New regulations on misleading marketing and unfair commercial practices

United Kingdom
Two new sets of regulations, the Consumer Protection from Unfair Trading Regulations and the Business Protection from Misleading Marketing Regulations, came into force on May 26 2008.
The new regulations implement the Unfair Commercial Practices Directive (2005/29) - which harmonizes unfair trading laws across the European Union and introduces a prohibition on the unfair treatment of consumers by traders - and the Misleading and Comparative Advertising Directive (2006/114).
The Consumer Protection from Unfair Trading Regulations prohibit "unfair commercial practice" and the promotion of such in relation to consumers.

A commercial practice is unfair if it:
  • contravenes the requirements of professional diligence and materially distorts or is likely to distort the economic behaviour of the average consumer with regard to the product; or
  • is a misleading action or omission, is aggressive or is an act listed in Schedule 1 to the regulations.
Schedule 1 practices are automatically deemed unfair. The schedule lists practices which are obviously unfair or reprehensible, but includes practices with parallels to passing off, such as promoting a product similar to another product from a particular manufacturer in such a way as to mislead a consumer into believing that a product was made by the same manufacturer.

‘Misleading actions’ involve:
  • false product information; 
  • deceptive presentation; or 
  • failure to comply with any applicable code.
‘Misleading omissions’ include:
  • omitting or hiding material information;
  • unclear or ambiguous use of such; and 
  • failure to identify commercial intent.
The regulations are very specific and cover a wide range of situations and possible marketing angles.

‘Aggressive commercial practices’ are those that significantly impair (or are likely to impair) the average consumer's freedom of choice or conduct in relation to the product concerned through use of harassment, coercion or undue influence, thereby causing him or her to make a transactional decision that he or she would not have made otherwise.  

Under the Consumer Protection from Unfair Trading Regulations, it is an offence to engage knowingly or recklessly in commercial practices that materially distort a consumer's economic behaviour.
The new Business Protection from Misleading Marketing Regulations:
  • prohibit advertising which misleads traders;
  • regulate business-to-business marketing; and 
  • set out the conditions under which comparative advertising is permitted.
The regulations reproduce the criteria required for an advertisement to be a satisfactory comparative advertisement, which were previously laid down in the Control of Misleading Advertisements Regulations 1988 (repealed by the Consumer Protection from Unfair Trading Regulations). They also add the requirement that the comparative advertisement must not be a misleading act or omission, as set out in the Consumer Protection from Unfair Trading Regulations.
This broadening of the scope of what can be interpreted as unacceptable comparative advertising - to include aspects of unfair trading set out in the Consumer Protection from Unfair Trading Regulations - may turn out to be significant, although the Control of Misleading Advertisements Regulations already offered a wide definition of ‘misleading’, which has been reproduced in the Business Protection from Misleading Marketing Regulations.
However, engaging in such misleading advertising will become a criminal offence, punishable with a fine of up to £5,000 or up to two years’ imprisonment. A neglectful, consenting or conniving officer of a company can be punished individually as well as the company being fined.
The new regulations will be enforceable by the enforcing authorities only (ie, the Office of Fair Trading and Trading Standards) and cannot be enforced directly by consumers or any other entity, including IP rights holders. However, the enforcement authorities have the power to:
  • initiate proceedings seeking an injunction to secure compliance with the regulations, including test purchases; and 
  • enter premises with or without a warrant.
There was a strong lobby from consumer groups and IP rights owners to allow direct enforcement, but the government has not accommodated these requests. However, as recommended by the Gower's Review of Intellectual Property, this approach will be reviewed in three years' time. IP rights owners may wish to consider planning a thorough case with which to lobby for direct enforcement rights in 2011.

 Joel Smith and Rachel Montagnon, Herbert Smith LLP, London

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