GPS watches for children marketing and contract terms and conditions

Gator AS Håkon Magnussons Gate 8 NO-7041 TRONDHEIM Your ref. Our ref. Date: Case no: 17/2388-2 18 October 2017 Case officer: Marc Stuppi Direct line: (+47) 476 35 721 GPS watches for children marketing and contract terms and conditions 1. Introduction The Consumer Ombudsman is tasked with supervising traders marketing, commercial practices and contract terms and conditions in consumer relationships to ensure they are in accordance with the Marketing Control Act. Read more at: www.forbrukerombudet.no. We have registered your marketing of GPS watches on www.gatornorge.no and have also received one enquiry from a consumer who objected to this marketing (see Enclosure 1). We note that the marketing raises a number of questions in relation to the Marketing Control Act, and in this letter we will outline our preliminary evaluation of the marketing of Gator3. As we will show in the following, the marketing raises questions about: misleading marketing, including the omission of the total price marketing claims that may lead to a false sense of security hidden advertising failure to provide important information prior to conclusion of the contract unfair use of lock-in mechanisms unclear regulation of the processing of consumer data and the parties' other rights and obligations The Consumer Ombudsman is concerned with ensuring that consumers are able to start using new products and services in their everyday digital lives, without this being at the expense of their right to adequate informative marketing and fairterms and conditions. Many issues arise in relation to connected products, such as GPS watches for children, if consumer legislation is not complied with, e.g. what information should consumers receive in connection with marketing and what terms and conditions are used to regulate the relationship between the trader and the consumer. Some of these questions cannot be answered without Gator helping to elucidate the case. Before we further pursue the case pursuant to the Marketing Control Act and the Norwegian Consumer Ombudsman Sandakerveien 138, NO-0484 Oslo Phone (+47) 23 400 600 Fax (+47) 23 400 601 Email post@forbrukerombudet.no Website www.forbrukerombudet.no Organisation number 974 761 335

Cancellation Act, we therefore ask Gator to attend a meeting to discuss the issues we raise in this letter and what measures you intend to take to comply with the provisions of the Marketing Control Act and the Cancellation Act. For your information, we hereby inform you that we have received a complaint from the Norwegian Consumer Council in connection with a survey it has conducted of the market for GPS watches. We will also take this complaint into account in our further consideration of this matter in relation to Gator. The complaint is enclosed. 2. Information in marketing 2.1 Misleading marketing price and important terms and conditions GPS watches for children are marketed and sold at www.gatornorge.no. The watches are sold with a mobile phone subscription from TeleG AS subject to fixed monthly charges and a lock-in period of 12 months. Sections 6, 7 and 8 of the Marketing Control Act state that marketing must not be unfair, false or misleading. Moreover, marketing will always be considered unfair and prohibited if it is misleading pursuant to the Marketing Control Act Section 7, cf. Section 6 first paragraph, cf. fourth paragraph. To what extent a marketing measure is misleading depends on whether it contains false information, or if it is otherwise likely to deceive consumers cf. Section 7 first paragraph letters a) to h). Misleading omissions pursuant to the Marketing Control Act Section 8 are also unfair and prohibited, cf. Section 6 first paragraph, cf. fourth paragraph. A trader's marketing shall be deemed to contain misleading omissions if it omits or hides material information that consumers require to be able to make an informed economic decision, or if it presents the information in an unclear, unintelligible, ambiguous or unsuitable manner. What is deemed to be material information that consumers require in the context to be able to make an informed economic decision will vary depending on the nature of the service. The trader must assess whether there are special aspects of the service that consumers require specific information about. The nature of the information also determines at what stage in the marketing and contract conclusion process the information must be provided. Some information is so decisive when considering an offer that it must be presented immediately and up frontfor the marketing not to be deemed misleading. In the Consumer Ombudsman's assessment, information about the contract price and material t terms and conditions, including information about the subscription lock-in period, is so crucial to assessing the total commitment the contract entails that it must be stated in all marketing where the product s price is also stated. Information must therefore be provided about the minimum total price that the consumer must pay if he or she concludes a contract. If the service is not a one-off service, but a continuous subscription, information must also be provided about this, and about the fixed and variable costs of the subscription. When the services marketed are contingent on a lock-in period, information must be clearly and plainly 2

