Misleading advertising and problems of its interpretation

Advertising – one of the most effective forms for information and knowledge spread in the society.  Not many of us imagine the successful development of any activity without it. Advertising is one of the most important factors that help to attract customers, to form their needs, habits and to perform successful activity of any kind, especially when functioning in market conditions where the winner often is the one who is more famous or better known. More and more often advertising becomes an instrument for fight with the existing and potential competitors, exercising the same or similar activity. Advertising and its use, as many other actions of economic entities, is regulated by the laws thus economic entities are not free to choose the form or content of advertising and therefore economic entities ought to follow the particular requirements, the breach of which may cause unfavourable consequences. The Law prohibits economic entities to exercise the actions that conflict with fair business practice and good commercial manners, including the use of advertising that is considered to be misleading in accordance with the laws of the Republic of Lithuania.

Conception of Advertising

The Law determines advertising as the dissemination of information in any form or through any communication medium in connection with person’s economic commercial, financial or professional activities in order to promote the supply of goods or services, including immovable property acquisition, assumption of property rights and obligations[1]. Definition of advertising determined by the Law is similar to the definition determined by the article 2 part 1 of the Council Directive No. 84/450/EEC of 10 September 1984: „'advertising' means the making of a representation in any form in connection with a trade, business, craft or profession in order to promote the supply of goods or services, including immovable property, rights and obligations“. From the definitions provided it is obvious that the spread information in order to be considered as advertising shall respond the following requirements: a) it shall be related with person’s economic commercial, financial or professional activities; b) it shall promote the supply of goods or services; c) it shall be disseminated in any form or through any communication medium.

Misleading Advertising

Misleading advertising – such advertising which in any way, including its presentation, deceives or is likely to deceive the persons to whom it is addressed or whom it reaches and which, by reason of its deceptive nature, is likely to affect their economic behaviour or which, for those reasons, injures or is likely to harm another person’s capabilities in competition. Identical definition is provided by the article 2 part 2 of the Directive, which determines that misleading advertising means any advertising which in any way, including its presentation, deceives or is likely to deceive the persons to whom it is addressed or whom it reaches and which, by reason of its deceptive nature, is likely to affect their economic behaviour or which, for those reasons, injures or is likely to injure a competitor. Misleading or deceptive nature of advertising is the spread of claims that contradict with the criteria of accuracy, comprehensiveness as well as manner and form of supplying advertising provided for in the article 5 part 2 of the Law on Advertising of the Republic of Lithuania. In accordance with the article 2 part 4 of the Law on Advertising the misleading advertising is related not only with spread of false or incomplete information but also with economic effect on those to whom it is addressed. It shall be noted that the Law does not require the cause of harm for the receiver of advertising – the existance of possibility to influence the economic behaviour of those to whom it is addressed is considered to be sufficient. The economic behaviour is based on customers‘ decisions and actions which are related to acquisition of goods and services, economic commercial, financial or professional activities (article 2 part 2 of the Law on Advertising). The Competition Council of the Republic of Lithuania often emphasize “it is sufficient to determine the possibility of person’s disorientation, rather than the fact of disorientation” (Decision No. 2S-7 of the Competition Council of the Republic of Lithuania of 11 May 2006, Decision No. 2S-5 of the Competition Council of the Republic of Lithuania of 23 March 2006 a.o.).

When deciding whether the advertising is misleading, three criteria shall be considered: accuracy, comprehensiveness and presentation. In accordance with the mentioned criteria three alternative conditions in order to acknowledge the advertising as a misleading may be excluded:

-    The information directly presented in advertising is false – the conception of false information directly disseminated in advertising is clear enough and does not cause uncertainty in practice. The duty of substantiation in this case lays on the disseminator of advertising. It is generally believed that the claims presented in advertising are false, if the provider of advertising can not substantiate accuracy of the assertion during the time of use. A decision regarding whether there are enough information substantiating accuracy of claims present in the advertising shall be based upon the consideration of an individual case. The evidence and recommendations by persons whose competence is not linked with the content of the information being submitted shall not be recognised as information substantiating the accuracy of claims being submitted (accuracy criteria)[2]. It means that the disseminator of advertising shall have undeniable evidence of the accuracy of advertising during the time of use. The Law provides a formal and specific requirement which makes evident the fact that the disseminator of advertising is allowed to spread information the accuracy of which he may substantiate. However, in cases the disseminator of advertising is spreading information, accuracy of which he may not substantiate for objective or subjective reasons (lost data in server, it is impossible to forecast some circumstances etc.), he shall be liable for the dissemination of such information in advertising.

