Facebook again in AGCM's spotlight: could an administrative fine be the solution?
On 17 February 2021, the Competition and Market Authority ("AGCM") imposed a fine of 7 million Euros on Facebook Ireland and its parent company Facebook Inc. for having failed to comply with a measure issued by AGCM on 29 November 2018. Moreover, this was the same order according to which the Menlo Park company had previously been ordered to pay a 5 million Euro fine as a result of it failing to inform its users that their personal data would be used for commercial purposes.
This additional measure - which really is just "the fine applied to the fine " - necessarily makes us think about the actual coercive force of the economic fines issued by AGCM as well as the latter's choice on insisting with fines that are similar to those already issued in 2018 despite the ascertained non-compliance - and therefore ineffectiveness - of those same fines (we have already discussed this topic in a previous article, available here).
So, could it be that the time has come to readjust the content and scope of sanctioning measures that are issued to protect the market and free competition, especially when they are aimed at giant online companies? Could one, for example, envisage a measure of the Authority that would temporarily block the online services offered until the company regularizes its position? Or could we witness the temporary removal of an application from the App/Play Store, making it impossible for the company to acquire new users? Or – again – will we see fines that are proportional to the total annual turnover of a company or its group (similar to the “GDPR” style)?
In our opinion, a concrete solution can only lie in the correct balancing of the interests at stake: on the one hand, the private interests of the multinationals who, by means of their social networks, acquire huge quantities of personal data (and, therefore, of “money”); on the other hand, the interests of online users who use the main social platforms on a daily basis, often not just for “scrolling leisure” but also for professional and business reasons.
Sixthcontinent case: can e-commerce platforms “satisfy” legitimate expectations of users?
On 18 January 2021, the Italian Competition Authority (AGCM) announced that it imposed a fine of 1 million euros on the digital platform "Sixthcontinent" in so far as - without prior notice and arbitrarily - it prevented consumers from using the products, money and other utilities purchased or obtained on said platform including, to the extent that is of interest here, the credits accumulated by virtue of the purchases they made.
Sixthcontinent is primarily an e-commerce platform: the registered user buys on this platform shopping cards via which he can then make purchases online or directly at physical stores. For each new purchase made with a shopping card, the user receives bonuses that can be used in lieu of money to buy additional shopping cards, which allows for considerable savings. The platform in question also functions as a social network in that it allows users to interact with each other and take advantage of their virtual social relationships. Indeed, users obtain points - which may also be used for purchases - if they introduce the platform to new members, or when people connected to them (on the basis of a mechanism similar to that of "friendships" on Facebook) make purchases on the same platform.
Thus, the idea behind this business is to take advantage of the community (in this case a virtual one) by means of accumulating points and credits and then saving on the purchase of essential goods, such as food and fuel.
In essence, the contract that is signed between the platform and the user at the time of his/her registration provides, on the part of the user, the commitment to introduce the platform to as many people as possible, and on the part of the platform, to offer users a virtual environment in which it is possible to save money on purchases made.
What we should pay attention to in this case is precisely the role that the platform takes on and the relationship that it establishes with each consumer. Indeed, seeing as these platforms are proposed as instruments of savings and advantages in the purchase of goods of daily use and that they find their strength in the large adhesion of users (Sixthcontinent counts several million users worldwide), it may be said that they create trust in the public of users that is worthy of protection.
The greater the use of the platform by the user (think of the need to purchase essential goods during lockdown periods), the greater the expectation that is created within the user.
As already noted above, in just a few days the Sitxhcontinent platform rendered the shopping cards unusable, also requiring users to accept a refund in "points" instead of money. The conduct of the Sixthcontinent platform is similar to that of a bank who out of the blue decides to prevent account holders from withdrawing their money or making payments from their account.
In its decision the AGCM goes to great lengths in condemning the platform in question for having unlawfully imposed a refund on the consumer in the form of "points", without therefore having left the consumer free to choose how to receive his or her credit.
As is well known, this conduct is not in line with the rules of the Consumer Code (Legislative Decree no. 206/2005) and it is certainly not the first time that the AGCM has sanctioned an e-commerce platform for this type of conduct.
There is, however, a further insight that may be gathered from that decision, which is the intention of the authority to sanction the deceptive conduct pursued by the platform in presenting users with the alleged convenience of joining the community and its various offers, and then proceeding with the unjustified blocking of the platform itself.
