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EU’s Highest Court Clarifies Concepts of Banned Unfair Business-to-Consumer Commercial Practices Applicable in All Member States

The CJEU delivered its judgment in response to a request for a preliminary ruling from the Italian Council of State in proceedings between two Italian mobile telephone operators, Vodafone Italia SpA and Wind Tre SpA, and the Italian competition authority. Under Italian law, the competition authority has the competence to challenge improper commercial practices of traders.

Vodafone and Wind had been selling mobile phones with SIM cards together with certain pre-loaded and pre-activated paying telephony services (including internet browsing and voicemail services) without first providing information to, or obtaining permission from the consumer, thereby exposing consumers to possible debts about which they were unaware.

Considering that this practice qualifies as an aggressive commercial practice within the meaning of EU Directive 2005/29/EC, the Competition Authority imposed fines on Vodafone and Wind in the amounts of EUR 250,000 and EUR 200,000.

On appeal by Vodafone and Wind, the Regional Administrative Court of Lazio (Italy) annulled the fines on the grounds that the Competition Authority lacked the competence to impose them. The Court held that the Italian Communications Regulator had exclusive competence to penalise the practices at issue as (i) these practices are covered by specific Italian legislation giving that body the exclusive power to inspect, prohibit and sanction with regard to electronic communication services; and (ii) Article 3(4) of EU Directive 2005/29/EC provides that “[i]n the case of conflict between the provisions of this Directive and other [EU] rules regulating specific aspects of unfair commercial practices, the latter shall prevail and apply to those specific aspects” (i.e., “the principle of specification”).

The Competition Authority appealed the regional court’s judgments to the Italian Council of State, which, in turn, decided to stay the proceedings and refer questions concerning the proceedings to the CJEU. The questions asked were on whether:

  1. the practices of Vodafone and Wind qualify as aggressive commercial practices and/or as inertia selling within the meaning of Directive 2005/29/EC; and
  2. More specific directives, namely, Directive 2002/21/EC “on a common regulatory framework for electronic communications networks and services” and Directive 2002/22/EC “on universal service and users' rights relating to electronic communications networks and services”, which provide for a specific sector regulator and concern the provision of electronic communications networks and services to end-users, preclude the application of Directive 2005/29/EC having regard to the principle of specification and whether, as a result, the Competition Authority lacks the competence to sanction the practices in question.

The CJEU, which is the highest court in the EU, first confirmed that the practices of Vodafone and Wind qualify as inertia selling. It noted that the services, that were provided with the handsets, were unsolicited as the customers did not freely choose the provision of the services in question. They were neither informed about the cost of the services, nor about the fact that these were pre-loaded and pre-activated on the SIM cards.

It should be kept in mind by all traders selling to consumers that the CJEU found it irrelevant that the use of the services in question required, in certain cases, conscious action on the part of the consumer. Similarly, the CJEU deemed it irrelevant that the consumers could have opted to disable the services, since it was highly unlikely that they would genuinely be able to make use of this option before being charged for the services.

Second, as regards the question of whether the more specific EU directives preclude the Competition Authority from sanctioning Vodafone and Wind for violations of Directive 2005/29/EC, the CJEU held that a conflict with Directive 2005/29/EC on unfair B2C commercial practices only arises if (i) the conflict is between EU rules and not between national rules; and (ii) provisions - other than those of Directive 2005/29/EC  - introduce obligations which are incompatible with those laid down in Directive 2005/29/EC, leaving no margin of discretion. 

On the facts of the case, the CJEU held that the Competition Authority was competent to sanction Vodafone and Wind on the basis of Directive 2005/29/EC on unfair B2C commercial practices. It considered that the provisions in the more specific directives pertaining to end-users do not qualify as rules regulating specific aspects of unfair commercial practices, such as inertia selling. Consequently, the CJEU found that there is no conflict between the provisions of Directive 2005/29/EC and the rules laid down in the more specific directives. Moreover, the CJEU noted that in at least one of the more specific directive, it is expressly provided that its provisions concerning end-users’ rights are to apply without prejudice to the EU rules on consumer protection, which include Directive 2005/29/EC.

The Italian Council of State will now have to rule on the merits of the case, applying the interpretation put forward by the CJEU in its judgment. Hong Kong sellers should keep in mind that the judgment, although addressed in this particular case to Italy, will be applicable throughout the EU as regards the interpretation of Directive 2005/29/EC on unfair B2C commercial practices.

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