Unfair Trade Practices: A Summary Elisa Holmes Monckton Chambers London eholmes@monckton.com 1-2 Raymond Buildings, Gray’s Inn, London, WC1R 5NR, UK +44 (0)20 7405 7211

What are ‘Unfair Trade Practices’? No universal definition General idea - cause economic injury to others, including through practices designed to confuse buyers ‘Lay’ views vary between cultures and individuals, reflecting cultural and community practices and ethics Legal definitions vary between countries, and reflect local views of appropriate moral conduct in business Some unfair trade practices are covered by specific legislation Law generally aimed at protecting relatively weak individuals against powerful corporations Eg Germany against the law to give free DVDs in newspapers whereas common practice in UK

Examples of Unfair Trade Practices False or misleading advertising Misleading or deceptive conduct Imposition of unfair terms for acquiring goods or services Contracts in restraint of trade Infringement of intellectual property rights State aid (important in the EC)

Definitions of Unfair Trade Practices World Bank / OECD Model Law (1998) Prohibits unfair competition including false or misleading information harming another firm, or misleading consumers Commonwealth Model Competition Law (2005) Prohibits unfair practices in consumer transactions involving false or misleading claims Australia and New Zealand Generally prohibit misleading and deceptive conduct or claims US Trade Commission Act Talks about “unfair methods of competition” Indonesia Unfair business competition

Some examples of consumer protection Availability of advertised goods & services (eg no bait advertising) Claims on qualifications and skills Claims on success Comparative advertising Condition: quality, new or used Fine print conditions Origin of goods Pictorial representations Sponsorships and endorsements Words with special meanings Eg false eyelashes penelope cruise, “interest rates”, celebrities wearing watches actual false statement in advertisements about a products quality, ingredients, or effectiveness fake testimonials and endorsements pictures of the wrong merchandise in ads trying to sell some other item that imply the picture is of the item being sold faked pictures of the product performing in a way that it cannot actually perform Use of prices in ads that are not the real price of the merchandise described or pictured Advertising sale items that are not actually available to convince people to visit the sellers store or business or sending flyers with some sale items and some sale items where the actual items that are on sale are not clearly identified. "Bait and Switch" advertising - this is a technique by which the seller advertises an item for sale at a particularly good price or on particularly good terms but does not really want to sell that item. When the consumer comes to their business after seeing the advertisement the seller discourages the purchase of the advertised item and instead tries to convince the buyer to purchase a different item for a higher price or on less favorable terms. The seller's techniques for discouraging the purchase of the object can vary and can include refusing to demonstrate, show or discuss the advertised item, representing that the item is not a good product or it has a poor guarantee or doesn't work properly, demonstrating a defective or poorly performing example of the product, and failing to have the item available to purchase (unless the advertising accurately and clearly stated the limitations on availability). Deceptive statements of guarantees in advertisements - the statement must identify the nature of the guarantee and who is offering it (the manufacturer, the seller or someone else), what parts of the product are covered and what is required of the consumer to make a claim under the guarantee. If an ad says that a product is "unconditionally guaranteed" or says "satisfaction or your money back" or words to that effect, the use of the term is deceptive unless the seller will refund the full purchase price, replace the product or repair the product and the BUYER has the right to choose which of these alternatives he or she wants.

False or Deceptive Claims on Price Comparative pricing “Duty free” “Free” goods or services Additional taxes Hidden or additional costs Price displays Price ranges Quote and estimates (legal effect) Sales and promotions Special offers Claiming that the item is on sale by artificially and untruthfully pretending the product usually sells for a price higher than its normal price. The price represented to be the products "regular" price must be a real price that the product in fact sold for during some significant time in the recent past in the seller's own stores. Misrepresenting the price that the same product is sold at by competitors Placing fake price stickers on merchandise with higher than actual prices so that the product appears to be marked down when in fact it isn't Claiming that a product may be purchased for one price when in fact the actual price is higher Advertising an item at a very good price to induce customers to come in and then only selling the item at that price if the purchaser also buys another more expensive product. Using the terms "special price" or "priced for sale" or "clearance priced" or similar terms when the items are not being sold at reduced prices and without clearly disclosing the actual former price or the percentage reduction from the former price that is actually being offered.

Unfair sales techniques Debt collection methods Delivery terms Inertia selling “Interest free” claims Harassment and coercion Telecommunications – mobile phones, minors, inadequate information Gifts and prizes Deceptive packaging False billing Pyramid selling, chain letters Guarantees and warranties

Some arguments for limited restrictions on trade practices Creates uncertainty in application of law Deters investment Inhibits job creation and product and service innovation Should be limited to practices that have predictable effects on competition Should be measured by impact on consumer welfare Should not be designed to protect competitors from innovation or efficiency

Conclusions The underlying assumption is that competition in markets promotes fairness But competition has to be fair Legislation and enforcement must reflect national and cultural attitudes The focus is ultimately on consumer protection, whether directly or indirectly