Mass distribution and the battle of prices : Is comparative advertising on price between different sized companies legal?

ARTICLE

REAL, Avocats à la Cour

On February 8th 2017, the second chamber of the European Court of Justice gave a judgment following a demand for preliminary ruling from the Appeal Court of Paris in a case between the companies “Carrefour Hypermarché SAS” and “ITM Alimentaire International SASU”.

In this case, in December 2012, Carrefour launched a major television advertising campaign, entitled “garantie prix le plus bas Carrefour” (Carrefour lowest price guarantee), which compared the prices of 500 leading brand products for sale in its shops and in shops of competitors, including Intermarché shops, and offered to reimburse consumers twice the price difference if they found cheaper prices elsewhere.

From the second televised advertisement onwards, all of the Intermarché shops selected for comparison were supermarkets and all of the Carrefour shops were hypermarkets, of a superior size.

This information appeared only on the home page of the Carrefour website, where it was stated in small print that the guarantee applied only in Carrefour and Carrefour Planet shops and that it therefore did not apply in smaller shops of this brand.

Moreover, in the television advertisements, the word ‘Super’ appeared in smaller letters beneath the name Intermarché to indicate that this comparison only took into consideration prices in smaller shops of the brand.

The question is therefore whether comparative advertising on the prices applied in shops of different size and format, when these shops are part of a brand which owns a range of stores of different sizes and where the advertiser compares the prices applied in bigger stores of its brand with prices applied in smaller shops, constitutes unfair competition between these two companies.

Is comparative advertising only legal if it compares prices of products sold in shops of similar sizes?

The European Court of Justice had therefore to determine if this practice breaches Article 4 of Directive 2006/114/CE that details the conditions under which comparative advertising is legal.

In fact, Article 4, which was implemented in the Grand-Duchy of Luxembourg by Article 18 of the law of July 30th 2002 regarding commercial practices, indicates that comparative advertising is only permitted if the following cumulative conditions are fulfilled:

• It is not misleading;
• It compares goods or services meeting the same needs or intended for the same purpose;
• It objectively compares one or more material, relevant, verifiable and representative feature of those goods and services, which may include price;
• It does not discredit or denigrate the trade marks, trade names, other distinguishing marks, goods, services, activities, or circumstances of a competitor;
• For products with designation of origin, it relates in each case to products with the same designation;
• 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;
• It does not present goods or services as imitations or replicas of goods or services bearing a protected trade mark or trade name; and
• It does not create confusion among traders, 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.

The European Court of Justice has therefore mentioned that according to the established case-law “comparative advertising contributes to demonstrating, in an objective manner, the advantages of various comparable goods and thus to stimulating competition between suppliers of goods and services to the consumer’s advantage, the conditions to be met for such advertising must be interpreted in the sense most favourable to that advertising, while ensuring at the same time that comparative advertising is not used anticompetitively and unfairly or in a manner which affects adversely the interests of consumers”.

In the present judgment, however, the Court determined that in certain circumstances the difference in size or format of the shops in which the prices being compared by the advertiser have been identified may distort the objectivity of the comparison.

It is certainly true that the prices of consumer products are likely to vary according to the format or size of the shop as well as the location of the stores.

As for example, prices in a small neighbourhood store in Paris will of course be higher than the prices applied in a department store in the outskirts of a large city.

This advertising can therefore have an influence on the economic behaviour of the consumer, which can lead to a belief that he would benefit from the price difference promoted in the advertising by buying products in the stores of the advertiser’s brand instead of the shops of the competing brand.

Nevertheless, such advertising is not misleading if the consumer has been informed that the prices compared concern products sold in stores of different size and format.

The European Court of Justice stated here that according to the Directive on unfair commercial practices, this information must be clear, precise and intelligible.

We can therefore conclude that a comparative advertising that compares prices of products sold in stores of different size and format is not as such illegal but can be so if it does not correspond to the objective comparison’s criteria or is misleading.

In view of these considerations, the European Court of Justice concluded that in this case, the advertising probably does not fulfil the objectivity criteria and that it may be misleading.

It will be up to the Appeal Court of Paris to appreciate the legality of these Carrefour television spots by considering the position of the European Court of Justice in this judgment.

The outcome of this battle of prices remains unsolved until a final decision is taken by the Appeal Court of Paris and the fall-out of this decision will probably be monitored very closely by the dominant players of the mass distribution sector.