In other words, the sanctioning measure of the AGCM seems to highlight the existence of an actual responsibility of the online platform towards registered users, inasmuch as it presents itself as a virtual environment where it is possible, also thanks to the interactions between registered users, to purchase essential goods at a lower price.
The platform that makes such an offer to the public creates in its users a legitimate expectation of being able to use the platform itself safely and continuously, especially for those purchases that are socially more "sensitive" because they are essential to daily life. Consequently, the aforementioned decision intends to affirm that there is an infringement of this expectation when the service offered through the platform is suddenly and arbitrarily interrupted.
What we have said leads us to reflect on two important aspects.
First of all, it is reasonable to say that there is a general contractual public commitment that an e-commerce platform undertakes towards each registered user and which cannot be arbitrarily disregarded without notice, just like any contract stipulated between two parties (in this case stipulated between two parties online).
On the other hand, it is reasonable to state that a continuous provision of services offered online, like any other service, creates a legitimate expectation towards the community/registered users, which as such can be protected and enforced by means of civil and administrative remedies offered by the legal system.
Smart printers and smart objects: friends or foes?
On 9 December 2020 the Italian Antitrust Authority (Autorità Garante della Concorrenza e del Mercato, also known by the acronym “AGCM”), among other things inflicted a fine of 10 million euros on HP Inc and HP Italy S.r.l. (hereinafter "HP") for two different commercial practices relating to HP-branded printers which were considered to be unfair. For the full text of the measure, see the following link: https://www.agcm.it/dotcmsdoc/allegati-news/PS11144_chiusura.
Firstly, the Authority sanctioned the companies in question for not having correctly informed customers of the installation in their printers of a software that allowed printing only with HP toners and cartridges, while preventing the use of non-original refills.
The second conduct that the AGCM considered punishable consisted in the recording - via firmware present on HP printers and without the knowledge of consumers - of data relating to the specific cartridges being used (both original and non-original): this data was used both to create a database useful for formulating commercial strategies and denying assistance to printers that had used non-original cartridges, thus hindering the exploitation of the legal guarantee of conformity.
With reference to the latter conduct, it is interesting to note how this is a case of distorted use of the so-called "Internet of Things". In fact, this expression means "network of physical objects that contain embedded technology to communicate and sense or interact with their internal states or the external environment." (https://www.gartner.com/en/information-technology/glossary/internet-of-things).
Although in this case the technology used by HP was limited to the collection of information relating to the use of printers, it is clear that the significant presence of objects capable of recording and transmitting data on our daily behaviour could have disturbing implications. The concern comes not just from the possibility that data collections may occur without our knowledge, but also and especially from the uses and purposes that motivate companies to use such data.
Of course, the positive implications that a constant flow of information from objects could provide cannot be ignored, for example, when considering the efficiency and improvement of production chains, and of safety systems for citizens (think of "intelligent traffic lights"). However, cases like the one examined by the AGCM lead us to think about the possibility that these technologies may excessively limit consumers' rights.
From the present case, it is therefore possible to learn a lesson, namely that, first of all, before proceeding with the purchase of a “smart” object it is certainly advisable to acquire as much information as possible on the type of sensors and detectors that may be incorporated in such devices and especially to ascertain what will be the use of data acquired by these devices.
Furthermore, it is certainly appropriate to ask within what limits the use of these “smart” devices may support innovation and the improvement of society, as opposed to when – on the other hand – such use can compromise the rights of consumers, understood both as the right to be informed and the basic rights which arise following the purchase of a product (let us think about the limitations on the exercise of the above mentioned legal guarantee).
iPhone: neither water nor AGCM “resistant”
THE CASE
On November 30, 2020 the Italian Competition and Markets Authority (Autorità Garante della Concorrenza e del Mercato, also known by the acronym “AGCM”) inflicted a 10 million Euro fine on the companies Apple Distribution International and Apple Italia s.r.l. (hereinafter "Apple") for spreading promotional messages via which they exalted the water resistance of different models of iPhone, whilst failing to specify that this property was true only under certain circumstances which do not correspond to the normal conditions of use experienced by consumers (so-called "misleading[1]" commercial practice).
