v. Using the voluntary commitments of companies as a basis for legal action
Consumer protection legislation can be used against business enterprises for denouncing “unfair commercial practices”, which include misleading and aggressive practices on the part of the enterprise, in particular in advertising and marketing. Public commitments – albeit voluntary – by enterprises in matters of social responsibility that are not fulfilled can to a certain extent be considered to be unfair commercial practices, as the enterprise hopes to gain commercial benefits vis-à-vis consumers by deceiving them.
Legal actions against multinational corporations based on misleading advertising are generally brought not by victims in the host country, but by NGOs, in particular consumer organisations based in the country of origin of the company. They can, however, have a positive impact on the activities of the multinational corporation abroad. It would produce a very negative image if companies that had made public commitments were to back down for fear of court action for unfair commercial practices. For companies that are conscious of the power of groups of consumers, the risk of being sued for such marketing and advertising practices is a real and tangible one. Such legal instruments should therefore prove very useful in helping NGOs to make companies do what they promised to do, especially as the law on commercial practices is quite explicit, whereas the legal framework in which victims can lodge a complaint regarding human rights violations committed abroad is far from satisfactory, as is shown in section II.
What is misleading advertising?
The european Directive 2005/29/CE of May 11, 2005 concerning unfair business-to-consumer commercial practices gives a definition of misleading commercial practice: 1 According to the Directive, misleading advertising is any advertising which, in any way, including in its presentation, is capable of:
- deceiving the persons to whom it is addressed;
- distorting their economic behaviour; or
- as a consequence, harming the interests of competitors. 2
Article 6.1. A commercial practice shall be regarded as misleading if it contains false information and is therefore untruthful or […] deceives or is likely to deceive the average consumer […] and in either case causes or is likely to cause him to take a transactional decision that he would not have taken otherwise.
Article 2. A commercial practice shall also be regarded as misleading if […] it causes or is likely to cause the average consumer to take a transactional decision that he would not have taken otherwise, and it involves:
b) non-compliance by the trader with commitments contained in codes of conduct by which the trader has undertaken to be bound, where:
i) the commitment is not aspirational but is firm and is capable of being verified, and
ii) the trader indicates in a commercial practice that he is bound by the code.
This Directive has been transposed in the Member States of the european Union.
A few National Examples…
Article L.121-1 of the Consumer Code prohibits unfair commercial practices and stipulates that: “
A commercial practice is unfair if it is contrary to the requirements of professional diligence and materially distorts or is likely to distort the economic behaviour of the consumer who is reasonably well informed and reasonably observant and circumspect with regard to a good or service.” Article L.121-2.2º defines commercial practice as misleading if it is based on false or misleading allegations, indications or presentations concerning one or more of the following elements :
- “a) The existence, availability or nature of the good or service;
- b) the essential characteristics of the good or service, namely: its substantial qualities, composition, accessories, origin, quantity, method and date of manufacture, the conditions of its use and its fitness for purpose, its properties and the results expected from its use, as well as the results and main features of the tests and checks carried out on the good or service
- (c) the price or the method of calculating the price, the promotional nature of the price and the conditions of sale, payment and delivery of the good or service;
- (d) after-sales service, the need for a service, spare part, replacement or repair
- (e) The extent of the advertiser’s commitment, the nature, process or reason for the sale or service;
- (f) the identity, attributes, skills and rights of the trader;
- (g) the handling of complaints and the rights of the consumer;"
This article applies to both traders and individuals, regardless of the advertising media concerned. Before the re-writing of the definition of misleading commercial practices, the offence of misleading advertising was established without having to prove intent to deceive the consumer. However, according to a ruling by the criminal chamber of the Cour de Cassation on December 15, 2009, 3 it would appear that intent is now required for the offence of deceptive advertising to be established. For advertising to be reprehensible it must be untruthful (containing untruthful allegations regarding the characteristics listed in Article L 121-1) and deceptive (of such a nature as to mislead the consumer).
Monsanto v. Eaux et Rivières de Bretagne and UFC-Que Choisir? (2009) 4
On October 6, 2009 the Cour de cassation confirmed the conviction of Monsanto for untruthful advertising of its herbicide Round Up, sold as being “biodegradable” and leaving the “soil clean”. Following the complaint lodged in particular by the associations Eaux et Rivières de Betagne and UFC-Que choisir, in January 2007 the Lyon criminal court sentenced Monsanto to a 15,000€ fine and the publication of the judgement in the newspaper Le Monde and in a gardening magazine, for untruthful advertising. In October 2008 the Lyon Court of appeal confirmed the ruling of the lower court, invoking “a presentation (on the packaging of the product) that eludes the potential danger by using reassuring language and that misleads the consumer”. 5 On October 6, 2009 the Cour de cassation dismissed Monsanto’s appeal, thereby making definitive the sentencing to a fine of 15,000€ for “untruthful advertising”.
