COT's top four commercial issues - January 2019

Loyalty: it comes with a price

The recent super-complaint received by the Competition and Markets Authority ("CMA") from Citizens Advice goes to show that customer loyalty does not come for free.

Section 11 of the Enterprise Act 2002 allows a designated consumer body to make a complaint to the CMA that any feature, or combination of features, of a market within the UK for goods or services is or appears to be significantly harming the interests of consumers. The Act requires the CMA to publish a response stating how it proposes to deal with the complaint within 90 days of receipt.

The CMA announced that it had received the super-complaint from Citizens Advice, a designated consumer body for the purposes of the Enterprise Act, in September 2018. The super-complaint raised concerns about long-term customers paying more for goods and services when compared to those that shop around and are prepared to switch provider.

In justifying its super-complaint, Citizens Advice stated that:

Deep, structural price discrimination against disengaged and loyal customers has been a persistent feature of essential markets for many years. After careful consideration, we have reached the view that the scale of this problem justifies a super-complaint, the first time we have taken such action in seven years.

The consumer rights organisation claimed that: many customers are on uncompetitive deals, paying more for a service than a new customer would; customers face hurdles when they attempt to switch provider; and that consumer inertia is being taken advantage of through long-lasting, automatically renewing contracts that allow price increases on renewal.

Citizens Advice identified five key markets where it considered the "loyalty penalty" to be operative: mobile, broadband, savings accounts, mortgages and household insurance, and asked the CMA to undertake a thorough review of the loyalty penalty across these sectors and propose appropriate action to be taken.

The CMA published its response to the super-complaint in December 2018. The CMA acknowledged the existence of the loyalty penalty and that there needed to be a step-change to effectively tackle the concerns raised by Citizens Advice. The CMA contends that the best ways to achieve such change are:

• providing genuine support to consumers through the use of "smart data" (data-driven technologies and services to help consumers), using intermediaries (including price-comparison websites, automatic switching services, or local face-to-face advisory services) and "collective switching" which offers exclusive tailored deals;
• enforcement against businesses to tackle harmful and unacceptable practices; 
• publicising the loyalty penalty to hold suppliers to account by publishing the size of the loyalty penalty in key markets and for each supplier; and
• considering targeted direct pricing interventions either to limit price differences, such as restricting price walking, or price caps, where there is clear harm, in particular to vulnerable consumers.

The CMA will provide an update on the implementation of these reforms to the Consumer Forum, a newly established collaborative government-regulator committee lead by the Minister for Consumer Affairs, in six months' time.

Regulator bans harmful gender stereotyping in adverts

UK advertising regulators have implemented a rule to help tackle harmful gender stereotyping. The new rule being introduced by the Committee of Advertising Practice ("CAP") and the Broadcast Committee of Advertising Practice ("BCAP") will ban advertisements that include harmful gender stereotypes:

CAP rule 4.9 and BCAP rule 4.14 states that: "[Advertisements] must not include gender stereotypes likely to cause harm or serious or widespread offence".

The new rule follows findings in a review by the Advertising Standards Authority ("ASA") of gender stereotypes that "harmful stereotypes can restrict the choices, aspirations and opportunities of children, young people and adults" and that some advertising can reinforce these stereotypes. The aim of the new rule is not to ban gender stereotypes outright but prevent the harmful ones. CAP has published guidance relating to the new rule which sets out the guiding principles and examples of harmful gender stereotyping scenarios such as: an advert depicting a man with his feet up while family members create a mess in the home and a woman shown as solely responsible for the clean-up; belittling men for showing emotional vulnerability; or advertisements aimed at new mothers suggesting their looks or ensuring the home looks pristine has priority over their well-being.

CAP will carry out a 12 month review after the new rule has come into force (on 14 June 2019) to ensure the rule is achieving the objective of preventing harmful gender stereotypes.

The guidance highlights that the regulators do not think harmful stereotypes are endemic in advertising and also reassures advertisers that the rule is not intended to stop advertisements from including:

• glamorous, attractive, successful, aspirational or healthy people or lifestyles;
• one gender only, including adverts for products developed for and aimed at one gender; and
• gender stereotypes as a means to challenge their negative effects.

