Category: Hungary

Mihaly Harcos, former Deloitte Partner and Tax Litigation Head, has joined the Budapest office of Bird & Bird as the new Head of the firm’s Tax practice.

According to Bird & Bird, “Mihaly is highly regarded for his knowledge in different areas of taxation and has extensive experience in representing clients in their tax matters before the courts.”

Before joining Bird & Bird, Harcos spent over six years with Deloitte. Prior to that, he spent almost two years as a Director with Ryan and, earlier, he spent almost four years as a Lawyer with Jalsovszky, between 2010 and 2014. Earlier still, Harcos spent over a year as a Lawyer with Wolf Theiss, following his initial 2006-2009 stint with Deloitte as a Senior Consultant.

“We are very excited to have Mihaly join us,” Bird & Bird Co-Head of Country and Head of Dispute Resolution in Hungary Laszlo Nanyista commented. “His deep knowledge in taxation and tax litigation matters will be a perfect addition to our team and future client work locally and across the region.”

Good news for the consumers, but extra work for businesses. From the end of May, shops and webshops are no longer able to round up their discounts by inflating their prices for a short period before the sale. From now on, when announcing discounts, they always have to indicate the previous price of the products, which can only be the lowest price within at least 30 days before the price cut.

In recent years, the European Union has set the goal of strengthening consumer rights. As a result, it was decided to modify the EU directive on the indication of the prices of products offered to the consumers, with rules that will apply from 28 May 2022 and clarify how traders can indicate the level of discounts on their websites, in their advertising, catalogues, shop windows and shelves.

The Act CLV of 1997 on consumer protection already requires that the selling price, the unit price or the price of a service shall be indicated in a clear, easily identifiable and clearly readable way. According to the practice of the consumer protection authority, this obligation also means  that the original selling price, the amount of the discount and the final price actually paid by the consumer shall also be indicated.

The NFGM-SZMM Regulation 4/2009 (I. 30.) on the detailed rules for the indication of the selling price and unit price of products and the fees for services, transposing the provisions of the EU directive, will in the future provide new, clear standards for price indication.  If the trader advertises a discount, he is obliged to indicate on the price tags the previous price of the product, i.e. the price applied for a certain period of time before the discount. What constitutes the “previous price” of a product or which traders are affected by a change can be determined as follows:

Determining the previous price:

• As a general rule, the “previous price” is the lowest price of the product for a period of at least 30 days prior to the announcement of sale.
• In case the rate of discount is continuously increasing, the previous price is the price before the first application of the discount, without the discount (e.g. the rate of the promotion is 10% at first, then 20% and finally 30% within 30 days).
• The above-mentioned rules do not apply to perishable or short-life products (e.g. fruit, short-life drinks).
• If the product has been on the market for less than 30 days, the previous price is the lowest price applied during a period of at least 15 days preceding the announcement of sale.

For example, if the discount is “50% off” and the lowest price in the previous 30 days was HUF 100,000, the seller must indicate HUF 100,000 as the “previous” price used to calculate the 50% reduction, even though the last sale price of the product before the promotion was HUF 160,000. If 30 days elapse between the price changes before the promotion, we can use the higher price as a starting point without any problem.

The purpose of this reference period of at least 30 days is to prevent traders from juggling prices and presenting false price reductions, for example by raising the price for a short period of time only to reduce it then significantly.

Identifying the traders concerned:

The new rules will apply to the traders who actually conclude a contract with the consumer, i.e. sellers of goods. If the seller sells products directly from an online shop, the rules also apply.

On the other hand, the new rules do not apply to intermediaries who merely allow traders to sell their products on their webshop or who merely aggregate and display price information provided by other sellers (price comparison platforms). These intermediaries will continue to be subject to the general rules on intermediaries’ liability and professional diligence. In summary, webshop operators are only covered by the new rule if they sell on behalf of another trader.

The most important rule on price indication is that traders should always ensure that it is clear to the consumer what each indication on the price label means or why previous prices are also indicated. Otherwise, the trader could easily find himself in the hands of the competent authority monitoring unfair commercial practices against consumers.

The above summary is intended only to raise awareness of the changes and is not a substitute for personalised legal advice on the subject. If you have specific questions about the above, please do not hesitate to contact our office.

By Lilla Majoros, Attorney at Law, act Ban & Karika Attorneys at Law

Once upon a time, two eminent Hungarian scientists made a mathematical breakthrough. They developed the first convex, homogeneous, mono-monostatic object, which they named the “Gomboc” after the famous Hungarian folk character. The Gomboc always returns to its single stable equilibrium point no matter how you put it down, without using any weights. The Gomboc also has one unstable equilibrium. It is possible to balance the body in this position, but the slightest disturbance makes it fall.

As with any other invention, the creators of the Gomboc have sought to give it the fullest possible industrial property protection. This ultimately led to a lengthy and turbulent procedure that even reached the European Court of Justice and was recently decided by the Supreme Court of Hungary (Curia).

