Price Indication

by Ina Maria Lindenberg

1. Subject matter; substantive and formal price law

The law of price indication is part of the so-called price law, which is subdivided into substantive and formal price law. While substantive price law refers to the calculation and the amount of prices and therefore directly concerns the substance of the prices, formal price law only regulates the external form of prices, ie how prices have to be indicated.

The provisions of substantive price law affect the setting of prices as a crucial element of entrepreneurial discretion. They therefore potentially conflict with the concept of the free market economy and the principle of the freedom of contract. Hence, provisions of substantive price law generally only exist in economic sectors in which either a free price competition does not work (yet) due to the special market power of the vendors or other market imperfections, and/or those sectors in which an unregulated price competition is undesired because of special socio-political interests. One could think of the network industries formerly characterized by public monopolies (eg Arts 4 ff Dir 2001/44 for railway networks; Art 13 Dir 2002/19 for telecommunication networks; Art 3 Dir 2003/54 and Dir 2003/55 for electricity and natural gas networks) or the delicate fields of public health, labour law and residential tenancy law. Moreover, even general commercial law might contain substantive price law, namely the competition (antitrust) law and the law of unfair competition. Mainly, the prohibition against the abuse of a dominant position (Art 102 TFEU/82 EC) allows, under certain circumstances, a review of the price by the bodies competent for the enforcement of competition law, eg in the case of cut-throat competition by means of price-dumping (competition law (sanctions); competition law (procedure); competition law (private enforcement)). In addition, a review of prices as to their substance might be conducted in individual cases on the basis of the general clauses of the national laws of unfair competition (Arts 3(b), 5 Dir 2006/114 concerning misleading and comparative advertising; Arts 5, 11 Dir 2005/29 concerning unfair business-to-consumer commercial practices) (advertising, comparative; commercial practices, misleading; commercial practices, aggressive; unfair competition (basic principles); unfair competition (consequences)).

The term of price indication (indication des prix/Preisangaben) in a narrower sense only refers to formal price law. In this context, the main European legislative instrument is Dir 98/6 on consumer protection in the indication of the prices of products offered to consumers (Price Indication Directive), supplemented by sector-specific legal provisions. In addition, the directives on unfair competition contain formal requirements for price indications in the context of price advertising. The law of price indication imposes on vendors precise information duties with regard to the product price in its function as a central differentiating criterion in the context of the purchase decision of the other party (information obligations (consumer contracts)). In addition to the general obligation to indicate the price, a multitude of product-related special indication duties exist referring to the factors creating economic value of the products and as laid down in a number of sector-specific regulatory instruments.

2. Purpose and historic development

In addition to quality, in the view of the consumer, the price of a product is the most important differentiating criterion in the context of a purchase decision. Only a consumer who is informed about the price of a potential object of purchase in an appropriate, comprehensive and clearly understandable way is able to make comparisons with offers by competing suppliers and make a rationale choice based on objective criteria. The purpose of price indication law is therefore to create (market) transparency by imposing standardized information duties and to enable consumers to evaluate and compare the prices of products in an optimal manner and hence to make informed choices on the basis of simple comparisons (recital 6 Dir 98/6). The Price Indication Directive is therefore seen as an integral part of the acquis communautaire in consumer law (consumers and consumer protection law). However, the purpose of the price indication law is not limited to consumer protection. Price indication law also serves a central concern of the European Union, namely the creation of effective competition in the internal market (competition (internal market)). The obligation to indicate correct prices creates a general level playing field that enables the vendors with the best price-performance ratio to prevail. Hence, price indication law also serves economic interests. The first recital of the Price Indication Directive expresses this double purpose as its main principle: ‘Whereas transparent operation of the market and correct information is of benefit to consumer protection and healthy competition between enterprises and products’. The informing of consumers about product prices is therefore a fundamental element for the efficiency of the European internal market. The principles of market transparency, price correctness and price clarity are not limited to the scope of application of formal price law, but influence, as fundamental market principles, commercial law as a whole.

