The Government body announced two investigations today which
will probe whether online retailers' use of tracking and targeting
technology and advertising are unfair on consumers.
"[An investigation] into online targeting of advertising and
prices will cover behavioural advertising and customised pricing,
where prices are individually tailored using information collected
about a consumer's internet use," said an OFT statement.
The probe could derail the sales strategies of online retailers
who increasingly gather data on potential customers' web activities
and use it to target them with advertising and in some cases to set
the price charged for goods.
Companies might use data collected on a person's location,
likely income, buying preferences or age to offer them prices that
are higher or lower than those offered to other customers.
OUT-LAW.COM is running a series of free
seminars on behavioural advertising across the UK on how
companies can use behavioural advertising and stay on the right
side of the law.
Struan Robertson, a technology lawyer
with Pinsent Masons, said customised pricing could fall foul of the
Consumer Protection from Unfair Trading Regulations.
"The Regulations say that commercial practices will be unfair
and illegal if they contravene 'the requirements of professional
diligence' and are likely to 'materially distort the economic
behaviour of the average consumer with regard to the product',"
said Robertson.
"While we don't have guidance from British courts on either
behavioural advertising or customised pricing, any guidance on the
back of the OFT study will be influential," he said.
The Regulations have been in force since last May. They also
prohibit misleading actions. If a commercial practice is likely to
deceive the average consumer in relation to "the price or the
manner in which the price is calculated" and cause the average
consumer to place an order, there will be an offence.
"If two consumers see different prices for the same product at
the same site, and that difference is based on their browsing
history or location, a court might say that there's deception going
on," said Robertson. "Websites that engage in customised pricing
simply can't afford to ignore this risk."
An offence under the Regulations can be punished by a maximum
sentence of two years' imprisonment.
Discriminatory pricing based on a customer's location may also
fall foul of a European Directive due to come into force across the
EU by 28th December.
Article 20 of the Services Directive states: "Member States
shall ensure that the general conditions of access to a service,
which are made available to the public at large by the provider, do
not contain discriminatory provisions relating to the nationality
or place of residence of the recipient, but without precluding the
possibility of providing for differences in the conditions of
access where those differences are directly justified by objective
criteria."
The potential of this rule to operate as a prohibition on some
forms of customised pricing in e-commerce was raised in a European
Commission consultation paper on Data
collection, targeting and profiling of consumers for commercial
purposes in online environments (29-page / 352KB Word
doc), published in March.
The OFT said its studies will ensure that it keeps up to date
with how new pricing and advertising practices are emerging and
evolving online.
The OFT could take enforcement action against any companies it
thinks have broken the law. It could also refer its investigations
to the Competition Commission.
The regulator may also encourage companies to self-regulate
through a code of practice or publish information to help consumers
understand the practices used by firms.
A second study will investigate the way that internet businesses
commonly advertise their prices. It will question whether or not
these deceive customers.
"It will examine practices including: 'drip pricing', where
price increments 'drip' through during the buying process; 'baiting
sales', where only some products are available at the discount
price and consumers may ultimately purchase a full-priced product;
'reference prices', where there is a relatively high reference
price compared to sale price, for example 'was £50, now £20', or
'50% off'; time-limited offers, such as sales which finish at the
end of the month or special prices which are available for one day
only; [and] complex pricing, where it is difficult for consumers to
assess an individual price, for example 'three-for-two' or
'non-inclusive' prices."
The OFT said that it would in particular investigate price
comparison websites and their use of these kinds of advertising
practices.
"It is very important that the OFT's approach to potentially
misleading practices remains well-informed by a sound evidence
base, so we effectively protect consumers while allowing firms to
compete freely," said OFT senior director Heather Clayton.
The OFT said that it would investigate behavioural marketing and
online advertising earlier this year, but the two studies now
announced are a result of consultation on how it should
proceed.
Event: Do targeted ads breach
privacy? Avoid the legal pitfalls by attending OUT-LAW.COM's
free seminar on Behavioural
Advertising and the Law. At a city near you in October.
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