Out-Law Legal Update
Individuals advised to check whether they can still claim entrepreneurs' relief
Out-Law Guide | 25 Apr 2005 | 11:16 am | 17 min. read
The global reach of the internet makes it an attractive platform for any company wishing to advertise its products or services.
To obtain a complete picture of the regulation of online advertising, even in just one country, such as the UK, we have to take account of many different sources, which provide us with a range of rules to consider. There is no one source that we can go to for all the rules. As the online world deals with the dissemination and use of a broad range of information, covering a wide range of matters and issues, any rules on the dissemination of information might potentially be applicable.
The rules that regulate the online world can, for instance, be pervasive, applying to any, or a variety, of activities. The rules within the Data Protection Act 1998 or the Trade Descriptions Act 1968 would be a good example of this. Alternatively, they might be focused on one particular area or issue – the rules within the Tobacco Advertising and Promotion Act 2002 would be a good example of this.
Additionally, we can distinguish between rules that have the force of law and those that are voluntary. The legislation mentioned above has the force of law, as does, for instance, the Consumer Credit (Advertisement) Regulations 2004 and the Financial Services (Distance Marketing) Regulations 2004. On the other hand, there are rules that are effectively voluntary in nature, which are part of self-regulatory systems, such as those provided under the British Code of Advertising, Sales Promotion and Direct Marketing (otherwise known as the CAP Code).
Again, the self-regulatory systems are a mixture of generic provisions and provisions aimed at particular sectors and products. For example, as well as the overriding principles of the CAP Code which apply to all communications, there are separate sections of the CAP Code relating specifically to adverts for alcohol, tobacco products and pharmaceuticals, and separate provisions relating to claims as to the environmental impact of a product
Whilst it can be said that, for instance, the CAP Code does not have the force of law, its importance must not be overlooked as failure to comply can have adverse consequences for an organisation.
More often that not, the rules that affect the online world of advertising are the same as those that affect advertising in the 'real world', though there are exceptions, such as the E-Commerce Directive, which relate to the online world only. For the most part, however, we need to apply rules which are couched in general terms or which were originally designed for the real world, to the realities and practicalities of the online world.
To this mix of rules, there is the overriding question of the effect of jurisdiction and this is where online advertising presents a particularly unique challenge. All the rules that have so far been mentioned are ones applicable to the UK. The great novelty and benefit – but also the challenge and potential pitfall – with the online world and advertising on it, is that information cuts across traditional borders, in particular those that are geographical and bound to a state. When an online advert cuts across a jurisdiction and enters a new one it becomes subject to the rules of that new jurisdiction.
We look at the CAP Code in more detail below but it is worth considering other self-regulatory systems. Looking at a different voluntary regime, the International Chamber of Commerce (ICC) also publishes a set of guidelines in relation to marketing and advertising through electronic media. The scope of these guidelines is broad and covers email as well as internet advertising and any other form of marketing conducted through electronic media. The guidelines are designed to build on the ICC International Code of Advertising Practice and the ICC International Code of Direct Marketing.
Furthermore, the Interactive Advertising Bureau (an industry association based in the US dedicated to promotion of the online and electronic advertising industry) has also published a number of guidelines and standards in relation to interactive marketing designed to improve consumer confidence within the electronic advertising market.
Another example would be the Guidance for Traders on good practice in giving information about prices issued by the Department of Business Innovation and Skills under the Consumer Protection Regulations which gives guidance on how to avoid giving misleading price indications.
Lastly, there may be a number of industry specific bodies that regulate marketing campaigns within their specific sector. For example, the advertisement of medical products is regulated by the Medicines and Healthcare Products Regulatory Agency and the Portman Group provides guidelines for the advertising of alcoholic beverages.
The CAP Code
The provisions of the CAP Code comprise the rule book for non-broadcast advertisements, sales promotions and direct marketing communications. They relate to, for example, advertisements in newspapers, leaflets, mailings, emails, text transmissions, fax transmissions, online adverts, other electronic and printed material and marketing databases containing consumers' personal information – essentially, any marketing communications.
The Cap Code is enforced and administered by an independent body called the Advertising Standards Authority (ASA).
