The body in charge of applying the regulation concerning misleading and comparative advertising in Italy is the Competition and Market Authority (AGCM). The AGCM is an administrative, non-judicial authority and has penetrating powers. The legal process in front of the AGCM is regulated in detail.
1. The AGCM: features and powers
The body in charge of applying the regulation concerning misleading and comparative advertising in Italy is the Competition and Market Authority (AGCM).
The AGCM has powers that are very penetrating and far greater than those of a judge; it can in fact:
- access any relevant documents;
- ask anyone for relevant information and documents, with the right to sanction any refusal or transmission of false information and documents;
- carry out inspections;
- avail of the Guardia di Finanza (tax police);
- arrange appraisals;
- consult experts.
The AGCM is an administrative, non-judicial authority. Therefore, the AGCM is not a third party as a judge, and the person subjected to a proceeding before the AGCM has no right to full contradiction (as opposed to what happens in front of a judicial authority).
The AGCM is generally very fast in its proceedings, which usually terminate within six months from the beginning of the investigation (contrary to what happens in judgments before the ordinary judicial authority, which usually last several years).
2. The legal process in front of the AGCM
The AGCM can be activated ex officio or following a complaint, which can be carried out by anyone interested (including franchisees and competing companies).
In the pre-investigation phase, if the Authority has reasonable grounds to believe that the advertising message constitutes misleading advertising or unlawful comparative advertising, but at the same time no particularly serious profiles emerge, he can invite the professional to remove the profiles of possible deception or illicit (moral suasion). If the professional adheres to the invitation, the file is archived.
The AGCM also files the complaint if no elements of deception emerge, also considering the scope of the message and the fact that the denunciation or the message are isolated and sporadic.
Otherwise the AGCM starts the preliminary phase, giving notice to all interested parties and on the AGCM website. Any interested party may participate in the investigation (for example, other franchisees and former franchisees, competitors).
During the investigation, the interested parties have the opportunity to file defensive briefs and access the documentation, except for reasons of confidentiality (e.g. trade secrets). The person in charge of the procedure can arrange hearings of the interested parties.
During the preliminary investigation, the AGCM may order a temporary suspension of misleading or comparative illicit advertising, in case of particular urgency.
The company can, within 45 days from the reception of the communication initiating the procedure, present a commitment to put an end to the infringement, to stop the dissemination of the message or to modify it in order to eliminate the reasons for its illegitimacy.
The commitment is evaluated by the AGCM, which can propose amendments. If the AGCM accepts the commitment, it may not proceed with the investigation of the infringement. The AGCM can also oblige the company to publish the declaration of assumption of the commitment at its own expense. If the company does not implement the commitment, pecuniary sanctions are imposed and the activity can be suspended up to 30 days.
However, the AGCM cannot accept commitments in cases of serious and manifest deceptiveness of the message or if the commitment is not considered suitable to remove the deception.
The AGCM may have – and generally has – that the trader will provide proof of the material accuracy of the actual data contained in the advertisement. If such proof is not provided or is deemed insufficient, the factual data are considered incorrect.
It is therefore necessary to pay particular attention from the outset to pre-establish documentation suitable to demonstrate the truthfulness of the information conveyed through advertising. In the case of economic data, objective evidence must have an economic/statistical value.
3. The sanctions by the AGCM
If the AGCM ascertains the deceptiveness of an advertising message, it can impose heavy sanctions. In fact, the AGCM in this case can:
• prohibit the dissemination or continuation of the message;
• oblige the operator to make the decision of the AGCM public at his expense through the press, or via radio or television, or possibly through the publication of a specific declaration of correction;
• order the operator to pay a pecuniary sanction, which, taking into account the gravity and duration of the violation, may range from 5,000.00 to 500,000,00 euros. The penalty must be paid within 30 days.
The quantification of the pecuniary sanction is based on a number of criteria set out in art. 11 of the Law n. 689/81, such as:
• the seriousness of the violation;
• the extent of the damage caused to the recipients (for example, the financial disbursement required to join the franchising network);
• the duration of the violation (if more than 1 month the violation is already serious, and increases with the increase in the period of diffusion of advertising);
• the mode of dissemination, the breadth and capacity for penetration of the message (if the message is disseminated via the Internet, it is likely to reach a large number of consumers, with consequent greater severity of the sanction);
• the work performed by the operator to mitigate or eliminate the infringement;
• the economic conditions of the operator (turnover);
• the qualities of the recipients (the penalty is more serious if the advertising is aimed at consumers or small entrepreneurs, such as the franchisees).
The AGCM decision can be appealed in front of the administrative judge (TAR – Consiglio di Stato, CdS). However, the TAR and the CdS can only check the mere legitimacy (violation of the law – excess of power), or the unfounded groundlessness of the decision of the AGCM in terms of the logic, consistency and completeness of the motivation. The merits, that is, the deception of the message is not evaluated.
For this reason, in most cases the TAR confirms the decision of the AGCM. Therefore it is advisable to appeal against the decisions of the AGCM only in the event of manifest groundlessness or illogicality of the AGCM decision.
4. Other risks for franchisors
Apart from pecuniary sanctions, there are additional, and perhaps more serious, risks which the franchisor can meet in case of an AGCM decision misleading advertising.
A ruling by the AGCM for misleading advertising in fact causes the franchisor a significant indirect economic damage, given by the commercial discredit and the damage of image resulting from the publication of the decision and the news in the media.
This type of damage can be very serious, because it can concern the entire franchise network, hinder its development and causing internal repercussions that can jeopardize its existence on the market.
There is also a further potential economic damage, consisting of the possibility of compensation actions before the ordinary judge.
In fact, the subjects who consider themselves damaged by the misleading advertising message (franchisees, former franchisees) can (as well as make a complaint to the AGCM), resort to the court before the ordinary judge, to claim compensation for damages.
In this case, the injured party (for example, an ex-affiliate) could demonstrate that misleading advertising has caused a defect in the formation of his will, determining the consent to the conclusion of the franchise contract (fraud or error).
Or, a competitor of the franchisor (e.g. another franchise network, operating in a similar sector) could demonstrate that the misleading advertising message constituted an act of unfair competition, pursuant to art. 2598 of the Italian Civil code.
Consequences of non compliance with the Italian Law on advertising might be quite severe for foreign franchisors. Therefore, careful planning and adequate legal counseling from a local law firm is highly recommended.
To receive any information or explanations on the above, please contact us.
Avv. Valerio Pandolfini