Very early on, the European Union stressed the importance of the existence of provisions on price indication in the internal market. In 1975 and 1981 the Council (Council and the European Council) had already identified the need for common principles on the indication of prices in two resolutions on programs for a consumer protection and information policy ([1975] OJ C 92/1; [1981] OJ C 133/1). Moreover, a 1992 resolution on future priorities for the development of a consumer protection policy ([1992] OJ C 186/1) highlighted further need for action in this area. A first harmonization of legal principles relating to price indication was established in 1979 by means of Dir 79/581 on consumer protection in the indication of prices of foodstuff. In 1988, the second price indication directive (Dir 88/314) on consumer protection in the indication of the prices of non-food products followed. Finally, in 1998, these two legislative instruments were replaced by the more comprehensive Price Indication Directive (Dir 98/6), which aimed at the extension and simplification of the duties in the area of formal price law. In particular, the system of price marking, which was based on the link between rules governing packaging and rules governing price indication and which has in practice proved to be highly complex, was intended to be replaced by a simplified mechanism. In the meantime, the requirements on packaging, to which the provisions on price indication originally referred, have been deregulated or abolished to a large extent (Dir 2007/45 on nominal quantities for pre-packed products).

3. Subject matter of the Price Indication Directive

The Price Indication Directive (or the corresponding national implementation) is applicable in cases where a trader (Art 2(d)) offers a consumer (Art 2(e)) a ‘product’ (Art 1). In principle, the Directive therefore applies to the price marking of all kinds of products without limitation to certain categories of products. In contrast, the Directive does not apply to services. The majority of the Member States have, nevertheless, extended its scope of application to services. The core provision of the Directive is the obligation laid down in Art 3(1) to indicate two prices of any product, namely the selling price (Art 2(a)) of the product and the unit price (Art 2(b)), each respectively defined as the final price including all taxes. The same obligation is imposed on the trader in the case of any advertisement that mentions the selling price of products. In any case, the price marking has to be made in a way that the selling price and the unit price are ‘unambiguous, easily identifiable and clearly legible’ (Art 4(1)).

The Directive expressly presents itself as only a minimum harmonization measure so that the Member States are free to adopt a higher level of consumer protection (Art 10). At the same time, the Price Indication Directive gives the Member States broad discretion with regard to possible exemptions from the obligation to indicate prices. For example, the Directive permits the Member States to exempt from its scope of application products supplied in the course of the provision of a service (eg shampoo at the hairdresser) or sold at auction, or sales of works of arts and antiques (Art 3(2)). Most of the Member States have made use of this provision. In addition, Art 5 allows the Member States to waive the obligation to indicate the unit price for products where the indication might be ‘not useful because of the products’ nature or purpose or would be liable to create confusion’. Again, virtually all Member States have made use of this option. However, the national transformation measures vary considerably due to the fact that the Directive does not provide for clear parameters in this regard. This is true for the applied legislative techniques (positive lists, negative lists, general clauses) as well as for the concrete categories of exempt products. Because such variations might lead to legal uncertainty in cross-border transactions, the Commission has argued for a harmonization of the relevant parameters in a communication on the implementation of the Price Indication Directive (COM (2006)325 final). Finally, Art 6 contains an exclusion for small retail businesses for which the obligation to indicate the unit price would constitute an excessive burden. However, any such exclusion is only possible within a certain transitional period of time that is not specified in the Directive. Again, a majority of the Member States have adopted corresponding provisions of exclusion. As of today, most of these rules are still in force and often do not refer to a defined expiry date. As the national differentiating criteria again vary considerably, the Commission aims at a further harmonization in this area.

According to Art 8 of the Directive, the Member States shall lay down penalties for infringements of national provisions adopted in its application. These penalties must be ‘effective, proportionate and dissuasive’. Identical wordings are also to be found in other directives of [[EU private law (eg Art 20 E-Commerce Directive (Dir 2000/31); Art 11 of the Directive concerning the distance marketing of consumer financial services (Dir 2002/65)). Most of the Member States have implemented the Price Indication Directive as public law, ie as a part of market regulation law. As a consequence, a majority of the Member States provided for public law sanctions. These sanctions range from fines to imprisonment. Additionally, in many cases, private law remedies, eg actions for injunction, supplement these public law sanctions. The corresponding national provisions constitute ‘laws that protect consumers’ interests’ in terms of the regulation on consumer protection cooperation (Reg 2006/2004) so that their enforcement by the competent national authorities can be achieved at the Union level.

