Advertising concerning consumers/trading parties, unfair commercial practices
1. Act XLVII of 2008 on the Prohibition of Unfair Commercial Practices against Consumers – (hereinafter referred to as: Fttv.)
1.1. What is unfair?
An unfair commercial practice against consumers may come to light before, during, or after a commercial transaction in relation to a product. Due to the broad interpretation given to “practice”, it encompasses all acts, omissions, representations and commercial communications (including advertising and marketing) made by a trader in direct connection with the promotion, sale or supply of a product to a consumer.
Directive 2005/29/EC on Unfair Commercial Practices (UCP) is implemented through the Fttv. The Fttv. can therefore be seen as representing both the experiences and the general expectation of Member States.
The Fttv. introduced three different types of prohibitions: a general prohibition against unfair commercial practices, specific prohibitions against misleading and aggressive practices and a blacklist of 31 practices that will be deemed unfair in all circumstances.
A commercial practice shall be regarded as misleading if it contains false information or in some way deceives (or is likely to deceive) the average customer, for example, if it indicates a false price or conceals a condition. A commercial practice shall be considered as aggressive if harassment, coercion or undue influence is placed on a consumer, for example if harassing behaviour is applied against consumers over the telephone. The blacklist contains banned practices concerning, for example, false claims about the curative effects of products or false impressions as to free offers.
The resolutions are available on the website of the Hungarian Competition Authority (hereinafter referred to as: GVH) (www.gvh.hu) and you can find more information about prohibitions here. http://www.isitfair.eu/about_hu.html)
There are specific rules dealing with certain markets, for example those involving food products, medicines, dietary supplements and financial services.
1.2. Who is a consumer?
A consumer is a natural person who purchases for personal use. According to the UCP Directive a consumer is “any natural person who is acting for purposes which are outside his trade, business, craft or profession”.
1.3. Which authorities have jurisdiction?
Three different authorities have jurisdiction to apply these regulations, namely the Hungarian Competition Authority (GVH), the Hungarian Consumer Protection Authority (HCPA) and the Hungarian Financial Supervisory Authority (HFSA).
The HCPA and the HFSA act in those cases where the commercial practices in question are not capable of substantially affecting competition. In such cases the HFSA has jurisdiction to proceed in cases of financial infringements and the HCPA has jurisdiction to proceed in all other cases.
The Hungarian Competition Authority shall have jurisdiction to act all cases in which the commercial practices in question are capable of substantially distorting competition by distorting the consumers’ choices. If the unfair commercial practice which is displayed on a label is also reproduced and used on another form of communication, the GVH shall also have the power to declare that an infringement has been committed in connection with the label if it substantially affects competition.
Competition is considered to be substantially affected if for example, an advertisement is carried out through a national media service provider or carried out through a daily newspaper which is distributed in at least three counties (Hungary consists of 19 counties) or if a large number of leaflets have been distributed. However, the essential features of the market are also very important.
The above mentioned rules shall be applied, if special regulations refer to the authorities proceeding according to the Fttv.
1.4. Who does the burden of proof lie with?
The publishing undertaking must be able to verify the authenticity of its statement.
1.5. Who is liable for an infringement?
For any infringement of the Fttv the undertaking responsible for the prohibited commercial practice in connection with the promotion, sale or supply of goods is liable. In certain cases the advertising agency can also be liable for the infringement.
2. Act XLVIII of 2008 on the Basic Requirements and Certain Restrictions of Commercial Advertising Activities – Comparative advertising (hereinafter referred to as: Grt.)
According to the Grt. comparative advertising means advertising that directly or indirectly identifies another enterprise which engages in the same or a similar activity as the advertiser, or of goods manufactured, sold or introduced by such other enterprise for the same or similar purpose as those featured in the advertising. In the absence of this recognition the advertising shall not be qualified as comparative advertising.
