Sales Promotion in the Internal Market

From Max-EuP 2012

by Olaf Sosnitza

1. Definitions and purpose

Sales promotion is a means of promoting the sale of goods and services. It is difficult to define this notion and to distinguish it from ‘classical’ forms of promoting distribution. The proposal of the European Commission on sales promotion in the internal market (COM(2002) 585 final) included under the notion of sales promotion the offer of a discount, a free gift, a premium or an opportunity to participate in a promotional contest or game (Art 2(b) COM(2002) 585 final). Due to the innovative power in the field of sales promotion a more precise definition of the term can only be achieved by considering the purpose of the sales promotion measure, ie to make the sale of the goods or services more efficient. Sales promotion measures directed at consumers (consumers and consumer protection law) generally achieve this aim by announcing special advantages in order to attract their interest. This kind of sales promotion is suitable when a trader wants to establish himself in a new market or if it is difficult to compete on price for a product group. The trader-oriented sales promotion serves to win the support of merchants and to strengthen their motivation to sell goods. A sales promotion directed at sales staff is aimed at optimizing their performance and hence to increase product sales.

2. Regulatory approaches in European law

EU law does not provide extensive regulation of sales promotion within the internal market. However, a tendency towards harmonization emerges from some legislative acts of the European Union. These approaches do not concern the legitimacy of sales promotion measures themselves; they are limited to establishing a uniform standard of information obligations for regulation within the Member States.

European primary law does not contain provisions explicitly regulating sales promotion. It is settled case law of the European Court of Justice (ECJ) that provisions of the Member States about sales modalities do not constitute ‘quantitative restrictions on imports and all measures having equivalent effect’ (Art 34 TFEU/28 EC) provided that those provisions apply to all relevant traders operating within the national territory and as long as they affect in the same manner, in law and in fact, the marketing of domestic products as well as those from other Member States (ECJ Joined Cases C-267/91 and C-268/91 – Keck and Mithouard [1993] ECR I-6097). Sales promotion measures are generally actions concerning the manner in which goods are sold, so that provisions of the Member States regulating sales promotion do not infringe primary EU law as long as they do not have a discriminatory effect. The European Court of Justice has indicated that the aforementioned principles may generally also be applied to the free movement of services but has yet to decide this conclusively. Therefore it currently remains unclear under which circumstances the European Court of Justice would consider provisions of the Member States concerning sales promotion measures as an infringement on the freedom of services.

In addition, European secondary legislation does not contain provisions explicitly regulating sales promotion in the internal market. In 2001 the European Commission communicated a proposal regulating certain forms of sales promotion in the internal market. This proposal contained regulations for temporary sales promotion measures and suggested a new approach which was initially developed in the 1996 green paper of the Commission on commercial communications in the internal market. This approach was in line with the jurisdiction of the European Court of Justice (labelling doctrine) and, in particular, accommodated the balancing of interests between consumer protection (consumers and consumer protection law) and freedom of competition. It was aimed at overruling prohibition policies in the regulation of fair competition and replacing them with detailed information duties. The core elements of this proposal (which was revised in 2002) were, therefore, the abolition of outdated, comprehensive prohibitions and restrictions, which were regulating sales promotion in the different Member States, the intensification of youth protection in fair competition law and the adoption of the country of origin principle for remaining national restrictions. This proposal was harshly criticized. A particular target of complaint was the fact that the European Commission—by choosing the legal form of a regulation—did not grant the Member States any implementation leeway. Furthermore, it was feared that the proposed duties to inform which would be imposed on the initiators of sales promotion measures would amount to over-regulation. As a result of this criticism the legislative procedure was considerably delayed and the European Commission finally withdrew the proposal.

Sales promotion measures fall under the scope of application of the E-Commerce Directive (Dir 2000/31), which includes provisions on information society services and commercial communications (see Art 1(2) E-Commerce Directive). For such services that include sales promotion measures in electronic commerce, the directive requires the application of the country of origin principle. Furthermore, it contains transparency requirements that shall facilitate an informed decision about the purchase of a product or the participation in a promotional contest or game. For example, according to Art 6(c) E-Commerce Directive, promotional offers such as discounts, premiums and gifts, where permitted in the Member State of the service provider, shall be clearly identifiable as such and the conditions for participation shall be easily accessible and be presented clearly and unambiguously.

Indirect information duties for sales promotion measures result from the Directive against Unfair Competition (2005/29, UCP). According to Art 5 UCP Directive, unfair commercial practices including, in particular, misleading commercial practices are prohibited. A commercial practice shall be regarded as misleading if, in its factual context and taking account of all its features and circumstances as well as the limitations of the communication medium, it omits material information that the average consumer needs, according to the context, to take an informed transactional decision and thereby causes or is likely to cause the average consumer to take a transactional decision that he would not have taken otherwise (Art 7(1) UCP Directive). It shall also be regarded as a misleading omission when a trader hides or provides in an unclear, unintelligible, ambiguous or untimely manner such material information as specifically described in the directive (Art 7(2) UCP Directive). Although the provisions of this directive do not list a catalogue of misleading actions, information duties result from the prohibition of misleading omissions.

Furthermore, Annex 1 of the directive is of importance for sales promotion measures. This so-called black list contains a list of commercial practices which must be considered as misleading whatever the circumstances. Prohibited practices include, for example, disguising promotional contents as information in order to promote a product (no 11), establishing, operating or promoting a pyramidal promotional scheme for sales promotion (no 14), claiming that products are able to facilitate winning in games of chance (no 16), offering a competition or prize promotion without awarding the prizes described or a reasonable equivalent (no 19), offering ‘free’ products where other unavoidable expenses are incurred (no 20) and creating the false impression that the consumer has already won, will win, or will, on doing a particular act, win a prize or other equivalent benefit when in fact either there is no prize or other equivalent benefit or taking any action in relation to claiming the prize or other equivalent benefit is subject to the consumer paying money or incurring a cost (no 31).

