In a landmark decision, on April 19, 2018, the German Federal Court of Justice decided that the ad blocking application and browser-extension Adblock Plus does not violate the German Unfair Competition Act (Gesetz gegen den Unlauteren Wettbewerb – UWG). Offering software that allows users to block advertising does not constitute an unfair commercial practice, even if the business model provides advertisers with the option to pay for showing certain ads (“whitelisting”).
This decision may have a significant impact on the business models of content providers. The judgment ends a legal dispute in front of the civil courts between ad blocking software provider Eyeo and Germany’s largest publishing house and provider of online content, Axel Springer. A previous court decision taken by the Higher Regional Court of Cologne did not qualify the offer of Eyeo’s ad blocking product as an unfair competition practice. However, it had considered the business model of paid whitelisting as unlawful. Now, the Federal Court has overruled that judgment, leaving the plaintiff with the final option of taking the case to the Federal Constitutional Court.
Background and core arguments of the parties
Eyeo GmbH, 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 monetise its product by offering a whitelisting service in which advertisers could pay to show their ads. The feature called “Acceptable Ads program” is a filter list which unblocks “acceptable advertising.” In order to have advertising unblocked, the advertisers have to comply with the conditions of “acceptable advertising” set forth by Eyeo and share their ad revenue with the company. The conditions include general criteria like placement or size of the advertising and specific criteria for different forms of advertising, e.g. the color of text advertising. Shortly after the launch of the whitelisting feature, legal disputes started to unfold between content publishers and Eyeo.
The plaintiff argued that its business model builds on the sale of advertising inventory. Ad blocking software leads to a loss of ad sales and therefore obstructs their business by attacking their main source of income. The publisher emphasised that not only would whitelisting of certain advertisements be unlawful, as it pressures advertisers to share their revenue with the provider of the ad blocking service; but that merely offering a plug-in which blocks certain advertisements would constitute a violation of competition law. Moreover, Axel Springer saw the free media landscape at stake, arguing that programs for ad blocking “endanger the quality and pluralism of information providers and thus hurt the general interest.” While the decision is based on competition law, the discussion led by internet users, content providers and advertisers alike includes arguments based on constitutional rights such as the freedom of press, the right of privacy and the negative freedom of information.
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 behaviour as unfair, which 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 intention of an economic player behind its 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 did not see this requirement to be fulfilled.
The court also makes an argument based on causality. It states that the decision to use ad blocking software is independently taken by the user. 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 it were not Eyeo to provide 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 the ad blocking software does not undermine any safeguards taken by the content provider against ad blocking. On the contrary, the publisher would be free to take defensive measures as many content providers already do, e.g. by locking out users that have an 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 emphasises 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, according to the Federal Court, ad blocking software providing 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 freedom of the market participants to make an informed decision. The court leaves open whether Eyeo is holding a position of power by owning the technical tools of ad blocking.
While the overruled decision made by the Higher Regional Court of Cologne had been in favour 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. While it is the task of competition law to ensure that the game is fair, the game still belongs to the players. In this context, the court points to the fact that some content providers have started to block ad blockers by not showing their content without the ad blocker being paused or disabled. The players involved in this market, above all the users, would then be reminded that rarely anything comes for free. The user can either decide to disable its ad blocking software in order to receive content while only paying with their attention or choose to pay money for a product that had always been a paid product in the analog world.
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 emphasised. They also acknowledged that the funding through advertisements is critical and therefore protected by the freedom of the press.