• Warning: Proposed EU Law Would Expose Advertisers to Multinational Litigation
  • April 2, 2005
  • Law Firm: Reed Smith LLP - Pittsburgh Office
  • A proposed European Union law addressing unfair commercial practices, if adopted as currently constituted, would expose advertisers to potential liability under the varying legal frameworks of all 25 EU countries, an industry organization has warned.

    Creating such uncertainty would undermine the primary goal of the directive on Unfair Commercial Practices, states the European Publishers Council. The directive is designed to improve consumer confidence in cross-border trading of goods and services by establishing common standards that prohibit unfair business practices and misleading advertising.

    However, the business community has been unsuccessful in repeated attempts to insert the long sought-after Country of Origin (CoO) principle, which would specify that the laws and regulations of the country from which a good or service at issue is delivered applies to any subsequent legal action regarding the transaction.

    Consumer groups and protectionists have fought the CoO principle, fearing companies from more lenient countries would be able to operate across Europe at lower standards than businesses based in countries with stricter standards, forcing a "race to the bottom." Germany and France both have fought the CoO principle.

    Supporters of the CoO rule dispute this argument -- pointing out the directive itself establishes minimum standards.

    The outcome of the directive will "impact advertising regulation to a great extent," noted the European Publishers Council (EPC) on its Web site, www.epceurope.org.

    Rejection of the CoO principle would allow EU countries to issue new rules on consumer health grounds that are stricter than the commercial practice directive, exposing companies to potential liability under the rules of the EU's 25 member countries, states the EPC.

    Such a move "makes a mockery of the internal [common] market," the EPC said. The organization has taken the position that it only will support the directive if it contains CoO protection.

    But the EPC and other CoO supporters appear to be losing their battle.

    The European Parliament's Internal Market committee, which recently voted on the proposed directive, rejected proposed amendments that would have reintroduced the CoO rule. The directive then was referred to the general European Parliament for further consideration.

    Why This Matters: The European Union is seeking to reduce barriers to trade within Europe by creating a more uniform market. However, if the Unfair Commercial Practices directive fails to include the Country of Origin principle, its mandates won't preempt stricter rules by EU member states, exposing advertisers to varying legal standards and interpretations, thereby creating substantially higher costs of doing business than if the EU adopted a uniform law.