4. Further Union instruments concerning formal price law

In addition to the Price Indication Directive, a number of further instruments exist with respect to formal price law, some of which are exemplified in the following paragraph.

The first sector-specific provisions trace back to Dir 87/102 for the approximation of the laws, regulations and administrative provisions of the Member States concerning consumer credit (as amended by Dir 90/88 and Dir 98/7) ([[EU consumer credit law; [[consumer credit (regulatory principles)). According to this Directive, the offeror is obliged to indicate in the credit agreement (Arts 4, 6) as well as in the advertisement (Art 3) the annual rate of interest calculated in accordance with a standardized and comparable mathematical formula (Art 1(a)). The credit agreement must further include information on the number and amount of instalments and the dates on which they fall due and on any other possible cost elements (Art 4). At that time, the Consumer Credit Directive was innovative inasmuch as it introduced a duty to indicate prices not for a physical good but for a legal product. On 12 May 2010, the Directive was replaced by a Revised Consumer Credit Directive (Dir 2008/48), which introduces a wide range of pre-contractual information duties having corresponding implications on price indication law (Arts 4, 5; eg annual percentage rate, total amount of credit, amount of the instalments, cash price in the case of a credit in the form of deferred payment for a specific good or service). In advertising, this ‘standard information shall [be] specif[ied] in a clear, concise and prominent way’ (Art 4(2)). Regarding price marking of financial services, further comprehensive information duties exist, eg Art 3 Dir 97/5 on cross-border credit transfers ([[bank transfers (cross-border)) or Arts 3(1), (3) Dir 2002/65 concerning the distance marketing of consumer financial services.

Extended information duties with regard to price indication for services of any kind are to be found in Art 4(1) of the general Directive on the protection of consumers in respect of distance contracts (Dir 97/7) ([[distance contracts). Accordingly, the consumer must be informed about the price of the product or service comprehensively and in good time prior to the formation of contract ([[contract (formation)) including any taxes and delivery costs. For internet-based offers, the E-Commerce Directive also influences price indication law. Article 3(2) of the Directive lays down the much-debated [[country of origin principle. This principle also applies to formal price law as an area coordinated by Dir 98/6. At the same time, the E-Commerce Directive stipulates as a minimum standard that—where services refer to prices—they have to be indicated ‘clearly and unambiguously’, specifying any taxes and delivery costs (Art 5(2)). Moreover, with respect to so-called universal services, Art 21 of Dir 2002/22 provides for special requirements regarding [[transparency and the accessibility of tariff information (additionally, Art 9 foresees the possibility of a substantive price regulation). A comparable special transparency requirement has also been introduced, eg by Art 3(3) Dir 2003/54 with regard to the European electricity market.

Henceforth, the Directive on services (Dir 2006/123) states an obligation of all service providers to make available to the recipient the price of the service or the method for calculating the price in a ‘clear and unambiguous manner and in good time before conclusion of the contract’ (Art 22). The limitation of the Price Indication Directive to ‘products’ is hereby partly repealed, even though, indeed, the Directive on services does not lay down an obligation to indicate a price per unit (if such a price exists with regard to services).

Regarding the legitimacy of price advertising, in addition to the Price Indication Directive, mainly the directives on unfair competition play an important role. According to these directives, false information on the price or the manner in which the price is calculated is regarded as unfair and therefore to be prohibited (Art 6(1)(c) Dir 2005/29 concerning unfair business-to-consumer commercial practices; Art 3(c) Dir 2006/ 114 concerning misleading and comparative advertising). The same is true for any advertising that fails to indicate the selling price or price per unit as provided for in the Price Indication Directive (Arts 7(4)(c), (5); Annex II Dir 2005/29; Art 3(b) Dir 2006/114). In this way, the sanctions of the law of unfair competition are also extended to certain violations of the provisions of price indication law ([[unfair competition (consequences)). Special requirements on product presentation are also to be found in the directives on [[advertising (human medicines) and on [[advertising (tobacco products).

