In the case in question, a German law prohibited promotions where prizes were won by chance and where purchasing an item was a condition of entry. The European Court of Justice decided that those sorts of promotions were commercial practices within the scope of the Directive. It said that the Directive was a total harmonisation Directive, meaning that it was exhaustive of all illegal commercial practices. Building on an earlier case of VTB-VAB v Total and Galatea v Sanoma Magazines, the ECJ ruled that the 31 practices described in the annex to the Directive was an exhaustive list of all commercial practices which could be considered to be unfair. Since the particular German sales promotion law was not on that list and did not otherwise offend against the provisions of the Directive, it could not be illegal, so the particular law was invalid.

Paul Gershlick, a Partner at Matthew Arnold & Baldwin LLP and editor of www.Upload-IT.com, comments: ‘This case seems to dramatically expand the scope and effect of the Directive. The Directive had been considered as a useful tool to guard against unfair and aggressive selling practices. However, it seems to go further and say that if a particular commercial practice is not a problem under the Directive, then any Member State’s laws which go further than the Directive are no longer valid. The UK has a relaxed set of laws dealing with sales promotions, compared to many of our continental neighbours. However, if the validity of laws surrounding sales promotions are now questionable, then this begs the question of whether the Gambling Act – which prohibits illegal lotteries, whereby people pay something for the chance to win a prize – is also invalid. Anyone charged with operating an illegal lottery contrary to the Gambling Act should consider running the argument that UK gambling laws are no longer valid.’

The Act says a lottery occurs where people have to pay to participate, prizes are awarded to scheme participants and the prizes are either awarded wholly by chance or the first part of the process is wholly by chance. As to whether something is a prize competition (and therefore acceptable), depends on whether something is wholly by chance or whether entrants are required to exercise skill, judgment or knowledge. The Act says it will not be treated as wholly by chance if either: the requirement cannot reasonably be expected to prevent a significant proportion of people who participate from getting a prize; or the requirement cannot reasonably be expected to prevent a significant proportion of people who wish to participate from doing so.

The Guidance says that in many cases whether the competition involves sufficient skill, judgment or knowledge is clear – for example a crossword puzzle. These are ok even if the successful entrants are then entered into a draw to find a winner. At the other extreme are questions that ask just one simple question, where the answer is so obvious or common known that the competition does not pass the hurdle. The guidance says that it is hard to say for sure where is the dividing line, but the more questions or clues or the more specialist knowledge, then the more likely it is not to be a lottery. However, interestingly, the Commission says that it does NOT think the requirement is met where the answer can be found easily on the Internet, is widely known by the public or appears in accompanying text or narrative.

The Commission said that the phrase ‘significant proportion’ is to be given its ordinary, natural meaning. It refused to give a suggested percentage and said a lot depended on the context of the particular case. The Commission is likely to be satisfied where organisers can produce evidence showing they have taken steps to estimate that the likely proportion of people eliminated will be significant. It has suggested the following non-exhaustive list of indicators:

• Whether there are sufficient plausible multiple choice answers, and ‘joke’ answers only being used when there are sufficient other alternatives.
• Whether the correct answer can be found near to the question.
• How many questions are asked.
• The type of format – for example, complex logic puzzles that are not simple.
• Higher prizes need greater skill or knowledge to deter people from entering than competitions with low prizes.

Interestingly, in the case of free prize draws, the Commission also stated that provision of someone’s data to enter a draw would not generally amount to ‘payment to enter’, and this would therefore not make it illegal. There were some exceptions, though – for example if the data was intended to be sold to third parties. The Commission further added that product promotions – where free prize draws were added with the cost of the products – were not a problem as long as the promoter did not charge any more than it would otherwise have done for the underlying item.