Chapters of the article
The dreaded competition
Consumer competitions used to be a bit feared by some of their organisers. Not perhaps in terms of effect and outcome, but rather because the organisers were unsure whether they were doing everything right and whether their approach was open to challenge. In fact, the earlier legislation was quite strict.
Under it, consumer lotteries that met the legal characteristics prohibited at the time were not permissible: the prize is purely random (e.g. a draw) and the individual prize is worth more than CZK 20 000. One way of getting around the strict conditions was to give the competition at least the appearance that not everyone could win. It was enough, for example, to ask a “knowledge” question such as “of the Czech historical figures was burned a) Master Jan Hus b) Saint Wenceslas c) Charles IV.” and the competition could be considered knowledge-based and not random. However, even after answering the question, it was not possible to select the winner by a mere draw.
Tip: CTIA statistics indicate that 80% of the audited entities were found to have some kind of defect and the most frequent source of problems were commercial and warranty conditions. What errors in e-shop terms and conditions do we encounter almost daily and what should you look out for? This is the subject of our article.
What is the current legislation?
Two things were clear to the legislators: the rules they set are regularly circumvented by sellers and marketers and, moreover, there is no danger from consumer competitions as there is from gambling.
Consumer competitions are currently governed by the Consumer Protection Act, which considers a marketing competition to be a commercial practice.
The Consumer Protection Act states that a consumer competition is a contest, poll or other prize event held for consumers in direct connection with the promotion, offer or sale of a product or service of the seller, in which the seller or a person authorised by the seller undertakes to pay prizes, whether monetary or non-monetary, to participants selected at random, and in which participation is conditional on the purchase of a product or service and proof of that purchase to the seller, or the conclusion of a contractual relationship with the seller of the product or service, or the participation of the consumer in a marketing event of the seller, even indirectly through another person.
In particular, the legislation prohibits two main types of unfair commercial practices:
- misleading practices, which may consist of deceptive acts (providing incorrect information) or omissions (failing to communicate important information)
- aggressive practices, which aim to force you to buy.
All unfair or deceptive practices can be sanctioned and punished by the Czech Trade Inspectorate with heavy fines of up to CZK 5,000,000.
In consumer competitions, it is also important to ensure that the competition is not based on any deposit or financial payment by the customer, as this could constitute gambling. However, the purchase of a product is not considered to be a financial consideration in this respect.
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How can consumer competition be misleading?
Generally, a commercial practice is considered unfair if it is contrary to the requirements of professional care and substantially distorts or is likely to substantially distort the economic behaviour of the consumer.
In the case of consumer competitions, it is a deceptive commercial practice if, for example, the rules of the competition are broken, the promised prizes are not paid or there was no intention to reward the winner. It is also a deceptive practice if the promoter influences who wins the prize, for example by cheating in the draw.
Do not underestimate the rules
The contest rules serve as the basic document that governs the entire contest. It is important that they are written clearly and clearly. It is also essential that these terms and conditions are publicly available on the website or social media during the duration of the competition. Any changes to the terms and conditions must be duly notified to the participants.
Set out in detail in the rules who can enter the competition, how the winner will be selected, what the prize entails and any grounds for disqualification. It is also important to include the protection of entrants’ personal data (GDPR) and ensure they consent to the processing of their data.
Specifying how the prize will be handed over is also essential. For smaller prizes, sending by post may be appropriate, while more valuable prizes should be handed over in person, which can be used for promotional purposes. In this case, the winner’s consent should be obtained, for example through a contract that allows for photography or filming during the prize presentation.
In the context of promotion, particular care should be taken to avoid misleading information about prizes. Promotional material should only show the prizes that the contestant can win. Illustrative photos are not excluded, but should be properly labelled as such.
Specific rules may then apply to competitions on individual social networks. It is therefore still necessary to properly read the rules of Facebook, Instagram or any other network you use.
The rules must not exclude certain consumer groups from the competition without obvious reasons, e.g. women, non-Czech citizens, etc. This could constitute discrimination against consumers. On the contrary, it is common to exclude employees of the organiser from the competition. Similarly, it is permissible to exclude, for example, persons under the age of 18 if the organiser of the competition is, for example, an alcohol producer or a nightclub.
Tip: Have you been put at a disadvantage in a hotel, shop or restaurant just because you belong to a certain nationality or have a darker skin colour? Are there situations where a business can afford to do this? How far does the freedom of enterprise and the autonomy of the will of entrepreneurs extend and what can already be considered discrimination against consumers? We have addressed this in a separate article.
Winners should pay taxes
Winners of prizes in excess of CZK 10,000 should pay a tax of 15%. It is advisable to inform the contestant of such an obligation in the terms and conditions of the contest. If the prize does not exceed CZK 10,000, you do not have to deal with tax obligations at all.
It must not be gambling
A consumer competition must not be described as gambling within the meaning of the Gambling Act. It must therefore not meet the following statutory characteristics:
- the bettor places a stake in a game of chance in the form of a game, wager or lottery ticket, the return of which is not guaranteed, and at the same time
- the winning and losing of the game is determined wholly or partly by chance or unknown circumstances. A game of chance shall be a consumer competition which satisfies both of these conditions cumulatively.
A wager does not mean the purchase of goods, such as items sold by a retailer, if they are sold at the normal selling price. If the purchase price were, for example, ten times the normal standard, then the purchase could be considered a stake. In such a case, the winner would no longer be decided by chance, so that it would not be gambling.