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The 2005 Unfair Commercial Practices Directive (2005/29)

In 2005, the European legislator adopted Directive 2005/29 Concerning Unfair Business-to-Consumer Commercial Practices ('UCPD').[1] This Directive establishes a single regulatory framework concerning unfair business-to-consumer indent, of the proposal for a regulation, preventing Member States from imposing a general prohibition on the use or commercial communication of sales promotions, so that rules can be adopted at national level to regulate sales below cost in order to safeguard competition and protect supplier companies and consumers. [...] Sales below cost should not be governed by Community law, but by national law in accordance with local circumstances. The subsidiarity principle should apply here.' See also Report of the Committee on Legal Affairs and the Internal Market of 10 July 2002 on the Proposal for a European Parliament and Council Regulation Concerning Sales Promotions in the Internal Market - Committee on Legal Affairs and the Internal Market, A5-0253/2002, PE 312.784. and 2002/65/EC of the European Parliament and of the Council and Regulation (EC) No 2006/2004 of the European Parliament and of the Council, OJ L 149, 11.06.2005, 22-39.

commercial practices and is based on maximum harmonization.[2] It will be argued that the Directive must be interpreted as meaning that it precludes a national prohibition of sales below cost such as Article 101 of the Belgian Market Practices and Consumer Protection Act. On 7 March 2013, the European Court of Justice ordered in the Euronics Belgium case that a national provision, such as Article 101 of the Belgian Act, which provides for a general prohibition of offering for sale or selling at a loss is precluded by the UCPD in so far as that provision pursues objectives relating to consumer protection.[3]

Step 1 - Do sales below cost constitute 'B2C commercial practices'?

The first thing to assess is of course whether sales below cost constitute 'commercial practices' within the meaning of Article 2(d) UCPD. It is well known that the Directive gives a particularly wide definition to the concept of 'business-to-consumer commercial practices', namely: 'any act, omission, course of conduct or representation, commercial communication including advertising and marketing, by a trader, directly connected with the promotion, sale or supply of a product to consumers'. It seems that Member States such as Belgium and France, while agreeing on the Directive and slowing down the project for a Sales Promotions Regulation, were or even still are not fully aware of the fact that both the use and the commercial communication of B2C sales promotions are clearly covered by the Directive.

In the VTB-VAB proceedings concerning the compatibility of the Belgian prohibition of joined offers to consumers, the Belgian and French Governments basically developed two arguments for the opposite view. They argued, principally, that neither the use nor the commercial communication of B2C sales promotions constitute 'commercial practices' within the meaning of the UCPD as they were subject to the Amended Proposal for a Sales Promotions Regulation, and that the withdrawal of that Proposal (in 2006 only, one year after the adoption of the Directive) did not permit the inference that the Directive would now cover the use and commercial communication of B2C sales promotions previously covered by the Amended Proposal for a Sales Promotions Regulation. Belgium and France argued, in the alternative, that the use and commercial communication of B2C sales promotions only fall within the scope of application of the Directive, where, additionally, they are unfair within the meaning of its grand general clause.

However, the Advocate General Trstenjak and the ECJ rightly rejected these two arguments in the following manner. First, it was argued that both the commercial communication and the use of B2C sales promotions constitute 'commercial practices' within the meaning of the Directive, as they 'clearly form part of an operator's commercial strategy and relate directly to the promotion thereof and its sales development'[4]; by no later than the date of withdrawal of the Amended Proposal for a Sales Promotions Regulation (in 2006, at a time when the period for the transposition of the Directive was still running), the national legislators should have examined, if necessary, to what extent the scope of the Directive would also apply to fields previously covered by the Amended Proposal for a Sales Promotions Regulation. In my view, business-to-consumer sales below cost undeniably constitute 'business-to-consumer commercial practices' within the meaning of the Directive and the VTB-VAB judgment. Moreover, the fact that the Amended Proposal for a Sales Promotions Regulation is without prejudice to national prohibitions of sales below cost is irrelevant, since it was repealed in 2006, well before the end of the transposition deadline of the Directive. Second, the argument that only unfair business-to-consumer commercial practices fall within the scope of application of the Directive was rightly disqualified in VTB-VAB as circular reasoning, stemming from an equation of the Directive's scope of application with the conditions of application of its general clause.[5]

