German trade practices law mandates good practices of doing business and part of this canon of behavior is to not mislead consumers through (comparative) advertising.
Foreign firms typically conduct due diligence to comply with the laws of foreign countries where their customers reside. The tricky part of German trade practices law is that even small misdemeanors will cost you. Forgetting to mention a computer screen´s measurement in centimeters when even the Germans typically measure it in inches, can cost you $ 1,000. Not an amount that will kill you, rather a death by a thousand papercuts.
Until 1894 Germany did not regulate commercial conduct since commercial freedom was deemed more important. Originally, only laws protecting trademarks were passed, however, these were amplified soon thereafter. The latest revision of the law governing advertising, due to EU directives occurred in 2015. The hope that consequently one law applies to the whole EU is premature. Implementation, in particular the legal proceedings, are different in each state.
Structure of the law
Trade Practices Law has to be flexible: This flexibility is expressed in Article 3 of The Act Against Unfair Competition (abbreviated UWG in German) “Unfair commercial practices shall be illegal if they are suited to tangible impairment of the interests of competitors, consumers or other market participants.
However, this flexibility –tangible impairment of interests- engenders uncertainty. This uncertainty is assuaged by the following sections of the law which spell out categories of illegal types of behavior. These are however similarly vague:
Examples of unfair commercial practices
Unfairness shall have occurred in particular where a person
1. uses commercial practices that are suited to impairing the freedom of decision of consumers or other market participants through applying pressure, through conduct showing contempt for humanity, or through other inappropriate, non-objective influence;(I highlight the text to express my frustration with legalese)
Subssequent sections of the UWG deal with Misleading commercial practices, Misleading by omission, Comparative advertising, and Unconscionable pestering. These headings give an inkling that even though German law is code based, it does not differ much from US case law. The Code sections are so elusive that they require interpretation by the courts.
German Legal Procedure
Consequences of a violation of the law are that competitors or certain trade association have a claim against the violator to cease and desist. Consumers are not allowed to sue. The good news is that German law caps attorney fees. The bad news is that small things already cost money.
Typically an attorney, on behalf of a competitor or trade association, will contact you demanding that you desist from your bad business practices for a fee a couple hundred dollars. If you contest this demand in court or do not pay in time, the fees typically can reach a couple of thousand dollars, since loser pays all. The not prevailing party has to pay its attorney, the attorney of the opposing party and court fees. Even though attorneys cannot charge by the hour, but only claim a percentage of the value at stake, this type of lawsuit is a nuisance more than a threat to a business, but even nuisances need to be taken care of properly.
Example: Comparative Advertising
The courts have confirmed that comparative advertising is allowed. Similarly the EU spells out in its directive Directive 97/55/EC concerning misleading advertising so as to include comparative advertising the criteria.
- Comparative advertising shall, as far as the comparison is concerned, be permitted when the following conditions are met:
(a) it is not misleading according to Articles 2 (2), 3 and 7 (1);
(b) it compares goods or services meeting the same needs or intended for the same purpose;
(c) it objectively compares one or more material, relevant, verifiable and representative features of those goods and services, which may include price;
(d) it does not create confusion in the market place between the advertiser and a competitor or between the advertiser’s trade marks, trade names, other distinguishing marks, goods or services and those of a competitor;
(e) it does not discredit or denigrate the trade marks, trade names, other distinguishing marks, goods, services, activities, or circumstances of a competitor;
(f) for products with designation of origin, it relates in each case to products with the same designation;
(g) it does not take unfair advantage of the reputation of a trade mark, trade name or other distinguishing marks of a competitor or of the designation of origin of competing products;
(h) it does not present goods or services as imitations or replicas of goods or services bearing a protected trade mark or trade name.
These are however rather vague and a couple of examples will highlight the view of German courts.
Misleading despite being factually correct
In the case of federal court of justice, judgment dated 20.2.2013, I ZR 175/11 http://juris.bundesgerichtshof.de/cgi-bin/rechtsprechung/document.py?Gericht=bgh&Art=en&az=I%20ZR%20175/11&nr=64989 the parties were in the business of factoring claims for medical doctors and dentists. The comparison listed a specific offer of the plaintiff claiming a “sales fee” of 3.95% per invoice; during the trial the plaintiff claimed that each of his offers were individually negotiated. Since the defendant bore the burden of proof regarding his competitor’s amount of a standard fee he lost the case. The fact that the defendant had actually compared a factually correct offer with his own standard terms still made the advertisement misleading, since it created a false impression. Competitors will often claim that the comparison of prices is misleading since oranges are compared to apples. However, it is not the competitor’s view what constitutes an apple, but the average consumer’s view.
Review comparison with a John Doe grain of salt
John Doe however knows that “comparative advertising regularly serves to highlight the advantages of the products of the advertiser”. Consequently he and the court take comparative advertising with a grain of salt. As rational and lucid as these guideposts are, they offer sophistic arguments in practice.
No complete comparison necessary
The comparison does not have to be all encompassing: “It does not raise fundamental objections when an advertising comparison refers only to certain aspects without addressing other features of the compared products.” German Federal Court
The comparison cannot fallaciously promote the impression that all salient criteria have been compared. It is misleading when a comparative advertisement conveys the false impression that all relevant features were included in the comparison . Accordingly, a comparative price comparison is misleading if terms and conditions of the competitors’offers differ significantly and the advertiser does not clearly and unequivocally indicate these differences. German Federal Court
These differing criteria can be
- differing minimum contract period Higher Court of Cologne(discussed in the context of telecommunication services)
- purchasing a set of parts containing 320 pieces compared to 40 pieces Higher Court of Karlsruhe
- price comparison brand-name versus no-name
In cases where the brand name of the products may significantly affect the buyer’s choice and the comparison concerns rival products whose respective brand names differ considerably in the extent to which they are known, omission of the better-known brand name goes against Article 3a(l)(a) of Directive 84/450, which lays down one of the conditions for comparative advertising to be lawful. European Court of Justice In the case at bar, the advertisement compared Carl Zeiss lenses for glasses with a no-name manufacturer.
The approach taken by German law and courts seem very comparable to US law, where the Lanham Act prohibits misleading statements in advertising. Misleading can mean that the advertiser’s statement was either
literally false or
literally true or ambiguous but implicitly false, misleading in context, or likely to deceive. (regarding these criteria see GENERAL STEEL DOMESTIC SALES, LLC v. Chumley, Court of Appeals, 10th Circuit 2015, , with further references).
Thus we discern a common understanding between very different legal systems which did not exist 20 years ago (German law only allowed comparative advertising in 2000).
The methodology (case law) is similar, and the results also.
Germany being considered a collective society versus the individualistic US is however unhappier according to the World happiness report. Could the US happiness advantage be due to more humorous ads and more comparative advertisement ? Only scholars with too much time on their hands will tell.