Source of the issues

Given the new and individual shape of the Gomboc, the creators clearly needed to obtain design protection. They succeeded in obtaining a European community design (the so-called “RCD”) for the whole of the European Union in 2007. But RCDs only grant exclusive rights for a limited period, up to 25 years from the filing date. After that, the design becomes public domain.

However, there is another form of protection for the external design of products that is not limited in time: the three-dimensional trademark. In 2015, the creators of the Gomboc filed a 3D trademark application with the Hungarian Intellectual Property Office (“HIPO”) for “ornaments” and “toys”.

The HIPO, however, rejected the application, as it considered it to be excluded from trademark protection under the applicable trademark laws. According to the Hungarian Trademark Act – in line with European law – the exterior design of the product is excluded from trademark protection if it exclusively

• consists of the shape or other characteristic of the goods which is necessary to obtain the intended technical result: in this case, the HIPO argued that the shape of the Gomboc as a toy consists exclusively of such characteristics, because it can always “stand up” and thereby function as a toy due to its shape, i.e. the technical content determines the shape. This has become known by the relevant public because of the high level of press coverage, so the relevant public is aware of the link between the shape and the technical result.
• consists of a shape or other characteristic which gives the goods substantial value: according to the HIPO, the value of the Gomboc as an ornament is determined by its striking design, which gives it substantial value.

The first instance court, while agreeing with the rejection of the application, reasoned it differently. In the case of the Gomboc as a toy, it held that it is not possible to consider whether and how the relevant public perceive the link between the shape of the good and the technical result. The existence or non-existence of such a link is an objective, technical fact. As an ornament, the first instance court held that the substantial value of the Gomboc lies not merely in its aesthetic qualities, but in the underlying discovery, the “tangible mathematics”, which is embodied in the shape and gives it substantial value.

The court of appeal also agreed with the rejection of the application but came up with a third explanation. In its view, the assessment should be limited to the data contained in the application for registration. From the single photograph contained in the application it is not even possible to establish with certainty that it indeed depicts the Gomboc. The photograph “depicts a beautiful, clear, serene shape from a single angle“. This shape gives substantial value to the goods and the application must therefore be rejected on this ground alone.

Thus, the various forums have taken very different views as to whether, in applying the ground for refusal, only the graphic representation in the application can be taken into account, or whether and to what extent the perceptions and knowledge of the relevant public can also be assessed. The Curia, which reviewed the final decision, therefore referred the matter to the Court of Justice of the European Union (CJEU) for a preliminary ruling.

The position of the CJEU – judgment in case C-237/19

The Curia essentially sought answers to three questions:

• In order to establish whether a sign consists exclusively of the shape of goods which is necessary to obtain a technical result, the assessment must be limited to the graphic representation of the sign or should other information, such as the perception of the relevant public, also be taken into account?

The CJEU introduced a two-step test: the knowledge of the relevant public can only play a role in identifying the essential characteristics of the sign, i.e. the characteristics of the sign cannot be established solely from the pictures and description contained in the application. However, the existence of the link between the shape of the good and the technical result can only be based on objective information, and the perception of the relevant public alone is not sufficient in this context.

• Can the application be refused if it can be established solely based on the relevant public’s perceptions/knowledge that its shape gives substantial value to the product?

The CJEU has also introduced a two-step test: the knowledge of the relevant public can play a role in identifying the essential characteristics of the sign. However, it can be drawn only from objective and reliable evidence that the consumer’s decision to buy the products in question is determined to a very large extent by that characteristic.

• Can an application be automatically refused because the shape of the product is already protected by design law or if it consists exclusively of the shape of a decorative object?

The short answer from the CJEU is that the application cannot be rejected on this ground alone.

The decision of the Curia (of Hungary)

The Curia finally put an end to the saga in its decision published under number BH2022.75. It applied the guidance of the CJEU to the facts of the case and arrived at the following conclusions:

• The Gomboc as a toy is excluded from trademark protection

According to the Curia, the relevant public clearly recognises that the trademark application is for the shape of the Gomboc. The essential characteristics of the sign are known to the relevant public: a mono-monostatic object of a particular shape, which is convex, homogeneous and always returns to its stable equilibrium. It is not possible to determine all these essential characteristics from the application alone, and in this context, it is necessary to take into account the knowledge of the relevant public.

Nevertheless, whether the shape and material of the Gomboc are solely intended to ensure that the Gomboc always returns to its stable equilibrium can only be determined from objective sources. This does not imply that an expert evidence-taking would be necessary in every case. The description in the trademark application, scientific publications, catalogues and websites describing the technical function of the product can also be regarded as objective and reliable information. In this context, it should be noted that neither the CJEU nor the Curia has clarified under which conditions a website can be considered a reliable and objective source of information. Hungarian and international case law is sceptical, for example, about online encyclopaedias that can be edited by anyone.

