Influencer marketing
Case law of the Federal Court of Justice
The Federal Court of Justice (BGH) has established legal certainty regarding the unfair competition law requirements for influencer marketing through a series of decisions. A distinction has to be made between commercial acts in favor of one's own company and acts in favor of another company. The latter only require an identification of the commercial purpose if a consideration was received, which can also consist of receiving products free of charge. This brings the special legal provisions of the German Telemedia Act and State Media Treaty into line with the German Act Against Unfair Competition. As to commercial acts in favor of one's own company, the criteria previously established in case law have been confirmed.
Introduction
Influencer marketing has been an established form of advertising in various areas of life for several years now, and as such has also occupied the courts in Germany. Following various, in part divergent, rulings by different regional and higher courts, the Federal Court of Justice (BGH) finally had the opportunity to deal with the legal assessment of influencer marketing. We refer to the following relevant cases:
- BGH ruling of 9 September 2021, ref. I ZR 90/20 - Influencer I;
- BGH ruling of 9 September 2021, ref. I ZR 125/20 - Influencer II;
- BGH ruling of 9 September 2021, ref. I ZR 126/20 (without an official name - referred to here as Plush Elephant);
- BGH ruling of 13 January 2022, ref. I ZR 35/21 - Influencer III).
In a manner that clearly differentiates between different forms of conduct, the BGH has now, to a considerable extent, created legal certainty for the field of influencer marketing.
Facts
The cases dealt with Instagram image posts including accompanying text, whereby features, known in Germany as "tap tags" were inserted into the images (in the Plush Elephant case, only in three of the four posts in dispute). If the Instagram users click on the image, the tap tag initially appears with a reference to a company. If the Instagram users click on the tap tag a second time, they are redirected to the company's page via a link.
The influencer who was sued in the Influencer I decision had received consideration for one of the posts in dispute. The accompanying text to this image post contained the following information (in German):
"Advertising: new in store as of tomorrow".
The influencers in the Influencer II and Plush Elephant cases had not received anything in return. The posts were not marked as advertising.
The influencer in the Influencer III decision received the products (goods and services) partly free of charge; partly, she had purchased the products with her own funds. There was no labeling of the Instagram posts in dispute as advertising.
Relevant Legal Provisions
As did the higher courts, the BGH primarily examined Section 5a (6) of the Act Against Unfair Competition. This reads:
"Unfairness shall also have occurred where the commercial intent of a commercial practice is not identified, unless this is directly apparent from the context, and where such failure to identify the commercial intent is suited to causing the consumer to take a transactional decision which he would not have taken otherwise."
The criteria can be summarized as follows:
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- The contribution constitutes a commercial practice.
- The commercial intent is not identified and is not directly apparent from the context.
- Suitability of the contribution to cause the consumer to take a transactional decision which he would not have taken otherwise.
In addition to Section 5a (6) of the Act Against Unfair Competition, the examination of Section 6 (1) No. 1 of the German Telemedia Act and Section 58 (1) sentence 1 of the Broadcasting Treaty, now Section 22 (1) sentence 1 of the State Media Treaty, could also be considered. However, these provisions require that the influencer must have received consideration for the post. This was not the case in the Influencer II and Plush elephant cases. However, the Higher District Court of Brunswick did not examine these standards either in the second-instance decision of Influencer I.
Case Law of the BGH
As a result, the BGH confirms the decisions of the higher courts, but to some extent with different reasoning. In particular, the BGH, unlike the higher courts, differentiates very precisely between the individual constellations of influencer marketing. The most important differentiation made by the BGH is the distinction between business acts for the benefit of one's own company on the one hand, and business acts for the benefit of third-party companies on the other hand. The latter has then to be further differentiated according to whether the influencer received a consideration or not. This differentiation is not only relevant for the constituent element of the commercial practice, but also for the recognizability of the commercial intent.
1. Commercial Practice in sections 5a (6), 2 (1) No. 1 of the Act Against Unfair Competition
According to Sec. 2 (1) No. 1 of the Act Against Unfair Competition, a commercial practice is every conduct of a person for the benefit of that person’s or a third party’s business before, during or after a business transaction, which is objectively related to the promotion of the sale or purchase of goods or services or to the conclusion or performance of a contract for goods or services.
This means that a business act can take place in two directions: Both in favor of one's own company, which presupposes that influencers operate such a company, i.e. are entrepreneurs, and in favor of a third-party company. Since the existence of a commercial practice was not in dispute in the Influencer II case, the BGH only had to deal with this in the Influencer I and Plush Elephant cases. In its later decision Influencer III, the BGH again took up the developed principles.
