INTERNATIONAL LEGAL ISSUES IN DIRECT RESPONSE MARKETING

Electronic Retailing Association Conference & Expo
October 14-17, 2001
Las Vegas, Nevada
USA

Introduction

This report is presented by the Global Advertising Lawyers Alliance ("GALA") to the Electronic Retailing Association ("ERA") in connection with its 2001 Conference held in Las Vegas, Nevada on October 14 - 17, 2001.

The purpose of the report is to present information from GALA members concerning laws and regulations applicable to direct response marketing in their home country which would be relevant to marketers in other countries. By "direct response marketing" we mean all forms of marketing involving a communication to a consumer that is designed to elicit a response from the consumer directly to the seller in the form of an order for that seller's products or services. Common forms of direct selling in the United States, e.g., include infomercials (generally thirty minutes in length), short form television commercials (generally two minutes in length), radio commercials, internet marketing, telemarketing, credit card syndication, direct mail, and product package inserts.

By necessity, this report can only touch on the broadest issues and concerns to the industry in any country. Clearly, this report cannot and is not intended to substitute for legal advice from an expert in the applicable laws and regulations. We believe that its value to marketers will derive from highlighting the issues that marketers should be aware of when considering whether to conduct a particular type of direct selling campaign in a given country. Nor is this report a substitution for local legal advice on specific marketing activities. Before engaging in any marketing campaign, a marketer should consult with legal counsel for advice on their proposed campaign.

Countries covered in this report include:

Australia Belgium Canada France

Germany Ireland Italy Singapore

Spain Sweden Switzerland United States

 

INTERNATIONAL LEGAL ISSUES IN DIRECT RESPONSE MARKETING: UNITED KINGDOM Brinsley Dresden, Lewis Silkin Brinsley.Dresden@lewissilkin.com Stephen Groom, Osborne Clarke stephen.groom@osborneclarke.com