In the present case, however, there was no doubt based on objective information that all the essential characteristics of the Gomboc were designed to achieve the intended technical result. The Gomboc can function as a toy due to the technical result achieved by the shape and therefore the shape is excluded from trademark protection with respect to “toys”.

• The Gomboc is also excluded from trademark protection as an ornament

As regards the Gomboc as an ornament, the first step in the analysis is the same as in point (i) above. The sign applied for is the shape of the Gomboc and its essential characteristics are known by the relevant public. The question is, which of the characteristics give the Gomboc its substantial value?

According to the HIPO and the court of appeal, the value of the Gomboc as a decorative object lies in its unique, striking design. The Curia, however, shared the view of the first instance court that the substantial value of the Gomboc lies in the science behind it, the tangible mathematics. Based on objective, publicly available sources, the Curia found that the decision of the relevant public to buy the Gomboc is largely determined by the scientific and symbolic value of the shape. Therefore, the unique shape of the Gomboc cannot be protected as a trademark for “ornaments”.

Epilogue

Although the trademark application was unsuccessful for the reasons set out above, the case has removed several uncertainties in relation to the protectability of three-dimensional trademarks.

It has become clear that the examination of 3D trademark applications cannot be limited to the often incomplete information contained in the application. The knowledge of the relevant public does have a role to play, but it is not unlimited.

It was also clarified that “collecting” different forms of protection for the same product is not in itself excluded. If the specific characteristics of a given product fulfil the conditions for several forms of protection, there is no obstacle to obtaining parallel protection (e.g. a 3D trademark in addition to a design).

Thus, although the tale of the Gomboc trademark application did not have a happy ending, it holds important lessons to consider in future applications.

By Mark Kovacs, Attorney at Law, Schoenherr

At the beginning of the year, several legislative changes came into force that affect both our daily lives and general administration procedures. For example, when purchasing movables or digital goods, the implied warranty period has increased from 6 months to one year. Besides, the concept of residence and place of residence has also changed, and thanks to video-assisted procedures, we will soon no longer have to visit government offices in person. The temporary rules on remote work, though not as of January, will be laid down in legislation in an act upon the termination of the state of emergency.

As of 1 January 2022, entrepreneurs had to prepare for substantial changes. Pursuant to the Government Decree 373/2021. (VI. 30.), entered into force on the first day of the year, until proven otherwise, it must be assumed that the defect detected within one year of the receipt of the goods already existed at the time of the delivery of the goods. Accordingly, if the consumer identifies a material defect within 12 months of receipt in case of purchasing of goods, be it a refrigerator, a computer game or a telephone application, and informs the seller without delay thereof, the seller has to prove that it was not a hidden defect and that the goods functioned flawlessly at the time of the purchase. If this is not possible, the consumer can assert its warranty claims, which may ultimately mean that the price of the product is being refunded.

For example, in the case of a home automation software purchase, if the promised function is not implemented correctly by the product, the option has ceased to exist to repair the defect as a consumer or to have it repaired by a third party, followed by the cost of the repair being claimed from the seller. According to the new rules set out in the Civil Code, only the seller can be requested to repair the product from now on. One should also be aware that this change does not apply for purchases between consumers and consumers or in the case of real estate sales.

Changes in the concept of residence

With the arrival of the new year, the concepts of residence and temporary residence have also changed. As of January, the apartment or accommodation in which we live is no longer necessarily considered residence. From now on, the property from which we officially interact with the state, legal entities, organizations, etc. will provide this functionality. At the same time, the definition of temporary residence has been changed, which is now the address of the apartment where we will be staying for more than three months without the intention of changing residence.

The era of extensive video-assisted procedures may arrive

The new year also introduces changes in electronic procedures. As a result of the amendment of Act CCXXII of 2015, we can not only handle our affairs related to certain banks or public utility service providers comfortably online, but we can also do the same at government offices. The law amendment provides the related legal background, the digital developments of public bodies are still in progress. The first step of video-assisted procedures will be the identification of the customer, and then the administration can take place, during which video and audio recordings are being taken. The recordings will be stored for 1 year. For information on the state bodies enabling video management and the details, please visit the website of the Electronic Administration Authority (EÜF).

Remote working rules stay with us

During the state of emergency, remote work is subject to different rules compared to Act I of 2012 on the Labour Code (“Labour Code”). Following the Parliament’s decision of 17 December 2021, these divergent rules remain with us, albeit with a minor amendment, even after the state of emergency has been lifted. For example, under the amended legal provisions, remote working will be considered permanent if the employee carries out the work, either part of the working time or in full, in a place separate from the employer’s premises. Thus, working at home only on certain days of the week becomes remote work. The law no longer restricts the category to display screen activities. Part of the amendment is that remote work must always be agreed between the parties in the employment contract. The relevant amended provisions of the Labour Code are expected to enter into force on 1 July 2022, when the state of emergency is expected to be lifted.

By Lilla Majoros, Attorney at Law, act Ban & Karika Attorneys at Law

On 4 June 2022 the Hungarian government issued a decree introducing special taxes affecting several sectors, among others banking, insurance, energy, telecommunications and airlines.