(a) Business Act for the Benefit of one’s own Company
The BGH first states that influencers are entrepreneurs within the meaning of Section 2 (1) No. 6 of the Act Against Unfair Competition and as such also act in an entrepreneurial manner.
This applies if they sell their own goods or services. The influencer in the case of Influencer I, for example, offers her own fitness products as well as fitness services.
In addition, a commercial practice in favor of one's own company could, according to the BGH, also be to market one's own image and commercialize it through advertising revenue. Increasing numbers of followers and comments also increases the value of the services offered. By increasing the advertising value, influencers promote their own company.
In this context, the BGH also had to decide how the publication of private or editorial contributions has to be evaluated and whether a lack of consideration has any effect.
The BGH rules that the lack of consideration does not have any effect. This is because a promotion of one's own company regularly takes place without consideration.
Furthermore, in the BGH’s opinion, it is irrelevant that some of the contributions have a private character. These circumstances do not change the existence of the commercial practice of all contributions. An entrepreneur who uses private statements to increase the competition of their company adds a business effect to its statements. The Court holds that it is precisely the appearance of privacy that makes influencer marketing credible and attractive.
With regard to editorial contributions, the Berlin Court of Appeal had still differentiated according to the individual contributions (see our article here – German language). The BGH holds, in line with previous case law, that editorial contributions are generally not a commercial practice in favor of one's own company since potential sales promotion in such instances would only be a reflex. In the cases Influencer I and Plush Elephant, however, it comes to the conclusion that in the case of these specific (partly) editorial contributions, a self-serving commercial purpose of the publications is predominant, since these have the effect of promoting sales of the advertising services offered by the influencer. Followers gained via Instagram are used to increase the advertising value. Thus, the sales promotion is not considered to be a mere reflex.
(b) Business Act for the Benefit of a Third-party Company
In the case of an act in favor of a third-party company, the BGH makes a further distinction as to whether the influencer receives consideration for the post. This distinction also shapes the criteria of the other elements of the Section 5a (6) of the Act Against Unfair Competition.
(i) Receipt of Consideration (Influencer I and Influencer III)
It is undisputed that a commercial practice in favor of a third-party company exists in every case in which an influencer - as in the case of Influencer I - receives a consideration in return for an advertising contribution.
In the Influencer III decision, the BGH specifies that a consideration also exists if the influencer received the products free of charge from the company.
(ii) No Receipt of Consideration (Influencer II and Plush Elephant)
In the Influencer II and Plush Elephant cases, however, the influencers had not received any (verifiable) consideration.
In this respect, the BGH states that the receipt of a consideration is not a mandatory prerequisite for the existence of a commercial practice in favor of a third-party company.
The Court holds that the existence of a commercial practice depends on an “advertising surplus” of the contribution. This criterion is known from press law. Per the Court, the decisive factor is the external appearance of the contribution from the point of view of an average addressee. As a rule, there is an advertising surplus if the promotion of a third-party company plays a greater role than is merely necessary. This could be assumed, for example, if the contribution lacks any critical distance, if only the advantages of the product are praised, or if a product is specifically highly recommended. Furthermore, an advertising surplus is indicated if the framework of factual information is departed from.
With regard to the tap tags frequently used by influencers on Instagram, the BGH concludes that the mere setting of the tap tags is regularly not sufficient to affirm an advertising surplus, since the manufacturer of a product is only named and the tap tag thus only constitutes further information. However, if the tap tag has no reference to the image and/or text contribution , it is not the same - and this is reminiscent of the ruling of the Higher District Court of Berlin.
The BGH rules that an advertising surplus regularly has to be assumed if there is a link to the Instagram page or website of the company, regardless of whether the goods or services of the third-party company can be directly purchased. This is because the linking to an information page already facilitates and accelerates access to the products of the third-party company.
In this respect, however, it should be noted that it is precisely the nature of Instagram tap tags to link to other Instagram pages, so that when tap tags are used on a regular basis, a commercial act in favor of a third-party company will likely have to be assumed.
2. Failure to disclose the Commercial Intent, unless this is evident from the Circumstances, Section 5a (6) of the Act Against Unfair Competition
If there is a commercial act in favor of one's own or a third-party's company, it has to be verified whether the commercial intent of the act, which is regularly present, has been made clear or whether it is evident from the circumstances.
Here, too, the BGH first differentiates according to whether the business act was in favor of one's own company or a third-party company. In case of a business act in favor of a third-party company, a further distinction has to be made as to whether consideration is paid (Influencer I and III) or not (Influencer II and Plush Elephant).
