Home / Publications / Consumer Products Newsletter

Consumer Products Newsletter

May 2019

Below you will find the topics of the newsletter:

EUROPEAN UNION ARTICLES

NATIONAL ARTICLES

 


EUROPEAN UNION ARTICLES


EU 'New Deal for Consumers' is Coming

Author: Roderick Nieuwmeyer (Partner, CMS EU Law Office)

The EU New Deal for Consumers is coming. Some call it a game changer. Others call it old wine in new bottles. Fact of the matter is that Brussels is preparing some considerable developments in consumer protection rules across the EU.

The New Deal is divided in two parts:

  1. Making group actions for consumers ('collective redress') available in all EU member states, and
  2. Strengthening consumer protection rules, inter alia through harmonisation of fine levels, a ban on dual quality and strengthened online transparency

Consumer rights have always been at the core of the European Union, but in this case reference is often made to the weak position of consumers and consumer authorities in 'Dieselgate'.

In 2017, a fitness check was conducted to see whether instruments included in various EU directives were still fit for purpose. Subsequently, in 2018, the European Commission launched this New (Package) Deal for Consumers, which is said to be a reaction to modernisation, digitalisation and recent widespread cross-border infringements of EU consumer law.

If agreed upon, the collective redress part will make it possible that (non-profit) organisations can start collective actions on behalf of consumers against companies to seek redress. Various safeguards should distinguish these European representative actions from US-style class actions.

The consumer protection rules part changes four directives. It introduces amongst others:

  • Maximum fine levels for consumer law infringements of at least 4% of the turnover of the company's yearly turnover in the relevant EU Member State(s) or € 2.000.000 in case of lacking turnover information. Individual Member States may choose to apply a higher cap.
  • Right for consumers to bring individual remedies in case of harm through unfair commercial practices, e.g. termination of contract or compensation for damages.
  • More transparency for consumers in online marketplaces, e.g. disclosure of ranking parameters relating to search query results and use of personalised pricing.
  • Possible prohibition of dual quality of consumer goods, i.e. product marketing under same brand but differing in composition.

The proposal follows the EU ordinary legislative procedure. This means that the European Parliament and the EU Council of Ministers (the Council) have to agree and formally adopt. A provisional agreement on the consumer protection rules part was reached on 21 March 2019. Three weeks later, on 17 April 2019, the European Parliament formally adopted the draft text. Now, it is up for the Council to do the same. 

For the consumer protection rules part, there is only one formal hurdle left: the Council has to approve the draft text. Afterwards, EU member states will have 2 years to transpose the changes into national law. Consumer product companies should in the meantime prepare themselves for the changes that lie ahead.

European Parliament and Council still have to agree on the collective redress part though. European Parliament elections are scheduled for 25 May 2019. Until then, no plenary / voting session will be held. Consequently, it will be dealt with only after the elections. Stay tuned!

> Back to top


European Court of Justice – Consumers Can Withdraw their Purchases of Online Mattresses even After Removing the Protective Film

Author: Lars Eckhoff (Partner, CMS Cologne)

  • Consumers who have purchased a mattress online can usually withdraw from the sales contract within the statutory time limits even if they have "put the mattress to the test" - regardless of whether they have previously removed a protective film from the mattress that was present at the time of delivery. The ECJ decided this in response to a question referred by the BGH (ECJ, judgment of 27 March 2019 - C-681/17).
  • According to the Consumer Rights Directive, an exception to the statutory right of withdrawal only exists for "sealed goods ... which are not suitable for return for reasons of health protection or hygiene and whose seal was removed after delivery".  However, this provision, which must be interpreted narrowly, only applies if it is impossible or excessively difficult for the entrepreneur to take measures to make the goods saleable again because of the nature of the specific product.
  • Mattresses from which the protective film was removed after purchase are not covered by that exception, since it is not apparent that such a mattress, even if it may already have been used, cannot definitely be reused by a third party or put back on the market for that reason alone. In this respect, it was sufficient for the ECJ to briefly point out that one and the same mattress also served successive hotel guests, that there was a market for used mattresses and that used mattresses could be thoroughly cleaned.
  • Secondly, the ECJ held that a mattress could be equated with clothing with regard to the right of withdrawal. As regards the latter, the EU legislature expressly provided, in the recitals in the preamble to the Consumer Rights Directive, that consumers may try them on "in order to determine the nature, characteristics and functioning of the mattress" without this affecting the right of withdrawal. Like clothing, the entrepreneur may also resell mattresses after they have been cleaned or disinfected, without there being any obstacle to health or hygiene requirements.