According to the decree, the government will impose special taxes as of 1 July 2022 to overcome the financial difficulties triggered by the Ukrainian crisis. The aim of the new taxes therefore is to improve the state’s income and the stability of the national economy. Below, we have summarised the key elements of the new taxes.

Special tax for banks

A special tax is payable by banks on their net turnover. The rate of the tax in 2022 is 10 % and in 2023 it will be 8 %.

New transaction duties

Banks and investment firms must pay a transaction duty after the purchase of a financial instrument with an ISIN issued by KELER Central Securities Depository Limited Liability Company. The rate of the transaction duty is 0.3 % of the base (i.e. the purchase price of the financial instrument credited on the securities account), but not more than HUF 10,000 per purchase. Investment services provided by the Hungarian State Treasury or the institution operating the Postal Clearing Centre are exempted from the duty.

The decree further broadens the scope of the financial transaction duty by making it applicable to payment services providers, credit and money lending, currency exchange and currency exchange intermediation services in Hungary as cross-border services.

Special tax for the insurance sector

Insurers must pay additional insurance tax for the period between 1 July 2022 and 31 December 2023. The additional tax is based on the amount of the insurance premium. In the case of certain affiliated companies (e.g. if the affiliation was created by a division or separation after 1 June 2022), the tax base will be added together and the amount of the tax to be paid will be apportioned between them.

The rate of the additional tax varies based on the amount of the insurance premium of

1. casco insurance, property and casualty insurance and compulsory third-party liability motor insurance
2. in 2022 lies between 4 % and 14 %;
3. in 2023 lies between 2 % and 7 %;
4. insurance services in the life insurance classes:
5. in 2022 lies between 2 % and 6 %;
6. in 2023 lies between 1 % and 3 %.
7. New taxes in the energy and mining sector

Producers of petroleum products (most notably MOL) will be subject to a tax based on the price difference between the monthly average purchase price of oil originating from the Russian Federation and of Brent crude oil realised in 2022 and 2023. The basis of the tax will be the price difference multiplied by the oil amount delivered from Russia and the applicable tax rate is 25 %.

Electricity generators producing electricity using renewable energy sources and entitled to participate in the mandatory off-take / feed-in tariff (KÁT) scheme or in the METÁR scheme will become subject to a new tax if they leave or fail to enter the above subsidy schemes in 2022 or 2023. In our understanding, the new tax is practically a complimentary rule to the Government’s decision at the end of May 2022 to prohibit subsidised generators from leaving these subsidy schemes and entering the free market. The prohibition left certain loopholes in the applicable legislation potentially allowing generators to circumvent this prohibitive tax.

If an electricity generator becomes subject to the tax, it will be required to pay taxes on the difference of the higher electricity prices available on the free market and the lower off-take or strike prices. The basis of the tax will be the price difference multiplied by the generated electricity amount with an applicable tax rate of 65 %. The new tax will not apply to power plant units with an installed capacity of less than 0.5 MW.

The new act modifies the income tax rules for energy suppliers, commonly known as the Robin Hood tax. In 2022 and 2023, payers of the Robin Hood tax will also include producers of bioethanol, producers of starch, starch products and producers of sunflower oil. The rate of the Robin Hood tax is 31 %.

Also amended are the rules concerning the mining royalty, which with respect to the extraction of crude oil and natural gas will increase significantly in 2022 and 2023. In addition, mining licence holders are required to maintain the amount of extracted natural resources for these years at least at the same level as 2021.

Tax imposed on the telecommunications sector

A new extraordinary tax has been introduced on telecommunications service providers. This turnover type tax is expected to apply to, among others, providers of telephone, internet and cable television services, but the range of taxpayers is to be clarified in more detailed implementation rules or guidelines.

The relevant tax base will be the service providers’ turnover in 2022 and 2023 respectively. The applicable tax rate will be

• 0 % for turnover below HUF 1bln;
• 1 % for turnover exceeding HUF 1bln and below HUF 50bln;
• 3 % for turnover exceeding HUF 50bln and below HUF 100bln; and
• 7 % for turnover exceeding HUF 100bln.

New departure tax

A special tax will be payable by ground handling companies based on the number of passengers departing from Hungary, with the exception of transit passengers. Although the subjects of this tax are the ground handling companies, they will naturally further impose the tax on the airlines.

The rate of the new special tax will depend on the passengers’ final destination.

1. HUF 3,900 if the passenger’s final destination is within the European Union, also Albania, Andorra, Bosnia and Herzegovina, Northern Macedonia, Iceland, Kosovo, Liechtenstein, Moldova, Monaco, Montenegro, the United Kingdom, Norway, San Marino, Switzerland, Serbia and Ukraine;
2. HUF 9,750 for other destinations.

