Companies attract customers on social networks. They are organized into groups and vehicle purchase rights are raffled off with the money of the participants themselves.
So far this year, the Superintendency of Market Power Control (SCPM) has imposed fines totaling more than half a million dollars on two companies in the food industry for unfair competition practices, such as misleading advertising; and, currently, it analyzes the activity related to the acquisition of vehicles offered by companies under the name of consortiums.
In an interview with EL UNIVERSO, Carlos Álvarez, SCPM’s National Intendant for Investigation and Control of Unfair Practices, warned that companies could also be considered jointly responsible for the irregular conduct of their vendors, even when there is no dependency relationship.
What is misleading advertising?
Misleading advertising is punishable in cases where the advertising is not true and is not accurate. What do I mean by not being true and not exact? That is, when I make an announcement that may mislead the user or consumer, or failing that, I fail to inform the user, as a consumer, of relevant information. In that sense, misleading advertising is configured.
According to the law, when this type of behavior occurs, the person who must demonstrate the veracity of the statements made in advertising is the advertiser, the economic operator that makes the announcement.
What is the penalty for an economic operator who is found responsible for misleading advertising, considered by law as an unfair practice?
The primacy of reality (a principle that appears in the Organic Law of Regulation and Control of Market Power) allows us that regardless of the figure they use, a justification is not constituted so that they cannot be sanctioned. Now, where are the sanctions framed? For committing unfair practices, in this case, acts of deception and the form of misleading advertising, in article 79 of our law (Organic Law of Regulation and Control of Market Power). The penalties can be up to 10% of the turnover of the immediately preceding year, as it is a serious offense for being an unfair practice. For example, if we are now in 2021, everything that I have invoiced in 2020, I take it to calculate the fine. If the economic operator billed $ 10 million the previous year, the law provides that it can be sanctioned up to one million dollars.
Now it is not the only criterion that we use. For this purpose, we -since the regulation for the application of the Organic Law of Regulation and Control of Market Power was reformed- issued the methodology for calculating the fine in which a series of factors intervene, so that the The penalty is proportional and has no drawbacks from being penalized with an extremely high fine or an operator that is not so large in the market, that is, that according to their income, they can pay.
A company may or may not wash its hands by saying: these vendors are not employees under a dependency relationship, they are commission agents, therefore, I am not responsible for the impact they may cause with false information that they may have given to citizens.
To contextualize the query: days ago this newspaper published a report that includes citizen complaints of alleged deception by employees freelance of consortia that offer the acquisition of vehicles, under the modality of monthly raffles and bidding.
What to do to avoid falling for unreliable promises from car sellers in consortia or groups where a good is delivered by lottery
It is not a justification for economic operators to point out that they are not workers under a dependency relationship. In the law there is a principle called the Primacy of Reality. What does this principle mean? That regardless of the legal form that I use, if the name of my company is being taken, I am aware or I give the permission for that to happen, I am directly responsible for what can be said, in this case, by part of the sellers or commission agents who are in charge of attracting clients to enter the consortium.
It is not a valid argument, precisely we are analyzing that market, to point out that it is the sellers who, in order to try to attract customers and commission, deceive users or consumers to attract them.
Part of the policy or transparency that these economic operators must have, so that their commission agents can offer a service, is to provide true and exact information on what consumers or users are going to acquire or contract.
Otherwise, it constitutes an unfair practice of deception, because the consumer or user is attracted by the offer made by the seller and basically leaves aside on many occasions what remains in an adhesion contract.
Just as sanctions are contemplated for offending companies, are there sanctions for sellers or third parties who use a company’s brand?
The law has precisely that void, since it does not establish the responsibility that commission agents may have, but it does establish the responsibility that the economic operator has.
In this commercial dynamic, it is also necessary to point out the responsibility of the counterpart in this type of business. What do you recommend?
Be careful, it does not mean that that is why the consumer or user should not review what these adhesion contracts say, but the relevance of the direct or personal approach with the vendors of a certain company is important.
In any case, is there a joint and several liability of the company ..?
Exactly. Especially if they are aware of whether these people who act under the commission mode are taking the name of the company and if in that sense they are offering a service. The least they can do is train salespeople and point out the repercussions that may exist if false information is provided. The economic operator cannot simply indicate that since he is not the one directly making such announcements, he has no responsibility. This argument is provided for in article 3 of the law (Organic Law for the Regulation and Control of Market Power).
At this moment we are conducting research to determine how this type of service is offered, what information is made known to the consumer or user and how this type of raffle is carried out, which is done once a month. We have already collected information that is extremely important, but we need to carry out some diligence to confirm or rule out the responsibility of economic operators.
Although the law says how to combat unfair conduct in the market, what is the result in practice? How many companies have been sanctioned for unfair practices this year?
For acts of deception, the Superintendency of Market Power Control has sanctioned an economic operator; and, for unfair practices in general, another economic operator has been sanctioned.
In total, for unfair practices, this year we have sanctioned two and a third case is pending that also has to do with misleading advertising (the resolutions can be appealed before the ordinary courts, in the contentious-administrative field).
In the first case, an economic operator (Reylácteos CL) that competes in the milk market was penalized for misleading advertising. And this economic operator had images on its packaging that associated its product with whole milk or UHT milk (ultra-high temperature for its long life). By technical standard INEN (Ecuadorian Institute of Normalization), when I place, for example, a glass with a white liquid, that is associated with milk and I can use that image as long as my product is pure, whole milk. That was the practice to sell their product which was buttermilk. So, in that sense, there was information that misled the consumer. And since this economic operator has a significant participation in the market, approximately 33%, 34% in the Ecuadorian market, since it had the capacity to affect the general welfare of consumers. A penalty of approximately $ 500,000 was imposed.
The other sanctioned economic operator has nothing to do with deception. There, other unfair behaviors, called denigration and undue comparison, were analyzed. Denigration basically occurs when I, as a competitor, make a discrediting claim against another competitor. In this case, what happened is that in the market for pasta and long noodles, a competitor made an advertisement, about spots Sumesa’s advertising, regarding the use of colorant by competitors, while the product they had did not use colorant.
Likewise, multiple advertisements were made regarding the use of the tub, the price, in order to try to create discredit to its competitor and obviously that consumers feel greater interest in the product of the advertising economic operator.
The fine is approximately $ 160,000.
How do you identify these and other practices? What controls does the Superintendency carry out to detect them?
We monitor (field and digital), not only the issue of misleading advertising, but also the accumulation of unfair acts behaviors. We try to monitor these countless unfair practices as much as possible. We are aware of the classic media, social networks, of what other institutions inform us.
When the Ombudsman’s Office detects situations that may affect the general welfare of consumers, it informs us. We also have open the complaint mechanism, through which any person who feels affected can inform the Superintendency and its municipalities of the complaint. (I)
Mario Twitchell is an accomplished author and journalist, known for his insightful and thought-provoking writing on a wide range of topics including general and opinion. He currently works as a writer at 247 news agency, where he has established himself as a respected voice in the industry.
