Revision of Unfair Competition Act 2012

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The Swiss Parliament decided on 17 June 2011 to revise the Unfair Competition Act (UCA). When the deadline for requesting a referendum expired without any request for a referendum, the Federal Council approved the entry into force of the revised law on 1 April 2012. The contentious provision on the use of unfair general terms and conditions (GTC) will only enter into force on 1 July 2012.

The law was revised with the objective of improving measures to combat practices such as address book fraud, snowball systems, abusive GTC, deceptive promises of winnings and unsolicited marketing calls, and in the process also improving the protection afforded to consumers. Price transparency should also be improved. To this end, the list of offences in Art. 3 UCA was supplemented by six additional offences (Art. 3 par. 1 (p) – (u) UCA).

The revised Unfair Competition Act gives two examples of address book fraud. Under the revised law, anybody who markets or directly offers products or services by way of offer forms, offers to correct wrong register entries or similar offers for entries in any kind of register or advertising orders without including references in easily understandable language in large font where they are clearly visible to (i) the requirement to pay for the service and the fact that it is a private offer, (ii) the term of the contract, (iii) the total price for the offer (calculated on the basis of the contract term), and (iv) the geographic distribution, form, minimum number of copies and latest date of the publication, is engaging in unfair competition (Art. 3 par. 1 (p) UCA). Anybody who sends out invoices for entries in any kind of register or for advertising orders without having received a prior order is also engaging in unfair competition (Art. 3 par. 2 (q) UCA).

More effective measures were also introduced against snowball, avalanche and pyramid systems. In contrast to the old law, the condition for such a system to be considered unfair is fulfilled if the benefit for participants results mainly from the recruitment of new participants. The purpose of this new formulation is to include fraudulent systems that only pretend to sell goods or services. According to Art. 3 par. 1 (r) UCA, anyone who promises the delivery of goods, the payment of premiums or other services at conditions that will primarily be beneficial to the recipient if the latter recruits other participants and depend less on the sale or use of goods or services is engaging in unfair competition. Such rackets are mainly characterised by the aggressive redistribution of money from the people at the base of the pyramid to those at the top of the pyramid. This is often linked to sales of special goods or services which serve to disguise the real nature of the system. With snowball systems the focus falls solely on the recruitment of new participants, while with admissible network marketing, a marketable product is actually sold. Illegal snowball systems are typically designed in such a way that the number of participants increases very quickly and uncontrollably.

Under the revised law, anyone who electronically offers goods, works or services and fails to (i) provide clear and complete information on his identity and contact address, including his e-mail address, (ii) refer to the individual technical steps that lead to the conclusion of a contract (i.e. a clearly structured ordering process), (iii) provide appropriate technical media that make it possible to identify and rectify errors before the order is sent off, and (iv) immediately send an electronic confirmation of the order to the customer, is engaging in unfair competition (cf. Art. 3 par. 1 (s) UCA). It should be noted, however, that this provision does not apply to contracts concluded by telephone and contracts concluded solely through the exchange of e-mails or comparable individual communication channels (Art. 3 par. 2 UCA).

Anyone who promises a prize in a competition or a lottery where the redemption of the prize is dependent on calling a premium-rate service number, paying a service charge, buying an item of merchandise or a service, or participating in a sales event, promotional trip or another prize draw, is also engaging in unfair competition (Art. 3 par. 1 (t) UCA).

If a customer has requested an opt out entry in the telephone book to indicate that he does not wish to receive any advertising materials from third parties and that his data may not be forwarded for direct marketing purposes, this entry must be honoured (Art. 3 par. 1 (u) UCA). This means that cold calls, i.e. the practice of making marketing phone calls to consumers at home, are also forbidden. In spite of this new provision in the law, cold calls from abroad will remain a problem as the Unfair Competition Act does not have any extraterritorial effect. This practice can therefore only be combated with cross-border cooperation with the countries concerned. The revision of the law is also intended to strengthen this cooperation. The law now also provides a legal foundation for cooperation and the exchange of information between the Federal authorities and foreign authorities and international organisations (Art. 21 and 22 UCA). This is in line with the OECD Guidelines for Protecting Consumers from Fraudulent and Deceptive Commercial Practices Across Borders, which requires member states to establish the required legal foundation to improve the exchange of information and efficient cooperation between countries.

The new provisions on the GTC review (cf. Art. 8 UCA) are the most striking feature of the revision and were also heavily disputed. According to current legislation, GTC can only be unfair if they deviate substantially from discretionary law or promote the unfair division of rights and obligations in a misleading manner to the detriment of one of the contracting parties, which considerably tempered the effect of the old article. According to the new version of the law, every use of GTC in violation of the principle of good faith is deemed to be unfair if it establishes a significant and unjustified imbalance between contractual rights and obligations to the detriment of the consumer. The new rule applies to relationships between consumers and companies (B2C), but not to relationships between companies (B2B). This leads to a limitation of the scope of this GTC rule, which was not envisaged by the Federal Council but was modified by the parliament in this respect. Future GTC reviews will therefore be decided by a significant and unjustified imbalance between contractual rights and obligations rather than a significant deviation from discretionary law. Seen overall this makes it possible to review the contents of GTC without having to refer to specific contractual relationships, as a misleading manner is no longer a criterion. However it is controversial whether an abstract review of the contents by the courts is possible only because of the modification of Art. 8 UCA from “misleading manner” to “violation of the principle of good faith”. Consumer protection organisations are now entitled to file a complaint against violations according to Art. 9 par. 1 UCA, provided that the relevant organisation is active on a country-wide or regional scale and is dedicated to consumer protection in accordance with its articles of association. Professional and trade associations are authorised to file complaints as well, if they are entitled by the articles of association to protect the economical interests of their members. It remains to be seen how often these organisations will exercise this right (Art. 10 par. 2 (b) UCA). Unfair GTC clauses are null and void because they are unlawful (Art. 2 UCA and Art. 20 Swiss Code of Obligations). This is derived both from current legal doctrine as well as the Dispatch of the Federal Council.

Under the new version of the law the Confederation can also file a complaint under Art. 9 par. 1 and 2 UCA if it believes it to be necessary in order to protect the public interest (namely when Switzerland’s reputation abroad is threatened or violated and the persons whose interests are injured are based abroad, or if the interests of several persons or a group of sector members or other group interests are threatened or violated (cf. Art. 10 par. 3 (b) UCA). As a result, Swiss victims of foreign fraudsters can now also receive support from the Confederation. The Confederation also has the right to inform the public of unfair business practices by naming the perpetrators.

Because the UCA does not regulate the intertemporal law, the Final Title of the Civil Code (FT CC) are subsidiarily applicable. According to this law the principle of non-retroactivity is applicable, unless the new rule was drafted to protect public order or morality (Art. 2 FT CC). The new article 8 UCA is not included in this exception. Therefore all GTC which were negotiated before the 1 July 2012, are not affected by the new review of contents. But if individual provisions of existing GTC are altered or modified after this date, the specific alterations or modifications are subject to such review.

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