The Cease Of Misleading Advertising

The Cease of Misleading Advertising in the Mexican Consumer Protection Law Fernando García Sais1 With the amendments to the Federal Consumer Protection Law (“FCPL”) enacted on February 4, 2004, as well as with the two resolutions of the Supreme Court of Justice (“SCJ”) issued in (a) the case of federal injunction (Juicio de Amparo) under file 644/2006 wherein the claimant (Televisa, S.A. de C.V., a national mass media enterprise) acting as a plaintiff and in (b) the case of federal injunction called Amparo en Revisión 1428/2005 wherein Sancela, S.A. de C.V., acting as a plaintiff, in both cases against the (i) Mexican congress and (ii) Federal Attorney’s Office for Consumer Protection (“Profeco”) argued for the unconstitutionality of such reforms (particularly, article 35.I and 35, in fine, FCPL) consumers are now better protected against misleading advertising and mass media as well as advertising companies around the globe doing business in Mexico could be seriously impacted. The full text of the new article 35 of the FCPL is the following: “Without prejudice to the participation that other legal provisions may assign to different government offices, Profeco may: I. Order the supplier to cease the information or advertising that violates the provisions of this Law and, if applicable, to order the relevant media used to broadcast it to cease and desist therefrom; II. Order that the information or advertising that violates the provisions of this Law be correct in the manner deemed as sufficient; and III. Impose the pertinent penalties, under the terms of this Law. For purposes of subsections II and III, the violator shall be granted the constitutional right to a legal hearing set forth in Article 123 of this ordinance. Whenever Profeco brings an administrative action related to the truthfulness of the information, it may order the supplier to indicate in the advertising or information released that its truthfulness has not been verified with the competent authorities.” The Federal Consumer Protection Law In Mexico, consumer transactions are regulated in a federal law, which applies nation wide. There is no local or municipal legislation in this discipline. The current FCPL was 1

Professor of Consumer [email protected].

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published on December 22, 1992 and has had several reforms. Some of them had tried to come into sync with the European movement on consumer protection and some of them are simply response to political interests derived from electoral campaigns of the governing federal party.2 As a example of the last mentioned, the lack of a class action judicial procedure to protect collective rights has not yet overcome the powerful interests of economic agents.3 Nevertheless, the reform of 2004 can be described and categorized in sync with the aforementioned European movement initiated with Directive 84/450/EEC relative to misleading advertising as well as with Directive 89/552/EEC, as amended by Directive 97/36/EC, relative to the pursuit of television broadcasting activities (better known as “television without frontiers”). The definition of misleading advertising is found in Article 32 of the FCPL. The full text of such article is the following: “Information and advertising regarding goods, products or services released through any mean or manner, shall be truthful, verifiable, and exempt of texts, dialogues, sounds, images, trademarks, designations of origin, and other descriptions that lead or may lead to mistakes or confusion by being either deceptive or unfair. For purposes of this Law, deceptive or unfair information or advertising shall be understood as that which makes reference to characteristics or information related to any good, product or service that, either truthfully or not, misleads or causes confusion due to the imprecise, false, exaggerated, biased, contrived, or tendentious manner in which it is presented. Any information or advertising that compares products or services, either of the same trademark or of different trademarks, may not be misleading or unfair under the provisions of the preceding paragraph. The Agency may issue guidelines to verify such information or advertising, in order to prevent consumers to be misled or confused.” A quick explanation of the definition of misleading advertising can be better understood if read in reference to article 6 of e Directive 2005/29/EC of the European Parliament and of the Council of 11 May 2005 concerning unfair business-to-consumer commercial practices in the internal market and the amending Council Directive 84/450/EEC, Directives 97/7/EC, 98/27/EC and 2002/65/EC of the European Parliament and of the Council and 2

For a complete review of Mexican consumer law regulations and advertising procedures see García Sais, Fernando. Derecho de los consumidores a la información. Una aproximación a la publicidad engañosa en México, Editorial Porrúa-ITAM, México, 2007. 3 Regarding the state of collective procedures in consumer law see García Sais, Fernando. Hacia las acciones colectivas en materia de protección al consumidor. Revista Abogado Corporativo, número 7, septiembre-octubre, 2008, México.

