CJEU case C-371/20 and the concept of ‘payment’ in the Unfair Commercial Practices Directive

Case C‑371/20 (here) deals with an interesting question that has been receiving increasing regulatory attention: whether the concept of ‘payment’ in consumer-related contracts covers only monetary consideration or whether other types of counter-performances can also be considered as ‘payment’. We have reported on this issue before (see here). However, the CJEU had so far not discussed this matter so directly, so this case is most welcome. This case concerns the Unfair Commercial Practices Directive, particularly point 11 of Annex I. Annex I of the Unfair Commercial Practices Directive contains a list of practices that are considered unfair in all circumstances. Point 11 of the Annex states that it is not allowed to use editorial content in the media to promote a product if the professional party has paid for that promotion and if that is not made clear to the consumer (known as an ‘advertorial’). In other words, it must be made clear that that editorial content is paid advertising.

The case concerns two competitors in the clothing retail business - Peek & Cloppenburg Düsseldorf and Peek & Cloppenburg Hamburg -, and the main issue at hand was whether to use editorial content as an advertising campaign was an unfair commercial practice. P&C Düsseldorf published a nationwide editorial campaign in a fashion magazine (Grazia magazine). In it, P&C Düsseldorf invited customers to a night of private shopping. The editorial content in question also displayed several images of goods to be sold on the night of the event. P&C Hamburg claimed that this practice was contrary to Point 11 of Annex I of the Unfair Commercial Practices Directive (and to the transposing German legislation) because P&C Düsseldorf used editorial content without disclosing that it had been paid for. The legal issue was therefore whether this campaign could be considered an ‘advertorial’ in the context of Point 11. The referring court’s doubt arose from that fact that, as argued by P&C Düsseldorf, no monetary sum was paid concerning the editorial content in question, as the costs of the event were to be shared between P&C Düsseldorf and the company that publishes the fashion magazine and the pictures used were provided by P&C Düsseldorf free of charge. In other words, P&C Düsseldorf argued that this was not an ad that was paid by them, which meant that it would fall outside the scope of Point 11 of Annex I. As a result, the referring court asked the CJEU whether in the context of the Unfair Commercial Practices Directive the terms ‘paid’ and ‘payment’ must necessarily involve a monetary sum in exchange for the editorial content or whether it also covers the supply of services or assets other than monetary performances. In this case, the pictures provided by P&C Düsseldorf without cost could be seen as non-cash consideration for the advertisement. Furthermore, in case the concept of ‘payment’ should be broadly interpreted, the referring court asked whether there is a payment where there is a joint promotional event intended to promote the sales of both organizing parties (in this case, P&C Düsseldorf and Grazia magazine).

In its reformulation of the referred question, the CJEU already hints at a delimitation of the concept of ‘payment’: in order to be considered ‘payment’, a counter-performance must entail an economic advantage to the party. When answering the questions, the CJEU explicitly took into account other language versions. In fact, it is interesting to note that while some language versions use explicit terms connected with a monetary sum (such as ‘paid for’ in the English version), other versions employ more neutral, broader terms (such as ‘financier’ in the French version). The CJEU clarified that, when interpreting EU law, the literal term only has indicative value since it is also necessary to take into account the context surrounding and the goals of the provision. The CJEU reminded that the goal of the Unfair Commercial Practice Directive is to achieve a high level of consumer protection, particularly when it comes to tackling the frequent information asymmetries between consumers and traders. The CJEU also highlighted that the goal of Point 11 of Annex I is to guarantee consumer protection and consumers’ confidence in the neutrality of the press. According to the CJEU, whether the payment of such editorial content is made through the provision of a monetary sum or through the provision of any other assets is irrelevant when it comes to achieving these goals. In that sense, the CJEU agreed with the Advocate-General and stated that interpreting the concept of ‘payment’ as meaning only the payment of a monetary sum would deprive this provision of effectiveness. This interpretation makes sense. In fact, as pointed out by the referring court, the goal of Point 11 of Annex I is to allow the consumer to identify the promotional character of a commercial practice. This seems to point towards a broad interpretation of the concept of ‘payment’.

Additionally, determining whether the performance at hand consisted of ‘payment’ (or of a performance that carried a benefit for the party) is for the national court to do. However, the CJEU stated that it is important to identify a link between the material benefit provided and the editorial content. In this case, the free provision of copyright protected images by P&C Düsseldorf to the fashion magazine can be considered as payment, since these images are an asset value directly related to the editorial content.