> Back to top


First EU Approvals for Traditional Health-Related Information

Author: Magdalena Wyszyńska (Associate, CMS Poznań)

Under Commission Regulation (EU) 2019/343, which came into force on 21 March 2019, a number of denominations traditionally used in some EU Member States e.g. “tonic” and “cough drops” can appear in the labelling, presentation or advertising of a food in these Member States without a related nutrition or health claim.

Commission Regulation (EU) 2019/343 refers only to several denominations. All of them have been formulated in the respective national languages and listed in relation to the specific classes of food and Member States in the Annex to the Regulation. The above constitutes the first group of exceptions to the general rule resulting from Regulation (EC) No 1924/2006 on nutrition and health claims made on foods.

Pursuant to Regulation (EC) No 1924/2006, any claims made on food which state, suggest or imply that a relationship exists between a food category, a food or one of its constituents, and health is to be considered a health claim, and therefore must comply with that Regulation. The above also applies to trademarks, brand names or fancy names appearing in the labelling, presentation or advertising of a food which may be construed as a health claim. Under the general rule, such a trademark or name may be used without undergoing the authorisation procedures provided for in Regulation (EC) No 1924/2006, only if it is accompanied by an appropriate related nutrition or health claim. At the same time, however, Regulation (EC) No 1924/2006 provides for a possible exception to these rules for generic descriptors (denominations), which have traditionally been used to indicate a specific trait or feature of a class of food or beverage.

Applications for terms to be used as such a generic descriptor may be submitted by food business operators to the relevant national authorities. Pursuant to Commission Regulation (EU) No 907/2013, a valid application should then be submitted to the Commission and to all Member States. The Member States affected by the application are to then provide the Commission with their opinions, after which the Commission may initiate the approval procedure pursuant to Regulation (EC) No 1924/2006.

Exemptions provided for in the newly adopted Commission Regulation (EU) 2019/343 have a very limited scope of application. If, therefore, entities operating in the food market would like to use the exemption also for other traditional generic descriptions that fall within the scope of Regulation (EC) No 1924/2006 and for which the Commission has not yet granted derogations, they should consider initiating the above-mentioned procedure under Commission Regulation (EU) No 907/2013.

> Back to top


New EU Rules on Food Safety Risk Assessment

Author: Dirk Smielick (Counsel, CMS Köln)

The Members of the European Parliament have passed the draft proposal for a European regulation that will – apart from flanking amendments to several other European regulations (inter alia on genetically modified food and feed, the common authorisation procedure for food additives, food enzymes and food flavourings, materials and articles intended to come into contact with food and the placing of plant protection products on the market) – particularly amend Regulation (EC) No 178/2002 laying down the general principles and requirements of food law, establishing the European Food Safety Authority and laying down procedures in matters of food safety (“General Food Law Regulation”). The new regulation follows-up on concerns regarding the transparency of scientific studies used in the evaluation of pesticides. It also seeks to respond to findings of a fitness check of general food law that was completed in January 2018. The goal is to improve risk communication and transparency of the risk assessment executed by the European Food Safety Authority (“EFSA”).

The key elements of the new provisions are:

