Limits on Comparative Price-based Advertising Between Shops of Different Sizes

On 8 February 2017, the Court of Justice of the European Union (the “ECJ”) held that advertisements issued by a retail chain that includes stores of different sizes and compares the prices of products sold in its larger stores with those found in a competing retail chain’s smaller stores without clearly informing consumers of the difference underlying the comparison are unlawful within the meaning of Directive 2006/114/EC of 12 December 2006 concerning misleading and comparative advertising (the “Advertising Directive”), read in conjunction with Directive 2005/29/EC of 11 May 2005 concerning unfair business-to-consumer commercial practices in the internal market (the “Unfair Commercial Practices Directive”) (ECJ, 8 February 2017, Case C-562/15, Carrefour Hypermarchés SAS v. ITM Alimentaire International SASU).

The ECJ delivered its judgment in response to a request for a preliminary ruling from the Paris Court of Appeal in a dispute between the supermarket chain Carrefour Hypermarchés SAS (“Carrefour”) and a company (“ITM”) representing such a retail chain, the Mousquetaires Group (i.e., Intermarché). Carrefour had launched an advertising campaign comparing prices of products sold in certain of its largest hypermarket stores with those offered in the smaller supermarket stores of its competitors. Carrefour then offered to reimburse customers double the difference in price if they found a lower price from a competing retailer. The advertisements, however, did not indicate that the price comparisons did not apply to prices offered at Carrefour’s smaller stores. ITM brought proceedings against Carrefour before the Paris Commercial Court, which then ordered Carrefour to pay compensation on the grounds that, by failing to comply with the objectivity requirements of the French Consumer Code, Carrefour had engaged in unfair competition. 

Carrefour appealed the judgment, arguing that the Advertising Directive, transposed into national law by the French Consumer Code, does not require that advertisements only compare prices between products sold in stores of a similar size and format.

Pursuant to Article 4 of the Advertising Directive, comparative advertising is permitted under specific conditions. Article 4(a) requires that such advertising should “not [be] misleading within the meaning of Articles 2(b), 3 and 8(1) of this Directive or Articles 6 and 7 of [the Unfair Commercial Practices Directive]”, while Article 4(c) requires that such advertising should “objectively compare […] one or more material, relevant, verifiable and representative features of those goods and services, which may include price”. Thus, the ECJ noted that the Advertising Directive does not exclude advertisements that compare prices between shops of different sizes or formats, but requires that such advertisements compare prices objectively and not be misleading.

At the outset, the ECJ observed that in the case of retail chains which have a range of stores in different sizes and formats, a comparison between prices offered by stores of different sizes may “distort the objectivity of the comparison”. Specifically, such comparisons can artificially overstate to the consumer any difference in price that may exist between the retailers at issue.

The ECJ then considered that this type of comparative advertising was liable to be misleading. Pursuant to Article 2(b) of the Advertising Directive and Articles 6 and 7 of the Unfair Commercial Practices Directive, comparative advertising is misleading if it omits or hides material information from the consumer, or provides this information in an unclear, unintelligible, ambiguous or untimely manner. According to the ECJ, information is to be considered material under Article 7 of the Unfair Commercial Practices Directive, if it is needed by an average consumer to make an informed transactional choice, and if, absent this information, a consumer might make a transactional decision which he or she would not otherwise have made.

With reference to the case at hand, the ECJ found information concerning the difference in store sizes on which the price comparison is based to be material. A consumer viewing an advertisement of the kind at issue is liable to believe that the prices indicated referred to prices offered by all shops in each chain regardless of size. As a consequence, the consumer might mistakenly believe he would benefit from any price differences when buying at any of the advertiser’s shops as compared with those of competing chains.

However, the ECJ noted that, were the advertisement to provide the consumer with the material information relating to the difference in store size underlying the comparison, the advertisement would no longer be misleading. The ECJ further observed that while Article 7 of the Unfair Commercial Practices Directive does not specify precisely the way in which such material information should be communicated, material information of the kind at issue would need to be communicated within the advertisement itself.

The ECJ therefore concluded that Articles 4(a) and (c) of the Advertising Directive, read in conjunction with Article 7(1) to (3) of the Unfair Commercial Practices Directive, must be interpreted to mean that advertisements by retail chains with shops of various sizes or formats that compare prices of products in a specific size of shop against those of products in a different size shop of a competing chain are unlawful, unless they clearly inform consumers of the difference in store size upon which the comparison is based.

In view of this ruling, retail chains that resort to comparative advertising based on prices should ensure to disclose in their advertisements all relevant circumstances that affect the outcome of their price comparisons.

The judgment is reminiscent of the ECJ’s judgment of 19 September 2006 in Lidl Belgium GmbH & Co. KG v. Etablissementen Franz Colruyt NV (Case C-356/04). In that judgment, the ECJ clarified the conditions under which comparative advertising is permitted based on a comparison of (i) the general level of the prices charged by competing retailers; and (ii) the prices of a selection of products sold by competing retailers (See VBB on Belgian Business Law, Volume 2006, No. 9, p. 5-7, available at www.vbb.com).