Combating Illegal Publicity/Propaganda Behavior of Businesses: Day 1

2. EU-China Workshop on Combating Illegal Publicity/Propaganda Behaviour of Businesses Day 1 Unfair Competition law: false advertising, false representation, false publicity / propaganda Kunming, 14 – 15 October 2010

3. Table of contents Legal Framework Case Law Conclusions

4. 1. Legal framework

5. Combating Illegal Publicity/Propaganda Behaviour of Businesses Challenge for Advertising • Advertising has become race for unique, cutting-edge, enticing way of ... • passing on information to customers • facilitating and positively influencing their buying decisions • Difficult to keep content true to facts • Human tendency to exaggerate benefits of products • Easy to cross thin line demarcating puffery from misleading, deceptive or false advertisement Legal Framework Case Law Conclusions

6. Combating Illegal Publicity/Propaganda Behaviour of Businesses Interests to be protected Competitors Market Consumer Legal Framework Case Law Conclusions

7. Combating Illegal Publicity/Propaganda Behaviour of Businesses Main Regulation on illegal advertising Legal Framework Case Law Conclusions

8. Combating Illegal Publicity/Propaganda Behaviour of Businesses New provisions governing Unfair Commercial Practices Directive 2005/29/EC Legal Framework Case Law Conclusions Law Decree 2 August 2007, n. 145 Law Decree 2 August 2007, n. 146 Ad hoc provisions on “Misleading and comparative advertisement”, aimed at protecting businesses in their commercial relations Amended articles 18-27 of the 2005 Consumers’ Code in connection with “Unfair business-to-consumer commercial practices”,

9. Combating Illegal Publicity/Propaganda Behaviour of Businesses What is clearness? • Advertising communication must be clearly distinguishable as such. When a medium presents news and other editorial matter to the public together with marketing communication, it should be ensured that the marketing communication is readily distinguishable as such; • Subliminal advertisement is forbidden Legal Framework Case Law Conclusions

10. Combating Illegal Publicity/Propaganda Behaviour of Businesses What is lawful? • Advertising communication shall include • Terms, quotations and references to scientific and technical tests; • Authentic Testimonials; • Contents and conditions of the guarantee or warranty offered; • Clear indication of dangers to health, safety or the environment, especially when such dangers are not immediately recognisable; • Full compliance with provisions set forth for special type of products, • Alcoholic Beverages • Cosmetics and Personal Hygiene Products • Food supplements and health foods • Physical and Aesthetic Treatments • Medicinal Products and Curative Treatments • Courses and Study or Teaching Methods • Financial and real estate transactions • Package Tours • Games, Toys and Educational Products for Children Legal Framework Case Law Conclusions

11. Combating Illegal Publicity/Propaganda Behaviour of Businesses What is unlawful? • Advertising communication shall not • be misleading; • play on superstition or credulity; • contain statements or audio or visual treatments depicting physical or moral violence that may be considered indecent, vulgar or repugnant to prevailing standards of decency; • offend moral, civil and religious beliefs; • cause psychological, moral or physical harm, and exploit the credulity, inexperience or sense of loyalty of children or young people; • Contain statement that may potentially endanger health, safety or the environment; • copy or slavishly imitate communication of others (risk of generating confusion) or name, trademark, notoriety and corporate image of other marketers; • denigrate the activities, companies or products of others. Legal Framework Case Law Conclusions

12. Combating Illegal Publicity/Propaganda Behaviour of Businesses What is unlawful? • (Following) Psychological, moral or physical harm, and exploit the credulity, inexperience or sense of loyalty of children or young people: • violating generally accepted rules of social behaviour; • acting dangerously or seeking exposure to dangerous situations; • suggesting that failure to posses the promoted product means either their own inferiority or their parents' failure to fulfil their duties; • suggesting that the role of parents and educators is inadequate in supplying healthy nutritional advice; • suggesting poor eating habits or neglecting the need for a healthy lifestyle; • soliciting other people to purchase the promoted product. Legal Framework Case Law Conclusions

13. Combating Illegal Publicity/Propaganda Behaviour of Businesses Comparative Advertising The protection of the interests of businesses adversely affected by misleading or unlawful comparative advertising has been removed from the Consumer Code and entrusted to separate ad hoc provisions contained in Legislative Decree 145 of 2 August 2007 Legal Framework Case Law Conclusions Main requirements Comparative advertising is permitted when it helps to explain the technical or financial features and benefits of promoted products and services, objectively comparing the relevant basic, technically verifiable and representative features of competitive goods and services, that meet the same needs or are intended for the same purpose.