It is worth noting that the Belgian legislator developed an additional argument for the view that the Belgian prohibition of B2C sales below cost falls outside the scope of the Directive. When transposing the Directive in 2007, the Belgian legislator argued, in the further alternative, that the Directive covers only commercial communications of sales below cost, not the use of sales below cost as such. The Directive was said to be without prejudice to national prohibitions on the use of sales below cost or to any 'fundamental requirements' to be met by such sales, such as Article 41 of the 1991 Commercial Practices and Consumer Protection Act. When drafting the new Market Practices and Consumer Protection Act in 2010, the Belgian legislator argued again that price setting below cost, as prohibited by Article 101 of that Act, is not a 'commercial practice' within the meaning of the Directive on the ground that price setting as such, whether below cost or not, represents nothing but an internal business decision. The Belgian legislator seemed to argue that commercial communications (to the public) that prices of particular goods are below cost, constitute commercial practices, while sales below cost as such do not.

Yet, it is evident that the distinction between the prohibition of certain commercial communications on business practices on the one hand and the prohibition of the use of certain business practices, or the regulation of their 'basic conditions', is artificial and in line neither with the Directive nor with Belgian unfair trade law itself. As mentioned, the Directive's definition of 'commercial practices' includes not only 'commercial communication including advertising and marketing' but also 'any act, omission, course of conduct or representation, by a trader, directly connected with the promotion, sale or supply of a product to consumers'. Similarly, the Commission Proposals for a Sales Promotions Regulation deliberately covered both the use and the commercial communication of sales promotions, as use and communication cannot be isolated from each other. Likewise, Belgian unfair trade law traditionally simultaneously regulates the use and the commercial communication of 'market practices'.

Furthermore, the Belgian legislator argued that the Belgian prohibition of sales below cost must be considered as a national contract law rule to which the Directive is, pursuant to Article 3(2), without prejudice.[6] From this perspective, a retail price is primarily seen as the individually negotiated consideration for the transfer of the property of the good from the business to the consumer. Under this reading, the Belgian prohibition is seen as a contract law rule prohibiting the conclusion of below cost B2C sales contracts and it is stressed that, according to Belgian case law, infringements of that prohibition may result in the invalidity of the contract at issue. Hence, the prohibition is said to fall outside the scope of the Directive.

However, retail prices (whether below cost or not) are very often not individually negotiated but rather offered on a take-it-or-leave-it basis. Unfair trade law extensively regulates pricing practices, as they may have a substantial impact on the market by addressing or reaching a (large) number of consumers and influencing if not materially distorting their economic behaviour.[7] The Belgian prohibition of B2C sales below cost has a similar collective dimension and prohibits the use and commercial communication of below-cost pricing practices directly connected with the promotion of goods to consumers. In my view, the Belgian prohibition thus pertains to a commercial practice falling within the scope of the Directive. This conclusion cannot be called into question by the fact that infringements of that prohibition may result in the invalidity of the contract at issue. Article 3(2) of Directive 2005/29 must be interpreted as merely seeking to ensure that undesirable overlapping of the Directive and European or national contract law instruments does not occur at the level of legal consequences.[8]

Hence, national prohibitions of sales below cost fall within the scope of the Directive, in so far as they apply to B2C relationships, and they fall outside the scope of the Directive, in so far as they apply to B2B relationships. This was clearly confirmed by the ECJ in the Euronics order:

The practice of selling at a loss, at issue in the main proceedings, which is used, as the referring court observes, as bait, serves the purpose of attracting consumers to the business premises of a trader and encouraging them to make purchases. It clearly forms part of an operator's commercial strategy and relates directly to its promotion and sales development. It follows that it constitutes a commercial practice within the meaning of Article 2(d) of the Unfair Commercial Practices Directive and, consequently, comes within its material scope.[9]

Step Ibis - Do prohibitions of sales below cost pursue objectives related to consumer protection?

