Explanatory Memorandum to COM(2003)356 - Unfair business-to-consumer commercial practices in the Internal Market and amending directives 84/450/EEC, 97/7/EC and 98/27/EC (the Unfair Commercial Practices Directive)

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dossier COM(2003)356 - Unfair business-to-consumer commercial practices in the Internal Market and amending directives 84/450/EEC, 97/7/EC and ...
source COM(2003)356 EN
date 18-06-2003
Background

1. The Green Paper on EU Consumer Protection i first outlined the case for reform of EU consumer protection legislation to tackle barriers to cross-border provision of goods and services to consumers. It identified a framework directive containing a general duty in relation to unfair commercial practices as a possible basis for reform.

2. A majority of respondents accepted the case for reform, and a majority of those who expressed a preference, including a majority of Member States, supported reform on the basis of a framework directive. i The Council subsequently resolved that effective follow-up work on the Green Paper should be a priority. i

3. Feedback on the initial consultation and an outline of how a framework directive could be structured were published in the Communication on the follow-up to the Green Paper i. This sought respondents' views on the content of the framework directive which have been taken into account in preparing this proposal. i

4. A Council resolution adopted on 2 December 2002 on the Commission's consumer policy strategy 2002-2006 included a call for the Commission to take further steps in the light of this second consultation and the Brussels European Council of 20-21 March 2003 called for consumer policy to put empowered consumers at the heart of a competitive internal market, giving appropriate follow-up to the Green Paper. The European Parliament adopted three resolutions relating to the Green Paper and follow-up communication on 13 March 2003 which expressed support for reform based on a framework directive governing unfair commercial practices and included calls for the Commission to make a proposal as soon as possible.

5. On 22-23 January 2003 the Commission held a workshop attended by over 150 people, including Member States' representatives, consumer and industry associations and academics. The panellists and other participants discussed the case for reform and for harmonisation through a framework directive, the relationship between unfair competition and consumer protection, and the role of codes of conduct. i

Contents

1.

The case for change


Potential benefits of the internal market

6. The cross-border movement of goods and services ("products") gives consumers access to a broader range of products, including innovative products which may not be available in their own country. It also provides the pressure for a more efficient and competitively-priced supply.

7. Despite evidence of the benefits which have accrued from the internal market so far, there is evidence that it is by no means yet complete. For example, a recent report commissioned by the European Financial Services Round Table i identified differing national rules on consumer protection and commercial practices as important barriers which 'render a pan-European marketing strategy and standardised products impossible'. It estimated that a working European retail market for financial services could save EUR5 billion annually and add 0.5% to economic growth.

8. The most recent Cardiff i report indicated that price convergence, a key indicator of the completion of the internal market, has stagnated recently. The convergence which followed the initial shock-wave effect of the introduction of the internal market has not continued and significant price divergences remain. The previous Cardiff report i highlighted the fact that average retail prices for a product in one Member State can be up to 40% above or below the European average, with the average divergence being around 30%. This compares to a variation of around 5% around the national average within Member States.

9. Both Cardiff reports conclude that further integration and competition could lead to greater convergence, to the benefit of consumers and the efficient functioning of the market. They also concluded that cross-border shopping has a role to play in achieving this; as the most recent report says 'The greater development of cross-border shopping by consumers and e-commerce can also contribute to price convergence by exerting downward pressure on prices'.

10. Survey evidence suggests that the continued development of the internal market depends both on encouraging business to advertise and market across borders and on stimulating consumers, who are in principle willing to do so, to actually transact cross-border. For example,

* 55% of EU consumers had not seen or heard cross-border advertising or information in the last 12 months i;

* 53% of EU consumers would certainly or probably consider cross-border shopping to buy a product because it was cheaper or better i.

11. Both the potential benefits, and the risks of allowing the present situation to continue, will be increased in an enlarged Union of 25 or more Member States.

2.

