Further changes to unfair competition laws in Germany are imminent. After the Act against Unfair Competition (UWG) was only fundamentally changed in December 2020, further amendments will come into force on 28 May 2022. The most important changes are discussed below.
What has happened?
- On 28 May 2022, amendments to the Act against Unfair Competition (UWG) adopted on 11 June 2021 will enter into force.
- The reforms implement the requirements of Directive (EU) 2019/2161 (the "Omnibus" Directive) and address other issues arising from recent case law, including on "influencer" advertising.
- The reforms will see "dual quality" products regulated, significant new information requirements for online trading introduced, new "black clauses" added to the Black List and new fines introduced for so-called "widespread" breaches. Furthermore, a separate power for consumers to claim damages for certain violations will be introduced.
- This is already the second UWG reform within less than two years after the "Act to Strengthen Fair Competition" came into force at the beginning of December 2020, significantly changing the UGW (see our article here).
Want to know more?
EU context
Most of the changes are due to Directive (EU) 2019/2161 (the "Omnibus" Directive), which came into force in January 2020 (see our article here). The aim of the Directive is to modernise consumer protection laws and improve the options for enforcing consumer protection rights. In addition to the UWG and the Industrial Code (GewO), the Price Indication Ordinance (PAngV) was also amended in this context (see our article here).
It is worth noting that the structure of the UWG is fundamentally maintained by this reform. Restructuring is only evident in Sections 5, 5a and 5b UWG.
"Prohibition" on Dual Quality
The problem of "dual quality" products has been widely discussed in the media. It refers to the situation where products are presented to consumers across the EU in the same way (eg with identical or very similar packaging) but those products differ in quality, content or composition in different EU Member States. This phenomenon usually affects food, but other consumer products, such as consumer electronics, can also be affected.
According to the EU, while traders are free to differentiate their products for different markets, consumers cannot be misled by different products being presented to them as "identical" in the absence of legitimate and objective reasons. Misleading consumers about product composition can therefore (on a case-by-case assessment by the competent authorities) be considered as a prohibited unfair commercial practice.
From 28 May 2022, this prohibition on "dual quality" marketing can be found as an independent misleading item in Section 5 (3) no. 2 UWG. It applies only to products and will mainly impact producers/manufacturers but its application to those further down the supply chain is not excluded, at least on the strict wording of the provision.
Under the new provision, the marketing of a product as "identical" to a product made available in another Member State might be regarded as a misleading commercial act if there are differences in the composition or characteristics of the product. This does not mean that offering differing products under the same brand is not possible. But, care will be needed to ensure that those differences are present for legitimate and objective reasons.
The legislator is silent on the question of when differing products will be deemed to have been marketed as being "identical". For example, differences only in the list of ingredients or in the nutrition information on the back of a package may not be enough to exclude a finding that the products have been marketed as being "identical".
However, consumers will be deemed not to have been misled where the differences are present for legitimate and objective reasons. According to the EU, these reasons could include national legislation, availability or seasonality of raw materials, or voluntary strategies to improve access to healthy and nutritious food. Under the explanatory memorandum, the German legislator even wants to allow deviations due to different consumer preferences. Time will tell whether this is in line with the will of the EU legislator; that seems questionable.
While this new provision has been much talked about in the media, it remains to be seen whether the change is as relevant in practice as some have suggested.
Clarification of labelling requirements for "influencer advertising"
Recently, "influencer advertising" has come under the spotlight in Germany. Numerous diverging decisions of the German courts have shown that there is a need for legislative clarification in this area (see our article here). The German legislator has now taken the initiative and created a new labelling obligation for such advertising in Section 5a (4) UWG (new version). Although the new provision regulates influencer advertising conducted for others, it does not cover influencer advertising in the influencer's own interests (ie for its own products/businesses).
