EU Retail News - October 2017

by Bryan Cave Leighton Paisner
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Retailers: Practical Steps You Can Take to Ensure Your Supply Chains Are Slavery-free

Warning: Passive Websites Potentially Liable If Accessible

German Federal Cartel Office Gains New Role in Consumer Protection

Cook County Retailers Cheer Repeal of Soda Tax That Spurred Class-action Lawsuits

Don't Get Too Lippy — Make Sure You Are Marketing Cosmetics Responsibly


Retailers: Practical Steps You Can Take to Ensure Your Supply Chains Are Slavery-free

[co-author: Gemma Williams]

One of the biggest threats to a retailer's reputation is an allegation of involvement in slavery, human trafficking, or child labour. Retailers are now expected to be more transparent than ever, with the Modern Slavery Act 2015 requiring commercial entities which carry on business in the UK and which have a global turnover above £36 million to publicly report in an annual slavery and trafficking statement which steps (if any) they are taking to combat trafficking and slavery in their operations and supply chains.

This article sets out some practical steps retailers can take to ensure their supply chains are slavery-free.

Pre-contract

A retailer should constantly be assessing and identifying slavery and trafficking risks in their operations and supply chains, and be prioritising those risks for further investigation and/or action. Before entering into a supply agreement, retailers should exercise due diligence and require the supplier to provide information necessary to establish whether or not it (or any of its sub-contractors and sub-suppliers) are involved in misconduct.

In contract

The supply contract itself can be a key source of assurance that a supply chain is clean. A retailer can:

  • require the supplier, in performing its obligations under the agreement, to comply with an anti-slavery policy and with all applicable anti-slavery and human trafficking laws, statutes, regulations and codes in force from time to time (including the Modern Slavery Act 2015), and also require the supplier to include similar provisions in its contracts with its sub-contractors and sub-suppliers;
  • prevent the supplier from sub-contracting or sub-supplying without its written consent, thereby giving the retailer the opportunity to vet the third party and veto the engagement if necessary; and
  • require the supplier to maintain documentary evidence of the age of each of its employees to ensure that minimum legal age requirements are being met.

Post-contract

A diligent retailer should frequently visit and inspect its suppliers to satisfy itself that it is contracting with responsible entities.

The danger to UK companies is that they may inadvertently become involved in malpractice in their supply chain, but turning a blind eye or omitting to take active steps to prevent slavery will not be sufficient in the eyes of the law (or consumers).

Warning: Passive Websites Potentially Liable If Accessible

[co-author: Emmanuelle Mercier]

On 5 July 2017, the French Supreme Court ruled, in accordance with European Law, that French courts have jurisdiction to hear claims of damages incurred in France as a result of the infringement by websites operated and directed in other Member States of the prohibition on resale outside a selective distribution network.

The decision involved Concurrence, a French retailer of consumer electronics products based in Paris which had entered into a selective distribution agreement with Samsung for the distribution of Samsung’s high-end range called "Elites". Despite the prohibition in the distribution agreement to sell the Elites products online, Concurrence put them on sale on its website. As a result, Samsung terminated the selective distribution agreement for infringement of the prohibition on resale outside the selective distribution network.

In response, Concurrence challenged the validity of that prohibition before the French Commercial Courts and joined Amazon in the proceedings, alleging that Amazon, a Luxembourg company, sold the Elites products on its French, German, English, Spanish and Italian websites despite the same contractual prohibition not to do so. Concurrence argued that it suffered damage due to the offers on the various Amazon websites, all of which were accessible from France, thus diverting customers away from Concurrence.

In the first instance judgement and on appeal, the French Courts ruled that they did not have jurisdiction to rule regarding the Amazon websites operated outside of France as such sites did not specifically target French consumers. Concurrence then lodged an appeal to the French Supreme Court, which referred the question to the ECJ. In its decision dated 21 December 2016, the ECJ acknowledged the jurisdiction of the French Courts in this matter.

Thus, the French Supreme Court followed the ECJ's rationale and ruled that the fact that the websites on which the offers for the products covered by the selective distribution prohibition appear are operated from Member States other than the State of the court seized is irrelevant, as long as the events which occurred in those Member States resulted in or may result in the alleged damage in the jurisdiction, i.e. in this case, the reduction in the volume of Concurrence’s sales resulting from Amazon's sales made in breach of the conditions of the selective network.

The case was thus remanded to the Court of Appeals, to rule on the merits of the Concurrence damage claim.

Decision: French Supreme Court Commercial Section, July 5, 2017, decision no. 14

German Federal Cartel Office Gains New Role in Consumer Protection

Effective 8 June 2017, the 9th Amendment to the German Act against Restraints of Competition delegated more competences and ways to investigate to the Bundeskartellamt (German Federal Cartel Office — FCO) with respect to consumer protection, affecting especially retail businesses and digital markets.Since its founding in 1958, the FCO was called upon when talking mergers, cartels or competition regulation in general. Although its decisions could be challenged in court, it was the first arbiter to approve or prohibit mergers or certain conduct and to issue fines or regulatory requirements in the German market.

From now on, the FCO can also initiate sector inquiries upon reasonable suspicion with regards to serious or persistent violations of German consumer protection acts, such as the Act against Unfair Competition or the rules on general terms and conditions.

Such sector inquiries are not supposed to target a certain company in particular but to extensively inspect the conditions of a specific market. Henceforth, sector inquiries can be initiated provided that there is reason to suspect severe consumer law infringements affecting a large number of consumers. In the past, sector inquiries have proven to be an effective tool to detect unfair market restrictions in several sectors such as the petrol station market, the dairy industry and others. Now, this tool is meant to be put to use also in the field of consumer protection.