Barriers and distortions


12. The Extended Impact Assessment published with this proposal examines at greater length the barriers and options for change summarised here, drawing on sources including Eurobarometer surveys, consultation responses, academic studies of existing national legislation, work by the group of member states experts and an ex-ante impact assessment carried out by GFA. i

13. The GFA study found that there are a number of barriers, some policy-induced, others not, which prevent traders and consumers from taking advantage of the internal market by shopping cross-border. These include tax, particularly VAT, time and distance (though these are also present in national markets and are being reduced by e-commerce), and language barriers. That said, 53% of Europeans say they can speak at least one European language in addition to their mother tongue and 26% can speak two.

14. However, even if all these other barriers were addressed, unfair commercial practices would in themselves constitute important barriers to the functioning of the internal market.

15. First, unfair commercial practices, if they are not addressed by effective consumer protection, can undermine consumer confidence. On average, 18% of consumers in a recent survey cited poor legal protection as a reason not to buy financial services cross-border, rising to 36% in one Member State. i In another survey about cross-border shopping in general, consumers who felt less confident buying from another EU country than in their own country were asked why. 68% of those consumers cited lower standards of consumer protection laws as a very or fairly important reason for their lack of confidence while 76% cited as a very or fairly important factor a lack of trust in foreign sellers and a perceived greater risk of fraud or deception. i

16. Second, these unfair commercial practices generate a market failure by impairing the consumer's ability to make choices which are informed and therefore efficient. This distortion of consumers' preferences is detrimental to the collective interests of consumers even if a specific consumer affected by the practice does not suffer a financial loss. The distortion of consumers' decision-making also gives rise to distortions of competition because the trader acting unfairly wins business away from competitors who play by the rules.

17. The effect is demonstrated by the work of the European Advertising Standards Alliance (EASA) which, in its 2002 Annual Report on handling of cross-border advertising complaints, concluded that "cross-border complaints overwhelmingly concern the activities of rogue-traders and other fringe operators, who deliberately set out to exploit the loopholes between national regulatory systems".

18. For consumers, the uncertainty of not knowing what consumer protection is provided by other EU countries' laws was a bigger barrier to cross-border shopping - with 79% of respondents citing it as a very or fairly important obstacle - than their perception that the standards of protection were lower in other countries. i

19. The impact of these barriers is exacerbated by the differences in the regulation of unfair commercial practices by Member States. The minimum clauses in existing consumer protection legislation, such as the misleading advertising directive i perpetuate this problem by allowing Member States to add divergent requirements and provide differing degrees and types of protection.

20. Many Member States have a general legal principle (i.e. a general clause), sometimes supported by specific rules, regulating marketing and prohibiting unfair commercial practices. However, the scope and application of these general principles vary widely across the EU.

21. For example,

* while the ECJ has defined a test of the 'average consumer, reasonably well-informed, observant and circumspect', several Member States do not apply this test and instead examine the effect of commercial practices on vulnerable consumers or on a small proportion of consumers (eg 10-15%) in assessing its fairness i;

* some Member States assume that all advertising has the potential to distort consumers' decision-making and therefore any inaccuracy would be contrary to the national provisions even if the inaccuracy had no bearing on consumers' decisions i.

22. The need for businesses to comply with a complex patchwork of different national requirements adds costs to those who market cross-border and for many is such a deterrent that they simply do not try:

* 47% of businesses cited the need for compliance with different national regulations on commercial practices, advertising and other consumer protection regulations as very or fairly important obstacles to cross-border advertising and marketing.

* This obstacle was considered as significant as the need to comply with tax requirements (46%) and more important than language barriers (38%). i

23. This finding is borne out in a survey of its members carried out by the European Mail Order Trade Association in 2002. It found that 5 of the top 10 barriers to cross-border trade cited related to differences in national rules on commercial practices. i

24. In addition, the differences in legislation increase the cost and complexity of enforcement, whether by public authorities or by self-regulatory bodies. As EASA pointed out, 'Every national code must comply with national legislation. The major discrepancies between national codes arise directly from differences in national legislation and will be eliminated only when they are.' i The impact of this fragmentation was also evident in the Commission's Eurobarometer survey, where 65% of businesses surveyed considered European codes of conduct as a very or fairly efficient way to make the sale or advertising of products throughout the EU easier. i

3.