Retail sector

In the retail sector substitute taxes will be payable in 2022 and new tax rates will be applied in 2023. In the tax year including 1 July 2022, tax subjects in the retail sector must pay a one-off substitute tax equalling 80 % of the yearly amount of the retail tax calculated based on the tax payable in the tax year 2021. The substitute tax is payable by 30 November 2022. From the tax year commencing in 2023, the new rates of the retail tax will be:

• 0 % after the tax base [i.e. the net sales revenues of the taxpayer] not exceeding HUF 500m;
• increased from 0.1 % to 0.15 % after the tax base exceeding HUF 500m but not exceeding HUF 30bln;
• increased from 0.4 % to 1 % after the tax base exceeding HUF 30bln but not exceeding HUF 100bln;
• increased from 2.7 % to 4.1 % after the tax base exceeding HUF 100bln.

Pharmaceutical sector

For 2022 and 2023, distributors in the pharmaceutical sector will be obliged to pay an elevated 28 % tax rate for pharmaceutical products exceeding a producer price of HUF 10,000 instead of the 20 % tax currently in force. If the producer price of the pharmaceutical product does not exceed HUF 10,000, the tax rate will remain 20 %.

Other tax modifications

The new rules also concern the public health product tax levied on certain sugary and salty products and the vehicle tax levied on company cars, the rates of which will be increased. The Hungarian Government is also increasing the rate of the excise tax of several alcoholic and tobacco products.

However, the new decree does not contain any provisions on the advertisement tax, despite it being announced previously. It is assumed that this latter tax will be effective only as of 1 January 2023.

By Alexandra Bognar, Attorney at Law, Gergely Horvath, Attorney at Law, Dora Balogh, Associate, and Zsofia Rideg, Associate, Schoenherr

In 2019, the EU introduced the European Green Deal with clear sustainability goals to become climate neutral by 2050. Across industries, investors increasingly accept the high value of more sustainable business practices. ESG sustainability is a central consideration in business decisions in almost all economic areas. ESG covers corporate governance, environment and climate change, social and human rights, and sustainable finance. The question for companies is how they can or even must implement this and use legal instruments. However, the lack of binding law provisions, greenwashing, and the alleged sustainability of investments have undermined the importance of this topic.

To tackle specific legal implications regarding ESG, in 2021 the EU adapted the Taxonomy-Regulation (EU) 2020/852 which defines when economic activity is sustainable (Green-Taxonomy). This is intended to guide investors on which investments are used to finance ecologically sustainable economic activities and to prevent greenwashing. The Commission also approved a Delegated Act on the Climate, in February 2022, introducing additional economic activities from the energy sector into the EU Taxonomy, although this act is not yet binding.

The Green-Taxonomy is binding in all member states and guides investors on whether their activities are sustainable by using four principles: (1) a significant contribution to achieving one or more of the EU’s environmental objectives stated in Article 9; (2) no significant harm to any other Article 9 objective; (3) compliance with minimum safeguards; and (4) compliance with technical screening criteria.

On February 23, 2022, the European Commission published its proposal for a directive on Corporate Sustainability Due Diligence (Directive). Today in Germany, for example, a careful risk analysis is already required to determine whether, in the whole supply chain, a violation of human rights and environmental standards has occurred in the past or can be expected in the future. If the Directive comes into force with the proposed content, the German legislator would have to considerably tighten up the Supply Chain Act.

In Hungary, the basis of the ESG legal framework is in Act XLIV of 2020 on climate protection (Act), which was enacted in line with European climate protection regulations. Hungary pledges to adhere to its commitments and wants to reach carbon neutrality by 2050 in line with EU goals. Moreover, climate protection answers must be based on the polluter-pays principle and proportionality. The Hungarian Government was authorized to enact sector-specific rules based on the Act, which is currently ongoing. For example, Government Decree 821/2021 (XII. 28.) regulates the use and quality of biofuels, liquid bio-energy sources, and biomass fuels, and contains requirements to reduce greenhouse gas emissions for these products. Further regulations are still to come.

But what does this mean for companies and their investments? In many companies, sustainability reports are already part of the annual financial statement. Investors in Hungary have also made significant efforts to participate in ESG-related projects. For example, in the real estate sector, Union Investment purchased an office building that was realized in line with ESG-principles. In the environment sector, Hungary was selected as the hub for a new joint venture in the circular economy. Partslife Group, Intercars, and AutoNet are market-leading automotive parts suppliers and are going to expand waste management services for industrial waste in Hungary, Romania, and Poland, helping the growing number of manufacturing sites in these countries to fulfill their demanding sustainability targets. In Hungary, the highest number of ESG projects with the highest investment value can be found in the renewable energy sector. The installation of photovoltaic plants on factory rooftops is popular, but several PV projects in Hungary are run by greenfield investments. The transfer from combustion engines to electric vehicles is important to achieving climate goals, but this can only be realized with the rapid enlargement of EV charging networks in Hungary. Both Hungarian and foreign investors are working on the installation and development of a charging network.

