EU Retail News - April 2017

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Considering a Retail Merger?

"Made in USA" Claims Can Be Considered Deceptive Unless Substantiated

"No Hard Feeling!": The On-going Battle Between Large French Retailers to Maintain Their Market Share Takes a Judicial Turn Once Again

Businesses: How You Can Prepare for the 2018 Changes to Data Protection Laws

Guest Interview with Paula Levitan

Brands — You Are Responsible for Ensuring That Posts by Your Affiliate Marketers Are Cap Code Compliant


Considering a Retail Merger?

The UK Competition and Markets Authority ("CMA") has published new commentary to inform companies on how it assess retail mergers. The commentary should be read by any retailer considering merging with a competitor in the UK.

On 10 April 2017, the CMA published new commentary on how they will assess retail mergers. The commentary is an update to a 2011 publication by the then Office of Fair Trading. The CMA felt that it had assessed a lot of retail mergers over the last 6 years and was now in a position to update its guidance for companies and their advisers.

The interest to retailers will be for anyone considering a merger in the UK, especially to a close competitor. The CMA has developed its thinking, particularly with regard to the relationship between online and bricks and mortar sales. We believe there are three main takeaways from the updated commentary:

  1. Locality and catchment area: When assessing competition for bricks and mortar stores, the CMA starts with the performance against competing stores in the local area. The catchment area will be where the shop derives 80% of its sales from and the CMA can use the store's own data to assess the location of the customers, such as using loyalty cards and delivery records. Catchment areas may also vary depending on a stores size and between urban and rural areas. One size does not fit all.
  2. Claims as to online competition: The CMA has specifically singled out claims of online competition as needing scrutiny. This could occur for example where two close bricks and mortar competitors are merging, but insist any price rises will be tempered by online sales. The CMA will closely scrutinise these claims, likely based on evidence. This is clearly an argument they have heard too many times and hold little credence in it until proved.
  3. Internal documents and Data: As can be seen from the above, the CMA can request internal documents and data to help build a picture of the genuine competitive environment. Therefore, audit your own documents and data and be consistent with your arguments to the regulator. For example, it’s no use arguing that your number one competitor is online competition when your own management presentations and data point solely to local bricks and mortar competitors. Legal advisors and economists can do a lot of this competitive audit work at the outset of a merger or even in its negotiation, placing your anticipated merger in the best position come the time to submit your regulatory documents.

The commentary can be found by following this link.

"Made in USA" Claims Can Be Considered Deceptive Unless Substantiated

Authors: Mary Longenbaker, David Zetoony and Merrit Jones

Although every product imported into the United States must be marked with its country of origin pursuant to Section 304 of the Tariff Act of 1930, most products manufactured domestically are not required to list the United States as the country of origin. However, if manufacturers or retailers do choose to market their products as "Made in the USA," these claims must be substantiated, or risk being considered deceptive under federal or state law. On the federal level, the Federal Trade Commission has issued guidelines and considers representations that a product is "Made in the USA" to be deceptive, unless (1) "all or virtually all" of a product's components are of U.S. origin, and (2) "all or virtually all" processing takes place in the United States. Furthermore, the FTC considers phrases such as "Produced in the USA," "Built in the USA," or "Manufactured in the USA," as conveying a near-identical meaning to "Made in the USA," and applies the same standard.

The standards for "Made in the USA" claims may vary from state to state. Under California law, for example, such labeling claims are allowed only "if all of the articles, units, or parts of the merchandise obtained from outside the United States constitute not more than 5 percent of the final wholesale value of the manufactured product." Such labels are also allowed if the manufacturer makes a showing that it cannot produce or obtain a certain article, unit or part within the United States for reasons other than cost, and the article, unit or part does not constitute more than 10 percent of the final wholesale value of the manufactured product. Retailers should consider the following when advertising that a product is "Made in the USA," or defending a suit alleging a deceptive “Made in the USA” claim:

  • Make sure that your labels match. Verify that any descriptions that are placed on the product, its package, or on collateral advertising (e.g., online descriptions) match. To the extent that there is a discrepancy, consider clarifying why the discrepancy exists. For example, if a package states "Made in the USA" because the package was made in the United States, not the product, consider adding clarifying language to the statement to avoid allegations by consumers or regulators that the description is misleading.
  • Reliance upon third parties. If a third party (e.g., a manufacturer or vendor) has supplied a product that is marked "Made in the USA," consider whether to obtain indemnification or a guarantee that the description is accurate.
  • Compliance with state laws. Even if a product complies with the Federal Trade Commission's standards for "Made in the USA" claims, verify that the product also complies with any unique standards in the states in which the product will be sold.
  • Tracking cost and constituent parts. Consider what level of due diligence is required to ascertain the true origins of the parts, materials, and components of a product, in order to make your own determination as to whether a "Made in the USA" designation is beneficial overall. In some instances, designing a compliance program to track and document the origins of inputs may make sense to mitigate litigation risks.
  • Plan how to respond to mistakes and inquiries. Be prepared to respond if your company learns of information which might call into question a "Made in the USA" description used on a product. The Federal Trade Commission has proven willing to close investigations into "Made in America" claims without further action where a company promptly responds to the agency's inquiry and takes immediate action to rectify the agency's concerns.

