Since the digital revolution, online advertising has become a fundamental part of the revenue stream of most internet-based media services. This is particularly true for traditional “old media” publishers, whose once strong businesses selling physical newspapers and magazines has shifted from the kiosk to the internet and are now hugely reliant on advertising revenue. This online advertising strategy is clearly only effective if ad banners or pop-ups are actually seen by website visitors and not suppressed by so called “ad blockers”. In a recent decision, however, the German Federal Supreme Court (Bundesgerichtshof) held that both ad-blocking services and the practice of whitelisting ads in return for payment are compliant with German competition law. It seems that it’s time for a rethink about handling ad blocking software.
Whitelisting: How ad blockers squeeze profit from an intense online advertising culture
The case was brought by European media heavyweight Axel Springer SE against Eyeo GmbH, the developer of the ad blocking software “AdBlock Plus”. By using this software, internet users are able to block intrusive ad banners, pop-ups and tracking in order to benefit from cleaner websites, faster loading times and a higher level of privacy. In the case of AdBlock Plus, advertisers may also request for their advertisements to be whitelisted (and therefore permitted) on the condition that they meet Eyeo’s “Acceptable Ads Initiative” criteria. Whitelisted ads will then be unblocked unless users disable that feature.
Apart from the use of ad blocking software in general, it is precisely this whitelisting practice, which became a thorn in the side of larger online advertisers like Axel Springer SE because they have to pay a license fee to companies like Eyeo for their ads to be whitelisted. Eyeo claims that around 90 percent of those licences were granted for free, but these are understood to primarily have been granted to smaller advertisers so the big online media players do not benefit from the free licences, and so have to pay.
Axel Springer SE, which publishes several well-known tabloids and newspapers in Germany and owns numerous online platforms, accused Eyeo of unfair competition and claimed the fundamental freedom of press to be in danger. The legal proceedings that were brought before different lower German courts were mainly passed in favor of Eyeo. Only the Higher Regional Court of Cologne deemed Eyeo’s whitelisting as an aggressive commercial practice. On appeal, the German Federal Supreme Court finally dismissed the action of Axel Springer SE and confirmed that both ad blockers and whitelisting were indeed lawful.
German Federal Supreme Court: No predatory competition, no obstruction of competitors, no aggressive commercial practice
The court primarily assessed AdBlock Plus in relation to the German Act against Unfair Competition, which prohibits companies from deliberately obstructing other competitors or from carrying out aggressive commercial practices.
According to the judges, Eyeo had no intention to drive online advertisers out of the market but was simply striving to expand its own business. In fact, the whole business model of the ad blocker relies on advertising websites since Eyeo generates its revenue from the whitelisting of those ads. Apart from that, there was no direct product-related obstruction of the claimant’s services as the decision to block ads lies with the end users of website and not with Eyeo. The judges did acknowledge that the provision of ad blocking software could be deemed as an indirect impairment of third party advertising business. However, such indirect impairments would only be considered unfair competition if there were particular circumstances, for instance if the ad blocking software deliberately circumvented technological measures that prevented ad blockers. The claimant failed to demonstrate its use of such protection measures or that AdBlock Plus could indeed circumvent them. Nevertheless, this seems indicative that the Bundesgerichtshof has left some room for a different legal assessment of ad blockers in cases where they affect advertiser’s protection measures.
Having carefully weighed the interests of all parties concerned, in particular the freedom of press, the German Federal Supreme Court also concluded that ad blockers did not distort competition. The judges held that Eyeo’s ad blocker would not excessively interfere with the freedom of press as it was possible and reasonable for online advertisers to take defensive measures against ad blocking software in order to protect their revenue stream. Furthermore, Axel Springer SE couldn’t demonstrate that the business model of providing complimentary ad-financed content would be utterly destroyed by ad blocking software.
To the surprise of some, the judges also gave their blessing to Eyeo’s paid whitelisting practice. Overturning the judgment of the lower court, the judges didn’t consider paid whitelisting as an aggressive commercial practice, which would require the undue influence of market participants. Though Eyeo holds a position of power, it was not considered to have misused that position in a way that made either the online advertisers themselves or their customers incapable of making free and informed market decisions.
What’s next for ad-blockers in Germany?
This landmark decision is a clear victory for ad blocking software developers and will induce online advertisers to rethink their strategies. But the battle is not quite over yet. Axel Springer SE referred to the judgment as “an attack on the heart of the free media” and has already announced its intention to bring a constitutional complaint before the German Federal Constitutional Court.
In the meantime, online advertisers should consider using technological measures against ad blocking software. Axel Springer, for example, has developed a system that detects website visitors using ad blockers and completely locks them out from the website. From a commercial perspective, protection measures that would not exclude valuable advertising recipients but only disable their ad blocking software would certainly be a preferable solution. Such programs, of course, would raise another legal issue, namely if and to what extent advertisers would be allowed to interfere with third party software. In any case, this legal battle remains a thriller until the German Federal Constitutional Court speaks its final word on ad blockers.