A € 3+ million sanction was issued against a multinational company by the Italian Competition Authority for prize promotions unlawfully performed.
The regime for prize promotions in Italy
The complexity of Italian prize promotion regulations, which in some cases are applicable also to bonus/discount promotions, often causes complaints by my clients. Indeed, the organiser of a promotion has, among others, to
- appoint a VAT representative in Italy if this is not an Italian company;
- draft the Ts&Cs of the prize promotions;
- post a performance or an insurance bond whose value needs to be equal to the overall value of the prizes offered;
- send to the Ministry of the Economic Development the Ts&Cs and the performance/ insurance bond at least 15 days before the beginning of the contest;
- require the presence of a public notary on the selection of the winners (i.e. in case of drawing of the prizes, he will need to be present at the drawing) and on the closure of the prize promotions (i.e. after the delivery of the prizes to the winners, he shall draft the minutes of closure of the contest);
- send to the Ministry of the Economic Development the minutes of closure of the prize promotions drafted by the public notary; and
- perform the required tax payments.
Also, additional restrictions apply to prize promotions run online or on social media as the regulatory requirement is to perform any activity relating to the promotion (including the server) in Italy. And these restrictions prevent, save for limited exceptions, to run international promotions open to Italian customers, but, as previously discussed, such limitations might be challenged, even though it requires to go through a court proceeding.
The additional regime on misleading advertising and unfair commercial practices
The sanctions for breach of the above provisions have been recently lowered, save for the cases in which the promotion can be considered gambling. However, the regulations on prize promotions apply in addition to the general rules on unfair commercial practices and misleading advertising which provide for sanctions between € 5,000 and € 5,000,000.
And this is the legal ground under which a sanction of € 3,100,000 was issued by the Italian Competition Authority (which has jurisdiction also on unfair commercial practices) against a multinational electronic company.
The challenged conduct
The Authority challenged the performance of some prize promotions run by the same multinational company
- that were advertised without clearly explaining the nature, the conditions, the limitations and modalities to be followed in order to win the prize, but just giving the impression that the purchase of a product entitled to it, while there was an additional process to be followed that was outlined only in the Ts&Cs which either were merely referenced in the advertisement or whose terms were not clearly visible as part of the ad;
- whose terms were particularly onerous so that the consumers’ rights to request and obtain the awarded prizes were restricted since a number of documents and formalities were requested to be followed and for instance could not be completed without an Internet connection and
- that provided, as a condition to participate to the promotion, the compulsory registration – and provision of the privacy consent – to an online portal where an amount of personal details exceeding what strictly necessary for the delivery of the prizes offered as part of the promotion was requested, with the purpose – according to the Authority – of using such data for marketing purposes.
Because of the conducts above, the company faced a sanction of € 3.1 million, despite of the fact that it had filled some commitments aimed at limiting the negative effects of the challenged practices.
A lesson to learn?
This decision let to considerable discussions on the matter since the challenged conducts are in some cases a market standard. It would be useful to look at the whole file of the case, but there is no doubt that such decision shows a new conservative approach by the Italian Competition Authority. This decision is however in line with the recent approach of the self-regulatory advertising authority and for instance new Italian gambling advertising regulations.
The top 3 takeaways from this decision can be in my view
- The information about the mechanic of a promotion, its duration and the modalities of award of prizes needs to be clearly visible in the advertising material and it is not possible to just refer to the Ts&Cs on a site;
- The procedures to receive the prizes cannot provide useless obstacles, formalities and registrations that are not strictly necessary to the mechanic of the promotion and
- The promotions cannot be used to create a customers’ database and this will become an even more relevant issue with the EU General Data Protection Regulation which will require to expressly mention in the privacy information notice the term of storage of collected personal data.
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