Sales promotion measures which are likely to mislead also fall under the scope of application of the Misleading and Comparative Advertising Directive (Dir 2006/114). In contrast to the UCP Directive, which regulates misleading commercial practices in business-to-consumer (b2c) relationships, the Misleading and Comparative Advertising Directive only protects traders (within business-to-business (b2b) relationships) from misleading advertising. The notion of ‘advertising’ has to be construed broadly and also comprises sales promotion measures as they facilitate the sale of goods and services.

3. Details

The minimal legal requirements of European law grant the Member States an extensive margin of regulation. Consequently, a variety of provisions with different standards exist in the Member States concerning sales promotion. The incremental implementation of the respective directives is starting to lead to an approximation of those provisions and standards in the Member States which regulate—at least marginally—sales promotion measures.

Due to the 2001 abrogation of the Retail Discount Act (Rabattgesetz) and the Regulation on Bonuses and Free Gifts (Zugabeverordnung), Germany has largely deregulated sales promotion measures in order to leave a space for the development and usage of innovative forms for initiating and securing customer relations. According to §§ 3, 4 of the Act Against Unfair Competition (UWG), acts of competition suitable to affect the freedom of choice of consumers or other market actors, eg by way of pressure, in a dehumanizing manner or by other inappropriate, non-objective influence are considered unfair. According to §§ 3, 4 no 4, no 5 UWG, the same applies to sales promotion measures which do not clearly and unambiguously name the conditions for the claiming of discounts, bonuses, free gifts, or for participation in promotional contests or games (transparency requirements; especially for commercial communications relating to telemedia see § 6(1) no 3, no 4 of the Telemedia Act (TMG)). It is also considered unfair if the participation of consumers in promotional contests or games is dependent on the purchase of goods or the utilization of services (§§ 3, 4 no 6 UWG); this rigid prohibition, however, has recently been found not to be in line with the UCP Directive because § 4 no 6 UWG does not take into account the specific circumstances of individual cases (ECJ Case C-304/08 – Plus Warenhandelsgesellschaft [2010] ECR I-0000).

In France, sales promotion measures are regulated by the Code de la Consommation. Its provisions are relatively strict in comparison to regulations in other Member States. Granting a discount is allowed as long as the common provisions concerning misleading acts are observed and the goods are not sold below cost (Art L 442-1 ff Code de la Consommation). Bonuses for consumers (free-of-charge goods or services) are only allowed if they are insignificant and not connected with the main deal (Art L 121-35 Code de la Consommation). Non-state-approved lotteries or promotional games which require a capital commitment and depend on pure chance are forbidden. Competitions and other promotional games depending on the skills of the participants are allowed even though they may be connected with a main transaction.

Great Britain has a very liberal legal framework for sales promotion measures. Very few legal regulations and restrictions exist. The British Code of Advertising, Sales Promotion and Direct Marketing is the most important self-regulation code for commerce and contains general provisions. Accordingly, marketing communications must respect the basic principles of fair competition and have to be legal, decent, honest and truthful. Misleading price indications in connection with special offers, discounts and bonuses are regulated separately.

Italian law does not contain special provisions on sales promotion but regulates this area in the general provisions concerning misleading commercial practices found in the Codice civile (Art 2598 no 2, no 3 Codice civile) and in Regulation No 114 of the year 1998 on the reform of retail sales. Bonuses and lotteries are pursuant to Art 21 of the Codice di Autodisciplina Pubblicitaria (a self-regulation code) subject to transparency requirements.

In Spain, the Ley de competencia desleal contains general provisions on acts of competition, including sales promotion measures, which are complemented by special regulations for retail sales (eg special sales and additional services) under the Ley Ordenación Comercio Minorista. Discounts are allowed only if they are not misleading (Art 7 Ley de competencia desleal) and do not lead to a sale below cost (Art 17 Ley de competencia desleal). Bonuses are, inter alia, prohibited if they pressure the addressee to conclude a contract connected to the bonus (Art 8(1) Ley de competencia desleal). Sales-oriented promotional games have to meet certain transparency requirements (Art 32 Ley Ordenación Comercio Minorista).

Literature

Hans-Wolfgang Micklitz and Jürgen Keßler (eds), Marketing Practices Regulation and Consumer Protection in the EC Member States and the US (2002); Peter Oliver, Free Movement of Goods in the European Community (4th edn, 2003); Jochen Glöckner, Europäisches Lauterkeitsrecht (2006); Frauke Henning-Bodewig, Unfair Competition Law. European Union and Member States (2006); Hans-Wolfgang Micklitz, ‘EG G’ in Peter Heermann and Günter Hirsch (eds), Münchener Kommentar zum Lauterkeitsrecht, vol 1 (2006); Frauke Henning-Bodewig, ‘Introduction E’ in Henning Harte-Bavendamm and Frauke Henning-Bodewig (eds), Gesetz gegen den unlauteren Wettbewerb (2nd edn, 2009); Olaf Sosnitza, ’§ 4.1 no 51 ff’ in Henning Piper, Ansgar Ohly and Olaf Sosnitza (eds), Gesetz gegen den unlauteren Wettbewerb (5th edn, 2010).

Retrieved from Sales Promotion in the Internal Market – Max-EuP 2012 on 01 December 2022.

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