Regulating Comparative Advertising in the European Community

ABSTRACT - According to a recent Commission proposal for a an EEC Council Directive comparative advertising should be allowed provided it objectively compares the material, relevant, verifiable and fairly chosen features of competing goods or services and that it does not mislead, cause confusion or denigrate a competitor. Although in many a Member State the law as it stands does not (yet) permit comparative advertising, cross-border comparative advertisments originating in a Member State where they are indeed lawful will often have to be accepted on the territory of other Member States by virtue of the case law of the European Court of Justice regarding the free movement of goods and services. The principle of mutual recognition underlying this approach is also characteristic for the Broadcast Directive which had to be implemented before Ocotober 3rd 1991. It is submitted that in view of this case law and the latter Directive the importance of the proposed Directive on comparative advertising should not be overestimated. Moreover the proposed Directive does not address the important issue of price comparisons.

Citation:

Jules Stuyck (1993) ,"Regulating Comparative Advertising in the European Community", in E - European Advances in Consumer Research Volume 1, eds. W. Fred Van Raaij and Gary J. Bamossy, Provo, UT : Association for Consumer Research, Pages: 565-568.

European Advances in Consumer Research Volume 1, 1993      Pages 565-568

REGULATING COMPARATIVE ADVERTISING IN THE EUROPEAN COMMUNITY

Jules Stuyck, Catholic University of Leuven, Belgium

ABSTRACT -

According to a recent Commission proposal for a an EEC Council Directive comparative advertising should be allowed provided it objectively compares the material, relevant, verifiable and fairly chosen features of competing goods or services and that it does not mislead, cause confusion or denigrate a competitor. Although in many a Member State the law as it stands does not (yet) permit comparative advertising, cross-border comparative advertisments originating in a Member State where they are indeed lawful will often have to be accepted on the territory of other Member States by virtue of the case law of the European Court of Justice regarding the free movement of goods and services. The principle of mutual recognition underlying this approach is also characteristic for the Broadcast Directive which had to be implemented before Ocotober 3rd 1991. It is submitted that in view of this case law and the latter Directive the importance of the proposed Directive on comparative advertising should not be overestimated. Moreover the proposed Directive does not address the important issue of price comparisons.

INTRODUCTION

This paper discusses the influence of EEC law on the legality of comparative advertising in the EC Member States. The Member States have indeed very different traditions with respect to both the degree of toleration of this form of advertising and the nature of the rules which govern the phenomenon.

Comparative advertising is a good example of the two different forms of integration in the EC which are or can be achieved by legal rules, i.e. "positive integration" where common rules (mostly directives) are adopted at the Community level and "negative integration" where national rules are declared incompatible with the Common Market by the Court of Justice.

I will not go into the debate whether comparative advertising benefits the consumer or not. The arguments pro and con are well known and have been developed elsewhere. Let me just say that the fact that the absence of evidence that a specific form of advertising gives relevant information to the consumer is not a sufficient reason to ban it. Where a form of comparative advertising is not detrimental to consumers or unfair to competitors it should not be prohibited.

First I shall briefly describe the status of comparative advertising in the Member States. Then I shall explain how the effectiveness of strict national prohibitions on comparative advertising is affected by the case law of the European Court of Justice regarding the free movement of goods and the free provision of services. Third I shall discuss the proposed Directive on comparative advertising the aim of which is to harmonise the law of the Member States. Fourth I shall indicate that for cross-border broadcast advertising within the Community only the law of the Member State where the broadcaster is situated applies, thereby making stricter rules in the Member State where the programmes are received ineffective. Finally I shall conclude with some critical comments on the proposed Directive.