French NGOs file a complaint against global retailer Auchan
In April 2014, three NGOS (Collectif Ethique sur l’étiquette, Peuples Solidaires and Sherpa) filed a complaint in Lille, France against the supermarket Auchan alleging the company used misleading advertisements regarding the conditions in which its clothing was produced. The plaintiffs highlight that the company has made public statements regarding its commitment to social and environment standards in its supply chain. Auchan has denied the claims.
The NGOS allege that Auchan lied to its customers about working conditions at its suppliers abroad after labels from its “In Extenso” clothing range were found in the rubble of the Rana Plaza factory in Bangladesh that collapsed in April 2013, killing thousands of workers and injuring hundreds. The supermarket has denied placing orders at the Rana Plaza factory and said it was the victim of “concealed subcontracting”. Since then, it says it has taken steps, including signing the “Fire and Safety Agreement” aiming at improving safety measures in Bangladesh’s garment factories.
In May 2014, the prosecutor’s office in Lille launched a preliminary investigation. In January 2015, the case was dismissed on the grounds of lack of sufficient evidence from the investigation report to prove the "misleading" character.
In June 2015, the 3 NGOs filed a new complaint as civil parties, bringing new elements based on findings of a mission to Bangladesh in December 2014. A judge was appointed to the instruction after the complaint was filed and the case is pending. 6
French NGOs file different complaints against Samsung in France
On February 2013, three French NGOs submitted a complaint against Samsung France alleging misleading advertising practices, “based on the incompatibility between Samsung’s public ethical commitment to being a "socially responsible" company and a report from China Labor Watch which alleges frequent unpaid overtime, the absence of adequate safety measures, and compulsory work practices in Samsung’s subcontractors factories in China.” 7 On July of the same year, the Prosecutor opened a preliminary investigation but the complaint was dismissed in December of 2013. The Prosecutor had interviewed the legal director of Samsung France and the director of Samsung’s Department for the Protection of Populations, and had conducted research on Samsung’s website. One of the complainants, Sherpa, stated that the inquiry “did not adequately address the situation at its suppliers’ factories.” 8
On December 2015, Sherpa and Indecosa-CGT summoned Samsung Global, its subsidiary Samsung Electronics France and, at later state, the dded the South Korean parent company, Samsung Electronics Co, for deceptive marketing practices, using 2014 and 2015 reports by China Labor Watch which documented the use of “child labour, unpaid overtime, absence of adapted security measures for employees performing dangerous tasks, use of carcinogenic substances, and the exercise of moral pressure and physical violence by employers.” 9 On 11 January 2017, the judge set the date for the substantive hearing but in light of new evidence, the NGOs did not follow through on this procedure.
On January 2018, Sherpa and ActionAid France – Peuples solidaires filed a new lawsuit against Samsung Electronics France and its South Korean parent company, Samsung Electronics Co., Ltd alleging misleading business practices, basing the claim again on evidence provided by China Labor Watch. The prosecutor decided to close the preliminary investigation in March 2018, and the claimants decide to file a civil party lawsuit to the Paris court. In November 2018, following mediation procedure, Samsung recognised “exposing its South Korean factory workers to toxic chemicals and agreed to pay compensation for each employee suffering from work-related diseases.”
On April 2019, an investigating judge of a Paris Tribunal indicted Samsung Electronic France for misleading advertising but the indictment was annulled in April 2021, due to the lack of a procedural requirement (approval of the Ministry of Justice). The NGOs have declared that they will appeal to the French Supreme Court, since the absence of the approval does not affect the admissibility of their complaint. 10
Finally, in September 2020, a French consumer organization filed an additional criminal complaint against Samsung for "deceptive marketing practices” in relation to the working conditions at its supplier factories.
Advertising is regulated by the Federal Trade Commission, a government agency charged with prohibiting “unfair or deceptive commercial acts or practices”.
The aim is prevention rather than punishment. A typical sanction is to order an advertiser to stop acting illegally, or to publish additional information in order to avoid the risk of deception. Corrective advertising may also be imposed. Fines or prison sentences are not contemplated, except in the rare cases in which an advertiser refuses to obey an injunction to put an end to his acts. Current legislation defines false advertising as a “means of advertisement other than labelling, which is misleading in a material respect; and in determining whether an advertisement is misleading, there shall be taken into account (among other things) not only representations made or suggested by statement, word, design, device, sound, or any combination thereof, but also the extent to which the advertisement fails to reveal material facts in the light of such representations or material with respect to consequences which may result from the use of the commodity to which the advertisement relates under the conditions prescribed in said advertisement, or under such conditions as are customary or usual.”