Scope of application of the UWG
As a first measure, the legislature has supplemented Section 1 UWG with a second paragraph on the scope of application of the UWG. The new paragraph 2 clarifies that other laws regulating specific aspects of unfair acts take precedence over the UWG.
Third-party business activity
Section 5a (4) UWG contains the new "Influencer Regulation". It sets out when an advert/content is deemed to have a "commercial purpose". This is the case if the influencer receives or has been promised remuneration or other consideration in the event of an act in favour of a different/external company. Where there is a commercial purpose, it must be labelled (where not obvious). If the commercial purpose is obvious, there is no labelling obligation.
The handling of product recommendations "without" consideration, which in the past has been classified by some regional and higher regional courts as subject to labelling requirements, remains unclear for the time being. However, it is important to note that the concept of "consideration" must be interpreted broadly. It includes, for example, the provision of test products, the assumption of costs and the payment of press trips. Furthermore, consideration is generally assumed. In the event of a legal dispute, it will be up to the influencer to credibly show that no consideration has been received (eg by way of a receipt for goods or affidavit).
Self-serving business act
The new rules do not cover cases in which the influencer acts in their own interests, ie to promote their own business. In principle, self-promotion is subject to labelling requirements even where the influencer has not received consideration. However, a labelling obligation relating to these cases is not covered by new provisions but falls under the (new) definition of business activity. Overall, the decisive factor is whether it is immediately obvious to the consumer that there is a "commercial purpose" to the content. If not, then the commercial purpose must be clearly labelled.
New information requirements
There are also various new information obligations (especially relevant for online trading), the non-fulfilment of which will in future constitute a violation of unfair competition laws. The purpose of these new obligations is to adapt consumer protection laws to new media and, particularly, to make online marketplaces more transparent. For this purpose, the new (now independent) Section 5b UWG dictates which information is to be regarded as essential for the consumer from the point of view of the legislator.
Disclosure of entrepreneurial status
According to paragraph 1 no. 6 of the new Section 5b UWG, it will be essential to state whether or not a provider on an online marketplace is an "entrepreneur" (effectively, meaning "in business"). Every entrepreneur is obliged to state whether a sale is made on an online marketplace as an entrepreneur in the legal sense. Accordingly, Section 2 para. 1 no. 6 UWG now also contains a definition of "online marketplace".
Information obligations for search functions
Online providers with a search function, in particular comparison websites, must comply with the new information obligation under Section 5b (2) UWG from 28 May 2022. This affects online providers who enable consumers to search for goods or services from "different" providers. Online shops that exclusively offer their own assortment of products via an online search are not covered.
The main parameters for determining the ranking of the listed goods and services and their relative weighting must be indicated. The entrepreneur must therefore disclose the algorithm used in an abstract form. They must provide the consumer with this information in a concise, easily understandable and clearly visible way. It is not necessary to disclose the parameters relating to the specific search performed by the consumer nor the underlying functioning of the system (as a trade secret).
Section 5b (2) UWG (new version) is supplemented by the new Black List offence of No. 11a in the Annex to Section 3 UWG. Hidden advertising in search results is always prohibited. Paid advertising or any payments to achieve a higher ranking must therefore be clearly disclosed to consumers.
Information obligations for customer reviews
Finally, Section 5b (3) UWG (new version) imposes a duty to provide information on what checking is done to confirm the authenticity of customer ratings and reviews. Since recommendations and ratings play a major role in purchasing decisions, these must be more transparent for consumers. Businesses that publish their own customer reviews will in future have to provide information on whether and how they ensure that the published reviews are from consumers who have actually purchased and used the goods in question. Only businesses that publish their own reviews will be obliged to do so. References or links to consumer reviews hosted by third parties are not covered.
The entrepreneur must inform consumers whether and how he checks the authenticity of customer reviews. If no verification takes place at all, information must be provided about this. If the entrepreneur takes appropriate measures, they must provide information about the processes and procedures they use as a basis for verification. In addition, they must disclose the system used to administer and publish reviews.