1. The status of comparative advertising in the EC Member States

In his comparative study of comparative advertising in the EEC made in 1986 Bernard Francq (FRANCQ 1986) divided the Member States into three groups: (i) countries where comparative advertising was prohibited with (very) few exceptions: Belgium, France, Italy, Luxemburg and Germany; (ii) countries where comparative advertising was basically authorised, but could be prohibited if it was misleading or unfair (e.g. by causing confusion): Denmark, Ireland, Portugal and the United Kingdom; (iii) countries without an express statutory provision on comparative advertising and which take an intermediary position between the two first groups of countries by virtue of the fact that case law (based on general provisons relating e.g. to unfair competition) evolves from a system of prohibition to a system of authorisation: Spain, Greece and the Netherlands.

This classification probably still holds, [Note that in Belgium the recent Trade Practices and Consumer Protection Act 1991, entered into force on 29 February 1992, has maintained the very strict regime of the Trade Practices Act 1971 (on this new act see: Stuyck & Wytinck, 1992); note also that in the Netherlands case law is further developing in the sense of a more liberal attitude towards comparative advertising (see VERKADE, 1992).] with one exception. In France the Consumer Protection Act 1992 [Loi n 92-60 du 18 janvier 1992 renforcant le protection des consommateurs, J.O. 21 Janurary 1992.] has reversed France's traditional position vis-a-vis comparative advertising. From now on comparative advertising is authorised if certain conditions are fulfilled, i.e. that it is (i) fair (i.e. not denigrating), true and not misleading, (ii) that it is limited to an objective comparison between essential, significant, relevant and verifiable characteristics of goods or services of the same nature which are available in the market place, (iii) that when the comparison relates to prices, the products are identical, they are sold in comparable conditions and the advertisement mentions the time during which the advertiser maintains his own prices; (iv) that the comparison shall not have as its principal aim to take advantage of the notoriety of a trade mark and it shall not present the products or the services as the imitation of branded products or services; (v) that the comparisons shall not be made on the packages of the products, the invoices, the transport documents, the means of payement or admission tickets to public shows or public places (such as libraries, musea, ...), (vi) that the advertiser is able to substantiate the claims and that before any circulation of the advertisement he communicates it to the sellers referred to. [This obligation should enable the seller referred to to react by way of advertising or to obtain interim measures from the court where the advertisement of his competitor does not comply with the conditions set out hereabove.] While the conditions set out under (i), (ii), (iv) and the first part of (vi) (substantation) seem to be in line with the proposed Directive (see hereinafter) and (iii) may be considered as a concretisation of (ii), doubts on the compatibility with the proposed Directice may be expressed as to (v) (no comparisons on the packages etc..) and the second part of (vi)(obligation to warn the person referred to). [See herinafter, section 3.]

2. The case law on free movement

The basic objective of the EEC Treaty is the establishment of a common market [See Articles 2 and 3; the Single European Act, which entered into force on 1 July 1987, has inserted an Article 8A in the Treaty defining the internal market (i.e., the internal aspect of the common market) as an area without frontiers where the free movement of goods, services, persons and capital is ensured.] which is based on the free movement of goods, persons, services and capital.

These four freedoms are guaranteed by two sets of rules.

