Greater transparency for consumers in online purchases

The planned changes to the Law against Unfair Competition (UWG) to transpose the Omnibus Directive.

With the adoption of the so-called “Omnibus Directive”, the European legislator has also provided for extensive amendments to the Directive 2005/29/EC on Unfair Commercial Practices. These changes address, for example, the transparency of searches on online comparison sites or the authenticity of customer reviews on online sales platforms. They also aim to increase the effectiveness of sanction mechanisms for breaches of consumer protection rules. The recently published draft bill of the Federal Ministry of Justice and Consumer Protection tackles these changes required by the Omnibus Directive by amending the UWG. The Ministry considers these amendments as an opportunity to regulate a further transparency aspect which has frequently preoccupied German courts in recent years: The possible commercial activities of bloggers/influencers in favour of the“supported” companies.

 

Background of the current reform project

On 7 January 2020 the so-called “Omnibus Directive” (EU) 2019/2161 of the European Commission came into force. Member States have until 28 November 2021 to transpose it into national law. The Omnibus Directive is part of the European Commission’s “New Deal for Consumers” initiative, which was adopted at the beginning of 2018, and serves to implement amendments to a total of four directives, namely the Unfair Commercial Practices Directive (“UCP Directive” 2005/29/EC), the Directive on Consumer Rights (2011/83/EU), the Directive on Unfair Contract Terms (93/13/EEC) and the Directive on Price Indication (98/6/EU).

On 4 November 2020, the Federal Ministry of Justice and Consumer Protection published a first draft bill on an “Act to Strengthen Consumer Protection in Competition and Trade Law”, which aims at implementing the provisions of the Omnibus Directive concerning the UCP Directive into national law. The resulting amendments mainly concern the German UWG. In particular, these amendments strive for a more effective sanctioning of cross-border infringements of consumer protection rules, the access of consumers to adequate and effective redress and the improvement of transparency in online trading. Above all, the transparency requirements with regard to customer reviews and rankings will trigger a need for action among online traders. In addition, the Ministry has taken the opportunity to include in the amendments to the UWG regulations concerning the legal treatment of bloggers and influencers.

The most important changes of the draft bill (“UWG-E”) are set out below:

 

Ranking transparency

The amendments to the UWG are intended in particular to regulate the so-called “ranking”. This refers to the mechanism that determines which results are displayed to the consumer in which order when searching online marketplaces or comparison sites. When searching for an offer on an online marketplace or a price comparison site, many consumers regularly only look at the first results. According to the EU Commission, it is therefore important that consumers know what criteria are used to sort and display the offers and whether an offer was placed on the basis of paid advertising. The draft bill has now essentially taken over the requirements of the Omnibus Directive:

  • Operators of online marketplaces or other comparison sites will in future be obliged to inform consumers about the criteria for determining the ranking and the weighting of these parameters in comparison with other parameters (Section 5b (2) sentence 1 UWG-E). This information is to be made easily accessible to the consumer when the search results are displayed.
  • Rankings in search results must not be influenced by hidden advertising or hidden payments (No. 11 lit. a of the Annex to Section 3 (3) UWG-E). Platform providers must therefore clearly indicate when the sorting of search results is based on payments received from traders. This approach complements the objectives pursued by the so-called “platform-to-business” Regulation (EU) 2019/1150 on the protection of commercial users of online intermediary services. In this respect, the transparency requirements of the UWG-E do not apply to online search engines within the meaning of that Regulation. Such transparency requirements are already laid down in that Regulation with regard to ranking.

If this essential information is missing, this constitutes a relevant misleading omission in the sense of Section 5a (1) UWG-E according to the concept of the draft bill.

 

Verification of customer reviews

Consumers increasingly base their purchasing decisions on reviews and recommendations from other consumers, which is also recognised by the Omnibus Directive. Where traders make such consumer reviews available, they are now subject to additional transparency requirements:

  • The draft bill provides that, in the case of published consumer reviews, businesses must provide information on whether and how they ensure that the reviews actually come from consumers (Section 5b (3) UWG-E).
  • The ban on making or commissioning fake consumer reviews is actually a matter of course. This prohibition is now provided for in the list in the Annex to Section 3(3) UWG-E as a so-called “hardcore restriction”, which must in any case be regarded as unfair (No 23 lit. c Annex to Section 3(3) UWG-E).
  • In addition, it is per se unfair in future to claim that consumer reviews are authentic because the product or service being reviewed has actually been purchased or used by the consumer without appropriate and proportionate measures having been taken to verify whether the reviews actually originate from such consumers (No. 23 lit. b Annex to Section 3(3) UWG-E). The requirement of “reasonable and proportionate measures” is conceivably vague. In any case, it would not be immediately clear to the platforms what steps they must take. This is of course all the more serious because a platform provider must be accused of unfair conduct within the meaning of this “hardcore restriction” if these rather vague requirements are violated.
  • In addition, it should be noted in connection with the list in the Annex to Section 3(3) of the UWG that an infringement should be subject to a fine if it is a so-called “widespread infringement” or a “widespread infringement with a Union dimension” within the meaning of Regulation (EU) 2017/2394 (Section 5c UWG-E). Due to the vagueness of these requirements of “appropriate and proportionate measures”, the application of a framework for fines could in any case be critical for reasons of the rule of law, but this could ultimately become a matter for the courts to assess the legality of this sanction.
  • If No. 23 lit. b Annex to Section 3(3) UWG-E is adopted in this way, companies will have to consider in future explicitly clarifying that the authenticity of the reviews is not checked. This is because the UWG-E does not require such a check to be carried out. However, it is obvious that this does not seem particularly interesting for companies, at least from a marketing point of view. However, such clarification avoids the sometimes difficult question of interpretation as to whether the measures taken are sufficient or whether one must already be accused of a violation of No. 23 lit. b Annex to Section 3(3) UWG-E.

 

Fines/compensation claims by consumers

The European legislator obviously considered that the current penalties imposed by Member States for breaches of consumer protection rules have not been sufficiently dissuasive. One of the sanction mechanisms that the European Commission seems to prefer is the fine for a so-called “widespread infringement” or a “widespread infringement with a Union dimension” within the meaning of Regulation (EU) 2017/2394. The competent national consumer protection authorities would be empowered to impose a fine of up to 4% of the company’s annual turnover. If information on turnover is not available, a fine of up to €2 million may be imposed. Member States are also free to introduce higher maximum fines or to maintain existing higher fines. These fine requirements have now been implemented in the draft bill in Sections 5c, 19 UWG-E. According to these provisions, the infringement is to be punishable by a fine of up to € 100,000; the higher fines mentioned above are also possible.

The sanctioning of consumer protection provisions in the German UWG by means of fines is currently the rare exception and only provided for in the case of illegal direct marketing to consumers by telephone or automatic calling machines without the necessary consent, cf Section 20 UWG. It will become apparent in the further course of the possible application of these new provisions on fines whether the “coordinated” action of several consumer protection authorities is conducive in practice to the enforcement of fines in the case of cross-border infringements where the Directive appears to consider the collective interests of consumers to be particularly vulnerable.

In addition, Section 9(2) of the UWG-E provides for damage claims in favour of consumers. Here, too, practical implementation will show whether there is a need for such damage claims in addition to the general civil law claims that already exist.

 

Legal framework for bloggers/influencers

Section 5a (4) sentence 2 UWG-E now clarifies that in the case of an act solely for the benefit of an external company, a commercial purpose can only be assumed if the blogger receives a remuneration or similar consideration from the external “sponsoring” company. According to the official reasoning of the draft bill, this clarification is intended to establish a secure legal framework for the activity of bloggers and influencers whose alleged commercial activity has most recently been the subject of legal scrutiny. However, it seems questionable whether the concept of “similar consideration” actually removes any ambiguity. According to the official reasoning, this term should cover commissions, products sent to the blogger and which the blogger is allowed to keep, press trips, provision of equipment or coverage of travel costs. As a result, the activity of the blogger may not give rise to any advantage whatsoever, with the exception that the blogger’s own reputation is increased as a result of the “promotion”. According to the official reasoning, the blogger is obliged to prove that he/she has carried out his/her activity completely freely and without remuneration. As examples of this proof, the official reasoning mentions, for example, a confirmation of the company or an affidavit of the blogger.

 

Outlook

The usual consultation procedure will now be followed by the companies and interest groups concerned, who will be able to submit their comments on this draft bill. Due to the numerous, quite far-reaching obligations, a “headwind” against the current state of the draft bill is to be expected. It remains interesting to see in what form the “Act to Strengthen Consumer Protection in Competition and Trade Law” will finally be passed as a law.