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Supplements to the Sale of Products in the Light of Unfair Competition Rules in Bulgaria

admin — Thu, 09 Apr 2015 13:21:12 +0000

I. INSIDE AND OUTSIDE THE BULGARIAN LEGAL FRAMEWORK ON COMPETITION AND UNFAIR COMPETITION

Legal framework

Art. 36 of the Bulgarian Protection of Competition Act (PCA) is titled “unfair soliciting of clients”. It is a part of the unfair competition rules in Bulgarian law and contains four paragraphs providing for four different prohibitions. One of these prohibitions relates to supplements offered or given upon the sale of a product.

Art. 36 (2) of the Bulgarian Protection of Competition Act (PCA) provides for the following prohibition:

“The offering or giving of supplements for free or at a fictitious price of another good or service, upon the sale of goods or services shall be prohibited save for: advertising objects of insignificant value and clear identification of the advertiser; goods or services which according to standard commercial practice are attributes to the sold goods or services; goods or services as a discount upon sale in large quantities.”

Outside the Bulgarian legal framework

Further to the legal framework the Bulgarian Commission on Protection of Competition (CPC – the advertising authority in Bulgaria) has adopted two general decisions (ie not on a particular case) whereby CPC explains what it understands by “advertising object of insignificant value” and “goods or services as a discount upon sale in large quantities. Those acts of the Bulgarian CPC are not legislation per se, however, they seem to be followed also by the court and adhered to by Bulgarian lawyers.

Other important points from the decision making practice of CPC relate to the nature of the supplement and availability of the supplement to each buyer of the main product.

Advertising object of insignificant value in Bulgaria

According to CPC advertising objects of insignificant value are: (i) ‘advertising objects’ if they contain a clear indication of the advertiser; and (ii) ‘of insignificant value’ if they are no more than 10% of the product (goods or services) to which they are offered as supplements.

Products (goods and services as a discount upon sale in large quantities

According to CPC products offered as a discount must be of the same type as the main product. For instance, salt may not be offered as a natural rebate (discount) to the sale of sugar, because salt is different from sugar.

Nature of the supplement

According to CPC the supplement must be of such a nature that it is liable to distort the consumer demand. The assessment of the nature is entirely factual and is made by CPC on a case-by-case basis. There are no criteria to serve as guidance. The following instances may be extracted from the decision making practice of CPC: (i) a book given as a free supplement upon the sale of a newspaper; (ii) one bottle of oil or 1kg of sugar offered as a supplement to 1 ton of wood; (iii) a pint of beer offered as a supplement to a set of three beers in a package.

Availability of the supplement

A couple of times CPC has noted that in order for there to be a supplement it must be available to every buyer of the main product. If that is not the case, there is no supplement for the purposes of Art. 36 (2) of PCA.

Protection of consumer demand

CPC has expressly emphasized that the main purpose of Art. 36, para 2 of PCA is to prevent distortion of consumer demand as consumers may be incited to purchase a product not because of its qualities but because together with the main product they may receive a supplement which is free or at a fictitious price.

II. PROBLEMS WITH ART. 36 (2) OF PCA

Art. 36 (2) of PCA is one of the most unclear provisions of the unfair competition rules. Two of the main issues it raises are the following:

is it and should it be applicable to business-to-consumer (B2C) relations only or does it also comprehend purely B2B relations; and
can a producer or a wholesaler be held liable under Art. 36, para 2 of PCA if no direct sale to consumers is involved?

Art. 36, para 2 of PCA and B2C and B2B relations

One of the most unclear aspects of the application of Art. 36 (2) of PCA is whether it applies only to relations where purchases by consumers are involved, ie business-to-consumer relations (B2C) or it may apply to a higher level in the distribution chain where purely business-to-business (B2B) relations subsist (eg producer-wholesaler relations).

It seems entirely logical that the prohibition of Art. 36 (2) of PCA should apply only to B2C relations, ie only where consumer purchases taka place. Consumers normally purchase products from final retailers (although as an exception a consumer may purchase products directly from a wholesaler or a producer). It also seems economically and legally inadequate to apply the prohibition in the context of B2B relations (eg a producer and wholesaler or a wholesaler and retailer, etc.):