(a) The first set of rules consists of directly effective Treaty provisions, i.e. Treaty provisions which can be invoked by private individuals before national Courts. If the application of a national law or regulation is incompatible with the principle as laid down in such a directly effective Treaty provision, [on direct effect see J. Stuyck & P. Wytinck, 1991.] the national court must disregard that national law or regulation: Community law has precedence over national law [C.J.E.C., Case 26/62, Van Gend & Loos, Judgment of 5 February 1963, (1963) E.C.R.1.]. With regard to the free movement of goods [See Articles 30 to 36 of the EEC Treaty.] and the free movement of services [See Articles 59-66 of the EEC Treaty.] the case law of the Court of Justice is now well established [C.J.E.C., Cae 120/78, Rewe Zentral AG v. Bundesmonopolverwaltung f_u Branntwein, Judgment of ..February 1979, (1979) E.C.R. 649 (on the free movement of goods); C.J.E.C., Case C-76/90, S_ger v. Dennemeyer & Co Ltd, Judgment of 25 July 1991, not yet reported (on the free movement of services).] in the sense that in the absence of common rules, obstacles to free movement within the Community resulting from disparities between the national laws [If domestic products and imported products (respectively services offered by a person established in the Member State concerned and services offered by persons established in other Member States) are treated in a different way, a justification will only be found exceptionally on the ground of public policy, public security, public morality and the other grounds mentioned in article 36.] must be accepted only in so far as such rules may be recognized as being necessary in order to satisfy mandatory requirements relating to the general interest, i.a. consumer protection and fairness in commercial transactions. The doctrine developed by the European Court is best known as the "rule of reason" or "mandatory requirements rule" or the "Cassis de Dijon" [the name under which the landmark judgment in Case 120/78 Rewe (see note 7) and relating to the famous fruit loquor is known.] doctrine. A national measure of consumer protection is only necessary within the meaning of this doctrine and thus allowed if the same objective cannot be achieved by a measure which is less restrictive for interstate trade (proportionality requirement).

In its GB-Inno-BM Judgment of 7 March 1990 [C.J.E.C., 7 March 1990, case C-362/88, GB-INNO-BM v. Confederation du Commerce luxembourgeois, (1990) E.C.R. I-667.] the Court ruled that under Articles 30 and 36 of the Treaty, properly interpreted, an advertising campaign lawfully conducted in another Member State cannot be made subject to national legislation prohibiting the inclusion, in advertisemnts relating to a special purchase offer, of a statement showing the duration of the offer and the previous price. Particularly important for the appraisal of restrictions on comparative advertising are the reasons for this ruling. The Court, referring to the EEC programmes for a consumer protection and information policy, [First programme, see: (1975) O.J.C. 92/1; Second programme, see: (1981) O.J. 133/1; confirmed by Council Resolution of 23 June 1986, (1986) O.J.C. 167/1.] stressed that Community law on consumer protection considers consumer information as one of the main requirements. Therefore Article 30 of the Treaty (prohibiting national measures impeding interstate trade) should not be interpreted in such a way as to imply that national legislation denying consumers access to certain information could be justified by mandatory requirements relating to consumer protection.

It is submitted that the GB-INNO-BM Judgment prevents a Member State from applying to advertisements made by firms established in another Member State a prohibition on comparative advertising where the advertisement complies with the less strict prohibition existing in the Member State of establishment (e.g. mail order or retail stores attracting consumers residing in other Member States or firms selling their products in different member States and advertising throughout the Community).

(b) The second set of rules consists of powers conferred on the Council to adopt harmonisation directives aimed at the removal of disparities. [see Articles 100 and 100A of the EEC Treaty.]

As explained before, the free movement provisions of the Treaty (in particular Articles 30 and 59) allow Member States to apply national rules in cross-border situations where these rules can be justified in the general interest, such as the protection of the consumer or fairness in commercial transactions. In these cases the disparities between Member States are not removed by the mere application of the Treaty rules. In such cases an intervention by the Community legislator seems necessary to ensure the achievement of the principles of a single market characterised not only by the absence of trade barriers but also of unequal conditions of competition. A way to create equal conditions of competition throughout the Community is to harmonise national laws at the Community level. [The '1992' programme, as contained in the Commission's White Paper on 'Completing the Internal market' of 1985, provided for the adoption of nearly 300 Council directives before the end of 1992. At the beginning of 1992 the major part of this programme was achieved. These directives can be adopted by the Council with a qualified majority, provided the European Parliament does not reject he Council's 'Common Position' adopted on the basis of a proposal from the Commission (see Articles 100A and 149(2) of the Treaty).]

