scheme was primarily or mostly based on financial contributions of new members. This would depend on whether the link between contributions of new members and payment to existing members needed to be direct.

The CJEU is clear that also an indirect link suffices to recognise a pyramid promotional scheme. What is required is that members pay a financial contribution (para 27) and a link between contributions paid by new members and compensation of existing members (para 28). This link, however, does not need to be direct, as the UCPD does not specify such a condition (para 30) and introducing it would lead to easy evasion of this prohibition (para 31). While the assessment of the facts of this case is left to the national court, in para 32 the CJEU suggests that a financial link in this case appears to be 'indirect but certain', as the chances of winning are linked to the introduction of new players to Lucky4All scheme, and when chances of winning increase with the increase of number of players, the scheme introduces a capping of winnings.

Financing through pyramids - CJEU judgment in 4finance (C-515/12)

3 Apil 2014: CJEU judgment in 4finance (C-515/12)

This case as we described earlier (Pyramid schemes...) concerned conditions that needed to be fulfilled in order to recognize a commercial practice as a pyramid scheme, which would then be blacklisted as an unfair commercial practice under Annex 1, point 14, Directive 2005/29/EC. The Court is in agreement with the AG Sharpston that it does not matter what is the amount of the consideration that consumers give for participating in a pyramid promotional scheme (how insubstantial it is). What is decisive is whether consumers need to give financial consideration for "the opportunity to receive compensation that is derived primarily from the introduction of other consumers into the scheme rather than from the sale or consumption of products". (Par. 34) In the given case, the CJEU has doubts whether the condition of consumers' compensation coming 'primarily' from the introduction of new members to the scheme was met since the bonuses paid to existing members were funded only to a very small extent by the financial consideration required from new members. If the national court determines that this condition was not met, then the company would not be seen as having conducted an unfair commercial practice. (Par. 33)

Pyramid schemes - AG Sharpston in 4finance (C-515/12)

19 December 2013: Opinion AG Sharpston in 4finance case (C-515/12)

AG Sharpston delivered a very interesting opinion today in a Lithuanian case concerning potential pyramid schemes. Have you ever been asked to recommend a certain product or a service to a friend by providing their email address or a phone number on a website, having been promised that if they register for the same service/ product you would get a certain benefit? The CJEU has to assess whether such practices could be considered to constitute a pyramid scheme that is prohibited as an unfair commercial practice in the EU.

UAB "4finance" concludes distance contracts with consumers the purpose of which is to grant consumers small loans. From October 2010 to February 2011 it advertised its services by stating that anyone who registers on its website would receive a credit to his bank account for each 'friend' introduced by them who then registered on this website. The initial registration fee was very low - LTL 0.01, while if a friend registered on the same website consumers could get a credit to their account ('a bonus') of either LTL 10 or LTL 20. While registering every consumer was asked to provide a phone number or an email address of his friends, who would then be invited to register by 4finance. After registration you could apply for a small loan with 4finance.

The Lithuanian State Consumer Rights Protection Authority considered this to be a pyramid selling scheme, where consumers received a right to payment primarily for the introduction of new entrants to the scheme rather than for the sale or consumption of products, and, therefore, it fined 4finance. Since 4finance questioned this decision the case arrived at the CJEU.

AG Sharpston decided in its opinion that a national court to establish that there was a pyramid promotional scheme needs to take into consideration: 1) whether a consumer gave consideration in order to join such a scheme; 2) whether the scheme had a pyramid structure - that is it consisted of different levels with the operator at the apex and there was a cumulative recruitment of new members increasing exponentially; 3) whether the compensation paid to existing scheme members was derived primarily from the consideration given by new recruits, and it should not matter how small the consideration was.

This opinion was based on the cumulative and exhaustive list of elements that must be established in order to recognize a pyramid scheme as mentioned in Point 14 of Annex I to the Directive. The pyramid scheme does not have to be fraudulent, since fraud is not one of the requirements. Nor is there a requirement there for the consideration to be of (at least) a certain value. (Par. 21) It also does not matter whether a high amount of the return in comparison to the entry fee is promised or a speedy gain, since these requirements are not listed either as defining pyramid schemes (Par. 22). 

There is an interesting issue of conflicting language versions of the Directive that the AG Sharpston interprets, so for anyone interested in language & law debate, you should read the text of the whole opinion.

Sponsored publications NOT to be seen as commercial practices - CJEU in RLvS (C-391/12)

17 October 2013: CJEU judgment in case RLvS (C-391/12)

Today the CJEU decided not to follow the AG's opinion in the RLvS case which examines the character of sponsored publications in a newspaper with regards to their potential misleading effect on consumers (for facts of this case see our earlier post: Sponsored publications as unfair commercial practices...)

