EN Official Journal of the European Union C 271/61

Opinion of the European Economic and Social Committee on the ‘Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions — Protecting businesses against misleading marketing practices and ensuring effective enforcement — Review of Directive 2006/114/EC concerning misleading and comparative advertising’

COM(2012) 702 final

2013/C 271/11

Rapporteur: Jorge PEGADO LIZ

On 19 February 2013 the European Commission decided to consult the European Economic and Social Committee, under Article 304 of the Treaty on the Functioning of the European Union, on the

Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions - Protecting businesses against misleading marketing practices and ensuring effective enforcement - Review of Directive 2006/114/EC concerning misleading and comparative advertising

COM(2012) 702 final.

The Section for the Single Market, Production and Consumption, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 29 April 2013.

At its 490th plenary session, held on 22 and 23 May 2013 (meeting of 22 May), the European Economic and Social Committee adopted the following opinion by 129 votes with 8 abstentions.

1. Conclusions and recommendations

1.1 The EESC considers this Communication and its proposals to warrant particular attention and discussion.

1.2 The EESC supports the Commission's view that stricter regulation is required to effectively ban, and enforce exemplary and dissuasive sanctions against, certain aggressive directory company sales practices.

1.3 In view of the apparent urgency to take an immediate position on this issue and the estimated magnitude and seriousness of these practices in economic terms at the European level, the EESC accepts that the Commission should immediately present a specific legislative proposal on this issue, based on an impact assessment.

1.4 The EESC believes that to this end a framework regulation should be adopted, possibly developed through delegated acts, in order to ensure more uniform and effective enforcement across the Member States.

1.5 Given its nature, the EESC believes that the appropriate legal basis should include, but cannot be limited to, the Treaty's provisions on the internal market and its scope of application should not be restricted to cross-border transactions.

1.6 Furthermore, the EESC warns of the need to give attention to the trans-European nature of many of these practices, which requires coordinated international action.

1.7 However, the EESC believes that the best way to achieve coherent and consistent rules prohibiting misleading marketing practices would be a joint review of Directive 2006/114/EC and Directive 2005/29/EC to address business-to-business and business-to-consumer relations at the same time, preserving the specificities of each within a common framework, for which reason it urges the Commission to start action in the short term.

1.8 The EESC urges the Commission to develop and enforce complementary measures to improve information and dissemination; cooperation between administrative authorities, public-private platforms and stakeholder representative organisations; and rapid reaction mechanisms in order to put a stop to these practices and ensure damage compensation, namely through the immediate creation of a European judicial system for group action, which was announced over thirty years ago and then successively delayed.

1.9 The EESC expresses its willingness to involve its members in future work in this field, believing that it can contribute the experience of its members, who are particularly well-qualified civil society representatives of the three interest groups represented within the EESC.

2. Background and socio-economic aspects of the proposal

2.1 In the area of business-to-business marketing communication there are basic rules that it is imperative to respect in order to ensure undistorted competition and a functioning market. And if they are not respected voluntarily, then they have to be made compulsory and enforced.

2.2 In this Communication, the Commission puts forward a set of measures to combat certain misleading marketing practices carried out by advertising companies, especially those arising from misleading directory company schemes.

2.3 The purpose is to provide better business protection, especially where SMEs are concerned, namely in relation to practices that consist in directory companies sending unwelcome and unsolicited requests inviting businesses to register or update their details in a business directory, seemingly for free, but in fact subject to subsequent annual charges, which had not been negotiated or previously accepted.

2.4 Having carried out a public consultation, the Commission has announced its intention to strengthen Directive 2006/114/EC concerning misleading and comparative advertising by explicitly banning practices such as concealing the commercial intent of an advertising communication and, at the same time, strengthening cross-border enforcement.

2.5 The Communication further mentions: a) the non-existence of adequate information campaigns on these practices; b) lack of awareness about the appropriate dispute resolution mechanisms, which are inefficient, lengthy, and costly, and offer no guarantee of adequate and timely compensation for the damage incurred; c) the absence of a centralised network to facilitate cooperation between the authorities responsible for monitoring complaints from traders.

2.6 The Commission estimates the financial damage caused by this type of activity at between EUR 1 000 and 5 000 per year for each company concerned.

3. Comments on the content of the Communication

3.1 Substantive aspects

3.1.1 As it has already stated in a previous opinion, the EESC acknowledges that marketing communications in general and advertising in particular, in all its forms, play a major social and economic role, which has been well summarised by the International Advertising Association (IAA), whose viewpoint highlights in particular its role in disseminating innovation, encouraging creativity and entertainment, providing incentives for competition, and extending choice (1).