1. Lobbying 1.1 How can an association like ERA successfully lobby in your country to maintain a friendly regulatory environment? By joining existing lobby groups. In particular, we recommend joining the Direct Marketing Association ("DMA"). The DMA provides expertise and advice to political institutions throughout Europe and Westminster. 2. Laws and Regulations 2.1 Are any forms of direct response marketing prohibited in your country? Yes, direct marketing initiatives which do not comply with the Consumer Protection (Distance Selling) Regulations 2000 (the "Regulations"). Note that these Regulations apply only to "distance contracts". A "distance contract" is one where the contract is made without any face-to-face contact between supplier and consumer. 2.2 What are the major restrictions in your country on direct response marketing, which sellers should be aware of? The key restrictions are set out in the Regulations. The Regulations require direct marketers to provide basic information to consumers before concluding any distance contracts with them. Much of that information must then be provided to consumers in writing (or in another durable medium). In addition, the supplier is required to provide the consumer with a "cooling off" period, in which the consumer can withdraw from the contract. The Regulations also state that the supplier must perform the contract within 30 days, subject to agreement between the parties. In addition to the obligations set out in the Regulations, suppliers may have compliance obligations deriving from membership of trade associations, such as the DMA and the Direct Sellers Association. Moreover, all non-broadcast advertisements for products sold at a distance must comply with the "distance selling" rules set out in the British Codes of Advertising and Sales Promotion. 2.3 Are there any laws or regulations pending in your country that could have an impact on direct response marketing? There are plans at a European level to implement regulations on the distance marketing of financial services, privacy in e-communications, as well as on distance contracts and e-commerce. 2.4 Identify any governmental or regulatory agencies charged with regulating the direct selling industry in your country and the business sector(s) they regulate. The Director General of Fair Trading, Trading Standards Department in England, Scotland and Wales, and the Department of Trade Enterprise and Investment in Northern Ireland are the enforcement authorities for the purpose of the Regulations. These bodies are given the power to take proceedings for an injunction against a business to prevent further breaches of the Regulations. 2.5(a) What are the current hot issues among regulators and enforcement agencies in your country that could have an impact on direct response marketers? Internet sales, inertia selling and unsolicited invitations to buy goods (e.g.: by way of email or telephone call), compliance with the Distance Selling Regulations. The 'transitional period' of the Data Protection Act 1998 will end on 23rd October 2001, so data protection and transfers of data to the USA will become an even greater problem. 2.5(b) Explain briefly what types of penalties may be imposed on marketers by these agencies for violating the laws. It is not a criminal offence to breach the Regulations but criminal offences can arise in relation to other laws, such as the Data Protection Act. The regulatory authorities can, however, obtain an injunction to prevent further breaches of the Regulations. 2.6 Can a company directly sue a competitor for false or deceptive advertising and, if so, what are the penalties if such a suit is successful? There are various remedies in civil law, including the torts of malicious falsehood, passing off, or infringement of a trade mark registered under the Trade Marks Act 1994. The remedy for a successful action is the payment of damages or an account of profits. It may also be possible to obtain an injunction restraining further infringement or an order for erasure of the offending advertisement and/or delivery up of infringing articles. The Control of Misleading Advertising Regulations 1988 (the "CMAR") may also be a useful tool to prevent a competitor from issuing a deceptive advertisement, but action can only be taken by the Director General of Fair Trading. A complaint to the Independent Television Commission or the Advertising Standards Authority may also result in the advertisement being withdrawn. 2.7 Does your country recognize the concept of "class actions" whereby a law firm can represent all consumers within a particular "class" and sue a marketer for false or deceptive advertising? If so, what are the penalties if such a suit is successful? We do not know of any class actions in these circumstances. Under the new 'Stop Now' Orders, a consumer protection body can bring an action on behalf of consumers to stop infringements, but not to recover damages. 3. Consumer Privacy Issues 3.1 What is the current law in your country relating to privacy of personal information? The principal legislation is the Data Protection Act 1998 (the "DPA"). The DPA gives legal rights to individuals in respect of "personal data" held about them. The term "personal data" effectively means information about living, identifiable individuals. This need not be particularly sensitive information and can be as little as a name and an address. 3.2 Does the law distinguish between information collected on the internet and information collected through other marketing methods, e.g.: by telephone or by mail? No. If the information collected falls within the definition of "personal data", then it will be subject to the DPA. There are additional controls relating to telecommunications and the use of unsolicited faxes. 3.3 Does the law distinguish between different types of personal information, e.g., name and address vs. financial information such as consumer credit card numbers? If so, how are they distinguished? What restrictions exist on the transfer of credit card or bank account information for marketing purposes? The DPA distinguishes between "personal data" and "sensitive personal data". "Sensitive personal data" includes information relating to the racial or ethnic origin of the data subject; his/her political opinions; and his/her religious or other beliefs. More stringent restrictions apply to the collection, use, disclosure and storage of sensitive personal data. There are no specific requirements relating to financial information, such as consumer credit card numbers. However, the collection, use and storage of that information must comply with the principles of data protection set out in the DMA. The level of security which is appropriate for financial information will be higher. 