Upon finding that a national measure concerns a 'commercial practice' within the meaning of the Directive, the next step is to determine whether that measure pursues objectives relating to consumer protection. A measure concerning a 'commercial practice' falls outside the scope of the Directive if it does not pursue consumer protection objectives. It is settled case law since the ECJ judgments in Plus[10] and Mediaprint[11] that the statement in recitals 6 and 8 that the UCPD 'neither covers nor affects the national laws on unfair commercial practices which harm only competitors' economic interests' should be interpreted as meaning that the Directive is without prejudice to any national measure concerning a 'commercial practice' that only has competitor protection objectives.[12] A national measure regulating or prohibiting a commercial practice with the dual aim of protecting competitors and consumers falls within the scope of the UCPD. This is also the view promoted by the Commission in its UCP Guidance.[13] In order to establish whether a national provision (also) aims at protecting consumers, the general purpose of the law, the background and genesis of the measures in question, the preparatory works and academic comments should be taken into account.[14] In the Wamo and Inno orders concerning the incompatibility of the Belgian prohibition of discounts preceding seasonal sales, the ECJ confirmed, upon finding that the national prohibition pertains to a 'commercial practice' within the meaning of the directive, that the relevant question is whether 'the national provision [...] pursues objectives relating to consumer protection so that it comes within the scope of the Unfair Commercial Practices Directive'.[15]

According to the European Commission, national prohibitions of selling below cost fall outside the scope of the UCPD if the sole rationale is to ensure fair competition in the market space. Such national prohibitions fall within the scope of the Directive (and are precluded by that Directive) insofar as they pursue objectives relating to consumer protection (e.g., protection against bait practices).[16]

In this respect, a close examination of the legislative proceedings leading to the adoption of the Belgian prohibition of sales below cost demonstrates that the prohibition of ex Article 41 of the Commercial Practices and Consumer Protection 591-634; H De Wulf, B Keirsbilck and E Terryn, 'Overzicht van rechtspraak - Algemeen handelsrecht en handelspraktijken'(2012) TPR 1117-1123.

Act was introduced in order to protect both the economic interests of competitors and of consumers. Undoubtedly, the main objective was to protect small retailers against big chain stores, who have sufficient lines of products to cross-subsidize sales below cost systematically, and to ensure fair competition. However, the legislator also sought to protect consumers against businesses selling selected goods below cost, thereby attracting consumers who will make up for the losses on highlighted products with additional purchases of profitable goods.[16]

As mentioned, Article 101 of the 2010 Market Practices and Consumer Protection Act re-enacts Article 41 of the repealed 1991 Commercial Practices and Consumer Protection Act. Not unsurprisingly, the proponents of the Belgian prohibition of sales below cost may now argue that from 2010 the Belgian prohibition no longer seeks to protect the economic interests of consumers. However, this argument is not very convincing,[18] as there are no indications that in 2010 the Belgian legislator has renounced the consumer protection objectives when deciding to re-enact the prohibition. Even if the Belgian prohibition of sales below cost was introduced first and foremost with a view to protect the economic interests of small retailers, it falls within the scope of the Directive, as it does not exclusively seek to protect those interests and also pursues objectives related to consumer protection.[19]

In the Euronics order, the ECJ confirmed, upon finding that a national prohibition pertains to a 'commercial practice' within the meaning of the directive, that the relevant question is whether it pursues objectives relating to consumer protection so that it comes within the scope of the Directive. However, the ECJ was not willing to endorse the view of the referring court that the Belgian prohibition of sales below cost pursues (also) consumer protection objectives and to conclude that it falls within the scope of the UCPD.[20] The ECJ simply noted that the referring court has identified consumer protection as one of the objectives of the Belgian prohibition of sales below cost and, precisely on account of these objectives, has asked the ECJ whether the UCPD precludes such a provision.[21] This is to be regretted.