The clear definition of sustainable activities at the EU level and the corresponding legislation in Hungary helps to further both Hungarian and European efforts towards sustainability. As lawyers, we should all aim to provide our clients with the knowledge and advice they need to reach their business goals concerning the EU Green Deal.

By Martin Wodraschke, Partner, CMS

This Article was originally published in Issue 9.3 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

In recent years, the Hungarian Competition Authority (GVH) has been extremely active in tackling highly interesting and novel issues in the digital world. The GVH commissioned a pioneer study on the importance of data in e-commerce and brought several decisions against major international players such as booking.com (for using so-classed “dark patterns”) or Apple (for using misleading terms and conditions about its Wi-Fi assistant on iPhones) as well as significant CEE players such as eMag (for misleading promotions on its online marketplace) or Alza (for aggressive commercial practices on its online site). Most of the decisions – especially where large fines were involved – have been challenged before courts, with the most recent high-level judgment coming out in the Facebook case. What happened exactly?

Quid Pro Quo: Data for Targeted Advertisements?

The focus of the GVH investigation was the issue of whether Facebook’s claim that “It’s free and always will be” (and other similar claims) on the Facebook website could be in breach of Hungarian rules implementing the EU’s Unfair Commercial Practices Directive (UCPD). The UCPD prohibits misleading advertisements and expressly blacklists free claims if a product or service requires specific consideration for use from consumers.

The GVH reviewed Facebook’s business model in detail and established that when using Facebook’s services, instead of paying with cash, users actually pay with their data, their consumer activity, and all the related (privacy and other) risks that they take. The GVH found that a key feature of Facebook’s business model is that it converts the vast amount of data it collects from consumers into cash by receiving payment from advertisers who can target users deemed to be interested in them.

The GVH took the view that while Facebook advertised itself as a free service, this was not true in an economic sense: with the provision of their data and activity, consumers had to make a “payment/consideration” to Facebook for the use of Facebook’s services. As a result, the GVH found that Facebook misled consumers in violation of the UCPD and imposed a fine amounting to HUF 1.2 billion (approximately EUR 3.3 million).

All that Glitters Is Not Gold

The case inevitably ended up before the courts: in an intriguing twist, both the Metropolitan Court and then the Hungarian Supreme Court decided to side with Facebook.

First, the Supreme Court distinguished the case from data protection matters: it stated that the question as to whether consumers are aware of the use of their data (and the way such data is used) pertains to the field of data protection law.

Then, the Supreme Court identified the principal question of the case, namely whether Facebook’s services could be considered as free when consumers – with the use of their data – are provided with targeted, instead of simple (non-personalized), advertisements. In this respect, the Supreme Court took the view that for the claim free to be misleading there has to be a substantive disadvantage for consumers, which does not stem from the immanent nature of the services, and which is capable of directly influencing consumer decisions.

In light of this test, a notable finding of the Supreme Court was that targeted advertisements are, in fact, more useful for consumers than simple advertisements. Moreover, they are also more effective in terms of the use of consumers’ time (by spending less time on advertisements that are not relevant).

As a result, the Supreme Court found that there was no consideration required by Facebook from consumers within the meaning of the UCPD and, thus, Facebook’s free claim could not be regarded as misleading. Importantly, the GVH even requested a preliminary ruling from the European Court of Justice to clarify the interpretation of EU law – which was rejected – as the Supreme Court did not see any unclear legal points in this respect.

What’s Next?

Although the Facebook case did not go as the GVH originally intended, it appears to be a mere temporary setback in the long line of digital matters open before the authority. Namely, there are already investigations against the largest Hungarian real estate website ingatlan.com, against online marketplace Wish, and gambling site Sport&Tip – to name a few of the already public proceedings. The courts are also busy reviewing several recent major GVH decisions.

Consequently, digital companies should be very much aware that, from a consumer protection perspective, Hungary remains a pioneer jurisdiction in the CEE region, working as a sort of Petri dish for novel and interesting cases.

By Gabor Fejes and Zoltan Marosi, Co-Heads of Competition and Antitrust, DLA Piper Hungary

This Article was originally published in Issue 9.3 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

An in-depth look at Tamas Bereczki of Provaris Varga & Partners covering his career path, education, and top projects as a lawyer as well as a few insights about him as a manager at work and as a person outside the office.