3.4 Does your country require "opt in" or "opt out" as the method for the consumer to grant consent to disclosure of their personal information? The general standard is to provide an individual with an opportunity to opt-out, but consent must be free by given, specific and informed. 4. Specific Marketing Methods To what extent are the following marketing methods scrutinised in the UK and what legal restrictions apply? 4.1 Free Trial Offers and Free to Pay Conversion Offers. A marketing plan whereby the consumer accepts an offer to try a product or service free of charge for a specified time period, e.g., 30 days, prior to purchasing. At the end of the trial period, the consumer is automatically charged or billed for the product or service (usually on a credit card), unless he or she takes affirmative action to cancel. They are scrutinised , but there is no fundamental problem so long as the terms of the offer are made absolutely clear at the outset (we would recommend that the automatic credit card charge at the end of the trial period is flagged prominently) and the Distance Selling Regulations are complied with in any event, for instance the rule requiring consumers are notified of the statutory "cooling off" period and this is observed. Cancellation should also not be unduly complicated or expensive for the consumer, otherwise the Unfair Terms in Consumer Contracts Regulations 1999 may come into play and render the relevant stipulation unenforceable. 4.2 Continuity Plan Offers. A marketing plan whereby the consumer agrees to receive periodic shipments of products or services unless and until the consumer affirmatively declines a periodic shipment or cancels his participation in the plan. The consumer is billed for each shipment of product or service. We repeat our comments in 4.1. 4.3 Automatic Renewal Offers. Generally a feature in a subscription or club membership offer whereby the subscription or membership is automatically renewed at the end of the initial term and each subsequent term unless the consumer affirmatively cancels. We repeat our comments in 4.1. 4.4 Revenue Enhancement Programs. Also known as an "up-sell" offer, this marketing method presents to a consumer multiple product offers from different marketers on one telemarketing call. Typically, the consumer agrees to the first offer and provides their credit card number. The telemarketer then "up-sell" the consumer with additional offers. If the consumer accepts the additional offers, the consumer's credit card number is provided to the other marketers. We are not aware of this being a common marketing method in the UK. We believe the Data Protection Act 1998 would be relevant as would be the Telecommunications (Data Protection and Privacy) Regulations 1999. The former dictates that personal data such as telephone numbers are processed only with consent, so no use can be made of personal data for purposes other than those which would have been reasonably apparent to the individual at the time of their data being collected. The latter Regulations provide, inter alia, that telesales calls should not be made at all to individuals who have registered with the statutory Telephone Preference Service ("TPS"), while telemarketers are obliged to check regularly their number lists with the TPS to ensure calls are not made to those who have registered. 5. Specific Product Categories 5.1 What special laws or regulations apply in your country to the direct marketing of products or services in the following categories: 5.1.1 Dietary supplements To the extent that any "medicinal" claim might be made in respect of such products, the Medicines Act 1968 and the Medicines (Advertising) Regulations 1994 would come into play. These criminalise the making of any "medicinal" claim in respect of any product that is not a licensed medicine. The definition of "medicininal" here is wide and the Regulations could apply where any claim is made that a product is capable of affecting any adverse condition of the body or mind. The British Code of Advertising and Sales Promotion ("BCASP") (the Code at the heart of the UK's self-regulatory system for controlling print advertising) also has a special section devoted to "Vitamins, minerals and other food supplements." The ITC Code of Advertising Standards and Practice (the semi-statutory code governing advertising on UK commercial television) also has a section of special rules governing "Medicines, Treatments, Health Claims, Nutrition and Dietary Supplements." 5.1.2 Diet/Weight Loss products The Foods Intended for Use in Energy Restricted Diets for Weight Reduction Regulations 1997 would apply as would the Food Safety Act 1990 insofar as it renders it a criminal offence to make any misleading claim in respect of a food. Here again the BCASP has a special section applying to "Slimming" product advertising, while the ITC Code section referred to in the answer to 5.1 above would be relevant here also. 5.1.3 Drugs The Medicines (Advertising) Regulations 1994 would apply here, administered and enforced by the Medicines Control Agency. 5.1.4 Electro-muscle stimulators We are not aware of any specific regulations affecting direct marketing of these products. 5.1.5 Health and fitness products We are not aware of any specific regulations affecting direct marketing of these products. 5.1.6 Beauty products The Cosmetic Products (Safety) Regulations 1996 will apply. 5.1.7 Travel offers The Package Travel, Package Holidays and Package Tours Regulations 1992 will apply. 5.1.8 Magazine subscriptions We are not aware of any specific regulations affecting direct marketing of these. 6. Extended Liability 6.1 If direct response advertising is found to be false or misleading, what parties, in addition to the marketer making the offer, are liable? If the marketing material is defamatory of a competitor for example, then the medium carrying the advertising could be liable for civil damages, costs or have an injunction granted against it preventing further publication of the offending material. Technically a newspaper carrying a false advertisement might also be prosecuted under "public law" regulations such as the Trade Descriptions Act 1968, but in practice it will be the advertiser that is pursued by the enforcement authorities. 7. Advice to Foreign Marketers 7.1 What is the most important advice you would give to a marketer that wishes to market a product through direct selling in your country? Ensure compliance with the Consumer Protection (Distance Selling) Regulations 2000.