3.1.1.1 It is clear that some advertising companies act improperly in the way they publicise their products and try to attract their customers. Nevertheless, it is important that the Commission to stress the fact that, although many complaints about misleading practices involve companies carrying out this type of activity, this does not mean that. even in the particular case of directory companies, it is not a legitimate activity which is essential to the economic life of the companies that use them to advertise their activities.

3.1.2 The EESC recognises the relevance and timeliness of this Communication even though it focuses mainly on problems arising from the way directory companies attract customers.

3.1.3 The EESC observes that the Commission is right to emphasise the cross-border nature of this problem and to want to guarantee not only adequate but also efficiently implemented rules and practices that can be monitored, supervised and subject to penalties.

3.1.4 The EESC regrets that the Communication was not preceded by a proper impact assessment. This would have provided more forceful arguments for the options proposed since its cost and benefits have not in fact been clearly identified or evaluated.

3.1.4.1 Furthermore, the impact assessment already announced by the Commission at its stakeholder meeting on 1 March 2013 is belated and, even if at this stage its reach and overall content are unknown, not sufficiently decisive to allow an informed choice.

3.1.5 Furthermore, not only from the pure perspective of legal interpretation but also in terms of more efficient and effective business protection, the EESC is uncertain that the issue at the heart of the Commission's concerns can in fact be framed in the directive the Commission proposes to review.

3.1.5.1 In fact, the practice under consideration is commercial communication in the wider sense; it is not advertising but an aggressive and fraudulent sales tactic, which has to be situated in the much wider context of unfair or abusive trading practices, and even of criminal law.

3.1.5.2 The concept of advertising effectively excludes from its scope any type of communication where the promotion of specific goods or services is not intended or inferred, including communications occurring in commercial relations that do not seek to supply new goods or services.

3.1.5.3 According to Directive 2005/29/EC, a commercial practice is to be regarded as misleading if it contains false information and is therefore untruthful or in any way, including overall presentation, deceives or is likely to deceive the average consumer, even if the information is factually correct, in relation to one or more of the following elements, and in either case causes or is likely to cause them to take a transactional decision that they would not have taken otherwise. In other words, the definition of misleading practices is not restricted to the promotion of products, and can be extended to situations where the promotion of a product is not inferred and to communications occurring in commercial relations.

3.1.6 Furthermore, in its Green Paper on unfair Trading Practices in the Business-To-Business Food and Non-Food Supply Chain in Europe (2), the Commission rightly warns against the risk of conflict and overlap between multiple EU actions targeting the same groups and similar uncoordinated arrangements, generating further confusion during the transposition of legal acts by the Member States (3).

3.1.7 The EESC regrets that the European Commission has not yet held a discussion on the various options, and neither did it raise them during the public consultation, preferring instead to choose an option that could turn out to have fewer advantages for companies, especially SMEs. Since the Commission appears to have already decided which option it intends to adopt next October, as announced, it seems fairly pointless to present an impact assessment featuring five options, when the choice was a foregone conclusion from the start.

3.1.8 In view of the apparent urgency to take an immediate position on the central issue of directory companies, already displayed in earlier EP studies and resolutions, and the estimated magnitude and seriousness of these practices in economic terms at the European level (4), the EESC accepts that the Commission should immediately present a specific legislative proposal on this issue, in order to prevent situations were companies are besieged by constant threats of legal action in foreign jurisdictions, with growing ‘administrative costs’ and constant quasi-threatening telephone calls from debt recovery companies.

3.1.8.1 Furthermore, it is not just SMEs but also professionals, NGOs, libraries, private educational establishments and even some public authority departments who have been the targets of these practices. This is why they must, where appropriate, be included in its scope by extending the concept of ‘trader’ to cover all those who could be targeted by these practices and who are not protected by other legislative instruments.

3.1.9 However, the EESC believes that a more coherent approach would have extended the concept of unfair commercial practices, in the form of misleading and aggressive practices, together with the black list annexed to Directive 2005/29/EC, to business-to-business relations.

3.1.10 Broadening the scope of this directive would have the added advantage of securing better harmonisation since Member States would not have to create new legal or legislative acts to transpose the directive, but only to extend the scope of pre-existing domestic laws on unfair commercial practices. This would have ensured that EU legislation was applied correctly (5).

