Computers sold exclusively with pre-installed software not unfair - CJEU in Deroo-Blanquart (C-310/15)

The CJEU is back from its holidays and today a first consumer law case has been resolved. Mr Deroo-Blanquart purchased a Sony laptop in France that, unsurprisingly, came with pre-installed Windows software and various applications. During the first use of the computer, more unusually, the consumer refused to sign the EULA (End-user licence agreement), displayed on the computer screen. Subsequently, and exceptionally, the consumer requested Sony to reimburse him for part of the purchase price of the laptop that would correspond to the cost of the pre-installed software, that he would never use. Sony claimed in return that the pre-installed software and the laptop 'form part of a single and non-separable offer', thus no discount was possible. Sony offered, however, to cancel the sale and to reimburse the consumer for the purchase price (549 Euro) upon return of the purchased laptop. While it might not have been a bad deal, it is likely that it would not satisfy the consumer since he would not easily be able to purchase a laptop without pre-installed software elsewhere. It doesn't come as a surprise then that Mr Deroo-Blanquart rejected this offer and started proceedings claiming payment of 450 Euro for the pre-installed software, as well as 2500 Euro damage suffered as a result of unfair commercial practices. His claims were dismissed by the district court and court of appeals, but the Cour de cassation decided to stay proceedings and turned to the CJEU with the following questions.

1. Is it a misleading commercial practice when a combined offer of sale of a computer with a pre-installed software does not specify the cost of each individual component, when listing each item of pre-installed software? (Art. 5 & 7 UCPD)

2. Is it an unfair commercial practice when a combined offer of sale of a computer with a pre-installed software leaves the consumer only two choices: to accept the software or to cancel (not engage in) the whole sale? (Art. 5 UCPD)

3. Is it an unfair commercial practice when a manufacturer offers only combined offers of sale of a computer with a pre-installed software, without allowing consumers to obtain a computer which is not equipped with pre-installed software?

The CJEU considered the last two questions together and came to the conclusion that on its own it is not an unfair commercial practice pursuant to Art. 5 UCPD if the manufacturer offers for sale a computer with a pre-installed software without any option for the consumer to purchase the same computer model without this software. However, it is for the national court to decide whether this practice was also pursuant to the requirements of professional diligence and did not materially distort or was likely to distort the economic behaviour of the average consumer with regard to the product.

As combined offers are not included in the list of prohibited commercial practices that is included in the Annex to the UCPD, unfairness of such practices could only be evaluated on the basis of general clauses. The requirements for unfairness are thus that the practice has to be contrary to professional diligence and materially distort average consumer's behaviour. While the CJEU leaves it to the national court to assert whether these requirements have been met, it states that:

"it is clear from the order for reference that, inter alia, the sale by Sony of computers with pre-installed software meets the expectations, as revealed by an analysis of the market concerned, of a significant proportion of consumers who prefer to purchase a computer already equipped and ready for immediate use, rather than to purchase a computer and software separately. Moreover, as is also apparent from the order for reference, prior to the purchase of the computer at issue in the main proceedings, Mr Deroo-Blanquart, as a consumer, was duly informed via Sony’s retailer of the existence of pre-installed software on that computer and the specific nature of each of those items of software. Finally, subsequent to the purchase, when using that computer for the first time, Sony offered Mr Deroo-Blanquart the possibility of either subscribing to the ‘end-user licence agreement’ in order to be able to use that software or cancelling the sale." (Par. 35)

Providing consumers with correct information on combined offers is perceived by the CJEU as satisfying the conditions of fairness (Par. 36). Moreover, since the consumer was offered a possibility to cancel the sale, it suggests that the commercial practice was an honest market practice, "the trader thereby demonstrating care towards the consumer". (Par. 37) The CJEU also hints at the commercial practice being unlikely to materially distort consumer's behaviour, as "the consumer has been duly informed, prior to the purchase, that the model of computer that is the subject matter of the sale was not marketed without pre-installed software and that he was therefore, in principle, free to choose another model of computer, or another brand, with similar technical specifications, sold without software or used with different software...". (Par. 41)

The CJEU also doesn't consider the lack of indication of individual prices of each software item as a misleading commercial practice. While the lack of overall price indication would constitute a misleading omission, as material information for the consumer would not be disclosed, the same reasoning does not apply to the components of this overall price. Especially, since the computer is not sold without the pre-installed software, the CJEU considered that it would not impact consumer's transactional decision-making, if he had price information on all individual software applications (Par. 48-51).