It is worth noting that not all national prohibitions of sales below cost may fall outside the scope of the Directive. For each and every national prohibition of sales below cost one should examine whether the national protective purpose of the measure includes consumer protection or not. This means that similar prohibitions may fall outside the scope of the Directive in one Member State and inside the scope of the Directive in another. Thus, it may seem a mission impossible to autonomously define the (pre-emptive) scope of the Directive: in determining whether a national measure on business-to-consumer commercial practices falls within the pre-emptive scope of the UCPD, the ECJ will take into account the national legislator's intent. Evidently, this may jeopardize the Directive's goal of market integration. This is an evident drawback from the interpretative choice first made by the ECJ in the Plus judgment and recently confirmed in a judgment in relation to an Austrian prohibition of unauthorized liquidation sales.[22]

Step 2 - Sales below cost have not been prohibited per se by the UCPD

As selling below cost does not appear in Annex I to the UCPD, it cannot be prohibited in all circumstances, but can be prohibited only following a specific assessment allowing the unfairness of those practices to be established.[23] In light of the content and the general scheme of the provisions of the Directive, the UCPD precludes any national provision which establishes a presumption of unlawfulness of sales below cost and prohibits, generally and preemptively, sales below cost, without any verification of their unlawfulness in the light of the criteria laid down in Articles 5 to 9.

Besides, the Directive provides for adequate and sufficient consumer protection against bait advertising. In addition, competition law provides for adequate and sufficient protection against predatory pricing.[24]

Hence, national consumer protection rules prohibiting business-to-consumer sales below cost are contrary to the Directive, in so far as they generally outlaw sales below cost, whereas the Directive does not blacklist such sales practices.

The ECJ ordered in the Euronics case that the practices of offering for sale or selling goods at a loss does not appear in Annex I to the UCPD and, therefore, cannot be prohibited in all circumstances (in so far as the prohibition in dispute pursues consumer protection objectives).[25]

Thus, the answer of the UCPD is yes: EU law precludes national prohibitions of sales below cost insofar as the particular national prohibition pursues objectives related to consumer protection. Strangely enough, the positive integration wave of the UCPD goes further than the negative integration wave of Keck and Mithouard: the UCPD precludes certain national rules relating to selling arrangements for goods (commercial practices), where they do not exclusively seek to protect the economic interests of competitors; yet, under the Keck conditions, they used to fall outside the scope of Article 34 TFEU. The presumption of the Directive is the opposite to that in Keck: illegality of national rules restricting or prohibiting certain commercial practices and a presumption in favour of free trade.[26] In my view, the UCPD has considerably improved consumer protection in and across the Member States, while better protecting legitimate businesses from competitors who do not play by the rules. Being based on maximum harmonization, the Directive has certainly simplified the regulatory environment and helped to remove obstacles to cross-border commerce, by replacing the divergent regulations of the Member States on unfair commercial practices with one set of rules.