In addition, these promotional messages were contradictory due to the presence of the following disclaimer: "The warranty does not cover damage caused by liquids”. In fact, in the after-sales phase Apple denied repairs of iPhones that were damaged as a result of exposure to water or other liquids, thus hindering the exercise of warranty rights protected by the Consumer Code (a so-called "aggressive"[2] commercial practice).
WHAT CONSEQUENCES FOR THE FINED COMPANY?
The present case allows us to focus attention on the consequences befalling the company that is subject to measures adopted by an authority (in this case, the AGCM).
Firstly, such a measure will have repercussions on the very complex relationship of trust that is established between a business and its consumers.
Indeed, it is well known that a trademark suggests to the consumer, in the very moment of purchase, that the product marked by that sign originates from a certain company.
A psychological and emotional relationship is formed between the consumer and the company which - by its very nature - is easily influenced by external circumstances.
It is precisely in this delicate context that the punitive measure of AGCM against Apple acquires relevance since it makes the basis of this relationship - namely trust and reliability - vulnerable.
It should not be forgotten that the basis of this relationship is inherently mnemonic, meaning that it relies on the (positive) memory that the consumer recalls and preserves with respect to a company, its products, and its services. The punitive measure of the authority precisely affects this memory because, among other things, it aims to warn the consumer of future commercial behaviours.
Indeed, it is easy to imagine how nowadays the news of this measure is spreading quickly through social networks, thus reaching a considerable portion of the company’s clients. On this point, one can understand the AGCM’s decision to force Apple to also publish the measure in the section of its website dedicated to the sale of iPhones, under the heading "Information for consumer protection".
This has greater impact on the company in comparison to an economic penalty, in so far as it damages its image and suggests that the consumer pay more attention when planning on purchasing products from the company affected by the punitive measure.
All of this translates into additional "invisible" costs for the company, i.e. costs that the company will have to bear in the following months in order to rebuild the relationship of trust/reliability with its customer (so-called "reconstructive advertising"). That is without forgetting the corrective activities (and related costs) that, following the warning received from the Authority, the fined company will have to put in place in relation to products already or soon due to be introduced in the market.
From a different point of view, the AGCM’s action also conveys a financial penalty.
In the case in question, the penalty that has been imposed, while constituting the maximum amount provided for by current legislation, nevertheless represents less than 5% of the total turnover achieved by the Apple group in the year 2019, amounting to approximately € 231.57 billion.
Therefore, it is legitimate to wonder if this penalty could have a real deterrent effect.
The answer is surely negative. However, attention should be given to the criterion of determination of the amount of the fine.
For example, if the alleged water resistance of the iPhone had been the only reason that brought the consumer to buy an Apple rather than a Samsung product, would a sanction of just 10 million Euros be appropriate?
Evidently not and, in fact, in that case the entire cost of an iPhone (about 1,000 Euros) would need to be taken into account and the penalty would need to be defined as a percentage of the turnover generated by the (unfair) sale occurred within the territory of the competent authority.
It follows that a predetermined criterion for the quantification of a penalty - such as that provided by the Consumer Code for unfair practices - is in itself insufficient to assess all the circumstances of the case and consequently to appropriately punish the commercially unsound conduct of a business.
FINAL CONSIDERATIONS
The impression is that companies, especially those with dizzying sales, are underestimating the importance of maintaining greater transparency towards the market, perhaps in the mistaken belief that certain practices will go unnoticed. On the contrary, as we have just seen, such practices have negative consequences on the relationship with their customers. Moreover, in fields where competition is fierce, the risk of the client choosing a competitor is always around the corner.
However, punitive discipline may not be strict enough to have the desired deterrent effects. Of course, in the end it is the consumer who is at a disadvantage by not receiving adequate protection.
It is therefore reasonable to inquire whether there may be other punitive methods other than financial ones that can more adequately protect the consumer’s interests.
For example, consideration may given to the possibility of introducing different restrictive measures (which would have a more practical scope and be proportionate to the market-share held by the company) against businesses responsible for implementing unfair commercial practices.
[1] Unfair practices are defined as deceptive when they represent elements and/or features of a product that do not correspond to the truth.
[2] Unfair practices are defined as aggressive when they consist of harassment, coercion or other forms of undue psychological conditioning of consumers.