(a) Recognizability of the Commercial Intent in case of an Act for the Benefit of one's own company
With regard to the commercial act in favor of one's own company, the BGH follows the case law of the Higher District Court of Munich and the Higher District Court of Hamburg, which had assumed an obviousness of the commercial intent - however, in favor of both one's own and the third party's company - if certain circumstances existed (see our article here - German language).
Amongst others, the Higher District Court of Hamburg based its decision on the following circumstances, which are not objected to by the BGH on the appeal level:
- Blue tick as a status symbol, which only verified accounts show;
- Large number of followers and likes;
- Deviation of the account name from the real name;
- Closed circle of users on Instagram and the associated knowledge of the peculiarities and regularities of Instagram;
- High quality presentation of the posts;
- Public’s knowledge of the marketing form of influencer marketing;
- Own designation as an influencer.
(b) Recognizability of the Commercial Intent in Case of an Act for the Benefit of a Third-party Company
In the Influencer I case, the influencer had received a consideration, and reference to advertising was made, however, only in the middle of the accompanying text of the post. The BGH is therefore able to issue guidelines on how contributions had to be marked as advertising.
In the Influencer II and III cases, the influencers had not received any consideration and not labeled their posts. The issue in these decisions was therefore whether the labeling was required or not.
(i) Receipt of a Consideration and (insufficient) Labeling of the Contribution (Influencer I).
In the Influencer I case, the influencer had received consideration for one of the disputed posts. She had made the following reference in the middle of the text accompanying the post– translated from German:
"Advertising: new in store as of tomorrow"
However, there was no emphasis of any kind.
In line with the case law of the higher courts, the BGH comes to the conclusion that a reference to the commercial intent of a commercial practice needs to be recognizable at first glance and without doubt. It is not sufficient if the commercial purpose only becomes apparent when the consumer has already dealt with the post in detail (by reading the long accompanying post). The BGH explains that the reason for this is that by then the consumer had already succumbed to the luring effect and could no longer be critical of the contribution from the outset or withdrew from it altogether.
The BGH therefore holds that the labeling chosen by the influencer in the Influencer I case was not sufficient because the reference was not emphasized in any way, neither by use of a different color, nor a different font, nor by a paragraph inserted in front of the main text. It was therefore not recognizable at first glance.
In addition, the BGH states that the commercial purpose of mixing private and commercial posts cannot be derived from the verification of the profile (blue tick), the number of followers or the general awareness, even if this could be sufficient in the case of a commercial act for the benefit of one's own company (see above). The recognizability of the influencer’s action in favor of his own company is not sufficient to affirm the recognizability of the action in favor of a third-party company.
(ii) No Receipt of Consideration (Influencer II and Plush Elephant)
The BGH did not specifically decide whether the circumstances leading to obviousness of the existence of a commercial intent of a commercial practice for the benefit of one's own company could also be relied upon for the obviousness of the commercial intent in the case of acts for the benefit of third-party companies in the cases Influencer II and Plush Elephant. That said, in the later decision Influencer III, it expressly denies this link.
However, as a new legal principle differing from the higher court case law, the BGH comes to the conclusion that such a conduct cannot be considered to be unfair within the meaning of Section 5a (6) of the Act Against Unfair Competition if it does not violate the overriding special provisions of Section 6 (1) no. 1 of the German Telemedia Act and Section 22 (1) sentence 1 of the State Media Treaty (formerly: Section 58 (1) sentence 1 of the Broadcasting Treaty) and thus meets the legal requirements of these special provisions for advertising in Telemedia.
Both of these provisions are, in the Court’s ruling, specific regulations on requirements for the recognizability of commercial communication in Telemedia. It is settled case law that sector-specific regulations (Telemedia Act and State Media Treaty) can restrict the scope of application of general regulations (Act Against Unfair Competition) on fair trading. Per the BGH, both regulations are market conduct regulations which also have effects under unfair competition law via Section 3a of the Act Against Unfair Competition. The legal requirements of recognizability of advertising – and the existence of advertising in the first place – as regulated by the Telemedia Act and the State Media Treaty may not be undermined by the application of the general provisions of the Act Against Unfair Competition.
Specifically, this means the following:
(1) According to Section 6 (1) No. 1 of the German Telemedia Act, a commercial communication must be clearly recognizable as such. However, according to Section 2 (1) No. 5 of the German Telemedia Act, commercial communication does not exist in the case of statements relating to goods and services or the appearance of a company, organization or person that are made independently and, in particular, without any (financial) consideration. Since in the cases of Influencer II and Plush Elephant the receipt of a consideration was not established, there was no commercial communication within the meaning of the provision, which meant that Section 6 (1) No. 1 of the German Telemedia Act did not impose any obligation to label the post as "advertising".
