Of interest.

Strengthening of consumer protection in light of technological and digital developments

At the beginning of this year, Directive (EU) 2019/2161 of the European Parliament and of the Council of 27 November 2019 (hereinafter referred to as the “Accompanying Directive“) entered into force, amending four existing EU consumer directives – Directive 93/13/EEC (on unfair terms in consumer contracts), Directive 98/6/EC (on consumer protection in the indication of the prices of products offered to consumers), Directive 2005/29/EC (on unfair business-to-consumer commercial practices in the internal market) and Directive 2011/83/EU (on consumer rights).

In general

The aim of the Accompanying Directive is to harmonise and strengthen consumer protection on the EU market. The Accompanying Directive entails in particular (i) an increase of fines up to 4% of a company’s annual turnover for infringements of consumer protection rules, (ii) extension of the information requirements for traders towards consumers (in cases of online reviews, online market contracts and personalised pricing based on automated decision-making), (iii) ban on dual product quality as a misleading commercial practice; and (iv) specification of individual remedies for consumers (right of withdrawal and compensation for damage). The deadline for Member States to transpose the Accompanying Directive is 28 November 2021.

Digital services and digital content have been added to the definition of a “product” which included goods or services, immovable property, rights and obligations. A service contract will now encompass any contract other than a sales contract under which the trader provides or undertakes to provide a service to the consumer, including a digital service. A legal guarantee of conformity for goods will also apply to digital content and digital services. The definition of “online marketplace” is updated in the Accompanying Directive and is more neutral to cover new technologies. Instead of a “website”, the Accompanying Directive refers to software, including a website, part of a website or an application, operated by or on behalf of a trader, allowing consumers to remotely contract with other traders or consumers and is thus consistent with the term “online interface” as provided by Regulation (EU) 2017/2394 and Regulation (EU) 2018/302 of the European Parliament and of the Council.

Extension of information requirements for reviews

Consumers increasingly rely on consumer reviews and endorsements when they make purchasing decisions. If traders provide access to consumer reviews of products, they should inform consumers if there are processes and procedures in place to ensure that published reviews originate from consumers who actually used or purchased the products. In addition, traders should provide information on how such reviews are checked and provide consumers with clear information on how reviews are processed, such as whether all reviews, either positive or negative, are published, or whether those reviews have been sponsored or influenced by a contractual relationship with trader.

Stating that reviews of a product are submitted by consumers who have actually used or purchased the product without taking reasonable and proportionate steps to check that they originate from such consumers, should now be considered an unfair commercial practice. These steps could, for example, include technical means to verify the reliability of the person who wrote the review, for example by requesting information to verify that the consumer actually used or purchased the product.

Further, according to the Accompanying Directive, traders should also be prohibited from submitting fake consumer reviews and endorsements, such as “likes” on social media, or commissioning others to do so in order to promote their products, as well as from manipulating consumer reviews and endorsements, such as publishing only positive reviews and deleting the negative ones. Such practice could also occur through the extrapolation of social endorsements, where a user’s positive interaction with certain online content is linked or transferred to different but related content, creating the appearance that that user also takes a positive stance towards the related content.

Clarification of information requirements for contracts concluded on online marketplaces

Under the current legal regime, when products are offered to consumers in online marketplaces, both the provider of the online marketplace and the third-party supplier should be involved in the provision of the pre-contractual information required by Directive 2011/83/EU. As a result, consumers using the online marketplace may not clearly understand who their contractual partners are and how their rights and obligations are affected. Specific information requirements for providers of online marketplaces are therefore now set forth in the new versions of Directives 2005/29/EC and 2011/83/EU to inform consumers using online marketplaces about the main parameters determining the ranking of offers, and whether they enter into a contract with a trader or a non-trader, such as another consumer.

When the third party offering the goods, services or digital content declares its status to be that of a non-trader, providers of online marketplaces should provide a short statement to the effect that the consumer rights stemming from EU consumer protection law do not apply to the contract concluded. Furthermore, consumers should be informed of how obligations related to the contract are shared between third parties offering the goods, services or digital content and providers of online marketplaces. The information should be provided in a clear and comprehensible manner and not merely in the standard terms and conditions or similar contractual documents.

The information requirements for providers of online marketplaces should be proportionate. Those requirements need to strike a balance between a high level of consumer protection and the competitiveness of providers of online marketplaces. Providers of online marketplaces should not be required to list specific consumer rights when informing consumers about their non-applicability. The information to be provided about the responsibility for ensuring consumer rights depends on the contractual arrangements between the providers of online marketplaces and the relevant third-party traders. The provider of the online marketplace could indicate that a third-party trader is solely responsible for giving effect to consumer rights, or describe its own specific responsibilities where that provider assumes responsibility for certain aspects of the contract, for example, delivery or the exercise of the right of withdrawal.