3.1.11 Furthermore, a mere amendment to Directive 2006/114/EC, along the ambiguous lines suggested by the Commission, will not ensure protection for SMEs in the situations mentioned in the Communication. Apart from the fact that these practices are aggressive and not misleading actions, within the meaning of Directive 2005/29/EC, they stem from previously established commercial relations, and therefore cannot be included in the framework for advertising.

3.1.12 This is why, without prejudice to the point raised in 3.1.8, the EESC argues that the Commission will have to take steps in the near future to adopt a horizontal approach, promoting more consistency in the rules relating to competition law and intellectual and industrial property and ensuring more uniform protection for all commercial practices in the retail market and in all contractual relations between traders, in line with the EP resolution on a more efficient and fairer retail market.

3.1.13 The EESC therefore stresses the need for greater coordination between DG JUST, DG COMP, DG MARKT and DG ENTR with regard to the actions that need to be taken in this area and in future policy and legislative proposals in the follow up to the policy priorities set out in the Small Business Act.

3.1.14 Notwithstanding the foregoing and were the Commission to choose another option, the EESC highlights the need for the concept of ‘most harmful’ misleading marketing practices to be defined in concrete terms and to be specific in its content so that it is clear which commercial practices are deemed to warrant more protection than the rest.

3.1.15 The EESC would equally like the Commission to give a clearer indication of the situations to be added to the ‘black list’, the existence of which it fully endorses, since the list of categorically banned practices should be as precise and as exhaustive as possible. The Commission may already find enough material to prepare the black list in the replies to its investigation and the input of various stakeholders at the meeting held on 1 March 2013 (6).

3.1.16 In this case, the EESC would also like the Commission to consider whether it would be good idea to draw up a grey list of practices that might be illegal under specific circumstances to be assessed in court on a case-by-case basis.

3.1.17 Similarly, the EESC believes that in addition to mere listings, it will also be necessary to strengthen and clarify the meaning of misleading advertising or illegal comparative advertising in a systematic approach in a broad legal framework that ensures that new unfair practices are covered by the revised legislation.

3.1.18 Notwithstanding the point made in 3.1.8, the EESC believes that the legal framework of Directive 2005/29/EC will have to be broadened in good time, mainly to ensure that current protection for consumers is extended and applied equally to some small and micro enterprises, under precise and rigorously defined conditions, when they are in comparable situations, as already happens in the legal systems of some Member States, and as associations and organisations representing these businesses quite rightly demand (7).

3.1.19 In fact, the EESC believes that these are two different aspects of a common situation and that we have every interest in revising Directive 2005/29/EC, in light of the recent assessment of this directive (8), simultaneously and in parallel with Directive 2006/114/EC since they are interconnected and complementary (9).

3.1.20 The nature of these practices and the dealings of offending companies demonstrate the need for a judicial instrument for collective group action, which guarantees efficient reactions and better protection for traders in the settlement of any disputes that could arise, not only to put a stop to these practices (10), but also to ensure adequate damage compensation.

3.2 Formal aspects

3.2.1 The EESC believes that the Commission should clarify the legal basis for these measures at this stage and, more specifically, whether they are solely intended to support the completion of the internal market or for other purposes.

3.2.2 The EESC equally believes that the most appropriate legal instrument for achieving this would be a regulation, in order to ensure more legal certainty and effective harmonisation.

4. Analysis of methodology

4.1 With regard to the proposed calendar, the EESC welcomes the steps set out by the Commission, namely the immediate establishment of a network of authorities to step up enforcement of the misleading and comparative advertising directive, and to share information.

4.2 The EESC also welcomes the establishment of an enforcement cooperation procedure, similar to the one foreseen in Regulation (EC) No 2006/2004 of the European Parliament and of the Council on cooperation between national authorities responsible for the enforcement of consumer protection laws, thereby introducing both mutual assistance obligations between Member States in this area and measures to indentify the enforcement authorities, without prejudice to options involving public-private platforms, such as occurs in the Netherlands, and the extension of cooperation to include stakeholder representative organisations.

4.3 As a result, the EESC suggests following practices in the area of consumer protection (11) and dispute settlement and setting up a European network to assist SMEs in the settlement of cross-border disputes by directing defrauded companies to the most appropriate legal mechanisms.

4.4 The EESC also believes that training, information and good practice sharing activities need to be established for all businesses to alert them to the inherent dangers.