Conclusions


25. This evidence shows that there are both appreciable internal market barriers and distortions of competition which arise from unfair commercial practices and the policy-induced barriers arising from their fragmented regulation. Because the impact of fragmented regulation is so significant, it is necessary to tackle these barriers with action at EU level.

26. The GFA ex-ante impact assessment assessed the different legislative approaches which could be used to address them. It concluded that a framework directive setting out general principles supplemented as necessary by specific sectoral legislation was the most appropriate tool. This conclusion is subject to the directive being based on a full harmonisation approach and containing provisions for mutual recognition based on the country of origin (discussed further in the next section). It would also need to be drafted in such as way as to achieve the necessary clarity and legal certainty.

27. It was found that:

* 38% of businesses expected to increase their cross-border advertising and marketing budget as a result of harmonisation;

* 46% of companies expect the proportion of their cross-border sales to increase with complete harmonisation of all regulations on advertising, commercial practices and other consumer protection regulations;

* 10 million consumers would buy a lot more cross-border if they were equally confident about making purchases from traders in another EU country, and a further 70 million might buy a little more i;

* According to a majority of national business associations responding to a survey, the introduction of a general principle of fair commercial practices in a framework directive will result in a decrease of costs, as will the combination of an adequate level of harmonisation and the application of the principles of mutual recognition and country of origin.

28. By contrast, alternative approaches based, for example, on specific directives without a general framework would have limitations including the following:

* Lack of harmonisation of existing national general clauses and legal principles, leaving significant internal market barriers untouched;

* Leaving the existing minimum harmonisation approach would fail to address the lack of consumer confidence about cross-border consumer protection demonstrated in the surveys;

* Market entry, transaction and marketing costs expected by up to half of business respondents to increase.

29. Many stakeholders, representing both businesses and consumers, have expressed their support for an initiative based on the mixed approach. i Some stakeholders made strident criticism of the initiative in its early stages. There are business stakeholders who continue to be very critical of the Directive. However, many others have reviewed their position as the Commission's proposed approach has been clarified, particularly since the workshop in January 2003, and have indicated support for the approach taken in this proposal.

4.

Overview of the directive


30. In the light of the evidence as to the barriers which need to be addressed, the ex ante impact assessment and the responses to consultation, the approach taken in the Directive has the following key elements i:

* It defines the conditions which determine whether a commercial practice is unfair; it does not impose any positive obligations which a trader has to comply with to show he is trading fairly. This reflects the views expressed by many respondents that greater legal certainty can be achieved by defining unfairness rather than fairness, and ensures that the Directive is a proportionate response to the situations which create material consumer detriment.

* It contains an internal market clause which provides that traders have to comply only with the requirements of the country of origin and prevents other Member States from imposing additional requirements on those traders who do so (ie mutual recognition). This is needed to ensure that traders have the legal certainty they need to deal with consumers cross-border without imposing undue burdens on them. The Member States will be obliged to ensure that traders established in their territories comply with their national provisions regardless of whether the consumers targeted or reached by their commercial practices reside in their territory.

* It fully harmonises EU requirements relating to unfair business-to-consumer commercial practices and provides an appropriately high level of consumer protection. This is needed to address the internal market barriers caused by divergent national provisions and to provide the necessary support to consumer confidence to make a mutual recognition approach workable. Member States will not be able to use the minimum clauses in other directives to impose additional requirements in the field co-ordinated by this Directive.