(2) Section 22 (1) sentence 1 of the State Media Treaty (formerly: Section 58 (1) sentence 1 of the Broadcasting Treaty) also requires that advertising must be clearly recognizable as such and clearly separated from other editorial content. Pursuant to Section 2 (2) No. 7 of the State Media Treaty (formerly: Section 2 (2) No. 7 of the Broadcasting Treaty), advertising is any statement which directly or indirectly promotes the sale of goods or services, including immovable property, rights and obligations, or the image of a natural or legal person engaged in an economic activity, and which is included in a broadcast or Telemedia in return for payment or for similar consideration or as self-promotion. This definition therefore also requires the receipt of any consideration for the existence of "third-party advertising". In the absence of any consideration in the Influencer II and Plush Elephant cases, the posts therefore did not meet the “advertising" criterion of the State Media Treaty (formerly: of the Broadcasting Treaty) and accordingly did not have to be labeled as such.
Due to the primacy of the media law provisions and the fact that the conduct of the influencers in the Influencer II and Plush Elephant decisions did not violate these provisions, the BGH also denies unfairness under Section 5a (6) of the Act Against Unfair Competition.
(iii) Consideration in the Form of Making the Products available free of Charge (Influencer III)
In the Influencer III decision, the Influencer received the products free of charge from the company.
The BGH concludes that there was consideration as required by both the German Telemedia Act and the State Media Treaty for the existence of commercial communication or advertising. The purpose of the special provisions is to prevent hidden advertising. This purpose would only be achieved if every monetary benefit - and this also included products provided free of charge - were understood as consideration. According to the BGH, making the products available (free of charge) initiated the Instagram posts. The value of the specific products is not important. This is because a minimum amount in terms of value is neither required by the German Telemedia Act nor the State Media Treaty.
The provisions of the Telemedia Act and the State Media Treaty thus did not preclude the assumption of a violation of Section 5a (6) of the Act Against Unfair Competition, because the business acts in dispute did not meet the requirements of the corresponding provisions.
(iv) Summary
In the case of third-party advertising without receipt of any form of consideration, the provisions of the Telemedia Act and the State Media Treaty take precedence vis-à-vis the Act Against Unfair Competition as sector-specific special regulations. This is intended to prevent contradictions of judgment.
In contrast, these demarcation problems do not arise in the case of paid third-party advertising. This is because in the absence of labeling as third-party advertising and in the absence of obviousness - which has to be assessed in the same way for all provisions - the business act violates both the Act Against Unfair Competition and the Telemedia Act and the State Media Treaty provisions. A contradiction of judgment does not arise in such cases.
3. Inducement to make a Business Decision not otherwise made (Influencer I and III).
In the Influencer I and III decisions, the BGH comments on the question of whether the consumer was induced by the non-disclosure of the commercial intent to make a business decision that he otherwise would not have made.
The BGH, on the one hand, emphasizes that a business decision within the meaning of Section 2 (9) of the Act Against Unfair Competition is not only the decision to purchase or not to purchase a product, but also the related decisions, such as entering a store or calling up the manufacturer's website. On the other hand, it is not sufficient if the consumer is only engaged with the advertising of a company, as there is thus no direct connection with the purchase transaction.
Applied to the present cases, this meant that there was no business decision as long as the Instagram user only called up the influencer's profile. Even the first click on the image, leading to the appearance of the tap tag, is not to be considered a business decision. This is because these actions are comparable to "engaging with advertising". However, per the BGH, something different applies to the second click on the Tap Tag and the forwarding to the company's website, regardless of whether the products can be purchased directly from the website or not.
In the BGH’s opinion, the failure to disclose is also likely to cause the consumer to make precisely this business decision. This is to be assumed as a rule.
Conclusion
The BGH presents four very differentiated decisions. These decisions also essentially correspond to the new provision of Section 5a (4) of the Act Against Unfair Competition (applicable as of 28 May 2022) replacing the current Section 5a (6) of the Act Against Unfair Competition. According to this provision, there is no commercial intent of an act in favor of a third-party's company if the person acting does not receive any remuneration or similar consideration from the other company, or does not allow themselves to be promised such consideration. With regard to "third-party advertising," this achieves conformity with the provisions of media law. According to the explanatory memorandum, the legislator had influencer marketing in mind when formulating the provision.
The decisions are also convincing with regard to the information contained in Influencer I on the type of labeling. Embedding the reference to “advertisement” in continuous text is not sufficient. Rather, it is required that the reference is recognizable at first glance, without more thought or action. In our opinion, this is, in general, only the case if the reference to "advertising" is made right at the beginning of the text.
Authors
Yvonne Draheim
Sabrina Mittelstädt