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Digital Market in the Crosshairs

Digital Market in the Crosshairs

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The Hungarian Competition Authority ordered online shop Alza to compensate consumers for a total amount 11 times as much as the fine to be paid to the HCA.

The Hungarian Competition Authority (HCA) has ordered online shop Alza to compensate consumers for a total of HUF 450 million (approx. EUR 1.2 million) in addition to a fine of HUF 40 million (approx. EUR 107.000) in its recent decision.

The activities of digital market players have been in the focus of the HCA in the last few years. Here are some of the recent cases that have come to the fore:

  • In 2019, the HCA found that Facebook infringed competition law by advertising its services as being free. The competition authority considered that although users did not have to pay for the use of the online platform, but the social media giant benefited economically from collecting their data and using it for targeted advertising. The HCA imposed an extremely high fine of HUF 1.2 billion (EUR 3.2 million) on Facebook. However, Facebook appealed this decision, and the courts annulled the fine in its entirety. It is yet to be seen how the HCA losing the Facebook case will influence its already opened proceeding against Viber and TikTok.
  • In 2020, the competition watchdog imposed a fine of HUF 2.5 billion (approx. EUR 6.6 million) on the operator of the online booking portal booking.com, and at the same time banned the Dutch undertaking from continuing its aggressive sales methods. The HCA ruled that booking.com engaged in unfair commercial practices against consumers by, among other things, misleadingly advertising some of its accommodations with a free cancellation option and exerting undue psychological pressure on consumers to make early bookings. A little later the same year, the HCA also found a competition law infringement with regard to the Hungarian online accommodation booking platform, Szallas.hu. The HCA established that messages which appeared on the website and mobile application of Szallas.hu created a sense of urgency and impeded the normal decision-making process of consumers reducing their ability to make well informed decisions. The HCA concluded that Szallas.hu had engaged in aggressive commercial practices, however, due to its cooperation with the authority during the proceeding, the HCA merely ordered the undertaking to implement a complex package of measures to ensure compliance with law, instead of imposing a fine.
  • In 2021, the competition authority established that discount practices of the online marketplace eMAG had been unfair toward consumers. The HCA's investigation revealed that eMAG failed to develop internal regulations during its campaigns that would have ensured that the actual, typical price of a product was displayed as its "original" price; the crossed-out prices were only applied occasionally and for extremely short periods. The Authority imposed a fine of HUF 200 million (approx. EUR 530.000) for the infringement and ordered the operators of the webshop to provide compensation and of approximately HUF 4 billion (approx. EUR 10.7 million) (to be used partly for compensating consumers and partly for supporting the e-commerce presence of companies). Similar infringements have been established earlier in other cases, but this amount of compensation was unusual a few years ago.

And these are just the tip of the iceberg. This time the webshop Alza.hu was in deep water. The HCA found that Alza.hu urged its customers in an aggressive manner to buy certain products as soon as possible by sending messages containing several misstatements. The HCA imposed a fine of HUF 40 million (approx. EUR 107.000) on the operator of the online shop and ordered it to pay a consumer redress scheme of at least HUF 450 million (approx. EUR 1.2 million).

The HCA launched the investigation against the Hungarian Alza.hu Kft. and its Czech parent company, Alza.cz. a.s., due to suspected inappropriate marketing methods. The proceeding uncovered that Alza had applied eye-catching, flashing pop-up messages in its platform, such as „Currently X customers are interested in the product”, „This product was purchased by X customers this week”, „This product was purchased by X customers today” or "Last X items" etc.

As stated in the HCA's decision, these messages did not correspond to reality in terms of the popularity of the products among consumers and the number of consumers in Hungary. For example, the message "Currently X customers are interested" did not show the actual number of customers interested at that moment, but the total number of views on that day for that product in all online shops belonging to the group of undertakings, i.e., not limited to Hungary.

Furthermore, these messages, through the combined effect of their wording and visualisation, urged consumers to purchase goods as soon as possible by exerting psychological pressure on them. For example, the webshop typically indicated that there were only a limited number of products available for delivery, usually (less than) 3, 5 or 10 items; and in several cases it indicated that "Last X items" of a product were available. Besides emphasising the popularity of the products, the low number of items available or ready for delivery was intended to reinforce the scarcity effect and the fear-of-missing-out (FOMO) effect on consumers. Lower number of ready-to-deliver items, irrespective of the actual stock level, and references to "last" available items were used to emphasise the limited availability of the products, so that consumers associate the product with greater value or the chance of missing out.

The HCA imposed a HUF 40 million (approx. EUR 107.000) fine on Alza.hu Kft. and its parent company Alza.cz a.s. for the infringement. When determining the – rather low – fine, the HCA also took into account the consumer redress package undertaken by the online shop, as well as other factors, such as acknowledging the infringement, not appealing the decision and revise their internal compliance policies. Under the commitment, every consumer who made a purchase from Alza's online store in 2019, will receive a coupon worth HUF 3000 (EUR 8). The discount can be used for one year on any purchase over HUF 10.000 (EUR 27). The coupons will be sent by Alza via email to all eligible persons by April 2022, but this information also have to be communicated via other communication channels. If the total value of the coupons used does not reach HUF 450 million, Alza will have to provide direct compensation to consumers through ancillary commitments made during the proceeding. If the amount of reparation is still below the HUF 450 million (approx. EUR 1.2 million) threshold, Alza will have to pay the difference in fines.

As the case of Alza demonstrates, cooperation with the HCA and appropriate commitments offered can significantly reduce or even avoid fines. However, this also comes at a cost: the cost of the whole "package" for Alza is still significant: HUF 490 million in total, of which 40 million (approx. EUR 107.000) is the direct fine and 450 million is the cost of compensation of consumers. Thus, besides the preventive nature of fines, consumer redress has recently come to the fore, as a result of the changes in the HCA's approach. The HCA seeks to ensure that consumers experience first-hand the benefits of the authority's activities.

It is evident that significant digital market players are currently under close scrutiny by the HCA and can quickly be targeted in case of suspected infringements. We therefore encourage digital market businesses to make it a priority to operate in compliance with competition and consumer protection laws, including the availability of appropriate internal policies to avoid costly proceedings with potential further significant costs in the end, whether to be paid to the state in fines or to the consumers as compensation.

By Anna Turi, Head of Competition, and Balint Szabo, Associate, Schoenherr

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