If the AGCM ascertains the deceptiveness of an advertising message, it can impose heavy sanctions, including pecuniary sanctions up to 500.000,00 euros. The AGCM decision can be appealed in front of the administrative judge, who in most cases confirms the decision. But there are additional, and perhaps more serious, risks which the franchisor can meet in case of an AGCM decision misleading advertising, such as damage of image and compensation of damages suffered by ex franchisees.
The sanctions that can be imposed by the AGCM
- 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.
If the emergency measures and the injunctions or the removal of the effects of the AGCM’s message are not respected by the recipients, the AGCM applies a further pecuniary sanction from 10,000.00 to 150,000.00 euros and, in the case of repeated violation of these measures or decisions, it can order the suspension of the business activity up to 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). 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.
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 [link articolo 6] (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.
Avv. Valerio Pandolfini
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The information contained in this article is of a general nature and is not to be considered an exhaustive examination of the various issues, nor is it intended to express an opinion or provide legal advice. Specific legal advice must be provided with regard to individual cases.