  • A new database of studies shall be established at the EFSA that will contain studies commissioned or carried out by business operators to support an application or notification for which the EFSA shall provide scientific output (new Art. 32b (1)). Business operators shall, without delay, notify the EFSA of the content and the scope of said studies as well as the laboratory or other testing facilities carrying out the study (new Art. 32b (2)), the laboratories and other testing facilities being the subject of a corresponding obligation (new Art. 32b (3)). The reference to studies in application, notifications that have not previously been notified or the lack of reference to studies that have previously been notified will generally render them invalid or inadmissible (new Art. 32b (4) and (5)). Non-compliance can be remedied but will lead to a substantial delay or suspension of the EFSA proceedings by six months. The new Art. 32c will include provisions on the consultation of third parties in cases of renewal of authorizations as well as the prerequisite of pre-notification of any study intended for said purpose. The Commission, in exceptional cases of serious controversies or conflicting results, may request the EFSA to commission scientific studies with the objective of verifying evidence used in its risk assessment (Art. 32d).    
  • The list of information that shall be made public by the EFSA pursuant to Art. 38 of the General Food Law Regulation without delay has been expanded. It now particularly also covers scientific data, studies and other information supporting applications filed by business operators (new Art. 38 (1) lit. (c)), which shall be made public without delay once an application has been considered valid or admissible. Business operators may file a request for confidentiality in accordance with the new Art. 39 to 39d to protect their know-how. Any disclosure of information to the public shall also be without prejudice to any rules on intellectual property rights which set out limitations on certain uses of the disclosed documents and the protection of investments the information and data (new Art. 38 (1a)). Confidential treatment may, however, be granted only with respect to specific items of information (e.g. information on the manufacturing process or the quantitative composition of the subject matter of the request, except for information which is relevant to the assessment of safety) and if the applicant can demonstrate that the disclosure of such information will potentially harm its interests to a significant degree (new Art. 39 (2)). The EFSA may, however, even disclose the latter information where urgent action is essential to protect human health, animal health or the environment (new Art. 39 (4) lit. (a)). 
  • Applicants or notifiers will be able to receive pre-submission advice from the EFSA on the rules applicable to, and the content required for, the application or notification prior to their submissions (new Art. 32a). This will particularly help SMEs.
  • Chapter II of the General Food Law Regulation will receive a new Section 1a (“Risk Communication”) containing new Art. 8a-8c. Art. 8a will include a list of nine objectives risk communication shall pursue (Art. 8a), inter alia, to ensure consistency, transparency and clarity in formulating risk management recommendations and decisions, to foster public understanding of the risk analysis and to ensure appropriate involvement of consumers, feed and food businesses, the academic community and all other interested parties. According to the five general principles of risk communication included in Art. 8b risk communication shall inter alia, ensure that accurate and all appropriate information is exchanged in an interactive and timely manner with all interested parties, provide transparent information at each stage of the risk analysis process and be clear and accessible, while duly respecting the applicable legal provisions on confidentiality and protection of personal data. The Commission shall adopt, by means of implementing acts, a general plan for risk communication in accordance with Art. 8c in order to achieve the objectives set out in Art. 8a, in accordance with the general principles set out in Article 8b.

With the exemption of the new provisions on the EFSA Management Board (Art. 25) and its Scientific Committee and Scientific Panels (Art. 28), which shall apply from 1 July 2022, the regulation shall apply from 18 months after the date of its entry into force, so likely not earlier than the first quarter of 2021. Due to the transitional measures provided, it shall not apply to applications as well as requests for scientific outputs submitted with the EFSA prior to the commencement of its application.

Please see the official press release here.

> Back to top


Placing of the Organic Production Logo of the European Union Not Authorised on Halal Products

Author: Agnieszka Starzynska (Senior Associate, CMS Warsaw)

On 26 February 2019, the Court of Justice of the European Union ruled that it is not permitted in the EU to place the organic production logo of the EU on products derived from animals which have been slaughtered in accordance with religious rites without first being stunned (ECJ, judgment of 26 February 2019 - C-497/17). This means that companies which produce halal processed food will no longer be entitled to mark their products as organic using the EU logo.

The request for a preliminary ruling was lodged as a result of proceedings between the French association OABA and the French Minister of Agriculture and Food, Bionoor SARL, Ecocert France SaS and the French organization INAO. The dispute concerned the OABA’s application for the prohibition of advertising and marketing of beef products bearing the brand “Tendre France”, certified “halal” and showing the “organic farming” logo.

The OABA argued that the “organic farming” logo cannot be placed on products derived from animals that have been slaughtered without first being stunned. According to the OABA, such slaughter method does not comply with animal welfare standards. On the other hand, the opposing parties argued that the principle of humanitarian slaughter of animals is subject to exceptions when freedom of religion is involved. They also stressed that it cannot be inferred that the principle of organic production is incompatible with ritual killing intended to guarantee the freedom to practice one’s religion.

The Court stated that the practice of ritual slaughter, as part of which an animal may be killed without first being stunned, is insufficient to remove all of the animal’s pain, distress and suffering as effectively as slaughter with pre-stunning. Further, the Court noted that EU regulations lay down the objective of “maintaining and justifying consumer confidence in products labelled as organic”. Therefore, it is important to ensure that consumers, who buy products marked with the organic logo of the EU, have confidence that these products have been obtained with full respect of animal welfare.