5. Reform of the consumer Acquis

At present, the European legislature is reviewing the acquis in the field of consumer protection (Green Paper, [2007] OJ C 61/1). The Commission therefore initiated two comparative analyses that, inter alia, examined Dir 98/6 as well as its implementation (COM(2006) 325 final). The analyses came to the conclusion that the solutions of the Price Indication Directive basically qualify as adequate and that their transposition was generally successful, though the aforementioned harmonization deficits have been identified. In the course of the subsequent public consultation, solutions for the desired harmonization of the excluded cases have not been found. Regarding Art 6, therefore, the European legislature has informally called on the Member States to reconsider ‘whether to implement Dir 98/6 in relation to certain small retail businesses’, which constitutes an interesting legislative technique. In this respect, it should be noted that the cited reference to the implementation of the Price Indication Directive has been included in recital 4 of Dir 2007/45 on nominal quantities for pre-packed products, though this Directive is, in effect, irrelevant for price indication matters. Apart from that, the reform of the Price Indication Directive has been excluded from the review of the consumer acquis because formal price law is regarded as public market regulation law whereas consumer protection law, in a narrower sense, (primarily) concerns contract law.

However, the reform efforts in the field of consumer protection contract law nonetheless have a considerable impact on price indication law, especially the proposal for a directive on consumer rights (COM(2008) 614 final). Its objective is to merge the directives on [[distance contracts, [[doorstep selling, [[sale of consumer goods and on [[standard contract terms in consumer contracts into a single horizontal instrument. Article 5(1) of the proposal provides for information requirements similar to Art 4(1) Dir 97/7. According to this provision, prior to the conclusion of any sales or service contract, the trader shall provide the consumer with, inter alia, ‘the price inclusive of taxes’ as well as, where appropriate, ‘all additional freight, delivery or postal charges’. It should be noted that Art 6(1) provides for a contract law remedy (as opposed to the traditional public law sanctions for infringements of price indication rules mentioned in 4. above) if the trader does not comply with the information requirements on additional charges. In that case, the consumer need not pay these additional charges. The consequences of any breach of the other information requirements provided for in Art 5(1) are to be determined in accordance with applicable national law. To this end, Member States, in their national laws, shall provide for ‘effective contract law remedies’ (Art 6(2)).

Literature

Stefan Völker, Preisangabenrecht (2nd edn, 2002); Norbert Reich and Hans-Wolfgang Micklitz, Europäisches Verbraucherrecht (4th edn, 2003); Jacqueline Snijders, Micha van Lin and Jolanda Hessels (EIM Business & Policy Research), Appraisal of Directive 98/6/EC on Consumer Protection in the Indication of Unit Prices of Products offered to Consumers (2004); Geraint G Howells and Stephen Weatherill, Consumer Protection Law (2nd edn, 2005) 417 ff; Wolfgang Micklitz, ‘Preiswerbung, Werbung mit verkaufsfördernden Maßnahmen und Qualitätswerbung’ in Peter W Herrmann and Günter Hirsch (eds), Münchener Kommentar zum Lauterkeitsrecht, vol 1 (2006) 887; Hans Schulte-Nölke, Verbraucherpolitische Aspekte des deutschen Preissystems (2007); Hans Schulte-Nölke and Leonie Meyer-Schwickerath, ‘Price Indication Directive (98/6)’ in Hans Schulte-Nölke, Christian Twigg-Flesner and Martin Ebers (eds), EC Consumer Law Compendium, The Consumer Acquis and its transposition in the Member States (2008) 364; Marco BM Loos, ‘Review of the European Consumer Acquis’ (Centre for the Study of European Contract Law Working Paper Series no 2008/03) 32; Bernhard Koch, ‘Informations-, Aufklärungs- und Sorgfaltspflichten bei der Kreditvergabe nach der neuen Richtlinie 2008/48/EG vom 23. April 2008 über Verbraucherkreditverträge’ [2009] Österreichisches BankArchiv 98; Georg Wenglorz, ‘Preisangabenrecht’ in Karl-Heinz Fezer (ed), Lauterkeitsrecht, Kommentar zum Gesetz gegen den unlauteren Wettbewerb (UWG), vol 1 (2nd edn, 2010) 2337 (§ 4-S14 nº1 ff).