Generally, based on past case law, we could not expect the CJEU to consider combined offers to be unfair commercial practices under all circumstances. However, the CJEU seems to give very detailed guidance to national courts in this case, directing them to consider the combined offer under the given circumstances as a fair commercial practice. While an informed consumer has definitely more capability to assess the value of the transaction he is entering into, that does not necessarily give him as much market power as the trader has and may not prevent an unfair commercial practice from occurring. The Court mentions that this consumer could have decided to purchase a different computer, of a different brand, e.g., instead. This presumes the existence of certain market conditions, consumer's familiarity with them, as well as consumer's sharpness in exploitation of these. Is this the continuity of the average consumer's high benchmark or has it just been raised even higher?

Consumer vulnerability study published by the Commission

Yesterday the Commission published a study examining the incidence of consumer vulnerability across the EU28 and Iceland and Norway. It identifies the main reasons behind this vulnerability and what can be done about it. A special focus is on the challenges consumers face in the online environment, as well as in the finance and energy sectors. Many consumers show some signs of vulnerability, putting them at a higher risk of suffering negative outcomes in the market and making them more susceptible to certain marketing practices.

The key finding is that the incidence of vulnerability is the highest when consumers face complex advertising or when they have problems comparing deals because of market-related or personal factors, giving them difficulties getting informed, comparing, accessing and choosing between offers. Presenting offers in a simpler and clearer way significantly improves consumers' ability to select the best deals and to exercise their right to choose other alternatives.

If you are interested, take a look at the Commission's factsheet and final report here. 

Less antibiotics, more milk and fruits

The Health Committee voted yesterday on a resolution that aims at improving EU healthcare. Among other measures, the MEPs hope to encourage doctors to be more restrictive and responsible in prescribing antibiotics (also to animals) as well as to prohibit their sale without prescription; to motivate pharma companies to search for new antimicrobial agents (with resistance reaching 25% for commonly used antibiotics in several MS); to monitor more strictly potential conflict of interests between producers and prescribers of drugs. This resolution is the result of a report showing that 8-12% of patients admitted to EU hospitals experience adverse effects while receiving healthcare (e.g. infections) while ca 50% of these occurrences could have been avoided. (Health MEPs propose blueprint for safer healthcare)

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Also yesterday, the Agriculture Committee amended draft rules on schemes to provide fruit, vegetables and milk in schools encouraging MS to better and at a larger scale promote healthy eating and consumption of local food amongst children. Two, so far separate, schemes will be merged - on providing milk and fruit to schoolchildren (which should reduce the administrative burden for upholding them). The Committee introduces a proposal to enable EU funding for local milk products such as yoghurt, cheese and curd (as long as they do not contain added flavouring, fruits, nuts or cocoa); to require MS to spend 10-20% of the EU funding on additional educational and promotional activities related to healthy eating habits (visits to local farms, distribution of local specialties etc.); to increase the EU funding in this area and to better divide it amongst the MS. (Milk and fruit in schools: agriculture MEPs promote healthy eating)

Informed consent online

Jennifer Golbeck, director of the Human-Computer Interaction Lab at the University of Maryland, talked at TED about the need to protect our data better online and how this could be achieved. For anyone interested in improved disclosures and privacy issues this is an interesting talk: The curly fry conundrum: Why social media "likes" say more than you might think.

