[RedirectPrompt_en-US]

10 December 2020
newsletter
hungary

Hungary: Compliance and competition enforcement in sales and promotions – where does Black Friday guide us?

Introduction

The Hungarian Competition Authority (HCA) is one of the few competition enforcers in Europe with a prominent consumer protection enforcement practice. While consumer protection is not the HCA's sole competence in Hungary, the legal framework allows it relative freedom to include any significant unfair practice, which could affect competition, under its jurisdiction. The HCA does not shy away from wielding its power. In fact, some of the leading consumer protection fines in the European Union are attributable to the HCA.

For example, in Summer 2020 the authority imposed a fine close to €2.4 million on Alza, one of the largest online marketplaces in Central and Eastern Europe. According to the HCA, Alza had failed to meet the promises made to consumers during its Black Friday campaign. Shortly before the Alza decision, the HCA imposed a fine close to €7 million on Booking.com for aggressive and misleading commercial practices against consumers (for further details please see "HCA imposes record fine on Booking.com for unfair commercial practices").

Past cases show that the HCA's ever-increasing activity and the increased fines stem from conscious strategy decisions. In 2017 a misleading promotional campaign resulted in only a negligible fine of €55,000 for Extreme Digital (another large online retailer), a penalty which was dwarfed by the fines that the HCA imposed in 2020.

There is good news too: with the increased enforcement efforts, there is growing decisional practice to guide companies. The HCA's holiday sales practice has tremendous potential to aid companies which aim to throw large-scale sales but at the same time intend to avoid large-scale fines.

This article distils the HCA's recent practice into clear guidelines in order to assist companies with any sales or promotional campaigns.

 

Why are sales and promotions important for HCA?

The HCA's main goal is to ensure consumer welfare. This includes the protection of consumers' decision-making process. Statements made during or prior to sales and promotions may interfere with consumers' ability to properly consider their options and purchasing decisions especially prior to the holidays, when consumers may have already decided to make larger purchases. Consumers may also be more sensitive to advertising if they are under pressure (eg, targeted advertising at different times of the year).

Several factors might alert the HCA's team, as discussed below.

Communication – how to inform on prices and conditions?

Legal background
Promotions and sales are organised around opportunities for consumers to save money on their purchases. The information regarding prices and the eligibility of a consumer purchase for the saving qualifies as material information. This qualification gains relevance through the HCA's practice: misleading communication regarding material information is capable of distorting consumer decisions, which, in turn, is considered a breach of the law.

To ensure that all material information is conveyed fully to consumers, it is important to understand the HCA's take on the consumer perspective. According to the HCA, consumers do not have a full overview of pricing and the conditions applied by companies. Companies cannot expect consumers to make significant effort in order to balance this asymmetry, rather, companies must provide consumers with comprehensive information.

Practical impact
All advertising campaigns must be designed with the above relationship between consumers and companies in mind. According to the HCA and the courts, it is unlikely that consumers would put any effort into examining the detail of advertising campaigns, even if the details are available (eg, online). By their nature, promotional campaigns carry statements which consumers understand as full and exhaustive information designed to compensate for the information asymmetry between consumers and companies. The responsibility stemming from this relationship lies with companies and cannot be transferred to consumers.

Therefore, the communication of promotional campaigns must be clear and precise. It should not require additional research or review from consumers to understand the information regarding the prices and conditions of the promotion. The products involved, the limits of the discount offered and any exceptions must be easily accessible (eg, on the promotional pamphlet or in the email regarding the promotion). Consumers cannot be expected to search for the terms and conditions or interpret separate communications together (eg, if a promotion conveys the message that "all products are on sale", consumers cannot be expected to look for constraints behind the communication). This applies even if the communication refers to "more information" elsewhere.

The HCA has also noted that fine print does not nullify a misleading headline if a headline can distort consumers' decision making.

Hype – can it distort decision making?

Legal background
The HCA considers consumers' transactional decision as a process involving several distinct steps. The first phase – raising the attention of consumers – provides several possibilities for unlawful (unfair) practices to distort this process, especially when consumers already intend to spend a significant amount of money (eg, before the holidays). Therefore, ads or other materials which might attract consumers must also be clear and precise.

Practical impact
Infringements relating to this phase of consumers' decision making typically manifest in the following forms:

  • the communicated benefits in ads are unavailable to consumers (eg, the "up to 50% off days" at a major bike retailer features only children's bikes at half price; however, all adult bikes and brands are kept close to full price);
  • an ad features products in a misleading manner (eg, the "two for the price of one" promotion communicated with pictures of expensive designer clothes at a fashion retailer features only cheap accessories which the retailer distributes with each purchase); and
  • the communication features appealing products as a hook (eg, the "crazy sales" banner features expensive smartphones from the latest generation, while the sales apply only to cheaper, less popular or old products).