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Regulation (EC) No 2006/2004 of the European Parliament and of the Council (‘Unfair Commercial Practices Directive’), which summarize as follows: “a commercial practice shall be regarded as misleading if it contains false information and is therefore untruthful or in any way, including overall presentation, deceives or is likely to deceive the average consumer, even if the information is factually correct, in relation to one or more of the elements [dialogues, sounds, images, trademarks, designations of origin, and other descriptions, etc.] and in either case causes or is likely to cause him to take a transactional decision that he would not have taken otherwise.” Reforms to Article 35.I of the FCPL: the authority of Profeco to order the cease of advertising In the congressional prologue relating to the purpose of the reform to article 35.I of FCPL, we find an expression to the fact that consumers are under attack by misleading advertising and that it is clear known that advertising companies are willing to pay administrative fines when an act of the official government authority (as the Mexican Consumer Protection Bureau “Profeco”) determines that any given advertising constitutes a violation of the law from the perspective of applicable consumer regulations. Under article 132 of the FCPL, Profeco may determine applicable fines pursuant to the provisions of the FCPL and the regulations thereto, taking into account (i) the significance and social impact of the infringement, and (ii) the following features: (a) the damage caused to the consumer or to society in general; (b) the intentional nature of the infringement; (c) whether it is a case of a repeat offender, and (d) the economic situation of the violator. Based on article 127 of FCPL the administrative fine for violating article 32 of FCPL (misleading advertising) can be from $319.45 Mexican Pesos up to $1,022,231.88 Mexican Pesos (approximately, a range in USD from $30 to $100,000). From a simple law and economic analysis, in most cases benefits arising from advertising are a lot higher than the costs for paying any administrative fines (and in most cases, due to lack of due diligence of Profeco, fines are lowered or declared null by the correspondent superior authority). In this context, the FCPL has been amended in order to include Profeco’s power to order cessation of the advertising by the relevant means of communication used by the advertiser to reach his consumers. If properly used, this new power will bring a more elevated level of advertising in Mexico as well as better negotiated advertising agreements. Also, a complete and full legal review of advertising will be needed to avoid (i) administrative proceedings and (ii) eventually the order to cease advertising. Some constitutional rights of the means of communication and of the advertiser The Mexican Supreme Court (the “SCJ”), our court of last resort, has held that when an administrative procedure questions the misleading character of advertising, the defense and burden of proof corresponds exclusively to the advertiser. This is nothing new under existing advertising legal doctrine, and, to the contrary it is the expression of the so- called principle of evidence known as “exceptio veritatis”, under which the burden of proof is for 3

the account of the advertiser. He / she is the one who has to demonstrate that the objective component4 of the advertising being judge can be revealed. Likewise, the advertiser has to prove that the advertising does not mislead the consumer freedom of contract attempting against his freedom of choice. In consideration of the mentioned exceptio veritatis the means of communication has nothing to do in respect of evidence and defense of the advertising; even-though, the means of communication has rights as well as liabilities under the advertising agreement entered into with the advertiser. In the past, before the reform, the means of communication was not very interested in the contents of the advertisements to be broadcast (yet it holds a federal concession for the use and exploitation of the national public good presented by the radio spectrum). The new text of article 35.I of the FCPL allows Profeco to order the cessation of the relevant advertising without due process hearing (of the defendant: advertiser or means of communication). This lack of due process of law was made subject to a constitutional confrontation brought before the SCJ by one of the most influential and powerful mass media enterprises of Mexico. Nevertheless without prejudice of such commercial preeminence of the subject communications company, the SCJ denied the protection of the Constitution under the federal injunction procedure called the Juicio de Amparo, and with this ruling an important judicial precedent has been set. From now on, Profeco can legally and constitutionally order a means of communications the cessation of advertising in the cases where (i) the advertiser refuses to abide by its dictates or (ii) there shall exist noxious or harmful effects on the potential consumers of the products or services advertised. Nonetheless, the lack of due process for the defendant does not imply that the administrative authority has a blank check to act capriciously or impulsively. If Profeco wants to order the cessation of advertising, whether directly to the advertiser or indirectly through the means of communication, some other constitutional rights must be respected and followed by the mentioned administrative authority before such consumer protection goal is consummated. One of the more important constitutional rights are (i) the reasoning of the relevant facts (motivación) at issue that must be cited by any government agency to undertake the action whenever the interesst of private persons may be affected (the “Reasoning Principle”) and (ii) the need to cite the appropriate legal grounds (fundamentación); i.e., the applicable provisions of statutory law (the “Principle of Applicablity”), for the undertaking of the action (both rights are called on a Mexican constitutional expression known as “motivación and fundamentación”).

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The objective component of advertising is any element that it is not personal or subjective. For example, quantities, measurements, qualities, etc., are objective while tastes, preferences and predilections are subjective. The importance of properly distinguishing between both components is crucial. The “veracity test” can and shall only applied to objective components since subjective ones can not be proven. See García Sais, Fernando. Los efectos de la publicidad engañosa sobre la validez de los contratos celebrados con consumidores, Revista de Derecho Privado, UNAM, September 2004-April 2005, México, pages 37-42.

