Out-Law News | 02 Apr 2008 | 9:08 am | 4 min. read
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,
(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."