Investing consumers should be treated like/with (cross out inapplicable word) KIDs

Yesterday the European Commission presented a new legislative package that is supposed to restore consumers' faith in the financial services. It is an ambitious undertaking, no doubt, taking into account the consumer experience of the last few years with one financial crisis following another and big financial companies failing to provide much needed security and reliability. Many consumers found themselves in financial troubles due to wrong information or financial advice they had received, which often led them to invest in unsuitable for them financial products. To prevent this from happening again, an action at a European level was deemed to be necessary.

"In the aftermath of the biggest financial crisis in recent memory, the financial sector must place consumers at its heart. Retail products must be safer, information standards must become clearer, and those selling products must always be subject to the highest standards. That is why we have adopted a package solely dedicated to consumers, so that they can choose financial products based on clear and sound information and professional advice which puts the consumer's interests first." said Internal Market and Services Commissioner Michel Barnier (Commission proposes legislation to improve consumer protection in financial services)

And so, the European Commission presented three new documents: a proposal for a regulation on key information documents for packaged retail investment products (PRIPS), a revision of the Insurance Mediation Directive (IMD), and a proposal to boost protection for those who buy investment funds which is governed by the Directive on Undertakings for Collective Investment in Transferable Securities (UCITS). The first two of these documents are especially relevant for consumer protection so let's take a closer look at them.

PRIPS

Anyone who ever tried to make an investment knows that financial products are, ehm, complex (this really is too mildly put). In order for consumers to understand what they may expect from a given financial product and what risks they are taking on themselves the information provided to them has to be more transparent and comprehensive. This proposal aims at improving quality of such information by introducing a new, innovative standard for product information. It is intended to be short, plain-speaking and consumer-friendly. Every investment product (investment funds, insurance-based investments, retail structured products, private pensions, etc.) will need to have such a document attached to it. I just love the new name for it: KID - Key Information Document. Let's be honest, most of us have a childlike approach to financial matters - lots of faith in things ending up right even if we climb that highest (financial) tree branch without any security. Each KID will convey information on the product's main features, risks and costs associated with the investment in the product. The intention is to make it clear to consumers whether they can lose money on that product and to show them its complexity. Consumers will easily be able to compare KIDs of different investment products since they will follow the same structure, content, presentation. More information on this proposal may be found here.

IMD

Another matter that often leaves consumers flabbergasted is the risks associated with taking an insurance cover. Most often taking an insurance is seen as purchasing more security, without realising that it may also endanger consumers' interests. Anyone who studied law knows that insurance law is not a thing to trifle with, but consumers often remain blissfully unaware of its complexity. The EC aims at revising the IMD which regulates selling practices for all insurance products. Currently, the Directive applies only in cases when insurance was bought through an intermediary, but the revision aims at giving the same level of protection to consumers regardless of the character of the person they had purchased the insurance from. Moreover, sellers of insurance will need to inform consumers of their professional character, links to the insurance company as well as reveal their remuneration for selling an insurance cover. Most importantly, a professional, honest advice will have to be given to consumers interested in purchase of insurance products. Currently, more than 70% of insurance products are sold without appropriate advice. More information on this document may be found here.

How do consumers choose their financial products?

Standardisation for consumers' sake

The European Parliament is preparing a draft regulation that would modernise the European standardisation process (EU standardisation work: let small firms and consumers join in, says committee). Nowadays, companies who produce and sale EU goods and services may choose to work with various standards (local, national, or European). Upon the adoption of the new regulation the process of development of EU standards would be modernised. EU standards are voluntary, but a company who adopts them may rest assured that their goods and services are meeting legal requirements within the EU. Member States may not hold standards that would conflict with the EU standards (outside the social services and public health sector). That helps standardise procedures for companies distributing their goods among many Member States, and to lower transaction costs, though the last one would only fully take hold if Member States were forbidden to introduce additional standards beyond the European ones. The main benefit for consumers is that the goods bought within the EU market that conform to these standards are interoperable and compatible. The newly drafted rules aim to assure participation of consumer organisations (as well as that of SMEs), including people with special needs, when new EU standards are to be established. The amendments proposed by the IMCO may be found here.

