The New Misleading Marketing Regime May 2008 www.olswang.com 1
On 26 May 2008 two new sets of regulations will come into force in the UK, the first of which protects consumers from unfair, misleading and aggressive commercial practices and the second of which protects businesses from misleading advertising and regulates comparative advertising. The new regime aims to harmonize and replace existing laws and will apply to both online and offline businesses. Breaches of the new regulations could result in criminal sanctions and businesses are advised to review their existing practices to ensure that they do not fall foul of the new regime. The Consumer Protection from Unfair Trading Regulations 2008 ("Consumer Regulations") will regulate commercial practices between businesses and consumers, whilst the Business Protection from Misleading Marketing Regulations 2008 ("Business Regulations") will regulate business-to-business commercial practices and also introduce requirements around comparative advertising. THE CONSUMER REGULATIONS The Consumer Regulations apply across all business sectors. They contain a general prohibition on "unfair commercial practices" before, during or after transactions. They also prohibit traders from misleading consumers and from using aggressive commercial practices. In addition, there are 31 specific commercial practices which are expressly prohibited. The Consumer Regulations amend, replace or complement existing consumer law; notably parts of the Trade Descriptions Act 1968 and the Consumer Protection Act 1987. Will your business be affected by the Consumer Regulations? The Consumer Regulations will apply to any conduct by businesses directly connected to the promotion, sale or supply of products to consumers. Therefore, your business will be affected by the Consumer Regulations where: your business has a direct relationship with consumers; your business has a sufficiently close connection with consumers as to fall within the scope of the Consumer Regulations (for example, where a trader supplies products to a supermarket to be sold to shoppers, the trader will need to ensure that their labelling complies with the Consumer Regulations); and/or your business purchases products from consumers. Unfair commercial practices The Consumer Regulations contain a general prohibition on "unfair commercial practices" (the "General Prohibition"). The General Prohibition prohibits practices which: fail to meet the standard of professional diligence (i.e. the standard of skill and care that a trader in the relevant field of activity could reasonably be expected to exercise); and www.olswang.com 1
materially distort the economic behaviour of the "average consumer". Misleading actions and omissions The Consumer Regulations prohibit misleading actions and omissions which cause the average consumer to make a different transactional decision from that which they might otherwise have made. "Misleading actions" include giving false or misleading information to, or deceiving, customers: about the existence or the main characteristics of a product; about the trader's compliance with a code of conduct; and/or by marketing a product in such a way that creates confusion with a competitor's products. An example would be where a trader sells a television package to a consumer, saying that it includes a channel which is only available at an additional cost. "Misleading omissions" include omitting information which the average consumer needs in order to make an informed decision, or providing information in an unclear, unintelligible, ambiguous or untimely manner. The context of any omissions, such as limitations of time or space, will be taken into consideration, as will other steps the trader has taken to convey the information (such as stating that "terms and conditions apply"). In addition, the Consumer Regulations provide that if a trader makes an "invitation to purchase" (for example, by including a page on a website which enables customers to place an order) the invitation must include specified material information, such as a full description of the advertised product. Aggressive practices The Consumer Regulations prohibit aggressive commercial practices involving harassment, coercion or undue influence. This prohibition is aimed at stopping, amongst other things, high-pressure selling techniques that include intimidation. Examples given by the Guidance issued by the Office of Fair Trading include forceful techniques employed by unscrupulous door-to-door salesmen. Prohibited practices The Consumer Regulations list 31 specific commercial practices which are considered unfair in all circumstances. The list includes the following practices: falsely stating that a product will only be available for a very limited time (or on particular terms for a limited time); www.olswang.com 2
using advertorials which fail to make it clear that a trader had paid for the promotion; falsely claiming, or creating the impression, that the trader is not acting for purposes relating to his trade, business, craft or profession, or falsely representing oneself as a consumer (note that this may catch certain blogging activities and practices where a trader falsely claims to be a consumer in a review (whether online or offline) of its own products); falsely claiming to be a signatory of a code of conduct; displaying a trust or quality mark without authorisation; claiming to offer a competition or prize promotion without awarding the prizes described or a reasonable equivalent; including in an advertisement a direct exhortation to children to buy advertised products or persuade their parents, or other adults, to buy advertised products for them; promoting a product similar to the product made by a particular manufacturer in such a manner as to deliberately mislead the consumer into believing