This interesting decision has implications for several other consumer law issues, such as the payment of products with personal data (which is the case mainly in digital content contracts, whereby consumers often acquire products or services apparently gratuitously but while agreeing to disclose unnecessary personal data in return) and influencer marketing (whereby social media ‘celebrities’ often advertise products or brands without making it clear to their followers that this is not a genuine opinion but a paid review). Interestingly, the CJEU referred to the ‘reality of journalistic and advertising practice’ and to how social media comments or posts that appear genuine but are actually hidden advertising or commercial practices are harmful to consumer confidence and competition law. A broad interpretation of the concept of ‘payment’ – not only under the Unfair Commercial Practices Directive but also under other EU consumer legislative instruments – is an important step towards adapting existing legislation to ever-changing digital business models.

Record fine for Google for breaching EU antitrust rules: is there anything for consumers?

Earlier this week, on the 18^th of July, the European Commission fined Google €4.34 billion for breaching EU antitrust rules. This is so far the largest fine ever imposed for such violations.

It is now evident that since 2011 Google imposed illegal restrictions on other Android device manufacturers and mobile network operators abusing their dominant position on the markets of: general internet search services, licensable smart mobile operating systems and app stores for the Android mobile operating system.

In particular Google 1) required manufacturers to pre-install the Google Search app and browser app (Chrome), as a condition for licensing Google's app store (the Play Store), engaging in the so called illegal practice of ‘tying’: 2) made illegal payments to certain large manufacturers and mobile network operators on condition that they exclusively pre-installed the Google Search app on their devices; and 3) illegally prevented manufacturers wishing to pre-install Google apps from selling even a single smart mobile device running on alternative versions of Android that were not approved by Google. Google's conduct prevented a number of large manufacturers from developing and selling devices based on Amazon's Android fork called "Fire OS".

The antitrust decision requires Google to bring its illegal conduct to an end in within 90 days of the decision. At a minimum, Google has to stop any of the above three types of illegal practices. The decision also requires Google to refrain from any measure that has the same or an equivalent object or effect as these practices. The Commission will monitor compliance with the decision, and in the event of failure to comply, Google can face payment of a fine of up to 5% of its average daily worldwide turnover.

This decision is beneficial for consumers in two ways. First, by stopping the abuse of dominant position, the decision is likely to result in increased competition in the given markets that brings better products and lower prices for consumers. Second, harmed consumers are able to claim compensation in civil actions for damages in their national courts based on the new EU Antitrust Damages Directive.

Prohibiting online platforms from reselling luxury goods - CJEU in Coty Germany (C-230/16)

The CJEU gave its judgment (C-230/16) yesterday in a competition law case that may impact how luxury goods are sold to consumers online in the future. Coty Germany - a supplier of luxury cosmetics in Germany - brought a case against one of its authorised distributors, Parfumerie Akzente for using online third-party platforms (amazon.de) to resell their products. Coty set up a selective distribution network in order to protect the luxurious image of the brands it represents (eg Marc Jacobs, Calvin Klein). Their claim was that if their distributors use then online third-party platforms to resell their products, the objective of brand image protection is undermined. The distribution agreement allowed for the online sale of products supplied by Coty but only through the online webstore of the authorised distributor, whilst ensuring that the luxury character of the cosmetics was maintained. German courts brought the case the the CJEU as there was doubt whether the express prohibition in the distribution agreements of re-selling products through online stores of third-parties could restrict competition under art. 101(1) TFEU.

The CJEU has no doubts that maintaining a prestigious, luxurious image of the brand may justify the introduction of the selective distribution system (paras 28-29). Can such a distribution agreement prevent the distributor from re-selling the goods on an online website of a third-party? The CJEU determines that such a limitation could be justified, provided that it would apply in a non-discriminatory fashion, uniformly to all distributors, and was proportionate. From the Court's observations it seems that in this case the restriction was justified and proportionate (paras 44-53). As Coty does not have a contractual relationship with an online third-party platform reselling its goods, it would be difficult for it to ensure that they are being sold in a way guaranteeing to show off their luxurious character (paras 48-49). Moreover, distributors are allowed to sell these goods online - just on their own websites, which makes the restriction proportionate.

This judgment may mean that the offer for certain luxury goods on online platforms such as Amazon or eBay will be more limited in the future. Unless, suppliers of these goods will create their own webstores on these platforms.

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.