Consultation on the Misleading and Comparative Advertising (2006/114/EC) and on unfair commercial practises affecting businesses

With reference to the consultation Federation of Finnish Enterprises states the following:

Present situation

Federation of Finnish Enterprises (FFE) gets daily several phone calls and e-mails from its members who have received an incorrect document from another company indicating of a contract between our member and the company that has sent the document. In many cases our members have, in fact, earlier received a phone call from the company in question but have not made the contract that is alleged on the document. According to the survey done by FFE in late 2010, almost 60 percent of the sole traders had received disturbing or misleading advertising in 2010.

In relation to the subject matter there are four most typical scenes that can be roughly divided as followed:

1) Company gets an invoice from another company even though there has not been any contact or contract made between the two beforehand

2) Company gets a phone call, no contract is made during the phone call but the company nevertheless receives an invoice indicating that there is a contract made in that phone call

3) Company gets a phone call where the company´s data (name, line of business, contact details etc.) is checked or “updated”; what follows is an invoice claiming that new contract was made during the phone call

4) Company gets a phone call and the oral contract is made. Later company receives some written documents (eg. terms of agreement) or an invoice that vitally differ from what has been agreed on the phone

According to our members situations 2 and 4 are the most common ones at the moment in Finland.

By and large it can be said that in Finland misleading advertising is still normally received via telephone. It seems that majority of these contacts are, indeed, directed to SMEs and especially to newly established businesses. What is more, later in the process these small and inexperienced businesses are often threatened with expensive debt collection and might, in consequence, end up paying the unfounded invoice of the contract they have not made.

The problem and the damage done

These kinds of unfair commercial practices damage businesses while forcing them to spend both their time and money to prove that they have not made the contract in question. As said, in many cases these entrepreneurs end up paying the invoice just to get rid of the process. It seems obvious that this kind of behavior lessens the interest for starting new businesses and affects those businesses already running causing damages that in Finland can be estimated to be several millions yearly.

At the moment there is not much SMEs can do. Because of the potential costs of litigation, SMEs may often be reluctant to initiate private lawsuits even in cases where practices they encounter are clearly unlawful. Also the protracted duration of a judicial process will have a bigger influence on entrepreneurship in a small company than in a large firm with their own legal department. In comparison with consumers the biggest differences in pleading a case are often the risks of the expenses that SMEs will have to bear.

National example: case Directa

In Finland there is currently going on a massive criminal procedure in the district court of Helsinki with more than 1400 entrepreneurs as plaintiffs. The defendants are a company called Directa and its management. Directa is a Finnish marketing company that has been selling internet-coverage for businesses by telephone. According to the prosecution the defendants are guilty of aggravated fraud and marketing offence. Moreover, according to its own notice Directa is either going to sue or has already sued almost 6000 companies (some of them also plaintiffs in criminal procedure) for not having paid what Directa claims has been agreed on the telephone. Most of these cases deal with actions and phone calls that took place several years before the actual hearing in the court.

Whatever the outcome of these procedures finally is, it is clear that it would have been better for all parties if the point at issue was solved immediately after the disagreements first came up, more than three years ago. There should not be thousands of separate cases where there, in practice, is only one or two legal questions to be argued. Moreover, especially if the actions carried out by Directa are later judged to be criminal, it would have saved time and money of thousands of businesses had these kinds of actions been temporarily prohibited by an authority or a court years ago.

Proposed actions

In our view there are few basic principles that should be confirmed on national and/or European level in order to tackle the problems described above:

1 Right to listen to the recording of the marketing call

It should be clear in all legal systems throughout the Europe that the one who invokes to a contract is the one responsible of proving that the contract actually exists. This is also true and especially important with verbal agreements. Thus, if one has got a recording of a phone call where the rumoured deal between the two parties is made, one should have the legal duty to inform the other party of it and the other party should, respectively, have the right to a copy of this recording so that it could listen the tape as well.

2 National authority for SMEs

There should be a clearly identifiable national authority for SMEs to whom SMEs could turn to when having difficulties, for example, with misleading advertising. This authority should also be able to bring SMEs´ legal cases to justice when needed. In case there´s not this kind of authority, however, this role and these functions should be taken care of by some national authority that does already exist.

3 Effective ban on unfair commercial practices

When there is a well-grounded reasoning for forbidding a company from advertising or marketing in a certain manner, there should be a possibility of a ban – set by suitable authority or court – that would stop that kind of marketing efficiently and without any unnecessary delay. It´s essential that, when there is the need for it, this ban would be available immediately and that its compliance could also be effectively supervised. In any case, a court at the request of the police should, as a part of a preliminary investigation, be able to execute a ban preventing a company that is suspected of illegal commercial practices to continue its marketing.

4 Role of debt collection agencies

It should be self-evident that debt collection agencies are not authorities but businesses, and, as such, cannot pass judgment on any contractual or other dispute. Thus it should be confirmed that those agencies can only collect debts that are indisputable. Judgments concerning disputed claims should always be court´s business.

5 SMEs right to call off a deal in distance selling

Finally, it should be considered whether there should be a legal right to call off a deal in distance selling between businesses. Conditions for this right should be rather strict and limited to cases where, for example, the contract has been made orally without meeting personally and the contract has not been confirmed in any way after the alleged agreement. The aforementioned right could also be reserved only for the receiving party of the marketing, as well as limited to certain time limit.

Reasoning

FFE would like to point out that in COM(2008) 394 final (A “Small Business Act” for Europe) it is stressed that one of the goals of the EU´s policy needs to be making the EU a world-class environment for SMEs. Moreover, in COM(2011) 78 final (Review of the ”Small Business Act” for Europe) it is stated that the Commission will carry out an in depth analysis of the unfair commercial practices and contractual clauses in the business to business environment in the Single Market and table a legislative proposal if needed in order to protect businesses against unfair contractual terms. In this context it is good to remember, among other things, that the European Parliament has taken notice of the need of a clearly identifiable national authority for SMEs especially in case of misleading advertising (P6-TA(2008)0608).

Thus, while considering different ways of reviewing Directive 2006/114/EC, the Commission should bear in mind the goals set in the SBA and the SMEs need for protection against unfair commercial practices.

Request for assistance

FFE would like to ask UEAPMEs assistance in getting information about the subject matter from UEAPMEs other member organisations. We would like to know if the problems are similar in other European countries and, especially, what kind of legal or other solutions have been adopted in order to tackle these problems. One essential question is, whether consumer protection provisions, in their entirety or even partly, have been extended to cover SMEs. This information would be valuable for us as we are promoting some legislative changes regarding to subject matter in Finland at the moment.

This information, as well as any further questions or queries about the subject matter can be sent to lauri.rautio@yrittajat.fi or to janne.makkula@yrittajat.fi.

Federation of Finnish Enterprises

Janne Makkula
Chief of Legal Affairs

Lauri Rautio
Legal Adviser