When preparing an online advertisement you should refer to the rules set out in the CAP Code. The key principles that online marketers should always bear in mind is that all marketing communications on the web or elsewhere must:
Adverts in the following areas are subject to additional rules in the CAP Code: gambling, alcoholic drinks, motoring, environmental claims, health and beauty products and therapies, children, weight control, betting and gaming, employment and business opportunities and tobacco. Where relevant, these should also be adhered to.
Anyone can complain to the ASA about non-compliance, from which the ASA can adjudicate a decision – it is easy for a consumer to complain and the ASA receives tens of thousands of complaints a year. The CAP Code is not a statutory code but it is not without teeth.
The biggest incentive for businesses to comply with the CAP Code is that the publication of its decisions may lead to adverse publicity for the organisation involved. The ASA can also place a restriction on a company that all its adverts must be vetted in the future before publication. Further, media and industry organisations that subscribe to the CAP Code can refuse advertising space to anyone who breaks the Code. An Ad Alert is sent out to members who can then deny space until the organisation complies. Such media and industry organisations can also remove incentives or concessions associated with membership of their body. In addition, the ASA can refer an organisation to the Office of Fair Trading under either the Consumer Protection from Unfair Trading Regulations 2008 or the Business Protection from Misleading Marketing Regulations 2008. The OFT can also seek undertakings from the organisation or an injunction from a court.
Examples of online ad decisions
Here are a few examples of ASA adjudications which relate to online advertising in which the ASA found the advertisement to be in breach of the CAP Code.
A1 Travel Deal Ltd t/a Travel O World (January 2013)
Claims were made on www.traveloworld.co.uk that return KLM flights from London to Johannesburg departing on 10 January 2013 and returning on 29 January 2013 were available from £439. The complaint was that these claims were misleading as when a customer phoned the lowest price offered was £679. The ASA ruled that the advert could not remain in its current form unless evidence was available to show that a reasonable proportion of flights for the period in question were available at the stated 'from' price.
TalkTalk Telecom Ltd t/a Talk Talk (January 2013)
TalkTalk's website contained the following claim: "FREE YouView box – normally £299!". This was challenged by BT as misleading on the basis that the product had only been on sale for seven days prior to the claim being made. The ASA upheld this complaint as, though the YouView box was available to purchase for £299, it did not consider that seven days was a long enough period to establish a 'generally sold at price' and therefore the advert was misleading.
Hi Spirits t/a Antica Sambuca (January 2013)
The Antica Sambuca Facebook page contained photos appearing to have been taken in a bar or nightclub and which depicted young adults holding or consuming alcoholic drinks. The complainant alleged that these promoted excessive drinking and were irresponsible under the CAP Code, and also depicted individuals who appeared to be under 25. Despite the advertiser, Hi Spirits' assertion that the images were not advertising material, a sales promotion or a marketing communication to which the CAP Code applied, the ASA upheld the complaint. The images did promote excessive drinking and were therefore irresponsible, and as the images related to a Freshers' week event it would be understood that the individuals were under the age of 25. The ASA required the images to be removed from the Antica Sambuca Facebook page.
Amazon EU Sarl (November 2012)
This complaint related to claims on www.amazon.co.uk regarding their membership service which stated "Get your stuff fast Unlimited FREE One-Day Delivery on all eligible orders" and "Try Amazon Prime FREE for one month: Unlimited Free One-Day Delivery... After your free trial, Amazon Prime is just £49/year". Despite acknowledging that Amazon's intention was to make it clear that one-day delivery could be used without charge after subscription, the advert claiming it was "Free" was misleading as members had to pay £49 before they could use the service. The CAP Code states that marketers should not describe something as free if it is in fact included in the package price.
Phones 4U Ltd (November 2007)
In this adjudication, complaints had been received in relation to a Phones 4U offer stating that a particular phone was free on a contract for only £17.50 per month. In fact the contract was for £35 per month and there was a cashback offer which, if claimed over the (18 month) period of the contract, would mean that the contract price would come down to £17.50. The ASA decided that this breached CAP Code clause 7.1 (Truthfulness) and that future adds must make clear what the actual contract price was.
Online Behavioural Advertising
The ASA has carried out research into consumer perception of online advertising and found that there is a lack of trust in adverts that appear online. Its rules and regulations, as well as its adjudications, in relation to online adverts are therefore clearly important in building trust in online advertising.