As a consequence of the above argumentation, the Court stated that the rules of EU law do not authorise the placing of the organic production logo of the European Union on products derived from animals which have been slaughtered in accordance with religious rites without first being stunned. This does not mean the end for halal food in the EU, however, it should no longer be marked with the organic logo of the EU.

> Back to top


NATIONAL ARTICLES


Belgium: Belgium Submits Draft Bill on Distributing Medicinal Cannabis

Authors: Bruno Fonteyn (Senior Associate, CMS Brussels) and Delphine Phan (Junior Associate, CMS Brussels)

On 6 February 2019, a draft bill was submitted to the House of Representatives establishing a government agency for cannabis that would have the exclusive right to distribute medicinal cannabis.

The draft bill proposes that the Federal Agency for Medicines and Health Products (FAMHP) has the authority to organise the cultivation and distribution of cannabis for medicinal use.

The bill follows research promoting the benefits of cannabis for medicinal use. In 2014, a working group set up within the FAMHP issued an advisory report that concluded medicinal cannabis can be useful for certain pathologies where traditional drugs are less effective.

The draft bill calls for the creation of a government agency in accordance with the treaty, the Single Convention on Narcotic Drugs of 30 March 1961. This “cannabis agency” will be established within the FAMHP and will be solely responsible for designating the areas where cultivation will be permitted, granting licenses to cultivators, purchasing and taking possession of the cannabis, and importing, exporting, wholesale trading and maintaining stocks of medicinal cannabis.

Hence, medicinal cannabis will only be available from growers licensed by the agency and through a regulated distribution chain.

The proposed legal framework resembles the Dutch model. In 2000, the Netherlands established the Medicinal Cannabis Agency (Bureau Medicinale Cannabis), which also has the exclusive right to distribute cannabis for medicinal use.

Lastly, the current ban on the magistral and officinal preparation of medicinal cannabis remains applicable.

The draft bill, which can be viewed via this link, is now being discussed in the House of Representatives ahead of a later vote.

For more information on this bill, please contact one of our local CMS experts.

> Back to top


China: New Regulations for E-commerce Retail of Foreign Consumer Products to China

Author: Falk Lichtenstein (Partner, CMS China)

China has issued its very first law regulating e-commerce, the Law of the PRC on E-commerce (“E-commerce Law”). It was issued on 31 August 2018 and came into effect on 1 January 2019.

The E-commerce Law differentiates between three categories of E-commerce operators: “Platform Operators”; “Operators on Platform”; and other e-commerce operators (together “E-commerce Operators”). All E-commerce Operators must know which category of E-commerce Operator they are and they must fulfil the obligations attached to that category throughout their daily business operations.  These obligations include:

  • Safeguarding personal and property safety requirements

The E-commerce Law extends the safeguarding obligation from the PRC Consumer Protection Law (the “CPL”), which Operators on Platforms must adhere to, to all E-Commerce Operators. This obligation requires providers of goods or services to ensure the goods or services provided by them are safe for both persons and property. This is significant as, under the CPL, Platform Operators were not considered sellers as they were merely providing a platform to sell on and because of this they did not have to adhere to this obligation.

  • Consumers’ right to be informed

The E-commerce Law expressly prohibits misleading or cheating consumers by way of making up transactions or fabricating reviews and comments. Apparently, such behaviour is quite common in the Chinese market, to the extent that the regulator saw a need to curb it.

  • Platform Operators may also be liable for the defective products

If a Platform Operator knows, or should have known, that goods or services provided by its Operators on Platform do not comply with the requirements of personal or property safety, or has conducted other acts infringing the legitimate rights and interests of consumers, the Platform Operator, if it has not taken any necessary measures, would be jointly and severally liable together with the infringing Operators on Platform.

  • Differentiation of a platform’s own business from a self-operated business

The E-commerce Law requires that a Platform Operator distinguish its own business from that of other operators on its platform with noticeable labels. If a good or service is labelled by the Platform Operator they are civilly liable for it. 

  • “Buy on behalf” new regulation

“Buy on behalf” Merchants (Daigou) are now required to register, pay taxes with the relevant competent authorities and apply for and obtain any relevant licences. Those who violate these provisions are subject to fines of up to RMB 2 million for illegal business operations and tax evasion.