provided about the duration of the lock-in period and the total price for the whole lock-in period. Following a review of www.gatornorge.no, we see that you have omitted material and necessary information about monthly charges, the total price, freight costs and information about the lock-in period for the mobile phone subscription in your marketing, and that this practice, in our view, is such that it may lead consumers to make economic decisions that they otherwise would not have made, cf. Section 8 second paragraph. On this basis, the marketing measures are deemed to be unfair and thereby a prohibited commercial practice, cf. Section 6 fourth paragraph cf. first paragraph. We therefore request you to change the marketing to ensure that it complies with the requirements described above. See Enclosure 2 for screenshots of examples of marketing that does not include this information and is thereby in violation of the Marketing Control Act. 2.2 Claims about functionality and appeals to the need for security The GPS watches are marketed with functions such as SOS call, real-time location and safe zones. In the marketing, you write, among other things, What do you do if your child goes missing on the ski slopes?, The watch may give children and parents an added sense of security on the ski slopes. Parents can easily set up safe zones, for example at the cabin or ski centre they are going to. If the child leaves the zone, the parents will be notified, and The map gives you the possibility of going in and seeing where your beloved child is in real time. The use of safe zones is further described for example as being a boundary that can be drawn down to the lake at your cabin. In our opinion, the marketing gives the impression that you will have an overview of where your child is in real time, and that you can also be notified when the child enters and leaves programmed zones. We question to what extent parents can actually be sure that the watches specify the child s actual position in real time, and with how much precision the safe zones can be defined. If there is a discrepancy between the impression given by your marketing and the actual functionality of the watch, this raises questions about whether your marketing claims that play on safety, and the functions of the watch that are supposed to be able to help parents to keep an eye on their children and ensure their safety, are in violation of the Marketing Control Act. Such claims may fall under the scope of, e.g., Section 7 first paragraph letter (a) concerning misleading marketing of the main characteristics of a product. Pursuant to the Marketing Control Act Section 3 second paragraph, we ask Gator to submit documentation of the actual characteristics of the product on which you base the claims you use in your marketing. Note also that questions may be raised about whether marketing that plays on parents need to ensure the safety of their children and marketing that gives parents a false sense of 3

security can raise questions in relation to Section 2 of the Marketing Control Act concerning good marketing practice. 2.3 Documentation of Norway s most sold GPS watch for children On your website, you write that Gator3 is Norway s most sold GPS watch for children. We ask you to substantiate this claim with reference to the documentation duty in the Marketing Control Act Section 3 second paragraph. 2.4 Requirement that marketing shall be clearly presented as such Hidden advertising is prohibited, and the Marketing Control Act Section 3 first paragraph states that marketing shall be designed and presented in such a way that it is clear that it is marketing. We have registered different marketing measures used by Gator that raise questions in relation to the prohibition on hidden advertising. At gatornorge.no, you refer to coverage of your products that appears to be independent content, but which, in reality, are content paid for by Gator. We refer to the mention on your website of articles in Nettavisen and VG, which are in fact advertising content. We have also registered that Gator3 is marketed at gps-klokke.no, a website that claims to test GPS watches for children, but which is registered as a company (MSA Invest) that has the same chair of the board as Gator AS. Only on closer inspection is it possible to find information on the website that there is a connection between it and the Gator website, but it is not made clear that this is marketing. Before we further consider this question pursuant to the provisions of the Marketing Control Act on hidden advertising, we request Gator to explain your use of editorial and social media and customer reviews and websites in addition to gatornorge.no in your marketing, and what steps Gator takes to ensure that your marketing is clearly presented as such. 3. Duty of disclosure for contracts concluded electronically The Cancellation Act Sections 8 and 16 Pursuant to the Cancellation Act, traders have an extensive duty of disclosure prior to concluding contracts. A direct consequence of failure to comply with the duty of disclosure pursuant to the Cancellation Act may be that a binding contract is not concluded, and that the trader cannot demand payment from the consumer for any services delivered. Section 8 of the Cancellation Act sets out a number of conditions concerning what information the consumer must be given before a distance sales contract is concluded. Pursuant to this provision, the consumer shall, among other things, receive information about the most important characteristics of the product or service, the trader s identity, the total 4