The CJEU agrees with the AG Wathelet that German law may not prohibit or more severely restrict commercial practices than what the Unfair Commercial Practices Directive requires, even if such restrictions could be justified as an attempt to protect pluralism of the press. (Par. 33) At the same time, however, the judges do not share the AG's conviction that a publication of editorial content by a newspaper publisher could be perceived as a commercial practice. This would mean that it would not fall under the scope of the Directive and could be separately regulated by national laws. (Par. 34-35) 

It is the Court's opinion that a commercial practice must originate from a trader and be directly connected with the promotion, sale or supply of his products, and the 'trader' is defined broadly, which means that the Directive applies also when a trader's practice is put to use by another undertaking and benefits that undertaking. (Par. 37-38) The editorial content that was the subject of the judicial proceedings was not promoting the publisher's product (free newspaper) but rather it promoted products and services of other undertakings, and as such could fall under the definition of a commercial practice due to the broad definition of a 'trader' in the Directive, satisfying the first requirement. (Par. 39-40) However, the Court believes that any promotion through the editorial content of a newspaper was 'indirect' and was not liable to significantly influence the consumers' economic behaviour with regards to acquiring the newspaper. Therefore, this practice could not fall under the scope of the Directive as a commercial one. (Par. 41)

Interestingly, both the AG and the CJEU support their argumentation by referring to the same provision in the Directive - point 11 on the black list that determines as unfair such use of advertorials that does not clearly inform consumers that the editorial content was paid for by a trader. According to the AG that provision signifies that national laws may not demand more strict requirements to be met with respect to editorial content's publication. The Court stated, in turn, that this provision:

"(...) is not intended as such to require newspaper publishers to prevent possible unfair commercial practices by advertisers for which a direct connection could thereby be potentially established with the promotion, sale or supply to consumers of the products or services of those advertisers." (Par. 44)

I have to admit, though, that it's hard to see for me what this provision was intended for if not for that? The Court seems to point out that this prohibition would apply only to advertisers and that they should be the ones who make sure that the editorial content is clearly labelled as sponsored. This seems to get the newspaper publishers off the hook rather easily.

More convincing are arguments referring to a potential conflict of this provision with requirements set out by Directive 2010/13 and Directive 89/552. (Par. 45-46) Lastly, the CJEU underlines that the European Commission has not yet directly legislated the area of publishers' obligations with regard to third-party sponsored content of their publications, as far as written press is concerned, which means that Member States are free to regulate it. (Par. 49)

Sponsored publications as unfair commercial practices - AG Wathelet in C-391/12 (RLvS)

11 July 2013: opinion Advocate General Wathelet in case C-391/12 (RLvS)

RLvS publishes daily various advertisements in a journal called GOOD NEWS. In June 2009 it published two sponsored articles. Both these articles made a distinction between the 'news' part and the 'advertisement' part thereof. In the 'news' part it was mentioned that the articles were sponsored and the 'advertisement' part was marked with the word 'advertisement'. However, German press law has more strict requirements that need to be fulfilled in case the publication is sponsored (Art. 10 LPresseG). Namely, any sponsored publication is prohibited regardless its aim, as long as it is not clearly marked as an 'advertisement', unless the position and the form of the publication leave no doubt as to its advertising purpose. The purpose of this provision is to protect consumers from misleading commercial practices and to protect independent press. The competitor of RLvS, a German newspublisher - Stuttgarter Wochenblatt - claimed that RLvS infringed provisions of German press law. The Bundesgerichtshof had, however, doubts as to whether the Art. 10 of the German press law is compatible with the Unfair Commercial Practices Directive - by establishing such a general prohibition of sponsored publications - and asked the CJEU for its opinion on this matter.

AG Wathelet advises the CJEU to recognize the incompatibility of Art. 10 LPresseG with the Unfair Commercial Practices Directive. As long as a sponsored publication could be considered to constitute an unfair commercial practice in the meaning of Art. 5 Directive, there cannot be a legal requirement for the publishers to mark clearly such a publication as an 'advertisement', unless the presentation or concept of that publication clearly denotes such an advertising purpose of this publication already.

Par. 11 of the Annex I to the Unfair Commercial Practices Directive clearly blacklists a following commercial practice: "Using editorial content in the media to promote a product where a trader has paid for the promotion without making that clear in the content or by images or sounds clearly identifiable by the consumer (advertorial)." The German press law goes further than these requirements by obliging the publishers to add a word 'advertisement' to the publication. (Par. 39-40) Due to the maximum harmonisation character of the Directive, national legislators were not allowed to make more restrictive provisions than the ones adopted by the EU. (Par. 38) By modifying the provisions of Par. 11 of the Annex I the German legislator changed blacklisted commercial practices in Germany, which it was not allowed to do. (Par. 43)

It needs to be mentioned that while Art. 10 LPresseG regulates any publication, irrespective of its commercial purpose, the Directive regulates only such activities that have a commercial purpose. (Par. 27, Par. 35) For this reason the Directive may not be applicable to many cases regulated by Art. 10 LPresseG where the purpose of the publication won't be to convince consumers to conclude a particular commercial transaction, but, e.g., it would be a publication sponsored by a political party. (Par. 37) The evaluation whether a given publication has a commercial purpose should be conducted on a case-by-case basis by a national court.