From 4 February 2013, the CAP Code will contain new rules regulating the use of online behavioural advertising (OBA). The definition of OBA can be defined as the collection over a period of time by a "third party" of 'web viewing data'. Web viewing data:
A third party is an organisation which engages in OBA: that is, one which collects and uses web viewing behaviour data for the purposes of OBA.
Under the new rules third parties must notify web users, in or around the advert, that an advert is delivered using OBA and give web users the choice to opt out of receiving such ads. CAP anticipates that most third parties are likely to choose to comply with the new rules through placing an icon in the corner of the display advert which acts as both notification of OBA and a link to a website allowing the user to opt out of OBA. For example, the European Interactive Digital Advertising Alliance (www.edaa.eu) scheme licenses the right to use an icon in display adverts which then links to the website www.youronlinechoices.eu through which users can opt out of various third parties' use of OBA.
Third parties are also required to publish a clear and comprehensive notice on their own website explaining the collection and use of web viewing data for the purposes of OBA.
The ASA will be responsible for monitoring and enforcing compliance with the new rules. In addition to their general enforcement powers described above, where the advertiser is a signatory to the IAB Europe Online Behavioural Advertising Framework the CAP compliance teams will also have powers to remove a trading seal of approval signifying compliance with the Framework which the advertiser may display together with the its licence to use the single European icon. These may have a significant impact as the advertiser would have to find an alternative route to compliance if they could not use the icon and so may be particularly effective in ensuring compliance.
Website operators who share web viewing data with third parties will have to consider their obligations under the Data Protection Act (in particular the requirement to provide web users with a fair processing notice) and under the Privacy and Electronic Communications (EC Directive) Regulations in relation to cookies.
Key UK legislation affecting online ads
The Price of a product or service
Is a price included in your advert and is it accurate? Apart from the CAP Code, price indications are governed by the Consumer Protection from Unfair Trading Regulations 2008 and the Price Marking Order 2004. Under the Consumer Protection from Unfair Trading Regulations it is a criminal offence to engage in a commercial practice which is misleading (by act or omission), aggressive or falls within a blacklist of practices which are automatically unfair (see our Guide to the Consumer Protection from Unfair Trading Regulations). This will include misleading consumers as to the price included in an advert.
A misleading action contains false information or in some way deceives (or is likely to deceive) the average customer. Examples include:
Misleading omissions are made when a trader omits or hides material information, provides it in an unclear, unintelligible, ambiguous or untimely manner, or fails to make clear a commercial intent. What is material will depend on the circumstances, but it is generally defined as information the average consumer needs to make an informed decision.
Limitations of space or time and whether the trader has taken other steps to convey the information (such as stating "terms and conditions apply" and where they can be found) will be taken into account as part of the context.
Data collected through advertising
The Data Protection Act 1998 may require consideration if information relating to individuals is being collected and processed. This is often an issue in viral marketing (see our guide to Viral Marketing and our guide to Data Protection Act).
Contracting after advertising
The Consumer Protection (Distance Selling) Regulations 2000 provide that if the advertising leads to contracts being concluded then certain "prior" information must be provided to the consumer and a cancellation period given, of at least seven working days.
As with any publication which is expected to reach a wide-ranging audience, care will have to be taken also to ensure that adverts do not contain libellous or defamatory material.
If an advert identifies a competitor or goods or services offered by a competitor, there are further issues to consider.
In 1997 the EU passed a Directive which sets out the conditions under which comparative advertising is permitted. This has been implemented into UK law by the Consumer Protection from Unfair Trading Regulations 2008.
Under these Regulations, comparative adverts will be prohibited if, as with other adverts, they are misleading, aggressive or fall within a blacklist of practices which are automatically considered to be unfair practices (see our Guide to the Consumer Protection from Unfair Trading Regulations).
The European Court of Justice ruling in Pippig Augenoptik GmbH & Co KG v Hartlauer Handelsgesellschaft mbH (2003) is an important case for clarifying the intent behind the Directive from which the Regulations were taken.
The case considered comparative advertising by a cut price retailer of spectacles and made some important clarifications of the Directive including that the "comparison" must involve examining the totality of the information available, namely the statements concerning the advertisers offer, statements concerning competitors offer and the relationship between those two offers. The "comparison" therefore did not apply solely to what is said regarding the relationship between the products.
