Banning Websites for consumer protection – The “Private Outlet” case

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With a controversial decision, adopted on March 6th 2012, the Italian Antitrust Authority (“AGCM”) has made use of its consumer protection powers as per articles 14, paragraph 4, 15, paragraph 2 and 16, paragraph 3 of Italian Legislative Decree no. 70/2003 (implementation of the European Directive 2000/31/EC on E-commerce), banning a series of websites from being accessed by internet users residing in Italian territory. The decision itself, even at first glance, appears to be very brief and does not contain any discussion of alternative remedies; banning a website seems to be the “first choice” of AGCM in terms of proportional remedies for the infringement in question.

The Case: many internet users reported a series of unfair commercial practices enacted by the e-commerce website http://www.privateoutlet.com towards its customers. In particular, such website reportedly advertised a sale of discounted goods from over 600 famous fashion brands and indicated availability upon online order of the goods at bargain prices (sometimes over 70% off normal market prices of the same good). Customers who bought the goods through the website, however, in most cases lament that they never had any delivery of what they had paid for. Some customers reported that they received different items instead of the ones they ordered. AGCM indicates that the dedicated customer care of Private Outlet never provided any useful assistance, and sometimes even provided the reclaiming users with fake shipping codes. Private Outlet seems to have always refused to refund the customers or to let them exercise their rights to a refund or to return the goods as provided by the Italian Consumers Code (D.lgs. no. 206/2005).

The Investigation: as per common practice, AGCM opened its inquiries by providing Private Outlet with a brief summary of the supposed anti-customer practices, explained the evidences collected so far and asked for a series of clarifications. Private Outlet, based in Italy but acting through a series of international domains, however, did not comply with AGCM’s requests and did not file any data or statement with AGCM. It is not clear if this company was able to understand the consequences of its failure to comply and, in fact, if it had any problem with receiving AGCM’s documents which are sent by fax and registered mail and not through a Court clerk since AGCM is an administrative authority. The fact remains that AGCM evaluated the absence of Private Outlet in the proceedings as some kind of confession and/or confirmation over the accusations proposed by consumers and their associations; for this reason and, therefore, used the claims it received as grounds for its decision. It therefore established that Private Outlet had infringed several Consumer’s Code provisions, namely:

-    Violation of article 20 of the Consumer Code: operating against professional diligence, thus appreciably affecting consumer behaviour, causing consumers to make purchases that they would not otherwise have undertaken;

-         Violation of article 21 paragraph 1, letter B) of the Consumer Code: providing incorrect information, or information presented in such a way as to mislead the average consumer about key elements of goods, and thus causing consumers to engage in commercial decisions that, otherwise, would not have been taken;

-         Violation of article 24 of the Consumer Code: resorting to physical force or undue influence to severely restrict freedom of choice or conduct to the average consumer, regarding some product;

-         Violation of article 25, letter D) of the Consumer Code: resorting to physical force or undue influence to severely restrict freedom of choice or conduct of the average consumer with respect to their contractual rights.

Discussion: for the violations described above, AGCM as per Italian Consumer Code, article 27 has ordered the ban of the Private Outlet website to “all subjects concerned as per Legislative Decree no. 70/2003 [the Italian E-commerce Law]”. This very vague order, which AGCM grounds on the basis of the very “heart” of ISP liability regulation, obviously contained in the Italian version of the E-commerce Directive (article 14, paragraph 3, article 15, paragraph 2, and article 16, paragraph 3 of Italian Legislative Decree n.70/2003) appears to be directed to all Italian Internet Access Providers which, although AGCM does not enter into such detail,  seem to be required to blacklist, at DNS level, the IP address, as well as all Private Outlet’s domain names (italian and international), thus preventing all Italian users to surf on it or buy its products; in fact, AGCM also ordered that users wishing to access the Private Outlet page be redirected to a webpage containing a brief explanation notice on the case and only an ISP could enact such measure.

Such a broad measure, however does not seem within the scope of the powers of AGCM for various reasons.

In the first place, AGCM appears to have decided the case only on the basis of the claims which it has received and, therefore, possibly, without a clear indication of the opinion of the majority of the users of the website. If someone was unsatisfied he/she probably reported the circumstance to AGCM, whereas satisfied users would not have a reason to file a report. Without any filing from Private Outlet it might be very hard to reach an accurate opinion on the activity of the relevant website. Also, there is no real indication that Private Outlet will limit its activity to the IP and domains that AGCM has restricted. Therefore, banning the website could give a false “security” to consumers about the fact that the relevant unfair practice has ceased. In fact, the ban that AGCM has ordered seems like that story about a traffic guard which, instructed to stop cars from parking where they should not, decided to cordon off the entire neighbourhood: if no cars could enter the neighbourhood, no one would park in the “NO PARKING” area.

Also, the regulations of AGCM provide for an administrative sanction for companies who do not answer to AGCM’s requests. It is not clear, whether such sanction was administered to Private Outlet and if the Company received any warning that it could lose its website if it did not take part in the proceedings.

It is also to be noted that all subdomains of privateoutlet.com point to a French registrar. It is more than appropriate to doubt that the registrar in question would be forced to comply with the order issued by AGCM. It is also questionable that an ISP which had no part in any unfair trade practice by “Private Outlet” could be ordered to enact costly measures because of the infringement. The EU Court has recently stated in the SABAM/Scarlet and SABAM/Netlog cases that an ISP may not be imposed general pre-emptive surveillance obligations on the net at its own cost, for an unlimited period of time and with an undefined scope. The order by AGCM seems exactly like the kind of measures not allowed by the EU Court.

Moreover, the ban of the website could deprive consumers affected by the unfair trade practice of an important means to interact with “Private Outlet” to pursue their claims. Private Outlet could, in fact, choose to redeem itself by making public announcements about refunds and deliveries but, without a website, this could prove very hard. , since its only means of communication with its customers are to be blocked in Italy. It might be also noted that the lack of any comment and/or deduction by the company cannot be really interpreted ad an acceptance of its responsibilities: we are dealing with a company having an obvious foreign connotation, so it can be understood that, faced with a request coming from an Italian authority it does not know and whose power it has never heard of, Private Outlet might not have fully understood the implications and risks it was facing, by not answering its questions.

Furthermore, nothing in the decision indicates whether an assessment has been made on the possibility to counter such practices, on the basis of the proportionality principle, through an information campaign for e-customers, charged to the sanctioned company, instead of a measure that, as we said earlier in our analysis, hampers the company and the customers far more than necessary.

It is undeniable that, upon a consumer fraud, measures have to be undertaken to stop the fraud however, by simply reading the “Private Outlet” decision it is very hard to understand if the Italian Antitrust has followed a path which gradually arrived to a ban of the website or decided to ban this website because it decided it could not otherwise reach “Private Outlet” by ordinary means.

Our hope is that the sanction to “Private Outlet” does not become the standard for any e-commerce website which fails to execute a series of deliveries of goods. Unfair trade practices are a very vast area between consumer protection and competition and, since they cross several other regulatory pathways, AGCM should always do its best to gather solid evidence before using its powers to inflict orders which de facto close a business.

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