  • New regulations on cross-border e-commerce

Cross border e-commerce has become a huge business in China, with foreign companies shipping their products, which have been ordered and paid for online, directly to Chinese consumers. It had long remained an unregulated area, leaving it unclear whether the Chinese government would perhaps close it one day, as it offers foreign companies multi-billion EUR business opportunities without having a physical presence in China and without approval or registration of the imported foreign goods in China. In addition to the new E-commerce Law, the Chinese government has now issued a series of regulations regarding cross border e-commerce, keeping this market open for foreign companies. Under these regulations, foreign consumer goods bought by way of cross-border e-commerce retail import shall be regulated as articles imported for personal use. These goods are subject to tax incentives but shall be only used by the end consumers and not be resold in the Chinese domestic market.

China’s E-Commerce sector is enormous so there is no doubt that regulation was required. As China continues to adjust to a growing middle class and a consumer-based economy it is not surprising that the E-Commerce Law provides consumers with more rights and security when shopping online. Foreign companies will welcome the continuation of permitted e-commerce consumer sales to China. 

> Back to top


Germany: New German Packaging Act - New Obligations for Distributors of Packaged Goods

Author: Antonia Witschel (Counsel, CMS Cologne)

  • The new German Packaging Act, which came into force in January 2019, brings with it important innovations for manufacturers, retailers and importers. In particular, the new law establishes for the first time a central supervisory authority (the Foundation Central Agency Packaging Register; or Central Agency for short), as many obligated parties have not properly participated in the so-called dual systems – private service providers that organise recycling – in the past.
  • In particular, the Central Agency operates the new LUCID packaging register, which obligated parties must register on. The LUCID packaging register is public. This means that the registered companies and the trademarks under which they place packaging on the market are visible to everyone. Consumers, distributors and competitors can thus search for individual companies and brands to check whether they have fulfilled their obligation to participate in the system.
  • In addition to the new registration obligation, there are still various reporting obligations as well as the obligation to participate in the system. The obligation to participate means that the obligated party must participate in one of the dual systems and pay licence fees depending on the quantities of packaging they report. The reporting obligations must now be fulfilled in part vis-à-vis the system operator and the Central Agency and no longer vis-à-vis the Chambers of Commerce and Industry (IHK), as was the case in the past. The system participation and the reports to the central office will also be more closely interlinked in future, for example, by parallel reports and the control of the registration number by the dual systems.
  • The obligations for system participation, registration, data reporting and submission of the declaration of completeness relate to packaging which is subject to system participation and which is placed on the German market for the first time. These are generally speaking B2C sales packaging and repackaging materials which, after use, typically end up as waste for the private end-consumers. This also includes shipping materials (e.g. cardboard boxes and filling material from online shops) and service packaging materials (e.g. bags for bread rolls). However, reusable packaging, disposable drinks packaging subject to a mandatory deposit by-law, packaging exported to customers outside of Germany and sales packaging for goods containing hazardous substances are excluded.
  • Examples of obligated first distributors of packaging include the manufacturer of a packaged product, the online retailer who for the first time provides a packaged product with shipping packaging, but also the importer who imports packaged goods into Germany and is responsible for them at the time of crossing the border. An important exception exists in the event that a contract manufacturer fills a packaging on behalf of a third party (typically a retailer) and only the third party is marked on this packaging: In this case, the third party must comply with the legal obligations.
  • The legal reform is also relevant for retailers who are not themselves considered manufacturers of a packaged product or manufacturers of shipping packaging. This is because the final distributor in Germany must ensure that the obligations for registration and system participation under the Packaging Act are fulfilled. Otherwise, the goods are automatically subject to a distribution ban in Germany.

Companies should check as soon as possible whether they are obliged under the Packaging Act to participate in the system, register, report data and submit the so-called declaration of completeness. This may depend on the concrete contractual obligations or the design or labelling of the packaging, e.g. for importers and contract manufacturers. In the context of modern shipping and logistics solutions, such as drop shipping and fulfilment centers, the obligation also depends on the specific activities of the parties involved and the labelling of the packaging. In addition to distribution bans, infringements may result in the imposition of administrative fines. In the case of non-participation in the system, for example, these can amount to up to EUR 200,000, and in the case of non-registration in the packaging register to EUR 100,000. It is also possible that competitors will enforce the distribution ban by civil law.