* It contains a general prohibition, which will replace the existing divergent general clauses and principles in the Member States and define a common EU-wide framework, which will considerably simplify the legislative environment in which traders and consumers operate, as called for by a number of respondents. The components of the general prohibition are explained in paragraphs 48 to 54 below.

* It establishes the ECJ's average consumer, rather than the vulnerable or atypical consumer as the benchmark consumer. This test, which is an expression of the principle of proportionality, applies when the generality of consumers is addressed or reached by a commercial practice. It is modulated when a commercial practice is specifically targeted at a particular group (eg children), when the average member of that group will be considered. This will clarify the standard to be applied by national courts and significantly reduce the scope for divergent assessments of similar practices across the EU, while providing a means to take into account relevant social, cultural or linguistic characteristics of targeted groups as allowed for by the Court.

* It elaborates two key types of unfair commercial practice; those which are misleading and those which are aggressive. These provisions apply all the same elements as are contained in the general prohibition but function independently of it. This means that a practice which is either misleading or aggressive as under the corresponding provisions is automatically unfair; if the practice is neither misleading nor aggressive the general prohibition will determine whether it is unfair. The provisions on misleading commercial practices define both actions and omissions which can mislead and avoid the need for a positive duty to disclose which many respondents argued would be unduly onerous and which the ex-ante impact assessment showed would have imposed significant costs on traders. Similar concerns were expressed about defining fair or unfair after-sale commercial practices; the Directive therefore does not do so, but instead applies the same fairness principles to commercial practices before and after the point of sale.

* For clarity and simplicity, it incorporates the misleading advertising Directive's B2C provisions (ie provisions dealing with advertising reaching or directed at consumers) and limits the scope of the existing Directive to business-to-business advertising (ie provisions dealing with advertising reaching or directed at business) and comparative advertising which may harm a competitor (by denigration, for example) but where there is no consumer detriment. Some provisions on inertia selling from the distance contracts Directive are also repealed and included in the framework directive.

* An Annex to the Directive contains a short blacklist of commercial practices. These are practices which which will in all circumstances be unfair, and therefore banned in all Member States. This single list will apply in all Member States and can be changed or added to only in the same way as the rest of the Directive. This contributes to legal certainty and consumer confidence by imposing an ex-ante prohibition on those specific practices, such as pyramid schemes, which will always materially distort the decision-making of average consumers and are contrary to the requirements of professional diligence.

5.

General provisions (Chapter 1)


Objective (Article 1)

31. The objective, as set out in Article 1, is to deliver a high degree of consumer protection and enable the functioning of the internal market.

32. The method used to achieve this is the approximation of national laws on unfair commercial practices, through this Directive.

33. Article 1 makes it clear that this approximation relates to those unfair commercial practices which harm consumers' economic interests.

6.

Definitions (Article 2)


34. This article defines a number of terms used in the directive. The definition of consumer is the standard definition found in several consumer protection directives i.

35. A definition of average consumer is also given, which incorporates the benchmark established by the ECJ i of the consumer who is 'reasonably well informed and reasonably observant and circumspect'. As explained above, this is modulated in Article 5 to ensure that where a specific group of consumers is targeted, the characteristics of the average member of that group are taken into account in assessing the impact of the practice.

36. The definition of commercial practice explicitly includes commercial communication and advertising, to make clear the connection with the regulation on sales promotion and provisions incorporated from the misleading advertising Directive. i

37. A definition is given here of what it means to materially distort consumers' economic behaviour, one of the three conditions of the general prohibition. The definition has two components: first, the commercial practice must be used to impair the consumer's ability to make an informed decision, and second it must be significant enough to change the decision the consumer makes. The application of this concept is further explained in paragraph 54 below.

38. This section also contains definitions of professional diligence, invitation to purchase and undue influence which are explained in the sections on Articles 5 to 9 below.

7.