Guiding principles

Advertisements should avoid:

• suggesting that stereotypical roles or characteristics are:
   
  • always uniquely associated with one gender;
  • the only options available to one gender;
  • never carried out or displayed by another gender;
• suggesting that an individual's happiness or emotional wellbeing depends on conforming to an idealised gender-stereotypical body shape or physical features;
• suggesting that a particular children's product, pursuit or activity, including choice of play or career is inappropriate for one or another gender;
• mocking people for not conforming to gender stereotypes (and humour is no exception); and
• additional advertisements should be sensitive to the emotional and physical well-being of vulnerable groups who may be pressured to conform to particular gender stereotypes.

SMEs - flexibility to assign receivables

In a bid to provide SMEs with increased access to finance, including invoice finance pursuant to which a business can assign its receivables to a finance provider in exchange for funds, the UK government has passed the Business Contract Terms (Assignment of Receivables) Regulation 2018 (the "Regulation"). The Regulation came into force on 24 November 2018.  Prior to its introduction, parties could freely negotiate the terms of their contract to include a restriction on a party's ability to assign or transfer its rights (including its rights to receivables), and this negotiated restriction was legally enforceable in accordance with the terms of the underlying contract.

Now, subject to the various exclusions summarised below, if a contract entered into on or after 31 December 2018 contains a term prohibiting or imposing a condition or any other restriction on the assignment of a receivable arising under that contract, or any other contract between the same parties, that provision will be deemed ineffective. Whilst parties can continue to restrict the assignment of other contractual rights, the government hopes that the new Regulation will improve SMEs' access to alternative finance by ensuring that they have the option to assign receivables by way of security.

The Regulation applies to contracts for the supply of services, goods or intangible assets, pursuant to which the supplier is a small or medium sized business and is entitled to payment. The Regulation sets out the criteria for determining whether or not the supplier is an SME and, specifically, requires that the supplier is deemed an SME in the financial year before the date in which the receivable is assigned (rather than the date on which the contract is entered into).

Specific contracts are deemed outside the scope of the Regulation, including (amongst others) contracts where none of the parties have entered into the contract in the course of carrying on a business in the UK, contracts entered into in connection with an acquisition or disposal and contracts which concern an interest in land.

Whilst the Regulation will only apply to contracts governed by English law, if it can be shown that an alternative governing law has been imposed for the purpose of enabling the customer to evade the operation of the Regulation, then the Regulation will have effect.

This round to Supermac's!

Earlier this month saw a victory for the underdog, with Ireland's fast-food chain Supermac's taking on the heavyweight McDonald's in a trade mark challenge.

Back in 2017, Supermac's launched an application with the European Union Intellectual Property Office (EUIPO) to revoke McDonald's "Big Mac" trade mark, arguing that the trade mark had not been put to genuine use during a continuous period of five years following the date of registration in relation to its registered classes (which covered, amongst other things, meat sandwiches, restaurant services and food prepared for drive-through facilities).

EU law allows for applications for revocation of trade marks to be submitted if the trade mark in question has not been put to "genuine use in the Union with the goods or services in respect of which it is registered" within a continuous period of five years. 'Genuine use' arises where the mark is used in accordance with its essential function, which is to guarantee the identity of the origin of the goods or services for which it is registered in order to create or preserve an outlet for those goods or services. Importantly, this does not include token use for the sole purpose of preserving the rights conferred by the mark.

As the burden of proving that the trade mark has been put to genuine use is borne by the trade mark proprietor, McDonald's submitted three affidavits claiming significant sales figures in relation to "Big Mac" sandwiches, alongside packaging, promotional brochures, menus, advertising posters, printouts from their websites and Wikipedia to evidence their use of the "Big Mac" trade mark.

Unfortunately for McDonald's it was the quality of their evidence that delivered the sucker punch, with the EUIPO ruling that the evidence was insufficient to support the sales figures claimed in the affidavits. The "Big Mac" trade mark was revoked. In particular, it was commented that the mere presence of the trade mark on a website is "insufficient to prove genuine use unless the website also shows the place, time and extent of use or unless this information is otherwise provided". The EUIPO also explained that the submitted packaging and brochures did not evidence genuine use as no information was provided by McDonald's regarding the circulation of the brochures, who they were offered or, and whether they have led to any potential or actual purchases.

The case is a timely New Year reminder of the importance of keeping your guard up when making use of registered trade marks. Helpfully, the EUIPO commented that the website printouts would have been useful evidence had they been provided with internet traffic records, and details of the connection between the websites and the eventual numbers of goods sold. The case also provides a handy reminder to keep records of how promotional materials and packaging are circulated and whether their distribution leads to increased sales.