Berlin to Scrap Restrictive DM Laws

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The German government plans to scrap two laws dating to the 1930s that have hampered development of direct marketing for decades and threatened to crimp the growth of German e-commerce.


The first law limited discounts that could be offered consumers to 3 percent, and the second forbade any "add-on" not directly related to the product itself.


The most prominent American victim of the Nazi-era legislation was Lands' End, which was barred from advertising its unconditional guarantee to customers, although it could still offer it.


When Lands' End opened its German mail-order business in 1997, the guarantee caused a sensation in what Germans themselves called their "service desert." Competitors squawked loudly and had a front consumer group take the Wisconsin-based cataloger to court.


In a series of decisions, Lands' End won in district court in Saarbruecken but lost in appellate court and in Germany's highest court, which refused to hear the case.


The plaintiff had argued that the guarantee was an additional product offered to consumers that had nothing to do with the sweater or jeans the customer had purchased. The appellate court agreed that the guarantee violated German law.


Paradoxically, Lands' End will not profit from the government decision until the laws are formally abolished, a process that will last at least until midyear.


"Sure, other companies are violating the laws already," Lands' End sales manager Frank Kriegl said. "Toyota is offering buyers 1,000 liters of free gasoline, for example. But we can't do that, because we would be violating a court judgment.


"I ran to our lawyer as soon as I heard about the government decision, but he told me the plaintiff could move against us quickly, not because of the guarantee but because of the court order.


"Nobody who starts offering higher discounts and free gifts now can really get into trouble. Until the first court action is readied, the law is dead meat. But we have to wait."


The German bureaucracy would take at least until May if not longer to get the laws removed from the books, said Hans Juergen Schaefer, the head of legal affairs at DDV, the German equivalent of the Direct Marketing Association.


"First, you need a draft from Justice Department lawyers abolishing the law, and then the draft has to run through committees and other procedures before the law abolishing the law becomes law," Schaefer said.


German media greeted the government's action as long overdue. The newspaper Die Welt wrote that "after 70 years one of the oldest dinosaurs in the German Jura [the Latin word for law commonly used in Germany] Park will have finally died out."


The DDV has fought for decades to scrap the laws. Together with Reader's Digest, the DDV took the case to the European Commission but failed to ignite any definitive action.


Schaefer was more cautious than Kriegl, saying German companies would use the transition period to see how far they could go with discounts and add-on offers while the law was still in force.


But he noted that the government had little choice but to scrap them. The EC's e-commerce directive, which the government must adapt into German law, puts e-commerce disputes under country-of-origin laws.


"That law would discriminate against domestic e-tailers," Schaefer said, "because Germans could not offer rebates or add-ons, whereas a Web merchant based in Portugal or Luxembourg could do so."


Yahoo Germany CEO Peter Wuertenberg predicted that the government's decision would lead to an e-commerce breakthrough in Germany. Currently, Amazon.com can offer rebates up to 50 percent, something amazon.de could not do.


While Lands' End does not plan to beat a big drum for its guarantee -- beyond advertising it in catalogs once it is legal to do so -- the company continues to make inroads in the "service desert."


"We've introduced a new service -- Lands' End free surf," Kriegl said. Germans can now double-click an icon at the top of the cataloger's Web site and surf toll-free. Phone costs are still a barrier to surfing growth in Germany.

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