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The end of a “reference price” defined by law

Article IT and Data Protection Intellectual Property, Media, and Art Law Competition, Retail and Consumer Law Commercial and International Contracts | 02/04/15 | 7 min. | Mahasti Razavi

An order issued by the French Minister of the Economy on March 11, 2015, and published in the French official journal on March 24, 2015 (the “Order”), now regulates the advertising of price reductions to consumers. This Order repeals the order of December 31, 2008 relating to such announcements.
 
The main contribution of this Order is to put an end to the legal definition of the concept of “reference price”. The reference price should be understood as the product price to which a price reduction is applied in order to calculate the discounted sale price.
 
As a reminder, under the terms of the order of December 31, 2008, the “reference price” could either be:
 
- the lowest price effectively applied by an announcer during the thirty days preceding the announcement of the price reduction;
 
- the price recommended by a manufacturer or importer;
 
- the latest recommended price (i) if a product had not been previously put up for sale in the same retail store or on the same website or (ii) if the product price was no longer recommended by the manufacturer or importer. In that case, the announcement of the price reduction, next to the reference price, had to bear the words “recommended price” as well as the corresponding year, which could not date back more than three years before the start of the announcement.
 
The abrogation of the legal definition of the “reference price” was predictable and expected ever since the ruling of the European Court of Justice (the “ECJ”) of July 10, 2014. The ECJ held that Belgium regulation on the announcements of price reductions had failed to properly implement Directive 2005/29/EC of May 11, 2005 relating to unfair commercial practices (the “Directive”).
 
Both the Belgian regulation and the French order of December 31, 2008 defined the reference price announcers should use in order to calculate price reductions.
 
However, according to the ECJ, regulations whose purpose is to forbid any price reduction which is not calculated pursuant to such terms – without such practice being referred to in Annex I of the Directive which draws up a list of commercial practices deemed unfair in all circumstances - is contrary to the Directive. Indeed, given the maximum harmonization character of the Directive, it forbids all Member States from maintaining in force national rules that are more restrictive than those laid down in the Directive (even when they aim at guaranteeing consumers reinforced protection). Therefore, according to the ECJ, a specific analysis of such price reduction announcement must be carried out in order to determine whether it is fair or unfair.
 
The Order thus brings French regulations into compliance with EU law.
 
•      The Order applies to any price reduction announcement made in a “commercial store”
 
The order of December 31, 2008 distinguished between announcements made (i) at points of sale or on merchant websites (“at points of sale”) or (ii) outside points of sale or non-merchant websites (“outside points of sale”) in order to provide information specific to each case.
 
However, in the Order, reference is no longer made to announcements outside points of sale, or, a fortiori, to information which must be specified in the framework of such announcements (i.e., information relating to the importance of the granted reduction, the promotion start date, the promotion period, etc.).
 
That being said, one must remain vigilant when drafting price reduction announcements intended to be circulated outside points of sale. Indeed, such announcements will constitute advertisements and may, as such, be subject to sanctions as unfair commercial practices.
 
•     The notion of “price reference” in the Order
 
Article 2 of the Order specifies that when the announcement of a price reduction is made in a commercial establishment (this replaces the notion of “points of sale or merchant websites”), the labeling, marking or display of prices achieved must specify:
 
- the reduced price announced; and
 
- the reference price determined by the announcer and on the basis of which the price reduction is announced”.
 
Article 3 of the Order goes on to specify that when the price reduction announcement corresponds to a uniform rate “(…) such condition must be notified, mention of the reduced price is not mandatory and the announced advantage is based on the reference price”.
 
Thus, the Order does not require announcers to determine the price reduction on the basis of a legally defined reference price: the reference price will now be defined on a case-by-case basis by the announcer, it being understood that pursuant to article 4 of the Order “the announcer must be able to justify the reality of the reference price on the basis of which the price reduction is announced”.
 
In other words, the Order does not question the principle according to which the announcer must always be able to justify the reference price on the basis of which the reduction is granted (for example by means of catalogues, sales receipts, etc.). However, the basis for calculating such reference price is no longer legally set.
 
•    Such liberty is nonetheless restricted: one should look out for unfair commercial practices
 
Article 1 of the Order provides that any price reduction announcement is lawful “as long as it does not constitute an unfair commercial practice within the meaning of Article L. 120-1 of the French Consumer Code and that it complies with the requirements laid down in the Order.”
 
As a reminder, pursuant to Article L.120-1 of the French Consumer Code, a commercial practice is unfair when (i) it is contrary to professional diligence requirements and   (ii)   it alters or is likely to substantially alter the economic behavior, in relation to the product, of the average consumer it affects or addresses, or of the average group member when a commercial practice targets a specific group of consumers. In this respect, “deceitful” commercial practices governed by Articles L.121-1 et seq. of the French Consumer Code and “aggressive” practices governed by Articles L.122-11 et seq. of the French Consumer Code, inter alia, are deemed unfair.
 
In this respect, it seems reasonable to believe that the prohibitions set out in articles 3 to 6 of the order of December 31, 2008 which were repealed by the Order, will remain applicable de facto insofar as such practices would surely be deemed unfair. For example, this would be the case of the announcement of a promotion for a product which is not available for sale (article 4 of the order of 2008) or the announcement  of reductions or advantages which do not apply to the buyer under the conditions set forth (article 5 of such order).
 
The abrogation of the legal definition of the notion of “reference price” will surely give professionals more liberty when defining the basis for calculating a price reduction. However, from now on announcers will be required to conduct a “self-assessment” in order to determine the unfair or fair nature of their price reduction announcements, which, in the absence of a jurisprudential common thread during the first few years, is likely to represent an actual operational difficulty./.
 
 
 
 
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