first of all, CPC has undoubtedly noted that the main purpose of this prohibition is to protect consumer demand and prevent its distortion. According to the Bulgarian Competition Authority – CPC the distortion is in that consumers are induced to purchase a product not because of its qualities but because of the supplement thereto. Such distortion may occur only where purchases by consumers are possible, ie in the B2C relations and not in B2B relations;
also, consumer demand and commercial demand are qualitatively and quantitatively different. In other words, the motivation of the trader (eg a wholesaler) to make a purchase is qualitatively and quantitatively different from the motivation of the consumer). A trader seeks to satisfy commercial/industrial needs, so to say, while in contrast to that a consumer, who is an individual, tries to meet their and their family’s everyday needs. In addition to that by definition the trader is a professional while the consumer is not – and it is difficult and even naive to think that a professional would risk purchasing industrial volumes of poor quality products only because of a certain supplement that may be offered alongside. By definition the professional “knows better than that”;
the prerequisites for the distortion of consumer demand and therefore for the application of the prohibition under Art. 36 (2) of PCA are: (i) the offering or giving of a supplement; and (ii) its price (ie for free or at a fictitious price);
therefore, according to CPC consumer demand may be distorted provided that consumers are directly involved in the purchase, because it is the consumer who needs to purchase the product and receive the supplement (for free or at a fictitious price);
B2B relations (eg a wholesaler selling to a retailer) do not involve any consumers, therefore in those relations no consumer may purchase a product and receive a supplement. Those relations are regulated by competition rules on vertical agreements and dominant position (inter alia bundling and tying);
another example of how inadequate is to apply the prohibition to B2B relations is the understanding of CPC that discounts (natural rebates) upon sales in large quantities are only possible where the natural rebate is of the same type as the main product (eg a toothbrush + a toothbrush instead of a toothbrush and a tooth-paste). Very often traders offer natural rebates upon the sale of their products, and very often the products that are offered as a natural rebate are not of the same type as the main product, eg seeds and chemical substances for their treatment; a main product with accessories, etc. Insofar as the competition rules regarding tying and bundling are not infringed, those are standard business practices which are perfectly normal and acceptable. Consumer demand has nothing to do with such cases, all the more where the products subject to the business transaction do not reach the consumer level at all. Furthermore, commercial discounts are essentially different from those offered to consumers.

All of the above points still remain unattended by CPC.

Possible liability in the absence of direct relations with consumers

Another unclear question that has never been visited by CPC is whether, a producer or a wholesaler may be liable under Art. 36 (2) of PCA although they have no direct relations with consumers. A producer, for instance, releases a package which comprises two products and is intended for final consumers. The products of the package are also available individually to consumers. One of the products in the package is labeled “for free” or “gift”. The package moves down the distribution chain and reaches final consumers in its original form, ie as originally produced. The only thing that changes is the price of the package downstream.

In that case the retail prices (for consumers) of both the package and the individual products are determined by the final retailer. The producer may not control the resale prices of the package and individual products, otherwise that would be a resale price maintenance (RPM) for competition purposes.

The final retailer sells the package at the individual price of one of the products outside the package, ie the other product remains free and therefore possible to be considered as a free supplement.

The producer has labeled that one of the products is free/gift. At the retail level the price of the package is such that indeed one of the products turns out to be free/gift to consumers as compared to the individual prices of the products offered by the final retailer outside the package.

The question is – despite the fact that the producer may not control the retail prices, may the producer in the case be held liable under Art. 36 (2) of PCA as the retailer simply resells the package in its original form, ie one of the products is labeled and therefore offered for free/gift by the producer itself and not by the retailer?

To make things even more complicated, the following scenarios are possible: (i) what if all other final retailers (save for one) sold the package at the aggregate price of both products outside the package (despite the fact that one of them was labeled as free/gift by the producer); (ii) would it matter if the producer did not label one of the products as free/gift, however, the final retailer on its own decided to offer a retail price for the package at which one of the products inside the package would be free/gift as compared to the individual prices of the same products offered by that retailer outside the package; etc.

That and a number of other questions, not referred hereinabove, remain unclear in the decision making practice of CPC.

The Concept of ‘Advertising’ and Unfair Competition Rules in Bulgaria

admin — Sun, 29 Mar 2015 19:27:58 +0000

Advertising is an integral part of every business and as such it is subject to many and various legal regulations depending on the sector and type of product.

Legal framework – Advertising in the Bulgarian law

The Bulgarian Protection of Competition Act (PCA) contains regulation on misleading and comparative advertising as a part of the Bulgarian unfair competition rules. PCA prohibits misleading advertising and lists the requirements which comparative advertising should meet in order to be permitted. In this regard PCA transposes Directive 2006/114/EC of the European Parliament and of the Council of 12 December 2006 concerning misleading and comparative advertising (the “Misleading and Comparative Advertising Directive”).

PCA also provides for a legal definition of ‘advertising’ which is almost identical to the one under the Misleading and Comparative Advertising Directive. According to PCA ‘advertising’ is “the making of a representation in any form in connection with a trade, craft or profession in order to promote the supply of goods or services, including immovable property, rights and obligations”.