Scope (Article 3)


39. The Directive is concerned only with matters affecting consumers' economic interests, as is made clear in Article 1. This means that matters of taste, decency and social responsibility will be outside scope unless the trader establishes a specific connection between its obligations in these areas and its products in its marketing. For example, if a trader falsely claimed that a certain proportion of the profits from the sale of a Christmas card would be given to charity that would be within scope.

40. It also means that acts which constitute unfair competition in some Member States but which do not harm the economic interests of consumers, such as slavish imitation (ie copying independently of any likelihood of consumer confusion) and denigration of a competitor, are outside the scope of the Directive. Acts which are classed in some Member States as unfair competition which do harm consumers economic interests, such as confusion marketing (which generates a danger of confusion among consumers with the distinctive signs and/or products of a competitor) are within scope.

41. The Directive does not deal with antitrust matters, such as anti-competitive agreements, abuse of dominant position, mergers and acquisitions. It applies only to commercial practices between business and final consumers and thus does not cover commercial practices between businesses, such as boycotts and refusal to supply.

42. Contract law is outside the scope so the Directive has no bearing on the conditions of formation, validity or effect of the contract.

43. This Directive deals with the protection of the economic interests of consumers and as such consumer health and safety aspects of products are outside its scope of application. However, misleading health claims, given their capacity to impair the consumer's ability to make informed decisions, will be appraised under the provisions on misleading commercial practices. For example, if a product which claims to cause hair to grow back on bald heads but does not do so, that is a misleading claim within the scope of this Directive. If, however, the product makes the consumer unwell, that is outside the scope and remedies will not be available under this Directive.

44. The framework directive will apply where there are no specific provisions regulating unfair commercial practices in sectoral legislation. Where such specific provisions do exist, they will take precedence over the framework directive. However, references in sectoral directives to broad principles alone, such as the 'general good' or 'fair trade' will not be sufficient to justify a derogation in areas harmonised by the framework Directive on grounds of the protection of consumer economic interests.

45. Where a sectoral directive regulates only aspects of commercial practices, for example the content of information requirements, the framework directive will come into play for other elements, for example, if the information required in the sectoral legislation were presented in a misleading way. The directive therefore complements both existing and future legislation, such as the proposed Regulation on sales promotion, or the consumer credit Directive i, and the e-commerce Directive. i

46 The Directive is without prejudice to the application of rules governing international private law provisions in the fields which it does not approximate.

8.

Internal Market (Article 4)


47. The convergence brought about by the proposed Directive creates the conditions for introducing the principle of mutual recognition of laws relating to unfair commercial practices. Thus Article 4 provides that traders are required to comply only with the laws of the Member State where they are established and prohibits other Member States from imposing additional requirements on such traders within the field co-ordinated by the Directive or from restricting the free movement of goods and services where the trader has complied with the laws of the Member State of establishment.

9.

Unfair commercial practices (Chapter 2)


General Prohibition (Article 5)

48. The general prohibition is the essential element of the Directive which achieves the harmonisation necessary to overcome the internal market barriers and ensure that a high, common level of protection is provided. It will do this by replacing the existing national general clauses in relation to unfair commercial practices between business and consumers and establishing more precise criteria for determining what is unfair than any existing national general clause. If this general prohibition were not included, Member States would be able to continue to apply their divergent general clauses which would undermine the harmonising effect of the Directive, even in relation to misleading and aggressive practices which are addressed specifically.

49. In this context, the internal market clause plays a vital role: if a practice is judged to be unfair in one Member State it will still be able to prevent traders established on its territory from selling to consumers. But, unlike now, it will not be able to prevent traders established elsewhere in the EU from selling to its consumers. This means that there will be a high degree of legal certainty because only one set of rules will apply, and the tests in legislation will be more precise than those which are used now.