How to switch bank accounts remains a mystery

Last week a consumer market study was published on consumers' experiences with bank account switching (Consumer Market Study on the consumers' experiences with bank account switching with reference to the Common Principles on Bank Account Switching). Already in 2007 the European Commission discovered that banks don't enable consumers to easily move their accounts if they choose to do so and urged the Banking Industry Committee (EBIC) to remove existing barrierts to customer mobility. As a result, the EBIC esatblished a self regulatory initiative which was intended to bring clarity to consumers. Therefore, as of November 2009 it was supposed to be easier for consumers to change their bank account from a current bank to another bank (Changing your bank). In general, the consumers were only supposed to make a request to a new bank who would then, in theory, help the consumer through the switching process, transfer all standing orders and direct debits to the new bank etc. Unfortunately, the new study showed that this clarity was not achieved.

Only 19% of mystery shoppers were able to successfully open a bank account with a new bank and switch a standing order based on the process described in the new self-regulatory guidelines. Shoppers claimed that 71% of banks did not assist in the transfer, which meant that they did not follow self-regulatory guidelines, 7% took more than 14 working days to open an account or switch an order. The study also showed that bank staff was not always aware of switching accounts' procedures and that the level of information that consumers could receive about this varied significantly (14% consumers received no information at all).

EU Internal Market Commissioner Michel Barnier said "The results of the study published today explain why consumers change their banks so rarely. If consumers are not able to easily switch bank accounts, they cannot take advantage of better and cheaper banking services on offer elsewhere. The single market is thus deprived of the competitive drive that leads to innovation, cost savings and better quality banking services. This, in the long-run, can prove to be an obstacle to growth". (Consumers: Switching bank accounts - 8 out of 10 mystery shoppers faced difficulties)



Back to the drafting board for the European Commission on 'percentage less'

Last year we mentioned that the European Commission was busy updating the Regulation 1924/2006 on nutrition and health claims made on food ('How many calories/vitamines/etc. are in...? - new Regulation on Food Information'). Apparently, there are more changes to be introduced, but the European Parliament opposed today a new draft of the European Commission that would amend this Regulation ('MEPs veto 'misleading' food labelling changes'). The new amendments would have allowed food producers to label their products as containing a certain 'percentage less' of sugar, salt or fat content (e.g. '15% less sugar') in comparison to what the same product previously contained. 

The misleading part may come when consumers compare, e.g. two sorts of sausage of different brands and one has a label '15% less fat' while the other 'reduced fat'. The 'reduced fat' label may be put on a product, pursuant to other EU laws, only if that product has less than 30% of fat in comparison to other similar products. This means that if the producers of a really fat sausage reduce its fat content by 15% they could then label it '15% less fat' but not 'reduced fat' if it isn't 30% lower in fat than other sorts of similar sausage. Consumers may not know that, however, and be convinced that getting a '15% less fat' sausage would be healthier for them than getting a 'reduced fat' sausage. Right. So... back to the drafting board, European Commission!

The resolution is to be found here.

How many calories/vitamines/etc. are in...? - new Regulation on Food Information

This is a busy period of the year at the universities (last exams, grading thesis, etc.), despite many students thinking that we are holiday-ing the whole summer. Still, I feel a bit guilty about not updating this blog in the past two weeks. I will try to compensate in the next few weeks, although it might be difficult to find news regarding European consumer law, due to the holiday period of the CJEU and other institutions.

One thing that I am late reporting and commenting on is the adoption of a Regulation on Food Information for consumers on the 6th of July 2011 (press release of the Commissioner John Dalli may be read here; consolidated version of the Regulation may be found here). This is not a mainstream subject of consumer protection, since I guess it is not as sexy as air passengers' rights or online auctions, but it still applies to everyday transactions that consumers undertake. How so? Well, whenever we do our groceries, go to restaurants etc. and we are in doubts whether to buy a certain product or not, we often look at the information that was placed on its labels. Unfortunately, often the information we want to find (being a woman, I can risk using a stereotype as an example: number of calories per 100 grams) either is not placed on the label at all or gets lost among other less important to us information. This new Regulation will make the consumers' lives easier by obliging producers and traders to make sure that: the information is not given in a very small font (so that consumers can easily read it), the information contains mandatory nutrition information (no more wondering what kind of meat may we find in a sausage, e.g.), the information contains mandatory information on allergens (interestingly this will apply also to foods sold in restaurants), the information on country-of-origin labelling for meat from pig, sheep, goat and poultry (I wonder why cow is not included on this list?).

