German media house Axel Springer has won a first significant victory in the adblocking battle that has been keeping the digital advertising industry on its toes for over a year now.
Read up on the procedural history between German media houses and Eyeo GmbH, the company behind the world’s most popular adblocker AdBlock Plus.
Adblocking is steadily on the rise. In a workshop recently organized by the German Federal Commission on the Convergence of Media, the participating media houses presented data according to which some 30% of users have an adblocker installed. For tech-related publications the adblocking quota was said to be as high as 50%. Resulting advertising losses were estimated to run up to 40 billion Euros for the year 2016 alone.
In several ongoing lawsuits between large media houses and Eyeo, the German courts have acknowledged this development, but have so far attributed it to healthy online competition. They suggested that media houses might need to adapt to the reality that their online customers do not want content embedded in a forest of ads. Paywalls and premium subscription models were discussed as alternatives to achieve a fair balance between access to journalistic content and adequate compensation for publishers.
Cologne Court takes new direction – with the aid of new Unfair Competition Law
The latest decision of the Higher Regional Court of Cologne changes direction, acknowledging for the first time that Eyeo has abused its market position to exert undue duress. Accordingly, the court ordered Eyeo to allow all Axel Springer advertising content that complies with Eyeo’s whitelisting criteria to be whitelisted without payment. This decision, while falling short of the full-fledged prohibition of adblocking the media houses are battling for, calls Eyeo’s entire business model into question. Eyeo makes its profit from asking as much as 30 % of advertising revenues from large publishers in exchange for whitelisting their advertising content. The Cologne appeal court has now ordered Eyeo to provide its whitelisting service for free to the plaintiff – opening the floodgates for corresponding requests, and lawsuits, from other large content providers that currently pay hefty amounts to Eyeo for whitelisting.
The court’s reasoning was made possible by the new paragraph 4 a, inserted into the German Unfair Competition Act last year (§ 4 a UWG) and newly invoked by Axel Springer in the appeal proceedings. Under this provision, competition is deemed unfair if a market player exercises its commercial power to induce consumers or competitors to make business decisions they would otherwise not have made. The Cologne court held that Eyeo holds, and has abused, such a position of power. The judges based their assessment of Eyeo’s market might on the many lucrative whitelisting contracts Eyeo has with large online players. According to a recent report by four computer scientists at Pennsylvania State University, a third of Alexa’s top 100 domains are on Eyeo’s whitelist. The Cologne court confirmed that the threshold for market power under paragraph 4 a UWG was not as high as that for a dominant market position under competition law. This made the turnaround possible in the Cologne appeal, given that claims based on an alleged dominant market position under competition law have so far failed in all German courts.
Proceedings to continue before the German Federal Supreme Court – and in Parliament?
Given the relevance of the unprecedented territory explored in the lawsuit, the Cologne Court has granted both parties leave to appeal on points of law to the Federal Supreme Court. Eyeo has already announced that it will appeal.
Meanwhile, the media houses have been lobbying for legislative changes that would ban, or at least regulate, adblocking. In June 2016, the federal commission on convergence of media released a report, siding with the media houses in finding that adblocking is a legal and media-political threat. The commission recommended further investigations to determine whether legislative changes were called for to protect the financing of journalistic content. In the preceding working sessions, media houses had urged the legislator to act, saying that the ongoing adblocking proceedings would take far too long to come to any final and binding resolution of the controversy. The publishers suggested the introduction of a new regime of protection for journalistic content, similar to the protection of signals in broadcasting law. German broadcasting law protects broadcasting signals from manipulation by third parties en route from sender to recipient. Applying this regime to advertising content would effectively mean the end of adblockers.
The end is yet to come
It is doubtful whether any legislation would go this far, rather than merely laying down rules for acceptable adblocking. But it is becoming more and more certain that the Adblocking Plus model of whitelisting will not continue unrestrained. Watch GMCW for past, current and future developments in adblocking regulation.