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The Reasoning Principle is complied with, in general terms, when the authority that undertakes the action analyzes the facts and subsumes them into the hypothesis of the norm. In advertising procedures, Profeco has to review with a reasonable scientific approach the advertising material and under article 32 of the FCPL (that conceptualizes the grounds of misleading advertising) determine if such advertising fits the legal hypothesis of the mentioned article. Obviously the matter is not an easy task and requires the participation of well trained and knowledgeable individuals in disciplines such as sociology, economics, law and, of course, advertising in the correspondent industry field (such as tobacco, beverages, pharmaceutical, automotive, communications, software, and so on and so forth). Validating the Reasoning Principle is not inexpensive. Public fund allocations must be sufficient to allow for the performance of diligent work by the public administration (Profeco) that can be only be performed by professionals with the credentials mentioned before. As mentioned above, the last paragraph of article 35 of the FCPL establishes that Profeco has the authority to order the advertiser to indicate in the relevant advertising that its veracity has not been verified. In practice this is complied with when the advertiser inserts the following “this information has not been proven before Profeco”, and actually acts as a disincentive for the advertiser preemptively as opposed to ordering that the advertiser cease dissemination of misleading information. This of course results from the negative commercial effects of such insertion. This last possibility was also introduced in 2005 in the FCPL. This feature of the FCPL is important as illustrated by the case an advertiser, in 2005 who advertised a feminine product that claimed to neutralize odors originated by menstruation. This advertising contained a specific claim that said “odor killer, eliminates the odor completely”. Profeco ordered the producer Sancela, S.A. de C.V., to insert the abovementioned phrase and the producer chose to ignore the order and instead filed a federal injunction (Amparo en Revisión 1428/2005) challenging the unconstitutionality of article 35 of the FCPL, arguing that the same violated his freedom of commerce, since it is had been precluded from promoting its products commercially. The matter was settled when the SCJ, as last resort, acknowledged the constitutionality of the last phrase of article 35 of the FCPL. The unfair business to consumer (B2C) commercial practices Manifestly the mentioned reforms have been not well received by entrepreneurs seeking easy, quick and large returns on their advertising even when their way of doing business adversely affects the rights of the consumers to benefit from what is actually a contractual promise that is protected by our legal systems.5 5

Advertised promises constitute a binding offer that are deemed incorporated on the final contract entered entered into with consumers, whether such promises are contained therein or not. For a more exhaustive study of such doctrine, see, Garcia Sais, Fernando. La eficacia jurídica contractual de la publicidad en los contratos con consumidores. Revista de Derecho Privado, UNAM, September 2004-April 2005, México, pages 43-49.

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Misleading advertising distorts the complete economic system and constitutes unfair commercial practices harming consumers' economic interests, which can generate appreciable adverse effects on competition, creating many barriers affecting business and consumers. Such barriers also make consumers uncertain of their rights and undermine their confidence in the market. The unfair business to business (B2B) commercial practices The FCPL provisions, and particularly those regarding misleading advertising, address commercial practices directly related to influencing consumers' transactional decisions in relation to products and services, albeit they do not address commercial practices performed primarily for other purposes (as B2B). For B2B purposes, on January 26, 2006, the Federal Commercial Code was amended in order to include a new article, 6 Bis, that addresses B2B unfair commercial practices in what is called “commercial professional diligence". Such diligence means the standard of special skill and care which a merchant may reasonably be expected to exercise towards other businesses, commensurate with honest market practices and/or the general principle of good faith in the merchant’s field of activity. Thus, it precludes merchants from engaging in unfair commercial practices that (i) create confusion in regard to the commercial establishment, products, services, commercial or industrial activity of other merchant, (ii) discredit, by means of false statements, the commercial establishment, the products and services, or the commercial or industrial activity of another merchant, (iii) misleads the public [which can be consumers or sellers] as to the nature, way of manufacturing, characteristics, usefulness or the quantity of products, and that (iv) are forbidden in other laws.6 Notice that all of the rule out mentioned activities could be disseminated by means of advertising. Thus, advertising directed to consumers might be loaded with attributes that could damage others business’s reputation, products, services, etc. In those cases, our Civil Code provides with some legal remedies (damage to reputation, defamatory language, misrepresentation, torts) and evidence of causation and actual damages are required. Where an administrative proceeding can be filed, the same Article 6 Bis of Commercial Code prescribes that civil actions caused by unfair commercial practices, can be only initiated after obtaining an administrative remedy, and that monetary and non-monetary damages, can be sought accordingly7. An example of such administrative remedies could be inter alia (a) a claim of misleading advertising brought before Profeco8 or (b) a claim brought before 6

For a more profound review of unfair commercial practices and misleading advertising, see Garcia Sais, Fernando. Derecho de los consumidores a la información. Una aproximación a la publicidad engañosa en México, Editorial Porrúa-ITAM, México, 2007. 7 In regard to non-monetary damages , see Garcia Sais, Fernando. Las penas con pan son menos: el daño moral, El Mundo del Abogado Law Review, April 2007. 8 With Profeco’s procedure, a very public and attention-grabbing opportunity arises for businesses who, by means of misleading comparative or discredit advertising, are being damaged, and to bring a complaint, arguing e consumer damage or challenging the reasonableness of actual or potential damage to consumers.

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the Mexican Institute of Intellectual Property (IMPI), regarding discredit of a commercial name and or brands.

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