What is missing in this Regulation that could have put consumers in an even better position? E.g. an obligation to place this mandatory nutrition information on the front of packages. Consumers will still have to pick up the product and turn it around if they are interested in this information. Also, interestingly, alcohol is not seen as a food product to which this nutrition labelling requirements will apply.

Filtering of information online

An interesting TED talk by Eli Pariser on danger that 'filter bubbles' (i.e. when we search for information online, our search results are limited by our previous search history and change the results we will get in comparison with someone else who will enter the same search term but has a different search history) might bring about for consumers: Beware online 'filter bubbles'. Listening to this talk made me interested in his book ("The filter bubble") and I thought I'd share this.

Transparent and comparable bank fees

Making banking fees more transparent and comparable for consumers. That's the way forward according to the European Commission when it comes to the promotion of a competitive single European market for banking services. This Monday the European Commission, together with the banking industry and consumer advocates, launched a self-regulatory initiative to achieve these aims.

The self-regulation should address the following problems:
(1) Complex bank fee terminology;
(2) Difficulty in comparing bank fees;
(3) Lack of basic consumer information on bank fees.

For more information, including reports identifying the problems on the internal market for consumer banking services, click here.

Consumer Protection in Financial Services: two sides of the same coin

On 2nd and 3rd July the European Coalition for Responsible Credit held its international stakeholder conference ‘Financial Services Providers and Consumer Protection - Two Worlds?’ at Hamburg. The symposium, gathered consumer organisations, financial service providers, policy makers, academics and politicians to discuss current issues in retail markets for financial services in Europe and elsewhere. Issues that were discussed include national reports on consumer credit and banking, a comparison of bankruptcy laws, bank reporting on responsible lending, financial literacy, and consumer information overload.

Whenever you as an academic researcher get the chance to attend this type of events straightforward you get the flavor of the progressive nature of consumer credit law in various European legal systems. Which basically have increasingly developed into a combination of private and public regulation, attributable to the fact, that, through mandatory law it combines economic (transparent, competitive market) and social concerns (such as social consequences of over-indebtedness) in a private law setting. Hence, a balancing act between stimulating financial services and safeguarding economic interests of consumers.

The panel on ‘information overload at the point of sale‘ conformed by Sarah Linch(European Commission), Prof. Geraint Howells(Uni. Manchester), Dr. Bernhard Dychhoff (VW Financial Services) explored quite interesting topics through their presentations. The lectures in this panel touched upon the provision of ‘adequate explanations’ related to credit. This duty encapsulated in article 5(6) European Consumer Credit Directive apparently aims at enhancing contractual fairness between contracting parties. At the same moment, the article may provide an opportunity to empower consumers in their contracting position. Since has been introduced as flexible element in the Directive it will provide a range of possible options for a Member States regarding implementation.

The panelists agreed with the need of consumer testing as regards of ‘Standard European Consumer Credit Information’ (Annex II of the Directive), which also regulates the form in which specific information must be conveyed to consumers in the pre-contractual stage. Such standardisation of information apparently aims at avoiding information overload and at maintaining or allowing the comparability of different offers. As a result the suggestion to focus on duties to disclose a summary or short-form contract in plain language, highlighting rather than hiding key terms seems less meddlesome than one might suspect.

Nevertheless, standardization may not necessarily help consumers directly nor level the playing field for them; for example, if they fail to use or understand the information provided. The ideal of transparency, though laudable, may lead to an increase in information, yet not necessarily facilitate accessibility and simplicity. At the bottom line, in striving for simplicity it must be borne in mind that borrowers are heterogeneous in their preferences and concerns.