Coming up to scratch: an early ruling on the unfair trading regs

IPKat reader and enthusiast Carlton Daniel (Squire, Sanders & Dempsey (UK) LLP) was so excited about the nearly-recent decision in Office of Fair Trading v Purely Creative (Chancery Division, England and Wales) [2011] EWHC 106 (Ch) that he offered to write it up for us.  What's it all about? Read on:

"The case relates to enforcement action taken by the Office of Fair Trading (OFT) under the Consumer Protection from Unfair Trading Regulations 2008 [which implements the Unfair Commercial Practices Directive 2005/59] against Purely Creative Limited and others. The case is exciting because it is the first time that the courts have examined the provisions of the Regulations in any detail.

Purely Creative operated a series of promotions whereby a letter or scratch card was sent or distributed to a substantial number of people (11.5 million in aggregate). Each of the promotions informed recipients that they had won a prize, and invited them to call or text a premium rate number in order to discover what they had won. Although the publications generally informed recipients of the cost per minute of a phone call with a maximum of 6 minutes, it did not tell them that they would have to remain on the line two seconds short of the maximum in order to discover what they had won. The consumer did have the option to write to the promoter to find out what they had won, but the court heard that the vast majority of participants in the scheme called or texted, as the publications encouraged them to do so.

The OFT took action against the companies operating the promotions and their directors under the enforcement of consumer protection legislation provisions of Part 8 of the Enterprise Act 2002.

Under the Regulations it is an offence to create a false impression

"... that the consumer has already won, will win, or will on doing a particular act win, a prize or other equivalent benefit, when in fact either: (a) there is no prize or other equivalent benefit; or (b) taking any action in relation to claiming the prize or the equivalent benefit is subject to the consumer paying money or incurring a cost".

The court held that, in claiming the prize, it was not an offence to require the consumer to pay a minimal cost (such as a postage stamp or making an ordinary telephone call) which is de minimis in comparison to the value of the prize, provided that the cost was clearly disclosed and the receipts did not go to the promoter. However, in this case, the publications had created a "false impression" (even though they did not always use the word "win" or "prize") that the consumer had won something; in reality they had purchased the reward by making the premium rate call/texts.

Under the Regulations it is also an offence to use commercial practices which contain false information and cause (or are likely to cause) the average consumer to take a transactional decision he would not otherwise have taken (Regulation 5) or to omit material information to the same effect (Regulation 6).[IPKat note: it's not difficult think of some interesting ]scenarios in which 'practices which contain false information' etc are those in which a trade mark is infringed, particularly where a connection to a well-known brand or an endorsement by a better known business is conveyed]

Briggs J held that the promotions were each in breach of Regulations 5 and 6 and provided some useful analysis of the tests to be applied under the Regulations. Taking the now common approach of rejecting the need for evidence on the question of the actions of the "average consumer", the court emphasised that the Regulations provided a "high level" of consumer protection to prevent consumers who take reasonable care of themselves from being misled, rather than "the ignorant, the careless or the over-hasty consumer".[i.e. a relation of the averagely observant and informed consumer who drives EU law, rather than the English 'moron in a hurry'].

Briggs J said that a "transactional decision" was any decision with an economic consequence [this concept  might come in handy when considering economic behaviour for trade mark purposes: see Case C-252/07 Intel Corp v CPM (UK) Ltd], but cast doubt on the breadth of that phrase as interpreted by the European Commission, who consider that the consumer's decision to go into a shop, having viewed an advertisement, would qualify. The court ruled that "causes or is likely to cause the average consumer to take a transactional decision he would not otherwise have taken" is a 'but for' type test i.e. whether, on the balance of probabilities, the combined effect of all the relevant misleading actions/omissions would cause the average consumer to take a transactional decision he would not otherwise have taken.

The decision is particularly useful because it clarifies that any of the case law under the previous legislative regime is now irrelevant. The formulation of the test to be applied under the Regulations will be handy for traders who seek to use advertising puffery and claims which would not, in fact, mislead a sensible consumer.

Discussion of the Gambling Act 2005 was notably absent from the judgment, which is strange since the promotions would seem to fall within its remit, although the enforcer of that legislation is the Gambling Commission and not the OFT".

Both Carlton and the IPKat are curious to know what readers think.

Scratchcards here
Scratchposts here