Although the FCO is not entitled to prosecute consumer law infringements by particular companies and impose respective fines, the sector inquiry is more than just the toothless tiger it may seem at first glance. The FCO has pledged that it will closely work with private consumer protection organisations, which are an important pillar of consumer law enforcement in Germany and every year bring a profound number of consumer law cases to German courts and initiate even more out-of-court proceedings to resolve consumer law violations. It is to be expected that consumer protection organisations will gladly use the expertise of the FCO in order to intensify the enforcement of compensation claims and injunctive reliefs against commercial goods and service providers.

As a result of the new competences of the FCO, retailers and online businesses should keep a closer eye on their compliance with German and EU consumer law. Our multilingual team of highly qualified lawyers brings a broad expertise in the field of competition & consumer law compliance and is able to provide seamless European-wide legal advice coupled with a local knowledge of markets and corporate cultures.

Cook County Retailers Cheer Repeal of Soda Tax That Spurred Class-action Lawsuits

Cook County, Illinois has repealed its sweetened beverage tax, just two months after the unpopular ordinance was implemented. As we previously reported, Cook County was among a number of localities across the country to pass sugary drink tax laws, including the following:

  • Berkeley in December 2015;
  • Albany, California in December 2016;
  • Philadelphia in January 2017; and
  • Oakland, California; Boulder, Colorado; and Cook County, Illinois in July 2017.

Cook County consumers objected, however, to paying an additional 68 cents for a two-liter soft drink or an extra 72 cents for a six-pack. Retailers complained the tax was driving consumers to neighboring jurisdictions to avoid the tax.

The sweetened beverage tax also triggered numerous lawsuits, some of which are still playing out in court. The Illinois Retail Merchants Association sued the county to get the tax thrown out days before it was to take effect. The court granted a restraining order to keep the tax from being imposed. Later, however, the court allowed the tax to move forward. The merchants appealed that decision.

And law firms filed at least a dozen consumer class actions against retailers and fast food chains that failed to properly calculate the tax on retail sales. For example, one plaintiff sued a retailer for allegedly wrongly charging the tax on unsweetened sparkling water. The case, which seeks class-action status, is still pending.

Don't Get Too Lippy — Make Sure You Are Marketing Cosmetics Responsibly

In recent years, many cosmetics brands have found themselves blushing in the face of revelations that their advertising and marketing techniques are dishonest and/or misleading to consumers.

The rules on advertising and marketing cosmetics within the UK are contained in the UK Code of Non-broadcast Advertising and Direct & Promotional Marketing (the "CAP Code") and associated guidance produced by the Advertising Standards Authority ("ASA") and the Committee of Advertising Practice ("CAP").

Get primed for compliance with this key guidance:

Avoid glossing over a product's true efficacy

The CAP Code is clear that advertising must not mislead consumers by exaggerating the capability or performance of a product. You should:

  1. Avoid using misleading pre-production techniques. For example; you may be falsely enhancing the volumizing effect of a hairdryer if you have also added volumizing products to the hair.
  2. Avoid using misleading post-production techniques. For example; you may be falsely enhancing the effects of a mascara by adding false eyelashes, of a high-shine nail polish by adding an extra topcoat, of a face cream by adding foundation to the skin, or of an anti-aging cream by digitally removing fine lines and wrinkles.

Don't wing it with claims about cumulative effects

If you are making claims about a product's cumulative effects, for example "whiter teeth within one week" or "smoother skin within one month", you must have supporting evidence including results of clinical trials on people conducted over the relevant periods of time.

Make-up no medical facts

Some cosmetic products are by their nature medicinal (for example, some acne treatments), but where a product is merely cosmetic you should avoid making any medicinal claims whatsoever in order to avoid breaching the CAP Code. Medicinal claims should only be made in relation to products which are licensed by health regulators including the Medicines and Healthcare products Regulatory Authority ("MHRA") or the European Medicines Agency ("EMA").

In practice, there is a fine line between claims which will be considered "medicinal" and "non-medicinal". If you advertise, for example, that a product can "cure" or "reverse" premature aging, then you run the risk of making an unqualified medicinal claim. However, claims that the product can "relieve symptoms" or "held reduce symptoms" of premature aging are likely to be non-medicinal (although you may nevertheless be challenged to produce scientific proof of such claims).

You should also be diligent to avoid using language in advertising which may constitute a medical diagnosis without medical backing, for example; "acne", "anti-inflammatory", "eczema", "psoriasis" etc. (it may be prudent to instead use more general terms like "spots" or "dry skin").

Nail your scientific evidence

Simple language such as "skin will be 50% more moisturised", "product protects skin from sun damage”, or "this 'natural' product is safer/more effective/more beneficial to health" may amount to scientific claims. Be aware that you may at any time be challenged to support your scientific claims with evidence.

You should also avoid making claims that a beneficial effect is wholly attributable to a product where this is not the case. For example; if an anti-cellulite cream is shown to be effective partially because of its ingredients and partially because the method of application also reduces cellulite (e.g. massage), then you are obliged to make that distinction.

Highlight that you are against animal testing only if this is entirely true

Technically, refraining from testing on animals may be insufficient to make a true claim that you are against animal testing. In fact, marketers making such a claim should neither have tested a product (or any of its ingredients or components) on animals, nor have sourced any products (or any of their ingredients or components) from suppliers who test them on animals.

There is too much clear guidance for cosmetics brands to brush off responsibility for honest advertising or to avoid complying with the rules.

[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.

© Bryan Cave Leighton Paisner | Attorney Advertising

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