price, that a right of withdrawal applies and that there is a standard form for exercising the right to cancel (cancellation form), and the conditions, deadlines and procedure for exercising the right of cancellation, that the consumer must pay the return freight charge if the right of cancellation is exercised, and about the conditions for cancelling a current contract. If a right of cancellation does not apply to the contract, information must be provided about this, or, if relevant, about the circumstances under which the right of cancellation may lapse. If a contract that is to be concluded online commits the consumer to pay, Section 16 first paragraph sets out additional requirements that certain information must be given immediately before an order is placed. In cases where the contract is concluded electronically and it commits the consumer to pay, the trader shall clearly and in an prominent form make the consumer aware of the information stated in Section 8 paragraph 1 letters a), e) and n) immediately before the consumer places the order cf. the Cancellation Act Section 16 first paragraph. Prominent information must therefore be provided about: - The main characteristics of the product or service. If the contract entails a subscription, information must be provided about this. - The price of the product or service shall be stated as a total price, including all costs related to e.g. freight and customs. For fixed-charge subscription contracts, the total price per settlement period shall be stated, and how much this amounts to each month. - The length of the contract and, if relevant, the minimum lock-in period, and, if relevant, any charges for cancelling the contract before the expiry of the subscription period. This will also include information about how the consumer can cancel the contract and about non-repayment of prepaid annual or monthly charges upon cancellation. The Act requires that this information is given clearly and in an prominent form, and immediately before the consumer places the order. In practice, this means that the information is to be presented in a manner that enables the consumer to see and read it without having to take any action, e.g. having to click to open a new window containing information or scroll down the page to gain access to the information. Nor is it necessarily sufficient to meet the requirements of the Act that the information appears on the same page as the order is placed. If the order is placed by activating a button or other function, the information shall be presented as close to this order button and in a font size that ensures that the consumer cannot fail to see the information. The information should therefore be presented directly above the order button. Nor should there be any other text between the order button and the mandatory information that entails a risk of the consumer not seeing it. 5

Information about other terms and conditions can be provided through a link to these terms and conditions that the consumer clicks to view them on the screen. The terms and conditions must be accepted by the consumer actively ticking a box or similar. We cannot see that you provide such information about the contract prior to placing an order in a prominent manner, and, in our opinion, the website is therefore in violation of Section 8 a), e) and n), cf. Section 16. See Enclosure 3. We therefore request you to include this information in line with the explanation above. 4. Contract terms and conditions 4.1 General considerations The supervision of contract terms and conditions is based on Section 22 of the Marketing Control Act. Pursuant to this provision, terms and conditions that are applied or are intended to be applied in the course of trade with consumers may be prohibited if they are deemed to be unfair to consumers. When mandatory (compulsory) legislation exists in an area, contract terms and conditions that violate such legislation will clearly be unfair and in violation of the Marketing Control Act Section 22. In the assessment of fairness, emphasis shall be given to the balance between the rights and obligations of the parties, and to the clarity of the contractual relationship. It is a general challenge when purchasing connected products that the consumer often purchases a product before they have familiarised themselves with all the terms and conditions of the contract, e.g. the contract terms and conditions for the app that is used to operate the product. Unclear regulation of the parties rights and obligations may raise questions in relation to Section 22 of the Marketing Control Act. Please note that we have yet to conduct a thorough review of Gator s contract terms and conditions, but that, in the following, we will highlight some particular problems concerning your terms and conditions. 4.2 Terms and conditions relating to a lock-in period Clause 28 of your contract terms and conditions states that: If the customer has entered into a contract in which Gator provides a financial advantage, Gator can require a lock-in period of up to 12 months, or in special cases, of up to 24 months. If the subscription is cancelled during the lock-in period, a final settlement will be made that reflects the financial advantage agreed. The following is stated at the top of the contract terms and conditions (before Clause 1): 6