Information of the Central Agency in English language can be found here:

The Ten Most Important Questions Regarding the Implementation of the Packaging Act

How-To Guide to the Packaging Act for Manufacturers

> Back to top


Italy: Blockchain and Smart Contracts for Food Traceability

Authors: Paola Ghezzi (Partner, CMS Rome) and Massimo Alpigiani (Senior Associate, CMS Milan) | Full article available on Law-Now

The Law Decree simplifying procedures for businesses and public administration (DL Semplificazioni), as converted by Law no. 12/2019 published in the Official Gazette on 14 February 2019, introduces the normative definition of technology based on distributed registers, better known as Blockchain, into the Italian legal system. 

Art. 8-ter of the Conversion Law provides the first definition of blockchains as "technologies based on distributed registers", indicating them as "technologies and computer protocols that use a shared, distributed, replicable, simultaneously accessible, architecturally decentralized register on cryptographic bases, such as to allow the registration, validation, updating and storage of data both in clear and further protected by cryptography verifiable by each participant, not alterable and not modifiable".
A technology initially linked to bitcoin transactions, but of great interest in different application areas where the implementation of a shared register between private individuals - in which each participant in the chain, under their own responsibility, can add information in relation to their area of expertise - can represent an added value, which is then given a regulatory form.

It is precisely the decentralization in the formation of shared registers and the unchangeability of the information entered by the operators that would seem to guarantee the transparency of the information made available to users.Mass Retail Channel of the food sector has already begun to use blockchain technology, making information available to consumers in order to allow the food chain to be fully transparent and traceable, far beyond what is shown on the label. At the moment, it is an opportunity that regards only specific categories of marketed products, but it allows consumers to be aware of the entire life of the product they are going to purchase.
Having a technological tool defined by the law provides an increase of the level of knowledge and awareness of the purchases, but this is only one possibility for a major change in the information system to consumers and their use for the protection of some products identified by a certain process or from the origin of a food product.

The protection of Made in Italy stands only benefit from the distributed registers: not only the indications on the label, but the entire supply chain will become traceable through a public consultation register that contains all the information entered by the subjects having a relevant relation with the product. 

With reference to the identification requirements and for further aspects related to the operations of the distributed registers, the Agency for Digital Italy (AGID) will issue Guidelines within ninety days from the date of entry into force of the law converting the decree. Within the same term AGID will have to identify the technical standards that the technologies based on distributed registers must meet for the purposes of producing the legal effect of electronic time stamps.
It is expected that the necessary rules will be set for the proper management of the distributed registers and, above all, the definition of the rights and liabilities of those who enter information in the register. This is mainly due to the fact that the DL gives to the information included in the distributed registers the legal effect of electronic time stamps as per art. 41 of the Regulation (EU) n. 910/2014, and namely:

  • having legal effect and admissibility as evidence in legal proceedings;
  • having the presumption of the integrity and the accuracy of the date/time in which they are filed;
  • be recognized in all Member States.

The parts of a blockchain must have a contractual regulation for operating within a blockchain. For this purpose, the so-called "smart contract", also regulated and defined by the DL Semplificazioni, may work towards this purpose. Smart contracts are the "computer program operating on technologies based on distributed registers and whose execution automatically binds two or more parts on the basis of predefined effects."
Smart contracts are equivalent to physical contracts and should contain terms and conditions for the operation of a distributed register; as such, it satisfies the requirement of the written form where required by the law. Standardization of provisions applicable to specific sectors or particular cases shall now be investigated, with a decreased risk of discretion on the interpretation and on the effects of the instruments themselves.

> Back to top


Luxembourg: How to Counter Unjustified Geographical Blocking in Luxembourg Short Review of the Luxembourg Draft Bill Implementing Rules further to Regulation (EU) 2018302 and its Raised Expectations

Authors: Laure Chemla (Senior Associate, CMS Luxembourg) and Arvine Zamani (Associate, CMS Luxembourg)

On 28 February 2018, the European legislator enacted regulation EU 2018/302 to mitigate the negative impacts of unjustified “geo-blocking” on the European single market (“Regulation”).

Luxembourg consumers are among the most geo-blocked consumers in the EU, with less than 30% of purchases able to be processed while more than 65% of the population make online purchases – the highest rate in the EU. 