EU and international regulation
The added complication in relation to online advertising is that the adverts may be accessible outside of the UK. Care should be taken when drafting adverts which could be accessed by customers in different countries. Advertising that infringes applicable laws and codes of conduct will be subject to certain complaints procedures and remedies in multiple jurisdictions.
This was illustrated by Yahoo!'s case in France when a Paris court required Yahoo! to ban French nationals from accessing any advertisements for Nazi memorabilia hosted on yahoo.com. Yahoo! then asked a US federal court to declare that the company was not obliged to obey the French ruling. A Californian court agreed with Yahoo! but in August 2004 a divided Court of Appeals reversed that decision, ruling that the lower court did not have jurisdiction to hear the case. In May 2006 the US Supreme Court confirmed that it did not have jurisdiction to hear the case, effectively meaning that Yahoo! had to comply with the French court's order.
An online marketing message is therefore potentially subject to the laws of every country in which it is received by consumers.
Following the lead of the US, regulators in the UK and elsewhere in Europe, are beginning to take a fairly aggressive approach in enforcing advertising laws and regulations against businesses which fail to comply when advertising on-line.
Some example rules
In the United States online advertising is governed and enforced by the Federal Trade Commission (FTC). The FTC has published guidelines in relation to online advertising, failure to comply with an FTC order to cease and desist for publishing an offending advert could result in a substantial fine.
In Europe the E-Commerce Directive attempts to simplify these jurisdictional issues by introducing the "country of origin principle." This means that a company in the UK only needs to comply with UK laws on advertising and can more or less ignore the laws of other EU Member States, even if selling to those Member States. However, there are important exceptions to the country of origin principle, notably the terms of any consumer contracts. It is possible that a court in another Member State will take a liberal interpretation of this exception to protect its own consumers wherever it can – so the "country of origin" principle is weakened significantly. Accordingly, traders take a risk if they choose to ignore other EU countries' laws. Also note that the E-Commerce Directive and EU legislation generally do not override any conflict of laws legislation. When trading beyond the EU, the country of origin principle has no effect. So a UK company selling to the US should also comply with the US rules on advertising
Each country in the EU has its own consumer protection legislation. It also has its own self-regulation system based on the International Chamber of Commerce's Code of Advertising Practice. In broad terms this states that all advertising should be legal, decent, honest and truthful and should respect the cultural differences of the relevant country.
In certain areas the regimes of the member states have been harmonised, for instance, in relation to Tobacco Advertising.
However, these attempts at harmonisation are restricted in their effect: the major part of each country's advertising regime remains nationally based and there are major differences between the regimes in force in various countries. For example, Germany bans certain forms of promotional activity (such as two-for-the price-of-one offers); Spain bans adverts for 'war' toys in certain media; Denmark is particularly strict in the rules as to adverts directed at children.
What practical steps can be taken?
Although the internet gives a trader the opportunity to sell to every country in the world, most traders have more restricted horizons. The first step for any on-line advertiser is to determine the markets that it is targeting and to investigate the laws which apply in those markets. You should then seek to comply with those laws.
Complying with the laws of targeted markets is not sufficient protection, however, if orders might be received from other countries as well. The prudent advertiser will also take steps to indicate that orders will not be accepted from non-targeted jurisdictions and incorporate some means of screening for orders which are nevertheless received from those jurisdictions. While it is the advert rather than the order which potentially causes the offence, an advertiser who can be seen to have taken steps to exclude residents of a particular country will clearly be in a better position to defend itself against any claim by the authorities of that country.
If the goods on the site fall within a particularly sensitive category the advertiser might even investigate barring access to the site to viewers from certain areas of the world (for example, barring access to alcohol adverts for viewers from certain Islamic countries).
In the context of advertisements, the internet is simply a new means of publication. But this means of publication means that existing and well-established rules have to be applied in new ways, whilst new rules designed specifically for the online world must also be considered.
Just as importantly, because the internet is ubiquitous, the approach of the advertiser has to change. Previously the advertiser decided which markets he wished to target and placed adverts in media circulating in those markets. Now you need to decide which markets you wish to target, and then take steps to exclude the effects of passively advertising in other markets. In this context it is helpful to refer to our guide on Jurisdiction.
Out-Law Legal Update
Individuals advised to check whether they can still claim entrepreneurs' relief