that the product is made by the same manufacturer; and describing a product as "free", "without charge" or similar if the consumer has to pay anything other than the unavoidable cost of responding, and collecting or paying for delivery of the item. THE BUSINESS REGULATIONS Misleading advertising The Business Regulations only apply to business-to-business relationships and they impose a prohibition on advertising which misleads traders. "Advertising" is defined broadly and includes any form of representation promoting the supply of goods or services. In determining whether advertising is misleading, factors taken into account include information the advertisement contains concerning: the characteristics of the product (including its availability, composition, method and date of manufacture, geographical origin, the results to be expected from its use); price; conditions of supply; and the nature or rights of the advertiser (including the advertiser's identity, assets, qualifications, ownership of intellectual property rights, awards and distinctions). www.olswang.com 3
Comparative advertising The second area covered by the Business Regulations is comparative advertising. Comparative advertising will only be permitted if certain conditions are met. The advertising must: provide objective comparisons of products on a like-for-like basis; not discredit or denigrate a competitor or its brand; not take unfair advantage of the reputation of a competitor's brand; and not create confusion between the advertiser and competitor, or their brands. ENFORCEMENT Both new regulations put a duty to enforce on every "enforcement agency", which includes the Office of Fair Trading and Local Authority Trading Standards Services. However, note that neither set of regulations create any private right of action against traders by businesses or consumers. In fulfilling its duty, the enforcement agency can use "established means" to control the unfair practice. For example, the enforcement agency may decide that, where the remits of the ASA or PhonepayPlus overlap in relation to any complaint, it may be appropriate to refer the complaint to the existing regulatory body to be dealt with under the relevant code of practice. If, however, an enforcement agency chooses to take action under the new regime, such a complaint could lead to a fine or imprisonment. The new legislation will therefore give teeth to a number of previously self-regulatory codes. CONSEQUENCES OF A BREACH OF THE REGULATIONS A breach of the Consumer Regulations will, in most cases, be a criminal offence. In the case of a breach of the General Prohibition, the prosecution will have to prove that the trader has knowingly, or recklessly, breached the requirements of professional diligence. The other offences will be strict liability so it will not be necessary to prove the state of mind of the trader. A breach of the Business Regulations will constitute a strict liability criminal offence. The penalties, which apply to breaches of both the Consumer Regulations and the Business Regulations, are: for an offence on summary conviction, a fine of up to 5,000; or for an offence on conviction on indictment, an unlimited fine. www.olswang.com 4
An officer or a manager of the company who consents to (or acts negligently in relation to) the offence can be found personally liable and fined or sentenced to up to two years in prison (or both). DEFENCES It is a defence to the criminal charge that the offence was caused by factors such as a mistake or accident, reliance on information provided by another person, the act or default of another person or other causes beyond the trader's control, provided that the trader can show it took all reasonable precautions and exercised "due diligence". In terms of what constitutes due diligence, it may not be sufficient merely to put procedures in place to prevent the commission of an offence these procedures would have to be applied and enforced. However, it will not be possible to understand how the courts will interpret this provision until some case law exists in this area. A "mere conduit" defence is also available for publishers of advertisements where the publisher can prove that they received the advertisement in the course of business and they did not know that the publication of the advertisement would be an offence. Arrangements with providers of advertising, publishing services or hosting services, will therefore need to be framed to ensure that obligations to review content, and associated risks, are properly allocated. WHAT NOW? If you think that the regulations are likely to apply to your business you should: review your business's practices and guidelines to ensure that they do not fall within any of the prohibitions set out in either of the regulations; consider whether your clearance processes need to be updated to identify content and activities contrary to either of the regulations; and consider risk allocation with partners for new promotional initiatives. www.olswang.com 5
Key contacts If you have any queries in relation to the regulations please contact: Iain Stansfield Partner +44 (0)20 7067 3195 iain.stansfield@olswang.com John Davidson-Kelly +44 (0)20 7067 3250 john.davidson-kelly@olswang.com Anouska Spiers +44 (0)20 7067 3660 anouska.spiers@olswang.com The information contained in this note is intended as a general review of the subjects featured and detailed specialist advice should always be taken before taking or refraining from taking any action. Olswang May 2008 Iain Stansfield Direct line: +44 20 7067 3195 Email: iain.stansfield@olswang.com John Davidson-Kelly Direct line: +44 20 7067 3250 Email: john.davidson-kelly@olswang.com Anouska Spiers Direct line: +44 20 7067 3660 Email: anouska.spiers@olswang.com www.olswang.com 6
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