In the event of cancellation of the contract, a cancellation fee of NOK 1,500 will be charged. We understand traders need for predictability. However, meeting this need though conditions stipulating a lock-in period can, because of the disadvantages this entails for the consumer, lead to an imbalance in the contractual relationship that is unfair and may be prohibited pursuant to the Marketing Control Act Section 22. A lock-in period can entail a disadvantage for consumers because it precludes them from taking advantage of the best offer in the market at all times. As well as changes to products and services in the market, the consumer s needs may also change during the lock-in period. Consumers who make the wrong choice can be locked in to a subscription that no longer meets their needs, or that is more expensive or poorer than they could otherwise have agreed. In the assessment of whether the terms and conditions relating to lock-in periods are unfair, it is established practice in the telecom sector that the Consumer Ombudsman can accept a total lock-in period of up to 12 months on condition that the consumer is given a genuine financial advantage that weighs up for the disadvantage of having a lock-in period. This is now enshrined in Section 2-4 fourth paragraph of the Electronic Communications Act, which falls under the area of responsibility of the Norwegian Communications Authority. It follows from the preparatory works to the Electronic Communications Act that, as a rule, a 24-month lock-in period can only be used if the purpose of a 12-month lock-in period will not be achieved, and it is clear that it is in the end user s interest to agree a longer lock-in period. This is typically the case in situations where this is necessary in order to secure the delivery of infrastructure. See Proposition 69 L (2012-2013) p. 98. In our opinion, there are therefore no grounds for you to take advantage of the exception that opens for a 24-month lock-in period. Nor can we see that you currently have terms and conditions stipulating a 24-month lock-in period, and we request you to change this condition and remove the reference to 24 months in the terms and conditions. Following a review of your website, it is not clear to us what financial advantage consumers gain by purchasing GPS watches with a pertaining subscription with a lock-in period. In such case, we question to what extent Gator s use of a lock-in period is in accordance with Section 2-4 of the Electronic Communications Act. As mentioned, the terms and conditions are in violation of mandatory legislation, are unfair to consumers and may be prohibited pursuant to the Marketing Control Act Section 22. Please also note that, pursuant to the practice of the Consumer Ombudsman and the Market Council, the binding effect of contracts with lock-in periods must be counterbalanced by the consumer having the possibility to cancel the contract also during the lock-in period, in return for paying a cancellation fee. The fee must be proportionate, so that it does not exceed the financial advantage the consumer gained by agreeing to a lock-in period. 7

If the trader has subsidised the consumer at the start of the contractual relationship, e.g. by subsidising a product or offering introductory months free of charge, the cancellation fee must be scaled down successively over the lock-in period. As far as we can see, Gator3 is only sold on condition of a lock-in period. We ask you to explain this, the financial advantage the consumer receives for binding him or herself to a TeleG subscription, and how the cancellation fee is calculated. 4.3 Interoperability As mentioned, our understanding is that the TeleG subscription, in practice, has a lock-in period of 12 months. As we understand it, however, the GPS watches only work with a SIM card and a subscription supplied by TeleG. Without a SIM card and a subscription, the watches do not work as a contact channel between children and parents, and the product s function is therefore dependent on being a customer of TeleG. Firstly, this information is so important that consumers must be given it together with the other information about the price and the lock-in period. Secondly, it is our opinion that the product has been designed to give customers no other option but to use TeleG s subscription. The consumers are then forced to accept TeleG s terms and conditions and prices at all times if the purchased GPS watch is to work as intended. This creates a very unpredictable situation for consumers, and prevents them from using the one option available to them, i.e. to switch provider. Consumer mobility is therefore a general goal of marketing law, and, as shown above in the terms and conditions concerning lock-in periods, the law can be used to intervene in lockinmechanisms that unfairly create an imbalance that is detrimental to consumers by binding them to one service provider. Before we further consider the case in relation to this point, we ask you to explain whether it is correct that the watch only works with TeleG as an ecom provider, and, in such case, why the product is limited in this way. 4.4 Consumer data The collection and processing of personal data is regulated by the Personal Data Act, which is supervised by the Norwegian Data Protection Agency. We are in dialogue with the Data Protection Agency about the marketing and sales of your GPS watches which raise particular questions in relation to the data protection regulations. With regard to the purchase of connected products, such as GPS watches for children, questions can also be raised pursuant to consumer legislation, including the Marketing 8