An advertising is not only qualified as comparative advertising, if directly – with indicating the name of goods or firm – made the undertaking, which engaged in the same or similar activity, or of goods manufactured, sold or introduced by such undertaking for the same or similar purpose as those featured in the advertising, as identifiable. But it is also qualified as comparative advertising, if in the advertising the advertiser made the same or similar goods as identifiable by consumers and trading parties in a manner representing the general characteristics, such as packaging or cover of goods, which is suitable for recognise the goods of competitor.
Comparative advertising (comparing goods and undertakings) is extremely important for promoting the awareness of consumers and trading-parties. It enables consumers and trading-parties to obtain an appropriate overview of the market without having to collect lots of information. Consequently, this stimulates competition between undertakings on the relevant market. However, “unlawful” comparative advertising may significantly damage the interests of consumers, trading parties and competitors. As a result, undertakings applying comparative advertising should take into account special provisions in addition to the general rules.
2.1. Negative list
- May not injure the reputation of another company or the name, merchandise, brand name or other markings of an undertaking;
- May not create confusion between the advertiser and another undertaking that is engaged in the same or a similar activity as that of the advertiser, or between the advertiser’s trade names, goods, designations of goods or other distinguishing marks and those of another undertaking;
- May not create an unfair advantage resulting from the exploitation of the reputation of another undertaking’s trade names, goods, designation of goods or other distinguishing marks;
- May not infringe the prohibition of the imitation of goods, or the characteristics of goods of another undertaking.
2.2. Positive list
Comparative advertising is only permissible if it meets the following conditions:
- it only compares goods which are intended for the same purpose or which meet the same needs;
Comparative advertising shall compare pairs of products, thus suggesting that the products in question must have a high level of substitutability to consumers and trading partners. The requirement of substitutability means that a competitive relationship must exist between the undertaking applying the comparative advertising and the undertaking made identifiable in the advertising.
- Shall objectively compare one or more features of the goods in question which are definitive and typical, and which can be confirmed. There are two elements of the objectivity requirement:
- one or more material, relevant, representative and verifiable features of the goods must be compared,
- on the other hand such advertising must compare objectively one or more essential, relevant, verifiable and representative features of the goods and/or services. The comparison made in the advertisement must relate to objectively observable characteristics, not to attributes which may be a matter of subjective tastes or preferences.
- Where there is a comparison of the prices of the good, this comparison shall be represented objectively;
- Comparing products with designation of origin, it relates in each case to products with the same designation; thus in connection with comparative advertising it is required to take into consideration the protection of geographical indications and designations of origin for agricultural products and foodstuffs. A comparative advertising with the aim of advertising products with designation of origin is allowed, if it relates in each case to products with the same designation of origin. Enhanced awareness is required if the advertising aiming to compare product with designation of origin to product without designation of origin.
2.3. Misleading comparative advertising
A further condition of comparative advertising is that it must not be in any way misleading. Consequently, comparative advertising is only permissible if the conditions listed above in the positive and negative lists are met and if the comparative advertising in question is not misleading under the provisions of the Fttv. or the Grt.
2.4. Rules of jurisdiction
The Court has the power to proceed against any comparative advertising of an undertaking that falls within the negative list stated above. The GVH has the power to establish an infringement if the comparative advertising of an undertaking does not meet the requirements contained in the positive list stated above.
3. Unfair commercial practices against trading parties
It is prohibited to unfairly manipulate the business decisions of trading parties and to apply misleading practices against them.
3.1. Rules of the Competition Act
The above mentioned conducts are prohibited by the Hungarian Competition Act (GVH), except misleading advertising, which is dealt with by the Advertising Act.
The decisions of the GVH (the Hungarian Competition Authority - GVH) are available here.
3.2. Rules of the Advertising Act
It is prohibited to disseminate misleading advertising – but the provisions of the Advertising Act are only applicable if the advertisement is exclusively aimed at trading partners.
4. Sanction, execution
If an undertaking is found by the GVH to have violated the requirements of the Fttv., the Grt., or the Advertising Act it will face several possible sanctions. If the undertaking then fails to voluntarily comply with the decision of the GVH, the GVH can use all the means at its disposal to enforce the decision. The undertaking must also take into consideration the fact that the investigation and procedure of the GVH shall not prevent a civil law claim being made by the injured party before a civil law court.
