The author is a student at Gujarat National Law University.
In an interesting decision, the Federal Court of Australia in Australian Competition and Consumer Commission v. Kogan Australia Pty Ltd (17 July 2020) has ruled that the act of inflating product prices prior to a sales promotion constituted misleading and deceptive conduct.
This ruling comes against the backdrop of the Australian Competition and Consumer Commission’s (‘The ACCC’) finding that Kogan Australia Pvt. Ltd. (‘Kogan’), an Australian e-retailer was engaged in making false representations about a discount promotion in 2018. Consequently, the ACCC instituted proceedings against Kogan in the Federal Court for misleading consumers in contravention of the Australian Consumer Law, Schedule 2 to the Competition and Consumer Act, 2010.
In this article, the author provides an analytical account of the aforementioned judgment. Further, the author argues that unfair trade practices such as the one discussed above, not only violate consumer rights but also have an adverse bearing on the competition in the market. Additionally, it is argued that the absence of a unified consumer and competition law regulator in India, which practice is a departure from the established practice of incorporating a unified regulator followed in other major jurisdictions, does little good for consumer welfare, the endmost goal of both, competition law and consumer law.
Kogan, the respondent, carried out an online sales promotion in 2018, offering a 10% discount on prices of listed products for consumers who entered a previously advertised promotion code at checkout. However, 621 of the 78,111 listed products (‘affected products’) saw a price increase a day prior to the commencement of the sale, in many cases by at least 10%, and a subsequent price decrease two days after the end of the sale, in many cases by at least 10%.
This practice according to the ACCC constituted a violation of sections 18(1) and 29(1)(i) of the Australian Consumer Law, Schedule 2 to the Competition and Consumer Act, 2010 which proscribe the adoption of misleading or deceptive trade practices.
To reason its submissions, the ACCC relied on the representations made by Kogan in the course of advertising the sale. According to the ACCC, the representations conveyed that a consumer who purchased an affected product using the advertised code during the sale period would receive a 10% discount on the price at which that product was previously offered or would be offered for sale in the future.
However, contrary to the representation, a consumer who purchased an affected product using the advertised code did not receive a 10% discount off the price at which that product was available for sale for a reasonable time before and after the promotion.
On the other side, Kogan’s defense predominantly rested on lamenting the “reasonable period” approach adopted by the ACCC. Per this approach, the ACCC fixed a two-week time period before and after the sales promotion for comparing the prices of the affected products to gauge the extent of variation in product prices. This approach according to Kogan was arbitrary and unsupported by evidence.
Further, Kogan maintained that by representing that a consumer who applies the advertised code would receive a 10% discount off the listed prices, it conveyed that the 10% discount would be applicable to the current advertised price of the product and not a price which was previously offered.
The context in which Kogan made the promotional statements was the foundational issue addressed by the Federal Court. The genesis of this issue was a result of Kogan’s contention that the offered discount ought to be considered on the price available at checkout and not a price that was offered prior to or after the sales promotion.
According to the court, the promotional statements relied upon by Kogan to advertise the promotion made the ordinary and reasonable member of the relevant consumer class to conclude that the current advertised price was the price at which the product had been available for sale before the promotion. Consequently, any discount made available would be over and above the price at which the product had been available for sale before the promotion.
Further, the court also observed that the promotion was time-specific and therefore, it was evident that the consumers would have understood that there was a limited opportunity to obtain the reduced price and the prices would not decrease during a reasonable period after the end of the sale.
On Kogan’s contentions concerning the ACCC’s definition of “reasonable period”, the court ruled that the two-week time period before and after the sales promotion adopted by the ACCC was reasonable and well-reasoned. The court also noted that the object behind delineating a fixed period was only to capture the expectations of reasonable consumers that a reduction in prices be a genuine reduction, from the price at which products were available for sale before the promotion.
Finally, on the question, whether the representations made by Kogan were false or misleading, the court rejected Kogan’s defence that ACCC’s case was based on a “de minimis product set” and it ought to be rejected since the affected products constituted a mere 0.8% of the 78,111 products on the Kogan website. The court observed that the fact there may have been a genuine discount obtained by a large number of the target audience consumers did not gainsay that the representations were false or misleading.
The Competition Commission of India (‘CCI’) although has been vested with the duty to protect the interests of the consumers along with eliminating practices having an appreciable adverse effect on competition (‘AAEC’) under section 18 of the Competition Act but the focus of the commission has largely been on the latter. Two justifications look plausible behind the embracement of this policy path.
Firstly, the term “protect the interests of the consumers” can be subjected to wide interpretations to even include consumer law issues having a nugatory effect on competition in the market. A more proactive approach concerning consumer law violations could open flood gates for the CCI and make the consumer law mechanism redundant.
This view has been endorsed by the CCI in several cases including in Subhash Yadav v. Force Motor Ltd., in which the commission distinctly associated its duty to protect consumer interest with practices having AAEC. Thereby demonstrating that for the CCI to order an investigation in a consumer law violations complaint, there must be a competition law issue involved. Further, the commission also noted that for the protection of individual consumer interest, recourse must be sought through the Consumer Protection Act.
However, the question which arises now is that whether a practice involving offering discount and increasing price simultaneously could be denominated as a practice having AAEC? It is well-recognized that a practice which involves disseminating misleading or deceptive information would result in the reduction of competition as a lack of informed choice on the part of the consumer shall disincentives other sellers from competing on price and non-price factors and force consumers to opt for a seller engaging in unfair practices thereby reducing competition in the market.
The same was in essence observed by the Federal Court of Australia in paragraph 98 of the central judgment in the present discussion (ACCC v. Kogan), in which it accepted that “the representations made by Kogan were apt to bring consumers into negotiation with Kogan rather than one of its competitors on the basis of an erroneous belief engendered by Kogan’s advertisements.”
Secondly, the existence of an independent consumer law mechanism naturally acts as a disinclining factor for the CCI to take up consumer law matters that do not bear competition law issues. This dichotomy between the statutory bodies entrusted with the enforcement of competition and consumer law is not a well-established practice in the world since it is a generally accepted fact that competition and consumer protection law share a common purpose. Both share the ultimate aim of promoting consumer interest through the exercise of consumer sovereignty or effective consumer choice. This is in stark contrast to the mechanism established in the US, the UK, Canada, and Australia where the Federal Trade Commission, Competition and Markets Authority, Canadian Competition Bureau, and ACCC respectively combine competition law and consumer protection enforcement mandates.
Having argued that the CCI in its present structure has the authority to investigate the discussed practice, the author advocates for the establishment of a unified consumer and competition law regulator. A unified regulator shall not only help in yielding administrative efficiency but shall also provide the regulator with the ability to more effectively address industry-wide issues that implicate both competition and consumer protection concerns.
All things considered, attention is also drawn to the fact that deep discounting has been one of the major focus areas of CCI’s e-marketplace regulation policy. However, with the decreasing investments in e-commerce firms due to the COVID-19 pandemic and a maturing e-commerce market with relatively stable market share, there are high chances that firms may ditch the deep discounting approach and adopt a profit-making approach unalike to the growth intensive approach adopted in the past which could involve the adoption of unfair practices such as the one discussed above resulting in a dilemma for the CCI of choosing between a more consumer-friendly approach or restricting itself to overtly competition law issues.