3. The proposed directive on comparative advertising

As early as the sixties the Commission had plans to harmonise the laws of the Member States in the area of unfair competition (including advertising regulations and laws relating to special forms of sales promotion)(HENNING-BODEWIG, 1988). In 1975 the ambitious project resulted in a proposal for a Council Directive on misleading and unfair advertising. Eventually the Council adopted Directive 84/450/EEC of 10 September 1984 relating to the approximation of the laws, regulations and administrative provisions of the Member States concerning misleading advertising. [(1984) O.J. L 250/17.] The recitals to that Directive stated that at a second stage, as far as necessary, comparative advertising should be dealt with, on the basis of appropriate Commission proposals. The prospect of regulating "unfair advertising" (e.g. advertising appealing to sentiments of fear, promoting social or religious discrimination, exploiting the trust, credulity or lack of experience of the consumer, etc.) [See the drafts of 1977 and 1978, discussed by HENNING-BODEWIG, F. (1988), note 17, at 230-231.] abandoned, although elements can be found in the broadcast directive (see hereinafter).

On 28 May 1991 the Commission submitted a proposal for a Council Directive concerning comparative advertising and amending Directive 84/450/EEC concerning misleading advertising.

The central provision of the proposal is Article 3a, reading:

"1. Comparative advertising shall be allowed, provided that it objectively compares the material, relevant, verifiable and fairly chosen features of competing goods or services and that it:

(a) does not mislead;

(b) does not cause confusion in the market place between the advertiser and a competitor or between the advertiser's trade marks, trade names, goods services or activities or aim principally to capitalize on the reputation of a trade mark or trade name of a competitor.

(c) does not discredit, denigrate or bring contempt on a competitor or his trade marks, trade names, goods, services or activities or aim principally to capitalize on the reputation of a trade mark or trade name of a competitor.

2. Reference to or reproduction of the results of comparative tests on goods or services carried out by third parties shall be permitted in advertising only if the person who has carried out the test gives his express consent. In such cases the advertiser shall accept responsibility for the test as if it had been performed by himself or under his direction".

If the Directive is adopted the Member States will have to adopt their legislation to the rules it contains. If the second paragraph relating to advertising with the results of comparartive tests may be disregarded here, the implementation of the proposed directive means that throughout the Community the same rules on comparative advertising would apply. Countries with a prohibition regime will then have to abandon it not only in transborder situations, as results from the case law of the Court of Justice discussed herabove, but also in purely internal situations. Only then will the Community constitute a real single market for comparative advertising. However it will be shown hereinafter that the Directive leaves room for disparities in interpretation and therefore will not establish a truly single advertising market.

4. The Broadcast Advertising Directive

The doctrine developed by the Court in GB-Inno-BM is important for all other forms of advertising than broadcast advertising. For cross-border broadcast advertising the Television Directive [Council Directive of 3 October 1989 on the coordination of certain provisions laid down by law, regulation or administrative action in Member States concerning the pursuit of television broadcasting activities, (1989) O.J.L. 298/23 (this Directive had to be implemented by the Member States not later than 3 October 1991).] has indeed expressly provided for a system of home state control. Member States have to ensure freedom of reception of television broadcasts from other member States. The responsibility to verify that broadcasts comply with national advertsing laws as coordinated by the Directive (tobacco and alcohol advertising, protection of minors, rules on prersentation of advertising, on sponsoring, etc.) lies exclusively with the originating Member State.

In other words if an advertisement complies with the rules of the home Member State the Member State where the programmes are received, directly or via cable, cannot impose stricter rules. However Member States are not prevented from imposing stricter rules, e.g. a prohibition of comparative advertising, on programmes broadcasted on their territory. For this reason the proposed Directive on comparartive advertising is also significant for broadcast advertising.

5. Some concluding remarks

It is submitted that the proposed Directive on comparative advertising, if properly interpreted, will bring an important change in the status of comparative advertising in those Member States, like Belgium, Luxemburg, Italy or Germany where the law as it stands still fundamentally prohibits comparative advertising, but that the change will be far from dramatic.