50. Some practices currently judged unfair in certain Member States could be caught by the general clause even if they are not misleading or aggressive (eg tied sales in France). For example, a trader sells package holidays only on condition consumers also buy an insurance policy covering the risk of cancellation and travel insurance. Cases in other Member States show that enforcers may find it hard to judge an innovative practice under specific provisions on misleading or aggressive practices which were not written with those practices in mind (eg where a website silently re-routes a consumer's web connection to a server in a distant country leading to an unexpectedly high phone bill) and will need to apply the conditions of the general clause directly. Having this possibility helps to ensure that the Directive can adapt to changing technologies and market developments.

51. The general prohibition covers unfair commercial practices. It establishes three conditions for determining whether a practice is unfair. A plaintiff will have to demonstrate that all three conditions are satisfied in order for a practice to be judged unfair:

* the practice must be contrary to the requirements of professional diligence;

* the benchmark consumer to be considered in assessing the impact of the practice is the average consumer established by the ECJ; and

* the practice must materially distort or be likely to materially distort consumers' economic behaviour.

52. Together these three components form an autonomous general prohibition, which may be invoked even if the circumstances of a particular case are not covered by the specific categories of unfairness later in the Directive or the Annex. In practice this is likely to be used infrequently because the two categories of misleading and aggressive commercial practices capture the vast majority of cases.

53. The concept of professional diligence referred to in the first condition, and defined in Article 2, is analogous to notions of good business conduct found in most legal systems of the Member States. It is the measure of care and skill exercised by a good businessman, in accordance with generally recognised standards of business practice in his particular sector of activity. This concept is necessary to ensure that normal business practices which are in conformity with custom and usage, such as advertising based on brand recognition or product placement, will not be caught by the Directive even if they are capable of influencing consumers' economic behaviour. It is important to remember that, given that the conditions are cumulative, even if a practice is found to be contrary to professional diligence it will only be unfair if the other conditions of the general prohibition are also met.

54. The third condition means that the commercial practice, in context,

* must have a significant enough effect to change, or be likely to change, the consumer's behaviour by causing him to take a transactional decision that he would not otherwise have taken, and

* it must have this effect by impairing the consumer's ability to take an informed decision. So incentives, such as the offer of free tea or coffee or free transport to their premises, would not qualify because the consumer has a free choice about whether to take advantage of the incentive or not.

55. A transactional decision would include, for example, a decision about whether to buy, and from which supplier; a decision to exercise rights under a contract; or to either continue or terminate a commercial relation with a supplier.

10.

Misleading and Aggressive Commercial Practices (Articles 6 to 9)


56. The vast majority of the practices which would be defined as unfair under the general prohibition fall within two categories: misleading or aggressive practices. For the sake of legal certainty, these two categories are elaborated more fully in Articles 6 to 9. These articles apply the three conditions of the general prohibition in these two key areas. That means that if a commercial practice is found to be either misleading or aggressive it will automatically be unfair, without any further reference to the conditions contained in Article 5.

57. The three conditions of the general prohibition are contained in the unfairness categories as follows:

* Misleading a consumer or treating them aggressively are considered in themselves to be distortions of consumer behaviour rather than legitimate influence and, as such, contrary to the requirements of professional diligence. Conduct that truly deceives, harasses, unduly influences or coerces will always violate the requirements of professional diligence and significantly impair the consumer's ability to make an informed decision. For this reason there is no separate reference to the professional diligence test or the distortion element of the material distortion definition.

* The materiality condition is captured by the requirement in Articles 6 and 8 that the commercial practice 'thereby causes or is likely to cause the average consumer to take a transactional decision that he would not have taken otherwise'.

* In each of articles 6, 7, 8 and 9 the impact of the commercial practice on the 'average consumer' will be assessed, in line with the conditions of the general prohibition. This means that where a particular group of consumers is directly targeted the impact of the commercial practice will be assessed from the perspective of the average member of that group.

58. These specific categories do not prejudice the autonomous functioning of the general prohibition, which will continue to operate as a safety net and hence provide a way of assessing the fairness of any current or future trade practices that do not fall within one of the two key types explicitly mentioned.