The most frequently applied sanction against undertakings for violating the provisions of GVH is a fine. The imposition of a fine acts to deter the undertaking from continuing the infringement and to deter other undertakings from committing an infringement.
4.1.1. Rules for imposing a fine
According to the GVH, the maximum fine shall not exceed ten per cent of the net turnover achieved by the undertaking in the business year preceding that in which the decision establishing the violation is made against the undertaking. Where no information which can be considered as authentic can be obtained on the net turnover achieved by the undertaking in the business year preceding that in which the decision establishing the violation is made against the undertaking, the last business year with an authentic annual closing shall be taken into consideration when determining the maximum fine.
The amount of the fine shall be established with all the circumstances of the case taken into account, in particular the gravity of the violation, the duration of the unlawful situation, the benefit gained by the infringement, the market positions of the parties violating the law, the imputability of the conduct, the effective cooperation by the undertaking during the procedure and the repeated display of unlawful conduct. In accordance with the provisions of the GVH, the gravity of the violation shall be established, in particular, on the basis of the threat to economic competition and the range and extent of the harm caused to the interests of consumers and trading parties.
If the undertaking violating the law is a member of a group of undertakings and that group of undertakings is identified in the decision of the GVH, the maximum fine imposed shall not exceed ten per cent of the total net turnover achieved by the undertakings in the business year preceding that in which the decision establishing the violation is made.
4.1.2. Notice of fine
The President of the GVH, together with the Chair of the Competition Council, issued a notice on the method of setting fines in cases related to unfair business-to-consumer commercial practices. Based on the notice, the following should be emphasised:
- in the course of calculating the amount of the fine being imposed, the GVH considers the costs incurred with the dissemination of the commercial communication (e. g. costs of advertising in print media). If the communication costs do not serve as a relevant basis, the GVH takes into account certain per cent of sales returns of the products concerned in the infringement,
- as the next step mitigating and aggravating circumstances are to be considered (for example if the undertaking targets consumers with health problems with its commercial practice this is considered as an aggravating circumstance
- as the third step, the GVH evaluates whether the amount of the fine calculated in accordance with the above serves as a sufficient deterrent. If the undertaking is qualified as recidivist, namely if it has previously been established that the undertaking has applied unfair commercial practices in its business to business and business to consumers relations or has applied unlawful comparative advertising,
- finally, the fine must not exceed the legal maximum of ten per cent of the net turnover achieved by the undertaking in the preceding business year.
4.2. Publicity of the decision, publication of press release
In order to appropriately inform both consumers and trading parties, the GVH may publish and make available on its website information related to the initiation of the proceeding and, its decision establishing the infringement. It may also issue a press release about the established unlawful conduct and the undertaking in violation of the law.
Moreover, the undertaking may be obliged by the GVH to publish a corrective statement in respect of the unlawful information. In such a case, the content, the publication time and place (daily paper, website etc.) and the form of the corrective statement is also defined by the GVH.
4.3. Prohibition of the continued violation by the infringer
In addition to establishing the unlawful conduct and setting a fine, the GVH may prohibit the continuation of the unlawful conduct.
If the GVH has imposed a fine on the undertaking and the undertaking has failed to pay the fine by the date indicated in the resolution, the GVH may order the enforcement of the resolution. In case a group of undertakings is obliged to pay the fine and none of the members of the group has voluntarily carried out the obligation, the GVH shall by a separate order jointly and severally oblige the members of the group of undertakings concerned and identified in the original resolution to pay the fine or part thereof which has not been collected.
The enforcement procedure may also be initiated if the undertaking which is obliged to perform a certain act or to display a certain conduct (e. g. publication of corrective statement) by the resolution has failed to fulfil its obligation. In this case, the GVH may impose an enforcement fine, which shall not exceed 50000 HUF per day. On one occasion, upon a reasoned application of the obligee, the GVH may extend the time limit for voluntary compliance, raising at the same time the daily rate of the enforcement fine to no more than 100000 HUF per day. In the absence of performance, the GVH may make certain act being carried out on the charge and risk of the undertaking subject to the decision.
