What you need to know
- In late 2019, the EU passed the "New Deal for Consumers" which includes various new requirements for unfair competition law that will change the German system.
- Most notably, consumers will be granted individual claims for damages, price reduction and termination of contract in case of unfair competition. Also fines will rise significantly to up to (at least) 4% of annual turnover or 2 Million Euros.
- Selling goods under the same brand in different countries will be misleading if the goods are "significantly different". This could especially affect the food sector when selling products with different recipes under the same brand in different regions.
What you need to do
- Check your compliance. Companies operating in or selling goods into the EU, must comply with the requirements once they are implemented. Especially in the period directly following the implementation, many claims are to be expected. It is therefore advisable to prepare your team for the upcoming changes.
- Keep up to date. The implementation period is until late 2021. The legislative process until then should be closely monitored, and maybe also influenced through industry bodies.
A "New Deal For Consumers"
The EU is not shy of labelling its projects with big names. One recent example is the "New Deal for Consumers". Whether US President Roosevelt – father of the original "new deal" – would have approved, is not known.
But this "New Deal" actually has the potential to give German unfair competition law a whole new spin – with significant consequences for companies.
The German system – until now
German unfair competition law holds various regulations on advertising and promotions. Especially, these may not be misleading or discredit competitors. Comparative advertising is only allowed under restrictions. This applies to both, B2C and B2B commerce.
But claims for violation of these rules – especially cease and desist or damage claims – may only be raised by competitors and certain (private) consumer protection agencies. Consumers themselves have no standing to sue and an administrative enforcement body (like the ACCC in Australia) does not exist. The market controls itself.
Individual Claims by Consumers
Enter the "New Deal". The main legislative act of the New Deal, directive 2019/2161 ("Directive"), requires Germany to implement a number of changes:
The most basic is that consumers have to be granted claims for at least compensation of damages suffered, price reduction and termination of contract. This will change the system.
There are many open questions around this. Who will be responsible? Often, the Original Equipment Manufacturer (OEM) will be the one in charge for the unfair advertising, but the contract to be terminated will be made with a distributor – so how can it be terminated? How are these claims aligned with other existing consumer rights, such as for defects (imagine a misleading advertising for features the product does not have). And what are the requirements regarding knowledge or intent?
None of these questions holds an obvious answer, and there is no indication (yet) as to how Germany wants to deal with it.
Significant Fines
Moreover, the fines for unfair competition are drastically increased. For "widespread infringements", fines of (at least) up to 4% of the trader's annual turnover in the Member State concerned or (at least) as high as 2 Million Euros must be implemented.
An infringement is considered "widespread" if it concerns at least three member states and shows "common features" – a scenario that could not only apply to multinational companies with a pan-European advertising campaign, but also to much smaller enterprises offering their goods online across country borders.
"Double standard" vs "regional products"
Another requirement that has the potential to create great controversy and influence businesses is that of "double standards": The Directive treats it as misleading if a product is offered "as being identical" in different member states if these hold "significantly different compositions or characteristics". This is specifically aimed at the food sector, where products are sometimes supposedly offered in an "inferior" quality in eastern Europe.
So will a German chocolate manufacturer not be allowed to adjust the recipe for the Spanish market, where consumers prefer a different taste, unless it uses a different brand? This will depend on the individual case, but especially labelling a product as "original" or "genuine" could well have this impact.
What's next?
The "New Deal" holds a number of different additional requirements that will – together with upcoming German reforms – have a stark influence on unfair competition law. And while it is understandable that the EU wants to strengthen the consumers' position after experiences such as "Dieselgate" (the Volkswagen emissions scandal), one has to wonder whether the changes will in fact alter the situation for the better.
Do companies now have to prepare for consumers raising significant damage claims for insignificant violations of unfair competition rules?
The future might not be all that dark. But German consumers have often looked enviously at compensation claims of consumers, for example, in the US. And while concepts like punitive damages do not exist in Germany, and claims for pain and suffering are "priced" much lower than elsewhere, companies should be prepared to comply with the new standards from the get-go and be especially cautious in the first months after the implementation.
The period for this ends in November 2021 – so there is enough time to monitor the developments and to be prepared.
Author: Dr Fabian Klein, Counsel, Frankfurt