14. Combating Illegal Publicity/Propaganda Behaviour of Businesses A legislative “revolution” To Unfair commercial practices legislation From Misleading Advertisement pre-existing legislation Legal Framework Case Law Conclusions wider Extension of the perimeter of protection to forms of business conduct that are likely to distort the economic behaviour of consumers but do not fall squarely within the notion of advertising

15. Combating Illegal Publicity/Propaganda Behaviour of Businesses What are Commercial Practices? “Commercial practices are any act, omission, course of conduct or representation, or commercial communication including advertising and marketing, by a trader, directly connected with the promotion, sale or supply of a product to customer” “A customer is any natural person who, in the commercial practices is acting for purposes which are outside his trade, business, craft or profession” Legal Framework Case Law Conclusions

16. Combating Illegal Publicity/Propaganda Behaviour of Businesses What is unfair? “A commercial practice is deemed to be unfair when contrary to the requirements of professional diligence, it materially distort the economic behaviour of the average consumer whom it influences or to whom it is addressed” “The concept of unlawful commercial practices is viewed as the undue distortion of customers’ decision-making process and the resulting impairment of their ability and freedom to make informed market choices” Legal Framework Case Law Conclusions

17. Combating Illegal Publicity/Propaganda Behaviour of Businesses Competition Rules and Consumer Protection There are important elements of convergence between the enforcement of competition rules and consumer protection, since unfair commercial practices are often used as an important “COMPETITION TOOL”. Indeed, commercial practices, and especially comparative advertising, are a powerful tool for the newcomers and a way to lead consumers to choose the best options for them, in terms of prices and quality, by means of more conscious, rational and informed decisions. Legal Framework Case Law Conclusions

18. Combating Illegal Publicity/Propaganda Behaviour of Businesses What is misleading? • Actions • the existence or nature of the product; • the main characteristics of the product; • the extent of the trader's commitments, the motives for the commercial practice and the nature of the sales process, any statement or symbol in relation to direct or indirect sponsorship or approval of the trader or the product; • the price or the manner in which the price is calculated, or the existence of a specific price advantage; • the need for a service, part, replacement or repair; • the nature, attributes and rights of the trader or his agent; • the consumer's rights • in its factual context, taking account of all its features and circumstances, it causes or is likely to cause the average consumer to take a transactional decision that he would not have taken otherwise • Omissions • in its factual context, taking account of all its features and circumstances, it omits material information that the average consumer needs to take an informed transactional decision and thereby causes or is likely to cause the average consumer to take a transactional decision that he would not have taken otherwise; • It hides or provides in an unclear, unintelligible, ambiguous or untimely manner such material information, and namely • the main characteristics of the product, • the geographical address and the identity of the trader, • the price inclusive of taxes, • the arrangements for payment, delivery, performance and the complaint , • the existence of a right of withdrawal or cancellation Legal Framework Case Law Conclusions

19. Combating Illegal Publicity/Propaganda Behaviour of Businesses What is aggressive? In its factual context, taking account of all its features and circumstances, by harassment, coercion, including the use of physical force, or undue influence, it significantly impairs or is likely to significantly impair the average consumer's freedom of choice or conduct with regard to the product and thereby causes him or is likely to cause him to take a transactional decision that he would not have taken otherwise. Legal Framework Case Law Conclusions • Types of harassment, coercion and undue influence • timing, location, nature or persistence; • the use of threatening or abusive language or behaviour; • the exploitation by the trader of any specific misfortune or circumstance of such gravity as to impair the consumer's judgement, of which the trader is aware, to influence the consumer's decision with regard to the product; • any onerous or disproportionate non-contractual barriers imposed by the trader where a consumer wishes to exercise rights under the contract, including rights to terminate a contract or to switch to another product or another trader; • any threat to take any action that cannot legally be taken.

20. Combating Illegal Publicity/Propaganda Behaviour of Businesses General Rule on Unfair Competition Acts Article 2598, no. 3, of the Italian Civil Code: “…acts of unfair competition are performed by whoever: …3) avails himself directly or indirectly of any other means which do not conform with the principles of honest commercial practices and are likely to injure another’s business” (unofficial translation). Legal Framework Case Law Conclusions

21. Combating Illegal Publicity/Propaganda Behaviour of Businesses AGCM Proceedings • In 2009 2.597 complaints were submitted to the Authority. Of the 2.597 complaints received 1.882 were dismissed and namely: • 70% of these referred to practices not falling under the definition of commercial practices under the Consumer Code and Legislative Decree No. 145/2007; • 24% of these were referred to circumstances submitted according to the law abrogated by Legislative Decrees 145 and 146/2007, • 1% of these were referred to events already decided by the Authority, • 1% were manifestly groundless; • 4% moral suasion. Legal Framework Case Law Conclusions (AGCM Report issued on 31 march 2010)

22. Combating Illegal Publicity/Propaganda Behaviour of Businesses AGCM Outcome of investigation In 2009, 272 complaints were examined by the Authority, 246 of these led to the adoption of a measure and 24 were closed by dismissal Legal Framework Case Law Conclusions (AGCM Report issued on 31 march 2010)

23. Combating Illegal Publicity/Propaganda Behaviour of Businesses AGCM Investigations Legal Framework Case Law Conclusions (AGCM Report issued on 31 march 2010)

24. Combating Illegal Publicity/Propaganda Behaviour of Businesses AGCM Compliant and findings Legal Framework Case Law Conclusions (AGCM Report issued on 31 march 2010)

25. Combating Illegal Publicity/Propaganda Behaviour of Businesses AGCM Medium used to disseminate the advertisement Legal Framework Case Law Conclusions (AGCM Report issued on 31 march 2010)