This provision is supplemented by new prohibitions in the black list in No. 23b and 23c of the Annex to Section 3 (3) UWG. These regulations make it possible to issue a warning letter against the publication of falsified ratings. In particular, No. 23b contains a prohibition on claiming that reviews of a good or service originate from a consumer who has actually purchased or used that good or service without taking reasonable and proportionate measures to verify whether this is correct. No. 23c prohibits the transmission or commission of falsified consumer reviews or recommendations and the misrepresentation of consumer reviews or recommendations on social media for purposes of sales promotion.
New fines for infringement of consumer interests
Under Section 19 (1) UWG (new version) entrepreneurs will be subject to significant fines if they infringe certain consumer interests. It is an administrative offence to intentionally or negligently "violate consumer interests" (see below) under Section 5c (1) UWG (new version). According to Section 19 (2) UWG (new version), this can be punished with a fine of up to EUR 50,000 or, if applicable, up to 4% of annual turnover. But, this is somewhat tempered by the following:
- Section 5c UWG - and therefore the new fine - is only relevant if there is "widespread infringement" or "widespread infringement with a Union dimension" within the meaning of EU Regulation 2017/2394. This is a significant limitation and illustrates that the provision is not about everyday unfair competition law breaches. Rather, the respective infringement must have an impact on consumers and consumer interests in several EU member states.
- A further restriction follows from Section 19 (3) UWG, under which sanctioning requires a "coordinated enforcement measure throughout the Union" within the meaning of Regulation (EU) 2017/2394, ie there must be cooperation between the national authorities of at least two EU Member States. This will generally only occur in cases of serious exceptional infringements.
Finally, "violation of consumer interests" is legally defined in Section 5c (2) UWG, as amended and means: violations of a black list offence, aggressive commercial acts under Section 4a UWG, misleading conduct under Sections 5 and 5a UWG, and unfair commercial acts under Section 3 UWG that are continued despite an enforceable official order or an enforceable court prohibition.
Damages for consumers
Section 9 (2) UWG (new version) introduces compensation in the form of damages for consumers. This represents a radically new approach to enforcement of the UWG and has therefore been described by some as a "paradigm shift". Just like claims for injunctive relief under unfair competition law, claims for damages were previously only available to competitors (or consumer associations), not to consumers.
According to Section 9 (2) UWG, a consumer is entitled to damages in the event of an intentional or negligent violation of Sections 3 or 7 UWG. Violations of Section 3a (breach of law), Section 4 (protection of competitors) and Section 6 (comparative advertising) as well as No. 32 of the Black List (request for payment in the event of unsolicited visits to a consumer's home on the day the contract is concluded) are excluded.
The consumer must essentially prove that they were induced by an unlawful act to make a purchasing decision that they would not otherwise have made. However, it will be difficult for the consumer to prove a loss or its amount. The burden of proof about whether damage has occurred at all, and how high it is, lies with the consumer.
Conclusions
While businesses, and the courts are still struggling with the last UWG reform, the next amendment of the UWG with considerable practice-relevant changes is already on the horizon. This makes tracking developments and obligations increasingly difficult.
- It remains to be seen whether the new "dual quality" regulation will have the impact the EU has predicted. The most interesting question is what specific design measures are enough to avoid falling within the scope of the provision and to what extent national consumer preferences represent a legitimate reason for an exception. Meanwhile, particular caution will be required when marketing differently composed products under an identical brand.
- The new regulations on influencer marketing are useful clarification, especially after the recent Federal Court of Justice rulings, although there are still unanswered questions that will continue to occupy the courts.
- The new information requirements in online commerce will represent a particular challenge for an industry that is already facing an ever-increasing requirement to disclose information.
- Despite their seemingly threatening character, the new regulations on damages and fines will probably play a subordinate role in everyday unfair competition law. Internationally active companies with EU-wide advertising campaigns should nevertheless be on their guard.
