OFFERING FREE SUPPLEMENTS TO GOODS SOLD UNDER BULGARIAN COMPETITION LAW (2013)
1. THE GENERAL RULE
The Bulgarian Competition Protection Act (the “CPA”), currently in force, addresses a very interesting issue in its Prohibition of Unfair Competition chapter, one of the four larger sections within the scope of the CPA, the others being Prohibited Agreements, Abuse of Dominance and Concentrations1.
Article 36, paragraph 2 of the CPA states that “the offering or granting of other goods or services as a supplement to goods sold or services provided, either free of charge or at an ostensible price shall be prohibited”. In general, this provision prevents traders from selling a product when giving or promising the buyers an additional free product to the one already bought, often promoted as a “free gift” and referred to as a “supplement” by the legislature.
The CPA provides for three exceptions from this ban, which will be reviewed below.
The Commission on Protection of Competition (“the CPC”), which is the Bulgarian competition authority in charge of the proper application of the CPA, has abundant case law when comes to interpreting this rule. Nevertheless, examining the rationale of prohibiting free supplements is of great importance to understand the correct purpose of the provision.
The CPC often underlines that the overall objective of this regulation is to prohibit the use of non-market methods for solicitation of clients. The CPC sees anticompetitive effects in companies trying to influence the consumer demand by diverting consumers from one product to another not because of the product’s qualities but rather because of the opportunity for the consumer to get something in addition for free as a gift or at ostensible price (practically making it look like a gift in the eye of the consumer).
As a result, according to the CPC, companies direct to practices of offering a free supplement to their products sold in order to attract consumers, instead of improving the quality and price. Therefore, such practices should be restricted as they distort fair competition on the market.
2. EXCEPTIONS FROM THE BAN
The CPA explicitly provides for three exceptions from the general prohibition of giving free supplements to goods and services sold. In these cases the offering or granting of a product or service in addition to the ones being sold, free of charge or at ostensible price, should be allowed.
In each case when an alleged infringement of article 36, paragraph 2 is examined by the CPC, the competition authority executes a test to check if the product or service given as a supplement falls within the definition of any of the exceptions below. If the test fails with all the three exceptions, the CPC would find that the product or service in question formally represents a supplement.
That is why all the three exceptions will be closely reviewed below.
Advertising items of minor value
The general ban does not cover advertising items of minor value which bear a clear indication of the advertising undertaking. Such items are allowed to be given as supplements free of charge or at ostensible price.
First, the term “advertising items” is interpreted in the case law as any items on which the trader’s name, trademark or logo could be placed with an advertising purpose. In fact, almost an unlimited variety of goods could fall in this category – from simple pencils to luxury cars.
That is why the second requirement is the advertising item to be “of minor value”. The CPC defined2 that the value of the advertising item should not exceed 10% of the price of the main product sold or service provided, i.e. if one sells a product for BGN 10, an advertising item valued at no more than BGN 1 could be given free of charge or at ostensible price together with the main product. It should be noted that this limitation in value significantly narrows the possible range of items that could be used, but since the specific type and character of the item are not defined at all, there is still some space for taking advantage of this exception.
Lastly, the CPA requires that the advertising item offered as a supplement should bear a clear indication of the advertising company. In relation to the definition of “advertising item”, it should be accepted that a clear indication of either of the advertiser’s name, trademark or logo should suffice.