Although in the proposed Directive comparative advertising is only permitted under strict conditions of objectivity, an important form of comparison, now absolutely or virtually impossible in those Member States should heneceforth be allowed: material comparisons with competing brands. It must be recognized though that the courts in the Member States where comparison advertising was traditionally prohibited might be inclined to be very strict when verifying whether the conditions of Article 3a of the Directive are fulfilled. More in particular they might consider that a comparison in an advertisement is necessarily denigrating the competitor and should therefore be prohibited as provided for in Article 3a(c). However it is submitted that in view of the basic principle developed by the Court in GB Inno BM, to the effect that the consumer should not be denied access to information, the Court of Justice would, when called upon to interpret the Directive, [In a preliminary reference on the basis of Article 177 of the Treaty.] probably reject an interpretation which would empty the basic authorisation of comparartive advertising of its meaning.

This discussion however leaves us with the feeling that the Directive will give rise to a lot of uncertainty as to its interpretation. At the same time the Directive leaves the door open for disparities as long as the Court of Justice has not decided on a particular question.

An important point on which the Directive is absolutely unclear is the status of price comparisons for identical products, e.g. by retail stores, i.e. a type of comparison which has recently been allowed by the French Supreme Court [Cass. comm. 22 July 1986,...] and is now expressly authorized by the new French Consumer Protection Act. The Directive only authorizes comparisons between "competing goods". A literal interpretation excludes comparisons between the prices of the same goods offered by different persons.

Criticism may also be raised about Article 7(2). Here it is provided that the right which the Member States retain to adopt provisions with a view to ensuring more extensive protection in the field of misleading advertising, does not apply to comparative advertising. The rationale of this provision is obviously to avoid that Member States would continue to prohibit comparative advertising in cases where the Directive authorises it, by claiming that the prohibition is necessary for the protection of consumers or fairness in commercial transactions. It may however not always be easy to determine whether a provision of national law ensures a "more extensive protection" within the meaning of the Directive. Can France e.g. (see the new Consumer Protection Act 1992, discussed hereabove), while allowing comparative advertising in the cases mentioned in Article 3a of the Directive, impose the duty to inform the competitor in advance? This measure will undoubtedly have a deterrent effect on advertisers.

Finally it may be wondered whether the approach consisting in trying to harmonise laws which are very different and where the application is secured case by case by national courts, was the right one. Relying on the case law of the Court of Justice with respect to the free movement provisions was of course insufficient since prurely internal situations are not affected by the case law. It is however submitted that this case law, together with the system of mutual recognition and home state control of the Broadcast Directive will eventually lead to an authorisation of compararive advertising which is not misleading or unfair for competitors. If it is correct that such a system of mutual recognition does not prevent Member States to continue to apply their stricter national rules on purely internal situations, the progressing economic integration in the Community will eventually force the Member States with very strict standards to abandon them under the pressure of domestic firms who will complain about the reverse discrimination which results from the application to them of rules which are unenforceable against firms established in other Member Sates but which compete with them in their own domestic market.

REFERENCES

Francq, B. (1988) "Le statut de la publicitT comparative dans les pays de la CEE. Etude somaire de droit comparT", in E. balate, Unfait aedvertsing and comparartive advertising, Story-Scientia: Brussels, (137) at 140 et seq.

Henning-Bodewig, F. (1988) "History, Features and Prospects of the Commission Proposal for a Directive on unfair and comparative Advertising", in E. Balate (ed.), Unfair Advertising and comparative Advertising, Story-Scientia: Brussels, (225) at 228.

Stuyck,J. & Wytinck, P. (1991), comments on case 106/89, Marleasing, Common Market Law Review, 209 - 223.

Stuyck, J. & Wytinck, P.(ed.) (1992), De nieuwe wet handelspraktijken, Story-Scientia: Brussels.

Verkade, D.W.F.(1992) Misleidende reclame, Monografiedn NBW, Kluwer: deventer, 73 et seq.).

----------------------------------------