The enforcement fine may be imposed at the same time on both an undertaking and its manager.
The GVH shall contact the tax authority (NAV) immediately after the opening of the enforcement procedure for the recovery of any financial penalty unpaid by the due date, including past due enforcement penalties, together with any outstanding default interest charged on such unpaid penalties.
5.1. Rules of commitment decisions
The purpose of commitments is to enable an undertaking which is willing to correct its conduct in accordance with the requirements of the GVH to do so. This enables the procedure to be terminated in a manner which is flexible, advantageous and practical for both the parties and the consumers.
If an undertaking under procedure offers commitments which are capable of ensuring compliance with competition law and these commitments also effectively safeguard the public interest, then the competition council proceeding in the case may by an order make these commitments binding on the parties, terminating at the same time the proceeding, The order accepting the commitments, prescribing their performance and terminating the proceedings, shall not establish whether or not there has been or still is an infringement.
The application of commitment order ensures that unlawful conducts are eliminated in the most efficient manner. Such order may also serve as guideline to other market operators, and it may have further advantages since the undertaking may accept more obligations than the GVH could have extorted in regular course of the procedure finishing it with a decision establishing the infringement, and commitments are results of the considerations of the undertaking (and not the established findings of the GVH).
5.2. Notice on Commitment
After a public consultation, the President of the Hungarian Competition Authority, together with the Chair of the Competition Council, published Notice No 3/2012 on commitment orders accepted in proceedings initiated upon alleged violations of prohibition of unfair business-to-consumers practices.
The Notice explains in detail the function of commitments, the conditions upon which they can be submitted, the information related to their content, the circumstances supporting or undermining the acceptance of commitments by order, and the sanctions and the scope of activity of the GVH in case of non-performance of commitments.
The Notice is available here.
Post investigations shall be conducted in order to check the undertakings’ compliance with the commitments in all cases in which the procedures where terminated due to orders making the commitments binding.
Furthermore, the investigator may hold a post-investigation in any case concluded by the decision of the competition council.
The provisions of the competition supervision proceedings shall apply mutatis mutandis to the post- investigation.
After the conclusion of a post-investigation, the Competition Council may decide as follows:
- if the original case was terminated by an order as a result of commitments, the Competition Council may terminate the post-investigation by an order if the commitments have been fulfilled;
- if the original case was terminated by an order as a result of commitments but the undertakings have failed to comply with the commitments, the Competition Council may impose a fine;
- if the original case was finished by the decision on the merits setting up obligations by the Hungarian Competition Authority, the Competition Council may terminate by an order the post-investigation in cases where the obligations provided for in the decision of the proceeding competition council have been fulfilled
- if the original case was finished by the decision on the merits setting up obligations by the Hungarian Competition Authority and the obligees failed to perform the obligations, the Competition Council may terminate the post-investigation by an order and may order that the decision is enforced in the absence of compliance.
7. Self-control list
What do we need to be aware of if we want to advertise our products or services to consumers or business partners?
The most common questions:
- Is there evidence to support the statement at the time the advertisement is issued?
- Is there any scientific evidence which supports the claim that the product has medicinal effects?
- Is there a specific prohibition on publishing the statement? For example does the advertisement claim how much weight one can lose or how fast? Or does it attribute medicinal effects to food products?
- Is there a sufficient supply before announcing discounts? Was the non-discount price shown in the advertisement actually used? Was the discounted price available for a reasonable period of time (not only for 1-2 days)?
- Is the advertisement legible? Can all information be read in all cases, even “minuscules”?
- If there are supplementary conditions, do they significantly modify the promised price or discount?
- Is the “good” price widely accessible, or is it only available to a small circle of consumers?
- Are the dates shown for when the discount price begins and when it ends?
- Can the “cheapest” price or other priority claim be proven? For example if there is no former price or that of a competitor shown, can it still be verified by everyone?
- If the offer is “free”, are there really no supplementary fees?