Free air tickets: Unfair trade practice?

May 22, 2008

The Delhi State Consumer Disputes Redressal Commission's decision to fine mobile phone firm Vodafone Rs 50 lakh (Rs 5 million) for offering prizes of gold coins and a Maruti [Get Quote] SX4 as part of a promotional scheme is something all marketers in the country would do well to pay attention to.

Vodafone offered subscribers 10 gold coins a day and one SX4 as a bumper prize, but the chance of winning was restricted only to those customers who used their phone to make calls for at least 20 minutes a day.

A consumer organisation filed a case before the DSCDRC arguing that Vodafone was luring subscribers into making unnecessary calls so that they could qualify for the list of customers from whom a lucky one would be chosen.

The commission has held that this qualified as an unfair trade practice under the Consumer Protection Act, for two reasons. One, it gave the impression the customer was not paying anything for participating whereas s/he actually was paying by making more calls every day. Two, the contest/lottery was meant to promote Vodafone's business interests.

DSCDRC's calculations showed that Vodafone had earned around Rs 2 crore (Rs 20 million) extra during the period the scheme was in operation and was offering gifts worth about Rs 10 lakh (Rs 1 million), so the fine was fixed at Rs 50 lakh.

Vodafone will presumably challenge the judgement, but what is important is the implication of the consumer protection law as interpreted by the DSCDRC.

Essentially, the law appears to be outlawing any promotional schemes which seek to increase the company's business -- so, if Vodafone had offered the chance to win a gold coin and an SX4 to all its customers, the commission would not have had a problem; but since they offered it only to those who used their services for more than a certain period of time a day, and this induced others to try and get into this category, the commission said the scheme was unfair.

Since this is what most marketing companies do, almost by rote, it is important to consider its implications.

Take the case of a credit card company, say, which offers a holiday for two to one of its Platinum Card holders. What is it doing this for? Clearly to let the Gold and Silver card holders know they're missing out on something and to encourage them to become large spenders so as to qualify for a Platinum Card.

Or an airline that offers free tickets to one lucky member of its frequent flyer programme, in addition to the other benefits they get. Once again, the idea is to let others know there are great benefits to be had by flying more.

After the DSCDRC verdict, it is likely that all such schemes can be classified as unfair trade practices. Perhaps it's time to take a more realistic look at the country's consumer laws.

Limited Liability Partnership

A form of general partnership that provides an individual partner protection against personal liability for certain partnership obligations.

The Limited Liability Partnership (LLP) is essentially a general partnership in form, with one important difference. Unlike a general partnership, in which individual partners are liable for the partnership's debts and obligations, an LLP provides each of its individual partners protection against personal liability for certain partnership liabilities.

In 1991 Texas enacted the first LLP statute, largely in response to the liability that had been imposed on partners in partnerships sued by government agencies in relation to massive savings and loan failures in the 1980s. The Texas statute protected partners from personal liability for claims related to a copartner's negligence, error, omission, incompetency or malfeasance. It also permanently limited the personal liability of a partner for the errors, omissions, incompetence, or negligence of the partnership's employees or other agents. By the mid-1990s, at least twenty-one states and the District of Columbia had adopted LLP statutes.

The limit of an individual partner's liability depends on the scope of the state's LLP legislation. Many states provide protection only against tort claims and do not extend protection to a partner's own negligence or incompetence or to the partner's involvement in supervising wrongful conduct. Other states provide broad protection, including protection against contractual claims brought by the partnership's creditors. For example, Minnesota enacted an expansive LLP statute in 1994. This piece of legislation provided that a partner in an LLP was not liable to a creditor or for any obligation of the partnership. It further provided, however, that a partner was personally liable to the partnership and copartners for any breach of duty, and also allowed a creditor or other claimant to pierce the limited liability shield of a partner in the same way a claimant may pierce the corporate veil of a corporation and personally sue an individual member of the corporation.

In states that recognize LLPs, a partnership qualifies as an LLP by registering with the appropriate state authority and fulfilling various requirements. Some states require proof that the partnership has obtained adequate liability insurance or has adequate assets to satisfy potential claims. All states require a filing fee for registration and also require that an LLP include the words Registered Limited Liability Partnership or the abbreviation LLP in its name.

A partnership that renders specific professional services may form an LLP and register as a professional limited liability partnership (PLLP). A PLLP is generally the same as an LLP except that it is an association solely of professionals. Each state specifies the qualifying professions for a PLLP. This business form is typically available to attorneys, physicians, architects, dentists, engineers, and accountants. New York's LLP statute restricts eligibility solely to partnerships that render professional services.

This entry contains information applicable to United States law only.