Personalisation of prices based on automated decision-making

In the case of distance and off-premises contracts, the Accompanying Directive requires traders, among other things, to disclose that the price has been adjusted by automated decision-making so that consumers can consider the potential risks of their purchasing decision. This information requirement is without prejudice to Regulation (EU) 2016/679 (known as the GDPR), which provides for the right of the individual not to be subjected to material decisions based solely on automated individual decision-making, including profiling. Other requirements include a reminder of the existence of legal guarantee of conformity for goods, digital content and digital services with the contract and instructions for right of withdrawal, as well as information on any relevant compatibility and interoperability of goods with digital elements, digital content and digital services that the trader is aware of or can reasonably be expected to have been aware of.

Distance and non-distance or off-premises contracts should inform about the existence of conditions of after-sales services and commercial guarantees, the functionality, including applicable technical protection measures, of goods with digital elements, digital content and digital services, any relevant compatibility and interoperability of goods with digital elements, digital content and digital services that the trader is aware of or can reasonably be expected to have been aware of.

Extension of penalties and increase of fines

For serious infringements having an EU dimension, fines should be introduced as part of the penalties for such infringements. The penalties under the Accompanying Directive are intended to include either the imposition of a fine in an administrative procedure or the possibility of instituting legal proceedings for imposing a fine, or both, with a maximum of at least 4% of the annual turnover of seller or provider in the Member State or Member States concerned. Where a fine is to be imposed but information on the annual turnover of the seller or provider is not available, Member States should introduce the possibility of imposing a fine of at least EUR 2 million. Member States should also remain free to choose the type of penalty to be imposed and to lay down in their national legislation the appropriate sanctioning procedures.

To facilitate more consistent application of penalties, in particular in the case of infringements within EU, widespread infringements and widespread infringements with EU dimension as defined in Regulation (EU) 2017/2394, common non-exhaustive and indicative criteria for the application of penalties are included in Directives 93/13/EEC, 98/6/EC, 2005/29/EC and 2011/83/EU. These criteria include, for example, the nature, gravity, scale and duration of the infringement, and any redress provided by the trader to consumers for the harm caused. Repeated infringement by the same perpetrator shows a propensity to commit such infringements and is therefore a significant indication of the gravity of the conduct and, accordingly, of the need to increase the level of the penalty to achieve effective deterrence. The financial benefits gained, or losses avoided, due to the infringement should be taken into account, if the relevant data are available. Other aggravating or mitigating factors applicable to the circumstances of the case can also be taken into account.

Individual remedies (right of withdrawal and compensation of damage)

Under the Accompanying Directive, consumers harmed by unfair commercial practices should have access to compensation for damage and, where relevant, a price reduction or termination of the contract, in a proportionate and effective manner. Member States should not be prevented from maintaining or introducing rights to other remedies such as repair or replacement in order to ensure full removal of the effects of unfair practices. Member States should not be prevented from determining conditions for the application and effects of remedies for consumers. When applying the remedies, the gravity and nature of the unfair commercial practice, damage suffered by the consumer and other relevant circumstances, such as the trader’s misconduct or the infringement of the contract, could be taken into account, where appropriate.

Member States may adopt rules in accordance with which the withdrawal period of 14 days can be extended to 30 days for contracts concluded in the context of unsolicited visits by a trader to a consumer’s home or excursions organised by a trader with the aim or effect of promoting or selling products to consumers targeting elderly or other vulnerable consumers.

Dual quality of products as misleading commercial practice

A commercial practice is considered as misleading if by taking into account all of its features and circumstances, it leads or may lead the average consumer to make decision about a commercial transaction that the consumer would not have otherwise made. According to the Accompanying Directive, any marketing of goods in one Member State identical to goods marketed in other Member States is also misleading, even if such goods have substantially different composition or characteristics, unless justified by legitimate and objective factors of which consumers must be informed.

The competent authorities should on a case-by-case basis assessment of dual quality assess (i) whether such differentiation is easily identifiable by consumers by looking at the availability and adequacy of information, (ii) trader’s right to adapt goods of the same brand for different geographical markets due to legitimate and objective factors, such as national law, availability or seasonality of raw materials or voluntary strategies to improve access to healthy and nutritious food and (iii) traders’ right to offer goods of the same brand in packages of different weight or volume in different geographical markets.

The legislative process in the Czech Republic already includes two legal regulations that are to ban the dual quality of selected products (now mainly foodstuffs), namely an amendment to the Food Act and an amendment to the Act on Significant Market Power.

Conclusion

The aforementioned changes brought by the Accompanying Directive will bring more protection, transparency and rights, including information, for customers not only in e-commerce, which necessarily entails compliance with obligations especially on the part of e-shop providers and their websites in the form of revision of related documentation and internal processes. The deadline for Member States to transpose the Accompanying Directive is 28 November 2021.

If you have any questions regarding the Accompanying Directive, e-commerce and revision of the set-up of the e-shops and revision of internal processes regarding to the customers, we remain at your disposal – do not hesitate to contact us.

 

Tereza Pšenčíková LL.B., LL.M., junior lawyer – psencikova@plegal.cz

Mgr. Jakub Málek, partner – malek@plegal.cz

 

www.peytonlegal.cz

 

22. 01. 2020

 

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