Control Act, in addition to the requirements of the Personal Data Act. When it is important for a consumer s economic choice to know how personal data are collected and processed in connection with use of the product, this information must be provided in a clear and plain manner before a contract is concluded. Including the processing of personal data in a contract that is either unclear or in violation of the Personal Data Act also raises questions about unfairness pursuant to the Marketing Control Act Section 22. If such processing may come as a surprise to the consumer, this raises questions about misleading and unfair commercial practices pursuant to the Marketing Control Act Sections 6 and 7 if no information about such data processing is provided in the marketing. Providing information about the processing of personal data may also be required, depending on the circumstances, prior to the time of purchase pursuant to the duty of disclosure set out in the Cancellation Act with respect to the main characteristics of products and services and the functionality of the digital content. Pursuant to Section 15 of the Marketing Control Act, prior consent is also required for direct marketing communications using electronic communication channels, such as email and text messages to the consumer. For consent to be valid it must be voluntary, explicit and informed. This means that it is not sufficient to include a declaration of consent in the general terms and conditions in connection with a purchase or a service. Where there is an existing customer relationship, the trader can market its own products that correspond to those the customer has already purchased, cf. the Marketing Control Act Section 15 third paragraph. The customer must be made aware, however, that the trader wishes to engage in such marketing before it is sent, and be given an opportunity to decline this offer. Customers shall then be informed that they can decline any additional marketing. 4.5 Further consideration of the contract terms and conditions relating to Gator As far as we can see, the contractual relationship between you and your customers is regulated by a set of terms and conditions that is presented when making a purchase on your website. This would appear to be a combined purchase contract and an electronic communications service contract with Gator AS. This is in contrast to the information in the marketing which states in several places that the GPS watch comes with a subscription from TeleG. The GPS watches are also controlled via an app that is downloaded on the parents phone. As we understand it, this app (TeleGAPP) is supplied by TeleG AS, and on separate terms and conditions. At the same time, your website states that this app is not yet functioning, and that your customers must therefore use the Gator3 app. The supplier of this app is not stated, and nor whether contract terms and conditions apply. Before we further consider questions relating to the terms and conditions you use, we ask for your comments on the questions raised in section 4 above. We also ask you to explain the relationship between the different contracts consumers must enter into to use Gator3, and the most important rights and obligations under these contracts, including terms and conditions regarding unilateral variations, right of cancellation and termination, and to what extent personal data are used for marketing purposes. 9

5. Summary As stated above, in the Consumer Ombudsman s assessment, the marketing and contract terms and conditions used by Gator in connection with sales of Gator3 GPS for children raise a number of questions pursuant to the Marketing Control Act and also violate a number of provisions of the Act. We therefore invite Gator to attend a meeting to discuss the issues raised in this letter, and any other matters the Consumer Ombudsman becomes aware of in connection with your sales of GPS watches. The meeting will take place from 13.00 to 15.00 on 31 October. We ask that you contact case officer Marc Stuppi at ms@forbrukerombudet.no as soon as possible to confirm the time of the meeting or to arrange a new time. Yours sincerely, for the Consumer Ombudsman Bente Øverli Deputy Consumer Ombudsman Enclosures: Screenshots from www.gatornorge.no Complaint from consumer Complaint from the Norwegian Consumer Council Email copies to: The Data Protection Agency The Norwegian Consumer Council 10