  • [1] Directive 2005/29/EC of the European Parliament and of the Council of 11 May 2005 Concerning Unfair Business-to-Consumer Commercial Practices in the Internal Market and Amending Council Directive 84/450/EEC, Directives 97/7/EC, 98/27/EC
  • [2] The maximum harmonization character of the Directive has been confirmed in various ECJ judgments: ECJ 23 April 2009, Joined Cases C-261/07 and C-299/07, VTB-VAB NV v Total Belgium NV and Galatea BVBA v Sanoma Magazines Belgium NV, (2009) ECR I-02949, paras 51-52; ECJ 14 January 2010, Case C-304/08, Zentrale zur Bekämpfung unlauteren Wettbewerbs eV v Plus Warenhandelsgesellschaft mbH, (2010) ECR I-00217, para 41; ECJ 9 November 2010, Case C-540/08, Mediaprint Zeitungs- und Zeitschriftenverlag GmbH & Co KG v 'Österreich'-Zeitungsverlag GmbH, (2010) ECR 2010, I-10909, para 30; ECJ Order of 30 June 2011, Case C-288/10, Wamo BVBA v JBC NV and Modemakers Fashion NV, nyr, para 33.
  • [3] ECJ Order of 7 March 2013, Case C-343/12, Euronics Belgium CVBA v Kamera Express BV& Kamera Express Belgium BVBA, nyr.
  • [4] ECJ 23 April 2009, Joined Cases C-261/07 and C-299/07, VTB-VAB NVv Total Belgium NV and Galatea BVBA v Sanoma Magazines Belgium NV, (2009) ECR I-02949, paras 49-50; ECJ 14 January 2010, Case C-304/08, Zentrale zur Bekämpfung unlauteren Wettbewerbs eV v Plus Warenhandelsgesellschaft mbH, (2010) ECR I-00217, paras 36-37; ECJ 9 November 2010, Case C-540/08, Mediaprint Zeitungs- und Zeitschriftenverlag GmbH &Co KGv 'Österreich'-Zeitungsverlag GmbH, (2010) ECR 2010, I-10909, paras 17-18; ECJ Order of 30 June 2011, Case C-288/10, Wamo BVBA v JBC NV and Modemakers Fashion NV, nyr, paras 30-31.
  • [5] See B Keirsbilck, The New European Law of Unfair Commercial Practices and Competition Law (Oxford: Hart Publishing, 2011) 231 e.s.
  • [6] See also H De Bauw, 'De impact van de richtlijn oneerlijke handelspraktijken op de regeling van de verkooppromoties onder de WHPC' (2006) DCCR 19.
  • [7] See Opinion of Advocate General Trstenjak, Case C-153/10, Jana Perenicovä, Vladislav Perenic v SOS financ spol. s r. o., nyr, paras 89-90.
  • [8] See also J Glöckner, 'The Scope of Application of the UCPD - I Know What You Did Last Summer' (2010) IIC 589, who regrets that the collective protective purpose of the Directive has not been adequately expressed in the definition of commercial practice.
  • [9] ECJ Order of 7 March 2013, Case C-343/12, Euronics Belgium CVBA v Kamera Express BV& Kamera Express Belgium BVBA, nyr, para 22.
  • [10] ECJ 14 January 2010, Case C-304/08, Zentrale zur Bekämpfung unlauteren Wettbewerbs eV v Plus Warenhandelsgesellschaft mbH, (2010) ECR I-00217, paras 38-39.
  • [11] ECJ 9 November 2010, Case C-540/08, Mediaprint Zeitungs- und Zeitschriftenverlag GmbH & Co KG v 'Österreich'-Zeitungsverlag GmbH, (2010) ECR 2010, I-10909, paras 21-22.
  • [12] According to an alternative interpretation of recitals 6 and 8, the UCPD would neither cover nor affect national provisions regulating or prohibiting a commercial practice without actually having any consumer protection effect. See on this alternative interpretation in relation to the Belgian prohibition of discounts preceding seasonal sales B Keirsbilck, 'De invloed van het Europees recht op het Belgisch handelspraktijken- en belendende verbintenissenrecht', in I Samoy, E Terryn and V Sagaert (eds), De invloed van het Europese recht op het Belgische privaatrecht (Antwerp: Intersentia, 2012)
  • [13] Commission Staff Working Document, Guidance on the Implementation/ Application of Directive 2005/29/EC on Unfair Commercial Practices, SEC (2009) 1666, 3 December 2009, 14: 'National rules regulating commercial practices [...] for which the sole rationale is to ensure fair competition in the market space, do not fall within the scope of the Directive. [.] Where consumers' and competitors' interests coincide and national measures regulate a practice with the dual aim of protecting consumers and competitors, such national measures are covered by the Directive [.]'.