For further information, please contact any member of the Bryan Cave Retail Team

"No Hard Feeling!": The On-going Battle Between Large French Retailers to Maintain Their Market Share Takes a Judicial Turn Once Again

This article was first published in French in Le Monde du Droit magazine.

Kathie Claret, partner, and François-Xavier Mirza, associate, Bryan Cave Paris, comment on recent case law on misleading advertising in mass retail.

Comparative advertising is permitted by EU Directive 2006/114. The same directive, on the other hand, prohibits misleading advertising, defined as “any advertising which in any way, including its presentation, deceives or is likely to deceive the persons to whom it is addressed or whom it reaches and which, by reason of its deceptive nature, is likely to affect their economic behaviour or which, for those reasons, injures or is likely to injure a competitor”. In French law, Article L. 121-8 of the French Consumer Code allows comparative advertising provided that, precisely, it “is not “misleading or likely to deceive”.

The historical players in mass retail confront each other…

In December 2012, Carrefour (21% market share in 2016) launched a television advertising campaign based on a comparison of Carrefour's prices with those of competitors such as Intermarché (14.4% market share in 2016). However, the size and layout of the Intermarché stores selected for comparison (supermarkets) were different from the Carrefour stores (hypermarkets).

ITM, the company in charge of Intermarché's strategy and commercial policy, obtained in 2014 from the Commercial Court of Paris the cessation of this advertising campaign and 800,000 euros in damages for misleading advertising.

Carrefour appealed this decision and succeeded in convincing the Paris Court of Appeal to refer a question to the European Union Court of Justice (the “EUCJ”) as to whether such advertising, that compares the prices of products sold in shops of different sizes or layouts, is lawful under Directive 2006/114.

In a judgment of 8 February 2017 (Case C-562/15), the EUCJ reminded that any comparative advertising must objectively compare prices and not be misleading. However, according to the EUCJ, the objectivity of the comparison may be distorted as regards shops of different sizes and layouts if the advertisement does not mention that difference, thus deceiving consumers. The information given to the consumer must be clear and included in the advertising message itself.

The EUCJ thus invited the Paris Court of Appeal to examine whether “the advertising at issue satisfies the objective comparison requirement or is misleading, first, by taking into consideration the average consumer of the products in question (…), and, secondly, by taking into account the information contained in that advertising (…)”.

In this case, the information was displayed on the home page of the Carrefour website in small print. In the television advertisements the word “super” was mentioned below the name Intermarché in even smaller print.

… while uniting against new rising players

Carrefour, defendant in the aforementioned case, is the claimant in another case that targets this time a new player whose turnover is increasing since a change in its positioning resulting in an upgrade in product range: Lidl (5,2% market share in 2016).

Carrefour recently sued Lidl for compensation before the Commercial Court of Evry on the grounds that the company has allegedly not complied with the rules applicable to television promotions, which provide for a minimum period of 15 weeks during which the price announced and the available stocks must be maintained in store. Carrefour had previously obtained the suspension of the broadcasting of the advertisement through a “procédure en référé” (summary procedure).

In this case, a company is apparently willing to intervene in the proceedings in order to support Carrefour in the demonstration of the damage resulting from the practices at issue, a company called... Intermarché.

Sometimes allies, sometimes opponents, mass retailers no longer hesitate to make judicial strategy part of the defence of their market shares.

For further information, please contact any member of the Bryan Cave Retail Team.

Businesses: How You Can Prepare for the 2018 Changes to Data Protection Laws 

[author: Nicola Conway]

On 25 May 2018, the General Data Protection Regulation ("GDPR") will come into force; imposing uniform data protection laws across all EU member states in an effort to harmonise national laws, and thereby creating additional obligations for many UK businesses that process personal data.

Failure to comply with the new GDPR may expose businesses to a fine of up to the greater of €20 million or 4% of annual revenue. With this in mind, businesses should begin to make any and all internal organizational changes necessary to ensure compliance. We recommend taking the following preliminary steps: 