26. Combating Illegal Publicity/Propaganda Behaviour of Businesses AGCM Fines resulting from proceedings Legal Framework Case Law Conclusions (AGCM Report issued on 31 march 2010)

27. Combating Illegal Publicity/Propaganda Behaviour of Businesses AGCM Fines resulting from proceedings/ Sectors Legal Framework Case Law Conclusions (AGCM Report issued on 31 march 2010)

28. Combating Illegal Publicity/Propaganda Behaviour of Businesses AGCM’s view on Unfair Commercial Practices • Telecommunications • Mobile internet services (shock billings) • The Agcm dealt with mobile internet services that lead to abnormally expensive bills for consumers and related advertising campaigns. In particular, the above-mentioned campaigns promoted hi-speed web-surfing, up to a 5 GB monthly download threshold, for a very low monthly rate. • The Agcm fined the companies under investigation: • for providing insufficient information to consumers, with specific regard to the (very expensive) tariff applicable after overcoming the 5 GB monthly threshold; • for not giving consumers the possibility to monitor their download traffic in order to stay safely under the 5 GB monthly threshold or assess their over-the-threshold traffic; • for providing insufficient information to consumers about the areas not covered by the H3G network. Legal Framework Case Law Conclusions

29. Combating Illegal Publicity/Propaganda Behaviour of Businesses AGCM’s view on Unfair Commercial Practices • Energy • Enel Energia • Enel Energia, a company of the Enel group operating on the electricity supply free market, was judged to have adopted unfair commercial practices: • by moving customers from the so-called “protected market” to the “free market”; • by initiating an unsolicited supply of natural gas; • The company started unsolicited electricity and gas supplies and in some cases demanded payment, hindering the exercise of the right to second thoughts and using aggressive marketing procedures. Legal Framework Case Law Conclusions

30. Combating Illegal Publicity/Propaganda Behaviour of Businesses AGCM’s view on Unfair Commercial Practices • Transport • Meridiana (Sweep 2007) • Agcm fined Meridiana for violating the Consumers’ Code and deemed unfair the company’s practices in the following areas: • Transparency of fares: On its website, Meridiana included a fuel surcharge linked to oil prices within the category “airport taxes and charges”; • Insurance Policy: Absent a precise choice by the consumer to refuse the insurance policy (by un-ticking a box on Meridiana’s website), the company took for granted his consent; • Compensation to Passengers for Flight Delays: The airline did not comply with the current regulations and did not offer consumers adequate information; • The “HI-FLY 2007/2009” Loyalty Program: Consumers wishing to join the loyalty program had to purchase a “co-branded” credit card: therefore, some consumers were not admitted to the program, while some costs and charges were not clearly explained by the airline. Legal Framework Case Law Conclusions

31. Combating Illegal Publicity/Propaganda Behaviour of Businesses Courts’ view on Unfair Commercial Practices “it is deemed to be an unfair commercial practice for denigration, the circumstance that a market operator communicates that a claim against a competitor has been awarded before a Court” (Court of Venice, 21 march 2007) Legal Framework Case Law Conclusions “it is deemed to be unfair the practice of a market operator who communicates true circumstances or facts regarding the competitor in order to discredit him” (Court of Eboli, 2 May 2004)

32. Combating Illegal Publicity/Propaganda Behaviour of Businesses Courts’ view on Unfair Commercial Practices “it is deemed to be unfair for exaggeration, the commercial practice of a market operator who promotes its products as the sole and unique with specific characteristics or qualities” (Court of Appeal of Florence, 15 January 2002) Legal Framework Case Law Conclusions

33. Combating Illegal Publicity/Propaganda Behaviour of Businesses Courts’ view on Unfair Commercial Practices “it is unfair the comparison of a product to others, to the extent that this practice is deemed to be used in order to draw unfair advantage from the notoriety of others” (Court of Turin, 11 February 2008; Court of Bologna, 1 March 2008) Legal Framework Case Law Conclusions

34. Combating Illegal Publicity/Propaganda Behaviour of Businesses Courts’ view on Unfair Commercial Practices “The use of a packaging similar to the one used by a competitor determines a case of unfair commercial practice as it is aimed to obtain and undue advantage from the notoriety of trademarks of competitors” (Court of Bologna, 18 May 2005) Legal Framework Case Law Conclusions

35. Combating Illegal Publicity/Propaganda Behaviour of Businesses • The Consumer Protection System countering Unfair Commercial Practices represents a good way for EU Member States to promote competition and enhance the smooth functioning of the market. • The enforcement of the new Unfair Commercial Practices rules entails a widening of the national competition authorities’ powers that may allow consumers and businesses to receive more effective protection. • Companies might take advantage of the new provisions by using the black-lists of specifically prohibited practices as benchmark to self-assess their day-to-day commercial conduct. • There are important elements of convergence between the enforcement of competition rules and consumer protection, due to the fact that commercial practices are an important COMPETITION TOOL. Legal Framework Case Law Conclusions

36. Combating Illegal Publicity/Propaganda Behaviour of Businesses Thank you Guido Foglia guido.foglia@nctm.it

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