Federal Trade Commission v. Wellness Support Network Inc. (2010) 11
In October 2010, FTC challenged claims for the defendants’ Diabetic Pack and Insulin Resistance Pack. The defendants touted the Diabetic Pack as a treatment for diabetes and advertised primarily online relying on consumer testimonials.
The FTC asked a federal judge to permanently bar the company from making deceptive claims and to require the defendants to provide refunds to consumers. The U.S. Court entered the final judgement and order on February 19, 2014.
A federal court ruled in favour of the FTC and has ordered the company to pay nearly $2.2 million. The FTC will reimburse the fund to the consumers. Furthermore, the court has prohibited the company –Wellness Support Network Inc.- from claiming without rigorous scientific proof that their supplements would treat and prevent diabetes.
Eradicating slavery in seafood Industry supply chain – Nestlé case before U.S. jurisdictions (Melanie Barber, et al. v. Nestlé USA Inc., et al.)
Following reports from the media and NGOs that certain products such as shrimp and pet food are linked to inhumane working conditions, 12 Nestle SA launched an investigation in December 2014 into the working conditions in its seafood supply chain. This investigation confirmed the findings of The Associated Press that slave-made products enter the US as part of Nestlé’s supply chain. 13
In August 2015, a group of pet-food consumers filed a class-action lawsuit in the federal tribunal of California against Nestlé claiming "Neslté is obligated to inform consumers that some proportion of its cat food products may include seafood which was sourced from forced labour." 14 The plaintiffs alleged that in failing to disclose that some of the ingredients in its cat food were produced as a result of forced labour, Nestlé violated California’s Unfair Competition Law, the California Consumers Legal Remedies Act, and the False Advertising Law. According to court documents, the Thai Union Frozen Products PCL – a thai network of small fishing ships –, provides its catches to Nestlé. "Both parties [PCL and Nestlé] acknowledge that some proportion of the small fishing ships use forced labour". 15
In January 2016 this demand filed by consumers against Nestlé was rejected. Judges considered that California’s Transparency in Supply Chain Act only imposes an obligation on companies to provide information (through their web-page or otherwise) on the efforts the company has undertaken to eradicate slavery and human trafficking from their supply chain. An appeal has been filed against this decision.
Child labour in Côte d’Ivoire- Nestle USA Inc, Mars Inc and The Hershey Co lawsuits
Starting in 2015, American consumers filed different class action lawsuits in California anf and Massachusetts U.S. against Nestle USA Inc, Mars Inc and The Hershey Co 16 , for misleading consumers by failing to disclose use of child labor by their suppliers on their products’ labels.
The reasoning behind the lawsuits was very similar. In the 2018 lawsuit against The Hershey Company, for example, the claimants alleged that “Hershey’s human rights, sustainability and corporate responsibility statements - which assert the company’s "zero tolerance" for trafficking and child labour - constitute a violation of the Massachusetts Consumer Protection Act” because “Hershey’s was aware of the risks of child labour in its supply chain, failed to disclose this information at the time of sale, and that consumers were therefore deceived into buying a product that they otherwise would not have bought.” 17
Hershey, on the other hand, argued that “Massachusetts law does not force companies to disclose the presence of slave labour at the time of sale, and that to do so would be "impractical"” and that it had “publicly disclosed information about labour practices of its suppliers in West Africa and has been transparent about the steps taken to address these issues” 18 In January 2019, a federal judge in Boston dismissed the lawsuit since the claimants had they failed to show that the companies deceived them.
In June 2020, a federal appeals court has upheld the dismissal of the class action lawsuits against Nestle USA Inc, Mars Inc and The Hershey, stating that “while the persistence of child labor in the global cocoa industry was a humanitarian tragedy, the case must be decided on the very narrow question of whether the companies’ labels violated Massachusetts consumer protection law.” 19
The German law on unfair competition (UWG) 20 also covers misleading advertising, on the grounds that it gives the announcer an undue competitive advantage.
Article 3 of the Law prohibits “unfair commercial practices”, which occurs when “a person violates a statutory provision which is also intended to regulate market conduct in the interest of market participants and the breach of law is suited to appreciably harming the interests of consumers, other market participants and competitors”.