What is “geo-blocking”? It is the practice of impeding consumers’ access to certain online services or purchase of goods through the internet based on their place of residence. Take, for example, a consumer wanting to buy a car online. He can check the website of the car’s brand from Luxembourg or, for instance, the Polish version of the website, bearing in mind that the websites may offer different prices. With his Luxembourg IP address, he may be redirected to local websites and prevented from ordering the car on other countries’ websites, and at a cheaper price. The Regulation, which aims at addressing such issues, should have entered into force in December 2018, but the draft law has not yet been passed. 

Subject to certain conditions, the Regulation primarily (i) prevents consumers from being denied access to online services based on their location, or from being redirected, without their consent, from one version of a trader’s website to another, and (ii) prevents traders from automatically applying different prices based on the location of consumers, or from not accepting certain means of payment.

In order to implement the Regulation, Member States must adopt enforcement measures. Draft bill N°7366 (“Bill”) appoints the European Consumer Centre GIE (“ECC”) as the national body tasked with assisting consumers in the application of the Regulation or in the defence of their interests before Luxembourg courts. The Bill also provides for an enforcement mechanism, whereby the ECC or consumers in Luxembourg are entitled to seek an injunction (actions en cessation) from the president of the Luxembourg District Court sitting in commercial matters under the emergency procedure (référé) in order to force (Luxembourg based) traders to comply in the event of a breach of the provisions of the Regulation. The decision awarded may be appealed within 15 days and any further breach of a final decision or an injunction will result in a fine of between EUR 251 and EUR 120,000, and consumers or the ECC may seek further redress before criminal courts (through fines).

The Bill is a welcome but inadequate first step in the provision of better access to online services for consumers in Luxembourg and in Europe. The sanctions referred to in the Regulation and the Bill only apply to companies established in Luxembourg and a foreign company cannot be forced to deliver products in Luxembourg if it is not set out in its General Terms and Conditions.

In addition, the scope of the protection does not extend to copyright-protected works, or audio-visual, financial, healthcare, social or transport services. Pending a reassessment of the (limited) impact of the Regulation in 2020, traders can already adjust their terms and conditions to withdraw any clauses restricting access to consumers based solely on location or redirecting internet services without the consumer’s consent. Traders should review their payment methods and the conditions applicable to shipments to a consumer’s preferred location.

> Back to top


Spain: towards a Greater Fight Against Late Payments under Spanish Law

Author: José Luis Rodríguez Ontiveros (Associate, CMS Madrid) 

Law 3/2004, known as the Late Payment Act (Ley de Morosidad), has consistently proven inefficient in tackling on its own a large-scale problem in Spain: late payments among companies. Since 2017, the Spanish Parliament has been taking steps to approve a law addressing the problem once and for all. Despite never being passed, the initiatives anticipate a more stringent approach, with particular sanctions for infringement.

In 2004, the fight against late payments was entrusted to, among others, legal rules providing maximum payment terms (60 / 30 days). The approach hardly led to significant changes in behavior in the market, considering the absence of a penalty-based mechanism to enforce it. Large companies continued to abuse small businesses and entrepreneurs, who were compelled to accept whichever payment conditions were on the table.

A minor change was introduced in 2013 in the food sector, where exceeding the maximum payment terms could be sanctioned with fines of up to EUR 100,000. It then became even clearer that the absence of a general penalty scheme hampered the fight against late payments.

Action was taken in 2017 with two new proposals to amend the Late Payment Act. Both fell at the end of the parliamentary term due to the April 2019 elections, but strongly set out the path for the upcoming measures that will presumably be implemented by the new government within the following months. Such measures can be summarized as follows:

  • Penalties to enforce the mandatory measures, with a general scope of application (in these proposals, sanctions could amount to EUR 900,000 in the worst-case scenarios).
  • Sanction of nullity of those clauses that violate the law, such as:
    • clauses excluding the accrual of late payment interest;
    • clauses exceeding the maximum payment terms; or
    • clauses excluding bank holidays from the calculation of the payment terms.
    • Creation of an arbitration system for late payments to which companies would voluntarily submit themselves.
    • Transparency measures about payment terms (these are partially already provided for in different laws, mandating companies to publish their payment terms on their websites, in their annual accounts, etc.).
    • The creation of a Governmental Observatory on Late Payments to provide advice, assessment and collaboration in order to combat late payments.

