European Authorities Hit US Vendors on Warranties

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But some American firms are clashing with the European Union regulators about this practice, mainly because in the EU it is mandatory to offer a full two-year guarantee on new equipment. Recently, Apple was fined €900,000 by the Italian authorities for offering extended guarantee to customers of their stores without explaining to them that some services were in addition to the standard two-year guarantee required by law.

The main problem for some vendors is that the EU law won't allow them to sell contracts for additional services such as configuration and recovery as part of guarantee: they have to sell them as "optional" services, and most customers will decline them to save money. Because of this, and significant press coverage of the issue, European customers are now becoming aware of their rights. While they might want additional protection, like technical support, they are not willing to pay extra for something the vendors are obliged to provide by law.

But the guarantee is an extra retail cost: providing the two-year guarantee costs manufacturers a lot of money -- money they need to reflect in the product price. That, added to the high VAT (Value Added Tax) of 15 percent to 27 percent in the EU, makes technology much more expensive to consumers. (Corporations pay VAT, but they usually can deduct it from the VAT they collect on sales.) For example, an iPad 2 costs £399 in the UK -- about $625 ($520 without the 20% VAT).

Without the additional revenue from the service contracts, and adding the higher labor costs in Europe, technology firms are seeing a significant drop in sales while many consumers use trips abroad to purchase their devices. The gray market for electronics is especially attractive in Europe, where people buying abroad can have savings up to 40 percent. Also, special sales are more common in the US since manufacturers want to get additional margins in Europe to pay for the higher costs to sell in the European market.

But the regulations stand. The EU directive is very clear: the two-year full guarantee is enforced in all member states of the EU, and the consumer rights include the full cost of repair, including shipping:

1. The seller shall be liable to the consumer for any lack of conformity which exists at the time the goods were delivered.
2. In the case of a lack of conformity, the consumer shall be entitled to have the goods brought into conformity free of charge by repair or replacement, in accordance with paragraph 3, or to have an appropriate reduction made in the price or the contract rescinded with regard to those goods, in accordance with paragraphs 5 and 6.
3. In the first place, the consumer may require the seller to repair the goods or he may require the seller to replace them, in either case free of charge, unless this is impossible or disproportionate...
4. The terms "free of charge" in paragraphs 2 and 3 refer to the necessary costs incurred to bring the goods into conformity, particularly the cost of postage, labour and materials.

While I can understand the need of the manufacturers to make money to support good service, trying to bypass European law doesn't play well with the press. It also makes companies liable to substantial fines by the consumer protection authorities. It is surprising that large companies let themselves get caught in acts with such significant public consequences. You'd think someone in their international operations would know better.