59. As explained above, rather than impose a specific unfairness category in relation to after-sale practices, this proposal applies the provisions of the Directive to commercial practices both before and after sale. The trader will consequently need to ensure that commercial practices after sale meet the same fairness standards as commercial practices before sale. However, the absence of after-sale services would not in itself be considered unfair unless the trader's conduct would lead the average consumer to have materially different expectations about the after-sale service available. For example, there is no obligation under the proposed Directive to offer a dedicated technical support hotline. However if the trader (e.g. a computer supplier) makes claims that he will provide such a facility and then does not do so, this is misleading and thus unfair.

Misleading practices (Articles 6 & 7)

60. A commercial practice may mislead either through action or omission, and this division is reflected in the structure of the articles.

61. The articles include the current provisions of the misleading advertising Directive and apply them to other commercial practices, including those after sale. These provisions reproduce the provisions of the existing misleading advertising Directive with the additions necessary to achieve full harmonisation. For example, it will be misleading to deceive consumers about the results to be expected from the product, such as weight loss, hair re-growth or enhanced performance.

62. An important principle here is that the effect of the commercial practice in its entirety, including the presentation, must be considered. If the presentation is obscure, Article 7 makes clear that this is tantamount to an omission.

63. The provisions do not attempt to define a comprehensive list of information to be positively disclosed in all circumstances. Rather the duty the framework directive imposes on a trader is not to omit material information which the average consumer needs to make an informed transactional decision where this information would not be apparent from the context.

64. Under Article 7 the trader is obliged to disclose a limited number of core information items in order to enable the consumer to take an informed transactional decision. Such information is needed by the consumer at the stage when he is contemplating a decision to purchase The requirements provided for under Article 7 i only apply to commercial communication, which constitutes an invitation to purchase as defined in Article 2. General brand or product awareness marketing, which would not meet the definition of an invitation to purchase would not need to include this information. Where this information is not apparent from the context, the trader will need to disclose it to avoid committing a misleading omission.

65. Article 7 also provides that information requirements established in other Directives will be regarded as material information under this Directive. This approach seeks to balance consumers' needs for information with a recognition that an overload of information can be as much a problem to consumers as a lack of information.

66. Article 6 sets out the ways in which actions by traders could deceive consumers, which would make that action an unfair commercial practice. These include the requirements of the misleading advertising Directive, with certain additions, including after-sale customer assistance and complaint handling; the need for services, replacements or repairs; and representations concerning direct or indirect sponsorship.

67. Article 6 also covers marketing of a product by imitating the distinguishing features of another product in a way which causes confusion between the two products; non-compliance by a trader with commitments made to a public authority to cease an unfair commercial practice; and, under certain conditions, non-compliance by a trader with the provisions of a code of which the trader is a member.

68. The provision recognises that codes of conduct are fundamentally voluntary in nature and establishes criteria to indicate when the trader's performance in relation to the code might reasonably be expected to influence the consumer's decision. These provisions apply to any code, regardless of whether it is a national or EU-level Code. However, only those elements of codes which would or would be likely to materially distort the reasonable consumer's economic behaviour in relation to the product would be taken into account. Matters of taste, decency or social responsibility would, as explained above, therefore be outside scope unless the trader establishes a specific connection between its actions in these areas and its product in its marketing material.

69. As a general rule, the burden of proof of the unfairness of a disputed commercial practice lies with the plaintiff. Article 6(1f) makes an exception to this rule. If a trader makes a factual claim about a product, which he is unable to further substantiate, this will be taken into account by a judge when determining whether the trader engaged in any misleading and thus unfair commercial practice. This reversal of the burden of proof already exists as a possibility in the misleading advertising Directive and reflects the fact that consumers are in no position to prove that a factual claim is untrue. On the other hand, a trader claiming that his product has no side-effects or has been tested clinically or scientifically, is in a far better position to prove the accuracy of such claims, for instance by supplying research findings. If he is not in a position to do so, he should not make such factual claims.