4.5 Furthermore, and mindful of the fact that most misleading practices occur in a digital environment, the EESC believes that it is necessary to promote a more assertive and appropriate approach to the protection of SMEs, bearing in mind the practices of intermediary internet providers and contractual relations arising from platforms such as eBay or platforms designed specifically for commercial transactions between traders.

4.6 The EESC would also add that the Commission will have to take the international dimension of these practices into consideration in the context of its representation to the OECD (12). The EU and its Member States are encouraged to discuss with the OECD the extension of its Guidelines for Protecting Consumers from Fraudulent Commercial Practices Across Borders to include B2B. The EESC suggests that EUROPOL sets up a research project concerning mass-marketing fraud in the EU: the dimension of the financial damages and the number of victims; the role of the biggest cross-border players and the possible investment of profits in other non-legal activities or ventures.

4.7 Lastly, the EESC draws attention to the need for the Commission to come forward with the financial package that is vital if the proposed measures are to be put into practice.

4.8 With regard to future work, the EESC would like to specifically mention its willingness to participate in this work through its representatives, believing that it can contribute the experience of its members, who are particularly well-qualified civil society representatives of the three interest groups represented within the EESC.

Brussels, 22 May 2013. The President of the European Economic and Social Committee Henri MALOSSE

(1) OJ C 351, 15.11.2012, p. 6.

(2) COM(2013) 37 final.

(3) We should also remember the problems that arose in relation to the transposition of Directive 2005/29/EC, which were recognised by the European Parliament (Cf. Stateof play of the Implementation of the provisions on advertising in the unfair commercial practices legislation, IP/A/IMCO/ST/2010-04, PE 440.288).

(4) See data provided by the Netherlands Fraudehelpdesk.nl.

(5) Moreover, in its resolution on unfair commercial practices and misleading advertising the European Parliament had already raised concerns that several Member States had created greater confusion for consumers and businesses by disaggregating the ‘black list’ contained in Annex I to Directive 2005/29/EC in transposing and implementing it in their legal systems.

(6) Examples include:

a) Online transaction practices whereby information about the transaction is not provided in the same manner to all concerned, resulting in discrimination against some of the parties.

b) Online auctions and sales practices (eBay). It has become clear that in such situations it sometimes pays to register as a consumer because this offers a better set of guarantees.

c) Practices involving the presentation of supposedly certified products that have no accreditation whatsoever.

d) Practices whereby companies claiming to belong to a public authority make traders subscribe to a service or buy a product by misleading them into believing that they are complying with tax or safety regulations.

e) Practices involving the transnational sale of goods without prior notice to buyers that after-sales services are not guaranteed outside the country of origin of the product.

f) Practices involving the establishment of comparative websites mainly designed to convince traders to buy a product by presenting it as the most suited to their business profile. In reality, some of these comparative tools, especially in the financial sector, provide no information on the nature of the website or its financing model.

g) ‘Hidden’ digital advertising practices which mainly involve consumers/businesses (usually in the pay of the company) posting answers on social networks encouraging traders to use that company.

h) Practices involving the use of outdated or even non-existent comparative tests.

i) Practices that presuppose a trader's implied consent to buy a product or subscribe to a service.

(7) This corresponds to option 5 in the impact assessment under preparation.

(8) COM(2013) 138 final, 14.3.2013.

(9) Austria is one example of alignment between Directive 2006/114/EC and Directive 2005/29/EC since during transposition, the word ‘consumer’ was replaced with ‘the target of commercial practices’, thereby leaving no doubt that the provisions of Directive 2005/29/EC also applied to relations between traders (Cf. IP/A/IMCO/ST/2010-04, PE 440.288 referred to in footnote 3 above).

(10) It is therefore essential to add the future legislative instrument to the list in Annex I to Directive 2005/29/EC.

(11) http://ec.europa.eu/consumers/ecc/contact_en.htm

(12) The international dimension is shown by the International Mass-Marketing Fraud Working Group (IMMFWG), an independent network consisting of law enforcement, regulatory, and consumer protection agencies from seven countries (Australia, Belgium, Canada, the Netherlands, Nigeria, the United Kingdom and the United States), as well as Europol. It seeks to facilitate the multinational exchange of information and intelligence, the coordination of cross-border operations to detect, disrupt, and apprehend mass-marketing fraud, and the enhancement of public-awareness and public-education measures concerning international mass-marketing fraud schemes Cf. Mass-marketing fraud: a threat assessment, June 2010