Career:

Provaris Varga & Partners, Partner / Attorney-at-Law, 2019 – Present

Baker McKenzie Budapest, Senior Associate / Attorney-at-Law, 2018 – 2019

Deloitte Hungary, Manager at the IT Risk Advisory Department, 2016 – 2018

Citi Bank Plc, mid-level IT Risk Analyst, 2015 – 2016

Erste Bank Hungary, Information Security Expert, 2011 – 2015

The Prosecution Service of Hungary, from Trainee to Clerk to Public Prosecutor, 2005 – 2011

Education:

International Association of Privacy Professionals [IAPP], Certified Information Privacy Professional / Europe [CIPP/E], 2018

ISACA, Certified Information Security Manager [CISM], 2016

ISACA, Certified in Risk and Information Systems Control [CRISC], 2015

Obuda University, John von Neumann Faculty of Informatics, Computer Science & Engineering  BSc, 2011

Eotvos Lorand University, Faculty of Law, Degree in Law, 2005

Favorites:

Out of office activity: Spending time with my family, Working out, Playing computer games, Reading

Quote: “[…] and my father, standing by the door, asked him, how many times, my father, you read that [book]? for the third time; once because I wanted it; once because I understood it, and now, I am saying good bye to it, and he re-read all the books that were important to him […]” – Harmonia Caelestis by Peter Esterhazy

Favorite book: Foundation by Isaac Asimov

Movie: Ghost in the Shell (1995) directed by Mamoru Oshii

What would you say was the most challenging project you ever worked on and why?

Bereczki: I was involved in a CRM implementation project that was a pilot to an agile organizational transformation. My role in the project was to secure regulatory compliance and assist the project manager relative to quality assurance. Working within agile projects and securing regulatory compliance goals is challenging, as compliance requirements must be identified up-front and communicated in a prompt manner to allow programmers to design functions and architects to design systems accordingly, especially when the goal is to connect state-of-the-art IT services with a legacy core system. On top of that, we had to work with people from the client who didn’t want any change and therefore, the project had major obstacles as being the first agile project in the organization.

And what was your main takeaway from it? 

Bereczki: My key takeaways were that upper management may set goals and approach on conducting work or operations, but people’s mindsets cannot be changed, and organizational learning is a very slow process. For me, this means that sometimes it is easier to change the setup around people, rather than their mindset, and actual change will come by being persistent not by pushing.

What is one thing clients likely don’t know about you?

Bereczki: I am an open book to them. All they need to do is to ask me. Jokes aside, I learn and use keyboard shortcuts in software I use for work to be more time-efficient.

Name one mentor who played a big role in your career and how they impacted you.

Bereczki: Lajos Antal, Cybersecurity Partner at Deloitte. He told me about the importance of the convergence of professionals with different backgrounds to effectively overarch my own shortcomings, how to recognize and analyze new trends and catalyze such trends in the local market. Some of his feedback, intentionally or not, taught me how to differentiate between what is important in my own professional life, in conducting business, and what is not important at all. Interactions with him taught me the importance of paying attention to details and meta-communications and of adjusting my business-related conduct accordingly.

Name one mentee you are particularly proud of.

Bereczki: Eszter Seres. She joined our firm with a very different professional background than what she’s doing right now. I think we share very similar professional values, which makes our interactions easier. Eszter has a similar drive to mine, and I believe I was able to help her in making certain life decisions. I think mentoring someone is not just about showing them how to climb the career ladder at a certain firm or company, or demonstrating the nitty-gritty of the importance of fancy PowerPoint presentations, but to help them overcome their current situation, either by revealing their further potential, being honest, or simply just widening their perspective by showing things (even things yet to explore) from certain points of view.

What is the one piece of advice you’d give yourself fresh out of law school?

Bereczki: I would rather give my younger self three pieces of advice as one may not achieve the intended outcome: (1) Be persistent in your goals and round in your ways; (2) Fail seven times, still get up for the eighth time; (3) Relax – all things will be sorted out in the end.

This Article was originally published in Issue 9.3 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

All over the world, we feel the effects of global warming and a sense of urgency to take action against it. It is, therefore, a relief that Hungarian solar projects are coming online in an ever-increasing number. In order to ensure that this trend continues, we ought to take account of the challenges of the sector, not just of its opportunities.

2021 was the first year when more electricity was generated in Hungary from solar power than from coal. Steadily declining year after year, coal now has a share of only 9% in the Hungarian energy mix, while solar energy reached 11%. Solar power capacity has more than doubled within just two years.

The expansion of solar projects has the possibility to remain on this track: supply chain issues and raw material prices do not plague these projects as much as other businesses. Solar panels and other electronic components are generally manufactured in Asian countries and, with good timing of the order, they can arrive when a solar park project gets to the construction phase. Although metals are needed in significant amounts for the framework of solar panels, this part represents just a small portion of the overall costs. It follows that price increases of steel and aluminum do not present such a challenge for solar projects as for wind projects, for example, where a single wind turbine may require hundreds of tons of steel.

While the rapid spread of solar parks serves the protection of our environment, it can clash with the same agenda when developments happen to the detriment of fertile land.

The Hungarian regulation navigates the issue elegantly: special approval by the land authority is not needed for small capacity solar power plants if they are to be placed on lower-quality arable land. The small capacity requirement means that the nominal capacity of such a solar power plant should be under 0.5 megawatts. The capacity limitation does not stand in the way of investors who intend to utilize the exemption from authority approval – solar parks can be realized in multiple projects. Besides easier licensing, it can be less burdensome to fund smaller power plants, as well as cheaper and simpler to connect them to a network.