  • [14] See Commission Staff Working Document, Guidance on the Implementation and Application of Directive 2005/29/EC Concerning Unfair Commercial Practices, SEC (2009) 1666, 3 December 2009, 15 and 16, clearly drawing inspiration from the Opinion of Advocate General Trstenjak of 3 September 2009, Case C-304/08, Zentrale zur Bekämpfung unlauteren Wettbewerbs eVv Plus Warenhandelsgesellschaft mbH, (2010) ECR I-00217, para 66 and from her Opinion of 24 March 2010, Case C-540/08, Mediaprint Zeitungs- und Zeitschriftenverlag GmbH & Co KG v 'Österreich'-Zeitungsverlag GmbH, (2010) ECR 2010, I-10909, paras 55-58.
  • [15] ECJ Order of 30 June 2011, Case C-288/10, Wamo BVBA v JBC NV and Modemakers Fashion NV, nyr, para 20; ECJ Order of 15 December 2011, Case C-126/11, INNO NV v Unie van Zelfstandige Ondernemers VZW (UNIZO), Organisatie voor de Zelfstandige Modedetailhandel VZW (Mode Unie), Couture Albert BVBA, nyr, para 22. See also J Vannerom, 'Case Wamo: And the Question Remains ... Who Is (Actually) Protected?' (2012) REDC 151-162.
  • [16] Commission Staff Working Document, Guidance on the Implementation/ Application of Directive 2005/29/EC on Unfair Commercial Practices, SEC (2009) 1666, 3 December 2009, 14.
  • [17] Commission Staff Working Document, Guidance on the Implementation/ Application of Directive 2005/29/EC on Unfair Commercial Practices, SEC (2009) 1666, 3 December 2009, 14.
  • [18] Compare Brussels Court of Appeal 17 January 2012, not publ, arguing that that prohibition of discounts preceding seasonal sales was maintained in art 32 of the 2010 Market Practices and Consumer Protection Act with the double aim of consumer protection and competitor protection, which inspired the introduction of that prohibition in 1985 in art 53 of the Commercial Practices and Consumer Protection Act.
  • [19] See also B Keirsbilck and J Stuyck, 'Een kritische analyse van de Wet Marktpraktijken en Consumentenbescherming' (2010) TBH 739.
  • [20] ECJ Order 7 March 2013, Case C-343/12, Euronics Belgium CVBA v Kamera Express BV& Kamera Express Belgium BVBA, nyr, para 17.
  • [21] Paras 18-19.
  • [22] ECJ Judgment of 17 January 2013, Case C-206/11, Georg Köck v Schutzverband gegen unlauteren Wettbewerb, nyr.
  • [23] ECJ 23 April 2009, Joined Cases C-261/07 and C-299/07, VTB-VAB NVv Total Belgium NV and Galatea BVBA v Sanoma Magazines Belgium NV, (2009) ECR I-02949, paras 53 e.s.; ECJ 14 January 2010, Case C-304/08, Zentrale zur Bekämpfung unlauteren Wettbewerbs eV v Plus Warenhandelsgesellschaft mbH, (2010) ECR I-00217, paras 42 e.s.; ECJ 9 November 2010, Case C-540/08, Mediaprint Zeitungs- und Zeitschriftenverlag GmbH &Co KG v 'Österreich'-Zeitungsverlag GmbH, (2010) ECR 2010, I-10909, paras 31 e.s.; ECJ Order of 30 June 2011; Case C-288/10, Wamo BVBA v JBC NV and Modemakers Fashion NV, nyr, paras 34 e.s.
  • [24] See B Keirsbilck and J Stuyck, 'Een kritische analyse van de Wet Marktpraktijken en Consumentenbescherming' (2010) TBH 739.
  • [25] ECJ Order of 7 March 2013, Case C-343/12, EuronicsBelgium CVBA vKamera Express BV& Kamera Express Belgium BVBA, nyr, para 29.
  • [26] See also A Pliakos and G Anagnostaras, 'Harmonising National Laws on Commercial Practices: Sales Promotions and the Impact on Business-to-Business Relations' (2010) EL Rev. 429-130; G Anagnostaras, 'The Unfair Commercial Practices Directive in Perspective: From Legal Disparity to Legal Complexity?' (2010) CML Rev 156; B Keirsbilck, The New European Law of Unfair Commercial Practices and Competition Law (Oxford: Hart Publishing, 2011) 232.
 
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