In these cases, such ads which aim to attract consumers are deemed to infringe the law at the moment of publication. It follows from the above that the delayed communication of conditions does not negate an infringement. If conditions are clarified on entrance into a retail store or even if an ad is extended and clarified a few days before sales commence, it is unlikely to convince the HCA that no infringement has taken place.

'Up to' statements – how to avoid up to 10% annual turnover in HCA fine?

Legal background
An 'up to' statement is a statement where companies advertise available discounts by referring to the maximum discount available to consumers during sales (eg, "up to 50% off"). The HCA and the courts have attached several conditions to such statements. 'Up to' statements cannot function as an escape from clear and precise information on discounts. A promotion may infringe the law even if the discount is attainable, but only for atypical products which are relevant only for a small fraction of consumers. The HCA and the courts have specifically confirmed that:

  • consumers do not assume that discounts are available only in a small number of cases; and
  • popular and high-priced products cannot be subject to such high discounts.

'Up to' statements are lawful if the following conditions are met:

  • the maximum discount applies to a company's typical products; and
  • the maximum discount is attainable in at least 10% of the entire portfolio of products involved in the promotion.

When assessing whether the products included in a promotion are typical, the products included in the communication must also be considered. If a promotion or sale clearly applies to a separate range of products, the products concerned must qualify as typical within this product range.

The 10% minimum for products where the maximum discount is attainable represents a threshold where, according to the HCA, "a non-negligible group of consumers" could "potentially and realistically" attain the advertised maximum discount.

Practical impact
The above two steps represent a technical framework which companies must consider on a case-by-case basis. Nevertheless, the HCA's practice helps to understand the precise requirements:

  • In the case of a tech retailer, it is unlawful if a maximum discount is attainable only for photo frames or phone cases, especially if the retailer attracted consumers with pictures of high-cost phones and camera sets in its communication. The frames and cases are atypical products.
  • Where a company is an online retailer with a wide general product offering, the company's sales and the products featured in its communications will determine which products are typical. A football or a light bulb are marginal products which are purchased seldomly, by few people; therefore, they are atypical even in the case of a general offering. However, a football will be a typical product if the company sells sporting goods or if the online retailer with the general offering holds a campaign called "football days" during the football world cup and communicates this with pictures of various sport accessories on sale.

Importantly, the HCA has clarified that regardless of the above test, it will continue to investigate any behaviour which might deprive consumers of benefits based on reasonable expectations.

Comparing prices – which prices can be subject to comparison?

Legal background
Comparing original prices with sales prices is a straightforward promotional tool. The HCA's expectations in this regard are similarly straightforward: it is unlawful if a sales price is not applied in reality or the original price was never in fact the price of the product. An original price must be a price which was applied directly prior to the sales by the company in a manner which is regular. Prices applied in a temporary manner for a short period cannot constitute an original price.

Notably, even if no original price is indicated, it is unlawful if a company indicates a price as a discount offer if that price does not meet the above criteria.

Practical impact
The HCA has made it clear that Hungarian consumers are highly price sensitive. Therefore, any unfair practices revolving around prices may result in an investigation due to the authority's heightened vigilance and the cascade of complaints which are likely to land on officials' desks.

The original price is necessarily the price applied prior to a promotion or sale, even if this was already a discounted price due to, for example, the age of the product. Companies cannot indicate the recommended price or the original price as applied during the launch of a product as an original price if the price was not applied directly prior to the sales or promotion as a regular price. In turn, it also qualifies as an infringement if companies raise the price of products prior to sales in a temporary manner in order to indicate that price as the original price.

Ending unlawful promotions – HCA's vision
The HCA has published a press release together with its Alza decision, expressing hope that unlawful Black Friday campaigns will cease as a result of the notable €2.4 million fine and its other decisions in recent years. The above is a distilled version of the HCA's practical guidance provided in these cases. Most of the relevant case law relates to sales prior to the holidays, which is considered a more sensitive period by the HCA. Nevertheless, to ensure compliance, it is reasonable to adhere to these rules.

The above guidelines may be summarised by the following cornerstones:

  • Communication – consumers cannot be expected to review and investigate the conditions behind the main messages of an ad or a promotion even if the fine print suggests that it would be necessary.
  • 'Up to' statements – the HCA has established a two-step test to ensure that promotions or sales apply to typical products and a 10% minimum threshold is met.
  • Raising attention – distortion of the first step of consumers' decision-making process (eg, a misleading statement and products serving as hooks) could easily result in an infringement.
  • Price comparison – only regular prices which were applied prior to the commercial practice (sales or promotion) may be considered as original prices.

Even if sales or promotions meet the above criteria, an overall review is necessary to ensure that commercial practices also meet the general requirements of professional diligence. Nevertheless, once the above boxes are ticked, a promotion or sales campaign should satisfy the main concerns raised by the HCA in recent years.

András
Nagy

Attorney at Law

belgium / EU