Measures like these may be implemented in the near future after the upcoming elections. In this case, companies would surely be affected as it will be less attractive not to comply with maximum legal payment terms when faced with significant fines. This will particularly affect large companies and will have an impact on their financing strategies. It remains to be seen, however, when legislative initiatives like those of 2017 return to the Spanish policy arena.

> Back to top


UK: Artificial Intelligence in Consumer & Retail

Author: Matt Bennett (Partner, CMS London)

Once the preserve of science fiction movies and books, Artificial Intelligence, or AI, is not only a reality today but an increasingly common feature of life. While the development of AI may still only be in its infancy, many retailers and brands have been early adopters, from ‘chatbots’ to AI-assisted customer analytics. This is only the start. The next wave will be ever more sophisticated. Already retailers are trialling checkout-less payment and there is talk of drones, autonomous in-home delivery and slick use of VR and AR to drive sales.

New research by CMS explores the impact of this next wave of disruption. Based on extensive consumer research and a survey of business leaders, Disruption 2.0 explores AI technologies and the new customer journey, the challenges of implementing AI, and the consumer attitudes that will ultimately shape its future.

Our survey shows that consumer products companies and retailers have high hopes for AI. Close to 85% said they thought that AI-powered data analytics would enable more sophisticated targeting of customers. 63% believe AI will lead to greater efficiency in the supply chain and over half believe AI will allow them to realise significant cost savings. The enthusiasm of these organisations however is juxtaposed with barriers to adoption – from skills shortages to legal and regulatory hurdles – as well as reticence from consumers.

The report explores key themes including

  • Data, trust & ethics in AI – whether delivering by drone, delivering direct into fridges, or using biometric data, AI-powered business models require a heightened level of trust, and our survey shows that only one in five consumers trust Retail & Consumer companies to responsibly handle their sensitive data. 66% of organisations believe they will require roles managing data ethics.
  • Consumer readiness – consumers display reticence towards certain types of AI. Only one in six consumers feel comfortable with the idea of AI powered in-home delivery, and 42% of shoppers forecast that drone deliveries will never become mainstream.
  • Age as a key factor – nearly 40% of 18 to 24-year olds expressed high levels of comfort with chatbots. Only 24% of over-65s held this view. Overuse of AI may be a turn-off for this demographic.
  • AI skills shortages in consumer organisations – nearly 60% of organisations feel they lack the specialised skills required to roll out new AI technology. Three-quarters of organisations believe they will plug this gap through external suppliers, however 38% think they will develop AI capabilities in-house.
  • How AI might help reinvigorate, not hurt, the high-street – two-thirds of shoppers would be encouraged to visit a physical store if they could check real-time product availability. 80% of organisations believe AI has the potential to increase customer loyalty.
  • Legal & regulatory concerns – from the GDPR aspects of automated decision making and profiling, to the competition aspects of AI-powered dynamic pricing.

While AI is certainly here to stay, companies need to be smart about how they use it and ensure they can implement it safely and effectively. To access the full report, please follow this link.

> Back to top


Authors

Picture of Bruno Fonteyn
Bruno Fonteyn
Senior Associate
Brussels
Roderick-Nieuwmeyer-CMS-NL
Roderick Nieuwmeyer
Advocaat
Brussels - EU Law Office
Picture of Massimo Alpigiani
Massimo Alpigiani
Senior Associate
Milan
Matthew Bennett
Matthew Bennett
Partner
London
Laure Chemla
Laure Chemla
Counsel
Luxembourg
Lars Eckhoff
Lars Eckhoff, LL.M. (Victoria University of Wellington)
Partner
Cologne
Picture of Paola Ghezzi
Paola Ghezzi
Partner
Rome
Dr. Falk Lichtenstein
Falk Lichtenstein
Picture of Delphine Phan
Delphine Phan
José Luis Rodríguez Ontiveros
Dirk Smielick
Dr. Dirk Smielick
Counsel
Cologne
Agnieszka Starzynska
Agnieszka Starzyńska
Senior Associate
Warsaw
Antonia Witschel
Antonia Bielefeld, LL.M.
Counsel
Cologne
Image of Magdalena Wyszynska
Magdalena Wyszyńska
Associate
Poznan
Arvine Zamani
Arvine Zamani
Associate
Luxembourg
Show more Show less