When it comes to advertising and in particular its legal definition, however, one of the most fundamental and logical questions to ask is where the separation line between advertising and simple conveyance of information lies. The legal definition of ‘advertising’ in Bulgaria seems broad enough to cover a most various range of situations and yet one cannot deny that not every conveyance or communication of information represents ‘advertising’. This broad definition has been used by Bulgarian lawyers in numerous advertising cases.

Decision making practice of CPC

The Bulgarian Commission on Protection of Competition (CPC) interprets the legal definition of ‘advertising’ very broadly. This means that almost every piece of communication or information may be perceived as ‘advertising’ and legal consultants of advertising agencies in Bulgaria need to be very careful when advising on advertising campaigns in Bulgaria.

It is only very rarely that CPC has suggested that certain representations as an exception may not be caught as ‘advertising’ under the Bulgarian legal definition. For instance, the information contained on product labels and the description of products contained on internet websites (eg internet catalogues) do not possess the characteristics of ‘advertising’ for unfair competition purposes. This is well known to law firms in Bulgaria with expertise in the field of advertising.

It seems that CPC has drawn these exceptions not based on statutory legal provisions but rather based on its factual understanding of the concept of ‘advertising’. The assessment has been made on a case-by-case basis and in the context of the specific facts and circumstances. Thus it would be fair to say that any exceptions to the legal definition of ‘advertising’ might be relied on only provided they might be derived from CPC’s decision making practice.

Push and pull services and advertising in Bulgaria in Bulgaria

In light of the above mentioned, however, one aspect that might be worth considering relates to the possible differentiation between the so called push and pull services reflected in the field of medicinal products where direct-to-consumer advertising of medicinal products for human use subject to prescription is prohibited.

This is what the Court of Justice of the European Union has held on a reference for a preliminary ruling in Case C-316/09:

“45. Among the other relevant factors for determining whether the communication at issue in the main proceedings must be classified as advertising are, in the present case, the group of addressees and the technical characteristics of the media used in order to disseminate the information.

46. In that connection, it should be observed that, admittedly, according to the information provided by the order for reference, the information at issue in the main proceedings is accessible to everyone, since MSD did not decide to reserve access to it to certain groups of persons such as healthcare professionals.

47. However, that information is simply available on the manufacturer’s website, according to the system of ‘pull’ services, so that consulting it requires active research steps by the internet user and a person who is not interested in the medicinal product concerned will not be unwillingly confronted with that information. That means of communicating information with the assistance of a passive presentation platform is not, in principle, intrusive and does not impose itself unexpectedly on the general public, such a situation thus distinguishing itself from that of ‘push’ services, in which an internet user is confronted, without searching for it, with that kind of content by means of intrusive windows called ‘pop-ups’, which appear spontaneously on the screen, from which situation a strong presumption of advertising must, by contrast, be inferred.

48. Having regard to all of the foregoing, the answer to the question referred is that Article 88(1)(a) of Directive 2001/83 must be interpreted as meaning that it does not prohibit the dissemination on a website, by a pharmaceutical undertaking, of information relating to medicinal products available only on medical prescription, where that information is accessible on the website only to someone who seeks to obtain it and that dissemination consists solely in the faithful reproduction of the packaging of the medicinal product, in accordance with Article 62 of that directive, and in the literal and complete reproduction of the package leaflet or the summary of the product’s characteristics, which have been approved by the authorities with competence in relation to medicinal products. On the other hand, the dissemination, on such a website, of information relating to a medicinal product which has been selected or rewritten by the manufacturer, which can be explained only by an advertising purpose, is prohibited. It is for the referring court to determine whether and to what extent the activities at issue in the main proceedings constitute advertising within the meaning of that directive.”

Based on the above and aside from the specifics of the cited case (ie advertising of medicinal products) is it generally conceivable by advertising lawyers in Bulgaria to think that certain information that is placed on a corporate website that is not immediately available upon its opening or actively introduced to the user (eg by a pop-up window) but instead requires the user to specifically and actively search for it, does not meet the characteristics of ‘advertising’? Analogy may be drawn to physical libraries where users need to actively search for a book in order to reach the information contained in it. In the same way corporate entities may place information of their products on their corporate websites that formally may be considered as “representation in any form in connection with a trade, craft or profession in order to promote the supply of goods or services, including immovable property, rights and obligations”. However, does it suffice to qualify such information as ‘advertising’ if users are to actively search for it in order to find it?

The Bulgarian CPC has already had the chance to point out in one of its very recent decisions that ‘advertising’ represents ‘active information’. Conversely, does this mean that information that is not ‘active’, ie it is ‘passive’ because it needs to be actively pulled/searched for by users, does not represent ‘advertising’ for unfair competition purposes? The answer to that question, so important to Bulgarian advertising law, still waits.