By the rules

Any company making claims about its prices relative to its competitors’, or relative to the market as a whole, must be extremely careful. The rules on such tactics are strict – and there are penalties for contravening them. By Seema Sharma

Marketers wanting to use price claims or make comparisons between their company’s prices and those of its competitors must clear a number of hurdles to make sure the advertising is safe from the threat of being labelled misleading, and any resulting legal action.

In January, the Committee of Advertising Practice (CAP) published a help note on retailers’ price comparisons, to encourage marketing campaigns that are fair, meaningful and accurate. It is hoped that the note, which draws together the relevant legal and regulatory sources, will clean up price comparison claims and in turn boost consumer confidence. It supplements the existing CAP help note on lowest price claims and promises, which gives guidance to traders wanting to claim that their prices are the cheapest available.

There are several sources to which traders should pay regard to ensure that price claims and comparisons in advertising comply with the relevant laws and guidelines. These include:

• The British Codes of Advertising and Sales Promotion (the Codes);
• Part III of the Consumer Protection Act 1987;
• The Department of Trade and Industry’s Code of Practice for Traders on Price Indications (the DTI Code); and
• The Control of Misleading Advertisements (Amendment) Regulations 2000.

The British Codes of Advertising and Sales Promotion stipulate that advertisers must hold documentary evidence to substantiate all claims made in advertising; and that advertisements should not mislead by inaccuracy, ambiguity, exaggeration, omission or otherwise.

The Codes also cover comparisons made with identified competitors and/or their products and other comparisons, such as comparisons with a trader’s own products. Comparative claims are permitted in the interest of vigorous competition and public information, but they should be clear and fair and should not mislead nor be likely to mislead. In addition, the elements of any comparison should not be selected in a way that gives the advertiser an artificial advantage.

The Consumer Protection Act makes it a criminal offence for a person to give, in the course of business, a misleading indication as to the price of goods, services, accommodation or facilities. It is also an offence to make a price indication which becomes misleading after it has been given, if consumers could be expected to rely on it after it has become misleading and if the trader does not take reasonable steps to prevent consumers from relying on it. For instance, a company advertising a product at a price which will apply for a limited period only could fall foul of the act if a consumer continues to rely on the offer price after the expiry of the offer period and the ad has not made the limitations of the offer clear.

A price may be described as misleading in cases where consumers may infer from the claim that:

• the price is lower than it actually is;
• the price does not depend upon conditions which it does in fact depend upon (for instance, the advertised price may apply only if the consumer has a voucher, but the requirement for a voucher is not mentioned in the advertisement); or
• the price covers matters for which an additional charge is made (for instance, the price stated is net whereas VAT is in fact payable).

Both consumers and competitors may complain about misleading price indications to trading standards authorities, which will investigate further and are responsible for prosecuting offences under the act.

Don’t break the code

Aside from the act, it is good practice to follow the DTI Code to avoid making misleading price indications. Non-compliance with the DTI Code does not automatically give rise to criminal or civil liability, but failure to comply can be used as evidence either to show that an offence has been committed or to block a defence under the act.

The DTI Code stipulates that price comparisons must be accurate and valid. It also gives guidance on a variety of issues including introductory offers, “after-sale” and “after-promotion” prices, and what happens when a trader makes comparisons with his own previous price or with another trader’s price.

In addition, traders should bear in mind the Control of Misleading Advertisements (Amendment) Regulations 2000. These regulations provide that comparative advertising will be permitted only when certain conditions are met. For example, the comparison must not be misleading and must compare goods or services meeting the same needs or intended for the same purpose. The comparison must objectively compare one or more material, relevant, verifiable and representative features of those goods and services (which may include price); and should not create confusion in the market between the advertiser and a competitor or between the advertiser’s trade marks, trade names, other distinguishing marks, goods or services and those of the competitor.

Taking names in vain

Competitors aggrieved by price claims in advertising may take legal action to attack such advertising and/or to prevent the use of their trade marks in it. The legal position is that if the use of a competitor’s name is honest there is nothing wrong in telling the public about the relative merits of competing goods or services. The use of a competitor’s trade mark in comparative advertising is therefore permitted if it is honest and does not take unfair advantage of nor is detrimental to the distinctive character or repute of the trade mark.

Legal action against trade mark infringement is not the only risk. If a company or trader knowingly or maliciously makes an untrue statement about a competitor or its products and damage has been caused to that competitor, the offender may be on the receiving end of a malicious falsehood action. If it can be shown that the words were calculated to produce damage and that the advertiser knew, when the words were published, that they were false, or that the advertiser was reckless as to whether they were false or not, such a claim is likely to succeed. Therefore, it is important to do your homework properly before making price comparisons against competitors in your advertising – and you should only make price claims if they are true.

Seema Sharma is a solicitor at City law firm Macfarlanes