  1. Assess whether the GDPR will apply to you. The new law will apply to both EU and non-EU data controllers and data processors who either (1) offer goods or services to data subjects in the EU or (2) monitor data subjects' behaviour insofar as their behaviour takes place within the EU. 
  2. Appoint a Data Protection Officer (or similar). Certain companies will be obligated to appoint a Data Protection Officer ("DPO") to discharge the entity's responsibilities under the GDPR. Companies that are not so obligated will nevertheless need to ensure that someone within the organisation is responsible for achieving the same objective.
  3. Conduct a risk assessment. Businesses need to assess the degree of risk that their data processing has on data subjects. The Information Commissioner's Office ("ICO") recommends that, amongst other things, businesses create and maintain a record of the personal data they hold including details of where it came from, how it they are processing it1, and the legal basis for such processing.
  4. Update your privacy notices. Before collecting personal data, businesses will need to provide data subjects with more information than was previously required; including the details of the DPO, the legal basis for processing the data, data retention periods, the individual's right to complain to the Data Protection Authority if they take issue with the way their data is handled, data transfers to other countries, etc.
  5. Ensure that you have been and are continuing to collect the appropriate consents from data subjects to process their data. Under the current law, a data subject must give "consent" to the processing of their regular personal data and "explicit consent" to the processing of their sensitive2 personal data. Under the GDPR, both types of consent must also be shown to be freely given, specific, informed and unambiguous. Consent must also be revocable, i.e. the data subject must at any time be able to withdraw their consent.
  6. Ensure that all of your policies, procedures and processes protect the new rights of data subjects. The rights of data subjects are set to be expanded under the GDPR: individuals will now in certain circumstances have (1) the right to request that businesses delete their personal data, (2) the right to receive within 1 month a copy of the personal data held by businesses in a commonly used and machine-readable format, and (3) the right to transmit those data to another controller.
  7. Review your procedure for dealing with data breaches. Businesses must ensure that their response procedure in the event of a data breach are aligned with the new "breach duty notification" which in some circumstances will require businesses to notify the relevant Data Protection Authority of a data breach within 72 hours.

For further information on any of the issues raised in the article, please contact any member of the Bryan Cave Retail Team.
   

1.

The term "processing" in relation to information or data can include obtaining, recording or holding the information or data or carrying out any operation or set of operations on the information or data, including (a) organisation, adaptation or alteration of the information or data, (b) retrieval, consultation or use of the information or data, (c) disclosure of the information or data by transmission, dissemination or otherwise making available, or (d) alignment, combination, blocking, erasure or destruction of the information or data.

2.

Sensitive personal data is a category of personal data and means information relating to physical or mental health or condition; religious or similar beliefs; racial or ethnic origin; political opinions; membership to a trade union; sex life; commission (or alleged commission) of any offence or proceedings relating to offences; and (under the incoming GDPR) genetic information.

Guest Interview with Paula Levitan

London Retail Team Partners, Carol Osborne and Sarah Atkinson, speak to former Bryan Cave Retail Team Partner, Paula Levitan, who left the firm earlier this year after nine years in private practice to re-join Manzanita Capital as General Counsel. Paula previously worked as Associate General Counsel for Gap Inc., General Counsel for The Body Shop International and then General Counsel for Manzanita before it expanded its portfolio of brands to what it is today.

  1. How have you found the transition from private practice back to in-house and what has been the most challenging aspect?
    I am enjoying the transition back to in-house which I actually always loved because I feel much closer to the business.
  2. What does a day in the life of Paula look like now?
    That is an interesting question!  Every day is different.  We have a portfolio of companies and I work for all of them as well as the shareholder.  So, I might get pulled into a commercial discussion having legal aspects or work on establishment of a new subsidiary in a foreign jurisdiction, negotiate a settlement of a dispute, or a work on a commercial agreement.
  3. What are you seeing as the main issues currently affecting Manzanita’s brands from both a business and legal perspective?
    As so many of Manzanita’s brands are in the retail space, they face the full spectre of issues that retailers face ranging from regulatory issues to real estate and employment with commercial contracts, corporate issues, intellectual property and litigation!
  4. Do you miss anything about being in private practice, other than us of course?
    I miss having so many great colleagues who were each expert in their different areas of practice with whom I could consult by just walking down the hall!
  5. What are you most enjoying about being back in-house?
    I think the ability to be closer to the business and to hopefully add value early on before matters morph into issues is the most rewarding and stimulating aspect for me.

Brands — You Are Responsible for Ensuring That Posts by Your Affiliate Marketers Are Cap Code Compliant

[author: Nicola Conway]

Online affiliate marketing involves an individual celebrity or influencer marketing brands to their online following, often through social media apps such as Instagram, in return for (usually) a percentage of each resulting sale.

In March 2017, the UK's Committee of Advertising Practice ("CAP")1 issued new advice, addressed to both brands and influencers, which provides guidance on how to ensure that online affiliate marketing activity is CAP Code2 compliant.

Significantly, the guidance restates in no uncertain terms that where affiliate marketers advertise a brand's goods online and fail to disclose or make clear their commercial relationship with the linked-to products, both that individual and the featured brand will be in breach of the CAP Code.

This guidance arrives in tandem with related action being taken in the U.S. by the Federal Trade Commission against affiliate marketers who fail to disclose "clearly and conspicuously" where there is a "material connection" between the endorser and the brand.

The consensus of regulators across the globe appears to be that consumers have the right to be made aware at first glance of circumstances where an individual is acting with commercial intent rather than as a consumer or for purposes outside his or her trade, business or profession.

This means, brands, that you may find yourself in hot water with the CAP and the ASA for posts which feature your brand even where you have had absolutely no input in the creation and publication of the materials. It is therefore your responsibility to ensure that people know that an article, vlog, blog, tweet, post or page posted by your affiliate marketers is an ad before they click on or open it.

1.

CAP is responsible for writing the UK's Advertising Codes in collaboration with the UK's independent advertising regulator, the Advertising Standards Authority ("ASA").

2.

The rule book for non-broadcast advertisements, sales promotions and direct marketing communications in the UK.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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