Regulating Digital World Requires Appropriate Legislation

Digitalization has reshuffled not only the way we shop and use services but the way businesses reach consumers. The fact that someone is not actually “there” gives ground to a lot of misinterpretation, or worse, deception.

The online world is an ideal space for someone to make claims that may not be entirely true, for example, having the country’s broadest or fastest broadband coverage. Since the transition to online has taken place rapidly, legislation originally crafted for the physical world could not keep up, and there are many unregulated areas.

Advertising and sponsorship of influencers is one such area. It is not regulated, and although the Hungarian Competition Authority (GVH ) has created recommendations, it can provide guidance at best. For example, when advertising products, an influencer must mark with a hashtag at the beginning of the post if it is advertising.

“However, since this is not a law, in the event of a dispute, the influencer may argue that they have made it clear to their followers in other ways that the post contained an advertisement and has a chance to win in court,” István Solt, senior associate in cooperation with act Bán & Karika Attorneys at Law told the BBJ.

“The court then rules on an individual basis, as there is not a sufficient number of cases based on which precedent and governing law have been established,” he adds. “Until comprehensive EU-wide and itemized domestic regulations are in place, lawyers are forced to resort to creative interpretation of the law when discussing a case.”

The above is reflected by the cases the GVH has been dealing with recently as well. With the importance of online commerce increasing, the authority is paying more attention to online marketplaces and shops and digital comparison tools.

Due to their dynamics and the special characteristics of consumer decision-making, GVH has given priority to these markets and has launched proceedings against Big Tech companies such as Apple, Google, and Facebook.

Historic Fine

Last year, the authority imposed the largest consumer protection fine in its history, HUF 2.5 billion, on the Dutch-based booking site, Booking.com, which, among other things, used aggressive, psychological pressure to make users book as soon as possible. Within this scope, GVH is also conducting market analysis by looking at the role of data assets in online commerce.

Another area the organization is focusing on is commercial practices related to so-called green advertising. There is growing pressure on businesses to operate in an environmentally friendly way; the number of environmentally-conscious consumers consider the impact of their consumption on our planet is also on the rise.

The environmentally friendly and sustainable nature of products and their production has become an essential element of competition alongside price and quality.

“Applying a marketing or PR strategy in which a company presents itself as environmentally-friendly, responsible for environmental protection, while this is not reflected in its operations, or claims about its product or service cannot be substantiated, can be assessed as unfair commercial practices,” Andrea Zenisek, head of GVH’s consumer protection office says.

The competition authority has previously warned consumers about this type of misleading advertising, and last December it published a so-called “Green Marketing” brochure to help businesses develop good advertising practices for environmental-friendliness and sustainability.

There are no industries or market segments that have more infringing commercial practices than other areas, GVH says. The more regulated a sector or area is, the fewer opportunities there may be for failure to comply, though. Where companies have large marketing budgets and advertise frequently, businesses may be more likely to run into infringements due to more active communication.

Despite that, it is still relatively uncommon for companies to hire an external expert to check their compliance unless it is a subject well beyond their scope. (Larger companies usually have in-house counsels.)

EU-wide Legislation

Although some parts of the digital world have been regulated, there is no EU-wide legislation for online markets and services. The European Commission has adopted a proposal for a Digital Services Act (DSA) which, together with a Digital Markets Act (DMA), will create a safer and more open digital space for all users and ensure a level playing field for businesses, the Commission says. (For more on this, see “Devil in the Details for Digital Markets and Digital Services Acts” on page 15.) Until the DSA and DMA are adopted, which, according to experts, is unlikely to take place before 2022 or 2023, countries will continue to have to deal with these cases by themselves.

This article was first published in the Budapest Business Journal print issue of June 4, 2021.