New Regulations will come into force on 26th May which will
govern how retailers can use the word 'free' in marketing and
advertising materials. The Regulations implement the European
Union's consumer-protecting Unfair Commercial Practices
Directive.
There have been disputes over whether or not the Directive asks
countries to pass laws banning BOGOF offers. Such deals have become
a vital weapon in recent years as supermarkets engage in cut-throat
price wars.
The UK Government told OUT-LAW.COM that it did not consider that
the Regulations banned the offers, but retail advisory group the
Institute of Sales Practitioners has said that the Directive does,
even if the UK Government is not going to prosecute shops.
However, the Head of Unit at the Consumer Affairs Directorate of
the European Commission has told OUT-LAW.COM that many free product
deals are likely to be permitted under the Directive.
"In my opinion, nothing in [the Unfrair Commercial Practices
Directive] should prevent companies from making promotional offers
such as 'buy 5 bottles and get one extra free'," said the
Commission's Giuseppe Abbamonte. "In this case the consumer is not
obliged to buy the fifth bottle, which would entitle him to receive
the sixth as a gift or a discount on the six bottles."
The Directive is designed to stop companies advertising products
as 'free' which actually require payment.
Abbamonte said that the situation is more complicated, though,
when a consumer has to take more than one product and cannot choose
to buy only one. "A more difficult case is BOGOF where the consumer
has no choice but buying the two bottles, which are bundled
together," said Abbamonte.
"In this case one may argue that the consumer is getting no
gifts or discounts but is actually buying two bottles; he may be
led to believe that he is paying for the two items the standard,
typical price that they would cost if they were being sold
individually. This assessment, however, will require a case-by-case
evaluation," he said.
Abbamonte said, though, that such BOGOF deals would be
legitimate as long as the price for two items was the same as the
real price for one item.
"If the price of the two together is genuinely the same as the
typical/standard price charged for one, BOGOF should be fine under
[the Directive]," he said. "If the price is more, BOGOF could be a
misleading practice because the consumer could be misled into
believing that the second is free when it is not."
The Institute of Sales Practitioners (ISP) has previously
advised its members that the EU law prohibited the use of BOGOF
promotions. It later amended its advice, saying that although it
still believed the promotions fell foul of the letter of the
Directive, it advised members to continue with BOGOF promotions
because the Government would not punish them for it.
"Given that the British Government and CAP (Committee of
Advertising Practice) appear to be taking the view that the
existing rules on the use of the word 'free' do not have to change,
the ISP would not advise members to change their practice on these
issues at the present time," ISP Director of Legal Services advised
members.
"We maintain our view as to the strict meaning of the
Regulations, but we see no reason why the industry should adopt
this more restrictive approach until such time as there is a
challenge which requires us to do so," he wrote.
Europe's retail trade body Eurocommerce said that it was
unlikely that the Directive would outlaw the use of the word 'free'
in BOGOF promotions.
Patrice Pellegrino, senior adviser on internal market and
consumer affairs at Eurocommerce, said that to fall foul of the
Directive the use of 'free' would have to breach Article 5 of the
Directive, the general clause.
That clause says:
"Unfair commercial practices
shall be prohibited. A commercial practice shall be unfair
if:
(a) it is contrary to the requirements of professional
diligence,
and
(b) it materially distorts or is likely to materially distort the
economic behaviour with regard to the product of the average
consumer whom it reaches or to whom it is addressed, or of the
average member of the group when a commercial practice is directed
to a particular group of consumers."
Pellegrino said that the whole purpose of advertising is to
"distort the economic behaviour with regard to the product".
"So the question would be: is it 'contrary to the requirements
of professional diligence'?" said Pellegrino. "Frankly speaking, I
would not consider it so, it does not seem to be contrary to
professional diligence."
Pellegrino said, though, that in some EU countries the issue is
not one of marketing laws, but of competition legislation.
"In some EU member states this is not an issue of the Directive,
it is a question of unfair competition," he said. "In France and
Germany there is a limitation in competition law regarding the
promotional and commercial offerings you can make under unfair
competition rules."
"In the past it has been the case in France that you were not
allowed to give away something that was worth more than 7% of the
value of the item you are selling. The rules are to prevent
below-cost selling," he said.
The Commission's Abbamonte said that his views were his and
could not bind the Commission. Ultimately, he said, only the courts
and the European Court of Justice could define exactly what the
Directive means.
Meanwhile, the UK's Office of Fair Trading issued new guidance
on the implementing Consumer Protection Regulations (CPRs) last
week.
The new guidance said that illegal practices would include,
"Describing a product as 'gratis', 'free', 'without charge' or
similar if the consumer has to pay anything other than the
unavoidable cost of responding to the commercial practice and
collecting or paying for delivery of the item."
It gave the following example: "A trader advertises a
'free' gift. He then tells consumers that in order to receive their
'free' gift they need to pay an extra fee. This would breach the
CPRs."
