Retail and Consumer Goods30.11.2021 Newsletter

Not good prospects for (online) traders: tightening of competition and consumer protection law

The EU is committed to consumer protection. A fundamental change is also on the horizon in the German (online) retail sector. This is not great news for companies. In order to implement the so-called "Omnibus Directive" (EU/2019/2161), the Bundestag passed two laws to strengthen consumer protection on 10 August 2021 (German Federal Gazette [Bundesgesetzblatt - BGBl.] Part 1 No. 53).

The German Act Amending the German Civil Code [Gesetz zur Änderung des Bürgerlichen Gesetzbuches] and the Introductory Act to the German Civil Code [Einführungsgesetz zum Bürgerlichen Gesetzbuch - EGBGB] introduces, among other things, far-reaching information obligations for the operators of online marketplaces vis-à-vis consumers as well as a completely new prohibition criterion in Article 246e of the EGBGB that applies to all online traders. According to this, the "violation of consumer interests" now constitutes an administrative offence that is punishable by a fine. The catalogue of actions by entrepreneurs vis-à-vis consumers that are punishable by fine contains, among other things and in addition to the violation of information obligations, in particular in Art. 246e Sec. 1 (2) No. 2a) EGBGB, the use of a clause in consumer GTCs which is invalid pursuant to Sec. 309 BGB.

The German Act to Strengthen Consumer Protection in Competition and Trade Law [Gesetz zur Stärkung des Verbraucherschutzes im Wettbewerbs- und Gewerberecht] provides for essential innovations in competition law: the introduction of administrative offence criteria and fines as well as the possibility for consumers to assert individual damage claims in the event of certain legal infringements by the entrepreneur. Both are an absolute novelty in German competition law!

Fines: new in German competition law and consumer law

Up to now, the German legal system has relied on self-regulation by the market. Infringements of the German Unfair Competition Act [Gesetz gegen den unlauteren Wettbewerb - UWG], including the use of invalid GTC clauses, have so far been sanctioned solely by means of warnings issued by competitors and competition associations - unlike in many other EU countries.

In the future, certain violations of UWG provisions are to constitute an administrative offence, which can be punished by the competition authorities and which in some cases entail hefty fines. This is the case, for example, if the violation falls under the new catalogue of unfair acts (Sec. 3 (3) UWG in conjunction with Nos. 1-31 of the Annex) or constitutes a specific aggressive or misleading commercial act. The same will apply in future if, for example, invalid GTC clauses are used pursuant to Sec. 309 BGB or if obligations to inform consumers are violated.

The prerequisite for this is that the violations are widespread or are widespread violations with a Union dimension. In this case, the maximum fine is to be EUR 50,000. A higher fine may be imposed if an entrepreneur achieved an annual turnover in excess of EUR 1.25 million in the preceding business year. However, the fine may not exceed 4 percent of the annual turnover. The amount of the annual turnover can be estimated. If there is no evidence to support an estimate, the maximum fine is EUR 2 million.

It should be emphasised that the new regulation does not replace the old one, but is to exist in parallel with it. Competitors and competition associations can remain active. It is therefore possible that a company is warned and fined at the same time for the same violation. 

Damage claims for consumers in competition law

The German Act on the Reform of Competition Law [Gesetz zur Reform des Wettbewerbsrechts] envisages another significant innovation in the form of a possible damage claim for consumers. This is the case if the consumer has suffered damage through an unfair commercial act pursuant to Sec. 3 UWG. To date, there has been no such concept of an individual remedy in competition law. The legislator sees this as a "further economic incentive to comply with the existing competition law regulations" and also fulfils the requirements of Directive EU/2019/2161 that it is obliged to implement.

As a result of the legal reform, the actual consumers will be empowered to act and can take direct action against a company that is acting in an anti-competitive manner. However, this only applies in the case of certain, usually aggressive, commercial acts and misleading circumstances. Here, it is irrelevant whether this involves an active act or an omission on the part of the company. Thus, if in the future a trader commits, at least negligently, a commercial act which is unlawful pursuant to Sec. 3 UWG, and if this causes a consumer to take a commercial action which he would otherwise not have taken, the consumer is entitled to compensation from the trader for the resulting damage he has suffered. Consequently, the consumer must be placed in the same position as if the unlawful commercial act had not taken place and the consumer had not consequently been induced to take the commercial act - generally, the purchase decision - which is detrimental to him.

Developments like in data protection law?

Fears are already being voiced that there is a general threat of developments similar to those in data protection law also occurring in competition law and thus also in the law on general terms and conditions (Sec. 309 BGB) as well as in consumer law: in the future, individual persons could massively overrun various companies and site operators with requests for information. Since the entry into force of the GDPR, an increasing number of legal warnings can be observed. Mostly, these concern potential violations of data protection law, e.g. forms without SSL encryption, e-mail addresses that were passed on without consent or the failure to comply with claims to information within the one-month period. The impression often arises that data subjects are less concerned with the data protection-compliant behaviour of companies than with capitalising on what are even just minor violations.

In view of the planned innovations in competition law and in the EGBGB, these fears actually cannot be dismissed entirely. This is contradicted by the fact that only particularly aggressive unfair commercial acts can trigger a damage claim. The threshold for data protection violations, on the other hand, is much vaguer and arguably also lower. Therefore, violations of, for example, the information obligations of the EGBGB and the use of general terms and conditions that violate Sec. 309 BGB are likely to be more risky.

The GDPR also standardises an explicit claim to information in Article 15, whereas neither the UWG nor the EGBGB do so. For the assertion of a claim to information within the scope of the UWG or EGBGB, one has to resort to the general claim to information according to the principles of good faith (Sec. 242 BGB), which is not immediately obvious and is also more difficult to substantiate.

Nevertheless, traders should not underestimate the changed legal situation from May 2022 onwards. In addition to claims by competitors and associations that issue warnings, traders will be exposed to further claims by new interest groups in the future. If online traders in particular already perceive themselves subject to strict legal requirements today, this impression will increase when competition authorities and consumers additionally enter the scene. Particularly due to the inclusion of authorities in the sanctioning of competition violations, the pressure to prosecute violations of the UWG and consumer law is likely to increase noticeably in the future.

This once again underlines how important it is to continuously consider the current legal situation when designing one's own internet presence and the general terms and conditions to be used. It is only in this way that online traders will be able to protect themselves against the risk of attacks by competitors, associations that issue warnings, competition authorities and consumers.

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