In relation to misleading commercial practices, the act establishes in article 5 that “Unfairness shall have occurred where a person engages in a misleading commercial practice which is suited to causing the consumer or other market participant to take a transactional decision which he would not have taken otherwise. A commercial practice shall be regarded as misleading if it contains false statements or other information suited to deception regarding the following circumstances: 1. the main characteristics of the goods or services, such as availability, nature, execution, benefits, risks, composition, accessories, method or date of manufacture, delivery or provision, fitness for purpose, uses, quantity, specification, after-sale customer assistance, complaint handling, geographical or commercial origin, the results to be expected from their use, or the results or material features of tests carried out on the goods or services; 2. the reason for purchase such as the existence of a specific price advantage, the price or the manner in which the price is calculated, or the conditions on which the goods are supplied or the services provided; 3. the nature, attributes or rights of the entrepreneur such as his identity, assets, including intellectual property rights, the extent of his commitments, his qualifications, status, approval, affiliation or connections, awards or distinctions, motives for the commercial practice or the nature of the sales process;4. any statement or symbol in relation to direct or indirect sponsorship or approval of the entrepreneur or of the goods or services;. the need for a service, part, replacement or repair;6. compliance with a code of conduct by which the entrepreneur has undertaken to be bound when he makes reference to such commitment; or7. the rights of consumers, particularly those based on promised guarantees or warranty rights in the event of impaired performance.”
Like other European countries (the United Kingdom in particular), German legislation allows groups of consumers to bring actions against advertising strategies that have deliberately misled consumers in order to incite them to buy. Also, although this does not appear in the legislation, in matters of misleading advertising the associations have another instrument at their disposal, the Abmahnverfahren. By this means, they can bring an action against traders. However, before doing so, they must ask the trader to cease the unfair practice. The trader can accede to the request and sign a declaration (Unterwerfungserklärung) by which he is obliged to cease the unfair practice and to pay a fine in case of violation.
Hamburg customer Protection Agency v. LIDL (2010) 21
The European Center for Constitutional and Human Rights (ECCHR), jointly with the Clean Clothes Campaign (CCC), supported the Customer Protection Agency in Hamburg by filing a complaint against Lidl on April 6, 2010. In the application, Lidl is accused of deceiving its customers concerning compliance with social and labour standards in its suppliers’ factories. In its brochures Lidl stated “At Lidl, we contract our non-food orders only with selected suppliers and producers that are willing to undertake and can demonstrate their social responsibility. We categorically oppose every form of child labour, as well as human and labor rights violations in our production facilities. We effectively ensure these standards.”
Lidl is therefore accused of deceiving its customers and is gaining an unfair competitive advantage. This is the first time a German company is sued for poor working conditions. Only ten days after the filing of the complaint, the company admitted the truth of the allegations against it in respect of human rights abuses in Bangladesh, and had to revise its advertising strategy. On 14 April 2010, Lidl agreed to withdraw the public claims and advertisements that its goods were being produced under fair and decent working conditions. A consent decree was filed with court to memorialise this agreement. Furthermore, Lidl is no longer permitted to refer to its membership in the Business Social Compliance Initiative (BSCI) in its advertising materials.
The advantage of legal actions against misleading advertising that are based on consumer protection legislation against unfair commercial practices, is that in many countries such legislation is well defined, making it possible to uncover doubtful human rights and environmental practices on the part of companies. Unfortunately, however, they do not enable victims of human rights abuses to obtain justice: the courts do not punish the acts of the companies that lead to human rights violations, only their advertising and marketing practices connected with their commitment to act responsibly. All the same, such initiatives can have a positive impact on corporate behaviour, as companies are concerned about their image in the countries where their main consumers live. In such matters an alliance between human rights organisations and consumer associations is essential.
Furthermore, certain legal developments tend to confirm that for business enterprises, taking into account environmental, social and governance criteria (ESG) does not merely concern their own voluntary initiatives, but is well and truly part of their responsibility. More and more enterprises recognise this, either by joining a variety of corporate social and environmental responsibility initiatives, or by adopting a code of conduct. In some cases companies even run the risk of criminal liability if they fail to take into account certain principles, in particular in connexion with sustainable development. 22 And indeed voluntary commitments on the part of companies in terms of corporate environmental and social responsibility are often cited by plaintiffs in court cases in which enterprises are accused of human rights violations, as elements of proof to show the context in which their activity can be qualified as being contrary to generally accepted standards of behaviour. In France, notably, the Dassault case (in which a trade union questioned the legal status of the internal code) gave rise to considerable legal debate regarding the degree of obligation resulting from a “code of conduct” adhered to by the company and that it had undertaken to comply with. The case was decided on December 8, 2009 by a ruling of the Cour de cassation, 23 and effectively demonstrated that such undertakings could provide grounds for invoking corporate liability, either if the company disregarded the obligations entered into, or if, under cover of a so-called code of “ethics”, it violated the fundamental rights and liberties of its employees. Numerous and rapid developments are taking place in the area of corporate social responsibility. In the coming years it will be important to monitor the situation closely since it represents an additional instrument that can be used for greater corporate accountability.