-    Advertising is uncertain, incomprehensible to the customer, it contains the missing parts of neccessary information – the advertising is considered to be incomplete, if a certain part has been omitted the supplying whereof is, taking into account other information presented in this advertising, certainly needed  in order to avoid misleading of the consumers of advertising. Information presented in an advertising shall also be regarded as incomplete, if the comprehensive information concerning the conditions of acquisition, the validity of an offer or persons to whom it is applied is not disclosed and this causes or is likely to cause the average consumer to take such a transactional decision that he would not have taken otherwise (affects his economic behaviour). The Supreme Administrative Court of Lithuania has ruled that the misleading claims of an economic entity when they may potentially affect the behaviour of an average consumer on deciding to purchase the particular service without having information of additional conditions capacitate the economic entity to penetrate into the market by avoiding supplementary expenditures (The ruling No. A1-931/2005 of the Supreme Administrative Court of Lithuania of 17 November 2005). The mentioned supplementary expenditures would be unavoidable when supplying all the neccessary information concerning the validity of discounts and persons to whom they are applied. Thus the failure to disclose the neccessary information affect one of the most important elements of free market – fair competition.

-    Advertising is supplied in a manner or form that it allows to clearly implicit the involvement of unfair (misleading) claims – when judging whether the advertising is misleading, it is regarded that consumers form an opinion regarding the accuracy of the claims presented in the advertising, comprehensiveness of the advertising, manner or form of presenting the advertising and adopt such decisions, which may be expected from an average consumer. For example, the advertising indirectly declare the remedial characteristics of a preparation even though the preparation is not registered as a medicine.

Comparative Advertising – not always prohibited 

In accordance with the Law on Advertising of the Republic of Lithuania comparative advertising means any advertising, which explicitly or by implication identifies a competitor of the advertiser and the goods or services offered by the competitor. Comparative advertising shall be permitted when the following conditions are met:

 ·         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 features of those goods and services, which may include price;

 ·         it does not create confusion between commercial operators, between the supplier of advertising and a competitor or between the supplier’s of advertising trade marks, trade names, other distinguishing marks, goods or services and those of a competitor;

 ·         it does not discredit or denigrate the trade marks, trade names, other distinguishing marks, goods, services, activities, financial or any other status of a competitor;

 ·         for goods and services with designation of origin, it relates to the goods and services 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 goods or services;

 ·         it does not present goods or services as imitations or replicas of goods or services bearing a protected trade mark or trade name.

It shall be emphasized the above mentioned requirements shall be fulfilled. The principles determined by the Law on Advertising provides the advertising must be proper and accurate, it shall contain no discrimination as well as defames or misinforms and other factors that may negatively affect the society, morality or safety. The comparative advertising is allowed when it does not discredit or denigrate the trade marks, trade names, other distinguishing marks, goods, services, activities, financial or any other status of a competitor.

Liable person

The market of advertising dissemination consists of: customers (suppliers) of advertising,  consumers of advertising (advertising agencies, research organizations, performers and disseminators). Supplier of advertising – the person who has initiated the use and on whose interests the advertising was used (reserved, produced, disseminated) shall be liable for use of misleading advertising, if he fails to prove, that the Law has been violated due to no fault of his. The producer, mediator, or disseminator shall be liable for use of misleading advertising only in such cases when he was aware or had to be aware that misleading advertising was being used or the misleading occurred due to his actions in producing or publishing the advertising, or the producer of advertising, mediator or disseminator is unable to submit proofs, that would allow to establish the supplier (producer) of the advertising.

Fines 

The Competition Council of the Republic of Lithuania investigates whether the advertising does not violate the Law on Advertising.  The rights and obligations of the Competition Council for investigation are provided by the Law on Advertising and the Law on Competition. The article 22 part 1 of the Law on Advertising provides that for use of misleading or unpermitted comparative advertising the operators of advertising activity may be given a fine amounting from 1 000 to 30 000 Litas. The part 7 of the same article provides that the size of the fines shall be established according to the medium of the minimum and maximum of the fine and depend on the mitigating or aggravating circumstances, the type, duration and scale of violations. It shall be noted that the Competition Council admits that economic entities may be affected by the current worldwide economic situation which shall be considered when giving fines, i.e. the fines may be additionally reduced in particular circumstances[3].

The number of use of misleading advertising is increasing in practice: 16 cases of violation of Law on Advertising were met in 2007, 23 cases – in 2008. During the year 2009 the Competition Council has issued 29 rulings for the use of misleading and unpermitted comparative advertising and has given fines for 151 200 Litas in total[4]. Thus econimic entities shall objectively evaluate the content of advertising and change or adjust it, in case of any doubts. 

ECOVIS Miškinis, Kvainauskas ir partneriai advokatų kontora