There is, however, an upside-down logic in the regulation of solar projects. Arable land may only be acquired by individuals with a certain qualification, in a strict and lengthy process. If a company intends to invest in a solar park, it first has to realize the project on arable land owned by a third party. The investor will be able to acquire ownership of the land only after the solar park is ready and the land is officially requalified. Of course, risks can be decreased by well-structured contracts and indemnities.

It is not unprecedented in practice that landowners provide right of use on their land to a solar park investor. Right of use is indicated in the land registry and investors may refer to it before financial institutions in order to secure funding for their project. However, one must be cautious with this kind of security: right of use may be applied in the case of buildings and it is untested whether solar parks indeed fall under this term.

The legislature also aimed to mitigate the loss of fertile land by extending special treatment to investors who install agrophotovoltaic systems (APV). In solar parks utilizing such systems, solar panels are placed on a higher framework to make agriculture possible – the land under them is used for pasture or growing crops. This way, the solar panels provide shade to animals and plants susceptible to intense direct sunlight, slow down the evaporation of moisture from the soil, and can even protect against frost. In the case of APVs, the land continues to qualify as arable, and the owner may not lose eligibility for EU agricultural subsidies. It must be noted, however, that the regulation on APVs is not complete – the specifications of APVs enjoying special treatment are yet to be adopted.

If investors and regulators keep on considering and mitigating the pitfalls of solar projects, we can all look forward to a bright future.

By Viktor Jeger, Partner, Nagy & Trocsanyi

This Article was originally published in Issue 9.3 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Keyword advertising is one of the most important and most common tools in online advertising. Google Ads is the biggest platform for keyword advertising, where companies pay to have their advertisement appear above or below the natural (non-paid) results of a Google search for a certain term. Choosing the right keywords is therefore crucial for businesses to reach as many potential customers as possible.

However, in Hungary and many other countries, companies take advantage of the system and tend to set not only their own brand name and trademarks as a keyword, but those of their competitors as well, in order to attract their competitors’ consumers to their own website through a paid advertisement. As a result, when an internet user searches for the brand name or the name of a product of Company A to obtain information about the products or services of that company, the paid advertisement of Company B – which uses the trademark of Company A as a keyword – will appear in the search engine, diverting internet users from their original search and from the website of Company A.

Smart and Crafty Advertising or Just Unlawful?

The question is whether using a competitor’s trademark as a Google Ads keyword for one’s online campaign is just a smart and crafty way of advertising or is actually unlawful. The short answer is, in principle, it is unlawful and might constitute trademark infringement.

Trademark infringement is the use of a trademark (or a sign that is confusingly similar to the trademark) in the course of trade without the authorization of the trademark owner. Traditional trademark infringement is usually committed by putting a sign, logo, or name on products without the permission of the holder, or by advertising one’s products or services under someone else’s trademark. However, using a competitor’s trademark as a Google Ads keyword is a less visible and obvious way of trademark use and, therefore, a more subtle form of trademark infringement.

European Union Practices

The Court of Justice of the European Union (CJEU) addressed the topic of keyword advertising as trademark infringement in several preliminary rulings (e.g., in cases C-278/08 BergSpechte, C-236/08 Google France, C-558/08 Portakabin, and C-323/09 Interflora). According to the CJEU, using a keyword that is identical to, or confusingly similar with, the trademark of a competitor constitutes trademark infringement – if the paid advertisement that appears in the search engine does not enable average internet users, or enables them only with difficulty, to ascertain whether the goods or services referred to in the ad originate from the trademark owner, or an undertaking economically connected to it, or rather originate from a third party.

Therefore, unauthorized use of a competitor’s trademark as a Google Ads keyword can only be lawful if the paid advertisement makes it perfectly clear and obvious that the products or services included in the advertisement originate from the advertiser and not from the holder of the trademark (which was used as a search term and keyword) or from any third party. If these conditions are met, then the trademark use is lawful, as offering internet users an alternative to the trademark holder’s services is a part of normal competition, and trademark law is not supposed to protect trademark holders from standard commercial practices.

The Approach of Hungarian Courts to Keyword Advertising

Despite it being unlawful in most cases, it is still commonplace for many market players in Hungary to set their competitors’ trademarks as keywords to attract consumers to their website. However, Hungarian courts consistently apply the case-law and the conditions set by the CJEU and, in addition to requiring infringers to remove the infringing keywords from their Google Ads platform, they may order the public declaration of infringement and require the infringer to pay damages as well.

Therefore, while taking advantage of a competitor’s well-known trademark to increase website traffic might seem like a smart way of advertising – which one could easily get away with – it is actually a very serious case of trademark infringement. If evidence exists, such as screenshots of a competitor’s paid ad appearing as a result of a Google search for another party’s registered trademark, these practices can have severe civil law consequences and can result in criminal sanctions as well.

By Ildiko Komor Hennel, Founding Partner, and Borbala Lili Kovats, Attorney, Komor Hennel Attorneys

This Article was originally published in Issue 9.3 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.