Aggressive practices (Articles 8 & 9)

70. These articles describe three ways in which a commercial practice can be aggressive, namely harassment, coercion and undue influence. Criteria are set out to be applied in differentiating between aggressive practices on the one hand and legitimate marketing on the other.

71. Undue influence, defined in Article 2, involves that a trader exploits a position of power in a way which significantly limits the consumer's ability to make an informed decision. For example, where a consumer is already in debt to a trader and behind with payments, the trader would be using undue influence if said he would reschedule the debt on condition that the consumer bought another product. Offering an incentive to a consumer, such as a free bus to an out-of-town store, or refreshments while shopping, might influence a consumer but would not constitute undue influence because, as indicated above, it would not impair the consumer's ability to make an informed transactional decision. Following the same logic, the offering of a sales promotion could not, per se, be considered an aggressive practice.

11.

Codes of Conduct (Chapter 3)


72. In some Member States there is a tradition of using codes of conduct to define norms or standards of behaviour for traders which are not prescribed in legislation. These can be used either to show in greater detail how to apply legislative requirements (eg how to explain complex concepts in ways that consumers can understand) or in areas where there are no specific legal requirements (eg aspects of after-sales care).

73. There is potential for codes with EU-wide application to promote convergence in expectations regarding professional diligence and thereby further reduce internal market barriers, while ensuring that such codes do not prevent, restrict or distort competition. Such codes could bring added value by helping traders to apply the principles in the Directive effectively in their particular day-to-day business;

74. Codes within the field harmonised by the Directive could be taken into account by the Member States in assessing whether a trader had breached the provisions of the Directive as implemented in the Member State where the trader is established. The precise way in which an EU code of conduct could operate would depend on the needs and circumstances of different sectors;

75. This chaptercontains provisions for control of the Directive's requirements by code-owners provided this is in addition to and not in place of the other mechanisms provided for in Chapter 4. This replicates a provision contained in the existing misleading advertising Directive.

12.

Final Provisions (Chapter 4)


76. This Chapter includes certain general provisions and also:

* enforcement and sanctions;

* amendments to the scope of the misleading advertising Directive to achieve the incorporation of the business to consumer aspects into the framework Directive, as explained above; and

* replaces the misleading advertising Directive with this Directive in the list appended to the injunctions Directive

77. The provisions on enforcement in Articles 11 to 13 reproduce those established in various existing directives, i including in particular Articles 4 to 6 of Directive 84/450/EEC concerning misleading advertising, as amended by Directive 97/55/EC concerning misleading advertising so as to include comparative advertising. i It therefore imposes no new obligations on Member States as to the nature or form of enforcement required.

78. The provisions in Article 13 on the imposition of penalties on traders who are in breach of fair trading rules also reflects the provisions in existing consumer directives i. It asks Member States to ensure the Directive's effect in accordance with the ruling of the Court in case C-68/88 (Commission v. Greece).

79. Articles 14 and 16 make the amendments necessary to limit the scope of the misleading advertising Directive to advertising which causes harm to businesses but not to consumers. This change is needed because all the provisions from that Directive which affect consumers are incorporated in the framework Directive. Article 14 amends the scope and provisions of the 84/450/EEC as amended by 97/55/EC. Article 16 replaces that Directive with this framework Directive in the Annex of the Injunctions Directive so that it is possible to seek an action for an injunction aimed at the protection of the collective interests of consumers in relation to unfair commercial practices.

80. In line with other recent consumer-related directives, Article 17 obliges Member States to increase the awareness of harmonised national consumer law amongst its citizens, where possible in co-operation with businesses i.

13.

Final remarks


81. The Commission considers that adoption of the proposed Directive by Council and Parliament should be undertaken as quickly as possible.

82. A complementary proposal for a regulation on consumer protection co-operation will enable more effective administrative co-operation between Member States to support the effective enforcement of the principles enshrined in this proposal.