The Law and Business of Social Media
May 07, 2018 - Advertising, Litigation

German Federal Court: Unfair Competition Law No Basis to Ban Ad Blocking and Whitelisting

German Federal Court: Unfair Competition Law No Basis to Ban Ad Blocking and Whitelisting

A recent German Federal Court of Justice decision may have a significant impact on content providers’ business models. Offering software that allows users to block advertising does not constitute an unfair commercial practice. Even providing advertisers with the option to pay for showing certain ads—a practice known as whitelisting—does not violate the unfair competition rules.

Issued on April 19, the decision involved a legal dispute between the ad blocking software provider Eyeo GmbH and the online-content provider Axel Springer (which also happens to be Germany’s largest publishing house). The decision overruled the Higher Regional Court of Cologne’s previous decision, which, like the Federal Court of Justice, did not categorize Eyeo’s offer of its ad blocking product as an unfair competition practice, but did categorize paid whitelisting as unlawful.

Axel Springer is now left with the final option of taking the case to the Federal Constitutional Court.

Background and core arguments of the parties

Eyeo, a German software company, offers the product AdBlock Plus, which allows Internet users to block ads online. The product became the most popular ad blocking software in Germany and abroad, with over 500 million downloads and 100 million users worldwide.

In 2011, the company started to monetize its product by offering a whitelisting service that gives advertisers the option to pay to show their ads. To get on Eyeo’s list of companies whose ads are not blocked, advertisers have to comply with Eyeo’s “acceptable advertising” conditions and share their ad revenue with the company. The conditions dictate the advertising’s features such as its placement, size, and—in the case of text advertising—color.

Shortly after the launch of the whitelisting feature, legal disputes started to unfold between content publishers and Eyeo.

Axel Springer maintains that Eyeo obstructs Axel Springer’s business because: (1) Axel Springer is a company whose main source of income is its sale of ad space and (2) Eyeo’s ad blocking software causes Axel Springer to lose ad sales. The publisher emphasized that, while whitelisting certain advertisements is unlawful because it pressures advertisers to share their revenue with the ad blocking service’s provider, even the mere offering of a plug-in that blocks certain advertisements would constitute a violation of competition law.

Axel Springer further maintained that ad blocking jeopardized the free media landscape, arguing that such programs “endanger the quality and pluralism of information providers and thus hurt the general interest.”

The legal ground and the ruling of the Federal Court

The German Unfair Competition Act serves the purpose of protecting competitors, consumers and other market participants against unfair commercial practices. It qualifies market behavior as unfair if it deliberately obstructs competitors. The Federal Court ruled that Eyeo’s business does not constitute such a deliberate obstruction. According to the court, Eyeo does not aim to obstruct other market participants with its commercial practice. Instead, the company pursues their own competitive business model: it obtains revenue by supplying advertisers with the opportunity to whitelist their ads.

German competition law takes into account the intentions behind an economic player’s actions. According to precedent case law, even though the deliberate hindering of competitors does not require an anticompetitive purpose of the action, an anticompetitive intention needs to be pursued. The court held this requirement was not fulfilled.

The court also makes an argument based on causality, stating that the user independently decides to use ad blocking software and Eyeo only provides the tool for users to implement that decision. According to the court, the indirect obstruction of the content provider’s offer cannot be unfair as users still have to actively install the ad blocking program. Generally speaking, if Eyeo weren’t providing Internet users with an effective tool to block ads, it might be someone else. And still, it would be the users installing and running the program.

In this context, the court points out that Eyeo’s ad blocking software does not undermine any of the safeguards against ad blocking undertaken by the content provider. On the contrary, the publisher would be free to take defensive measures as many content providers already do, by, for example, locking out users that have ad blocking software installed. This possibility of defense leads the court to conclude that the freedom of press is not harmed as content providers are left with a reasonable option to deal with the commercial practice of ad blocking providers. With this argument, the Federal Court emphasizes that its ruling has been made on the basis of competition law, highlighting the freedom of different business models to compete for users.

The court further rules that Eyeo’s business model does not constitute a general obstruction of the market as no sufficient indicators exist that the business model of the provision of free content on the Internet was destroyed by ad blocking.

Finally, the Federal Court concludes, ad blocking software that provides a whitelisting function does not constitute an unduly aggressive commercial practice towards advertisers. The court states that Eyeo did not exploit its position in a way that would restrict the market participants’ freedom to make an informed decision. The court leaves open whether Eyeo is holding a position of power by owning technical tools that block ads.

Take away

While the overruled decision made by the Higher Regional Court of Cologne had been in favor of the content providers financing their business through advertising, the decision of the Federal Court of Justice is in line with previous decisions of the Higher Regional Courts of Hamburg and Munich.

In any case, it is apparent that the Federal Court’s decision is grounded only in unfair competition law. As such, it points out that it is the burden of digital business to compete in a highly innovative world. Competition law’s purpose is to ensure that the game is fair, but the game still belongs to the players. In this context, the court points to the fact that some content providers have started to prevent users with ad blocker software from seeing their content without first pausing or disabling the ad blocker software. The players involved in this market, above all the users, would then be reminded that rarely anything comes for free.

It is questionable whether the Federal Court’s quite narrow-minded unfair competition perspective would sufficiently weigh on the fundamental importance of quality journalism and the press for a pluralistic society and democracy, which the German Federal Constitutional Court and the European Court of Human Rights have relentlessly emphasized. They also acknowledged that the funding through advertisements is critical and therefore protected by the freedom of the press.

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For more on ad blocking issues, please see our earlier blog post, Will Ad Blockers Kill Online Publishing?.