German Court Says Ad-Blocking is Liberation, Not Extortion (Guest Blog Post)

[By guest blogger Russell A. Miller, the JB Stombock Professor of Law at Washington & Lee University, where his teaching and research focuses on German law and legal culture. He is the co-founder and Co-Editor-in-Chief of the German Law Journal. He has written a draft paper, Liberation, Not Extortion: The Fate of Internet Ad-Blocking in German and American Law, on the topic of adblocking.]

[Eric’s introduction: I haven’t blogged much about adblocking technologies and their legal status. The technology implicates a wide and complex range of legal doctrines–from copyright law to Section 230(c)(2) to competition law and beyond–so blogging about the issue would take a lot of time. Also, my attitudes about the technology are mixed. I’m all for users adopting technology they find valuable; however, I’m skeptical about the adblockers’ business models, especially when they morph into a variation of adware where they sell ads in competition with the publishers they block–a potentially serious conflict of interest. Still, the state of adblocker legality is a hot topic, and we got some new information from Germany that Prof. Miller helps explain:]

You are reading this online. And that means you likely had to wade through a phalanx of obtrusive, even obscuring, advertisements to reach this essay. Worse than that (and the ads really should be bad enough), the firms sending those ads across the Internet to your computer have addled them with cookies that allow them collect data on your web-based conduct and interests, with the collateral effect of burdening your computer’s performance.

All of this is true unless you took advantage of one of a number of ad-blocking services now available. The most popular service—AdBlock Plus offered by the German firm Eyeo—operates as a browser extension that disaggregates the content delivered to a user’s computer when she accesses a website. The site’s substantive content, which presumably motivated the site-visit in the first place, is delivered undisturbed. But the ad-blocking service empowers the user to decide whether she wants to receive all the rest of the content the website seeks to summon to the user’s computer. That extramural content—often sent from third-party servers—includes the advertising that litters your experience of the Internet. The user, enabled by an ad-blocking service, now chooses what to exclude by endorsing a default “black-list” of content characteristics (usually keyed to advertising) or by developing a tailor-made “black-list.”

Tens of millions of Internet users, undone by maddening pop-up banners and animated by privacy concerns, have resorted to ad-blocking services. We have spoken: get that junk off our computers. But it is not so simple. After all, we largely also continue to insist on free access to Internet content. The revenue generated by Internet advertising has made that dream possible by helping to cover the cost of generating content and maintaining the websites where it appears. The remaining profits also have been an important factor in motivating web-content entrepreneurs. It seems that Internet advertising—no matter how obnoxious—is the price we have to pay for the free-access Internet we expect.

Ad-blocking can significantly disrupt this precarious economic eco-system. By one estimate, ad-blocking services cost website publishers almost $22 billion in advertising revenue in 2015. But that is not the whole story. If ad-blocking services empower users to exclude ads, then they also can empower users to permit the appearance on their computers of select advertisements. This is exactly what Eyeo has arranged through the “Acceptable Ads Initiative,” which assembles a “white-list” of tolerable, unobtrusive advertisements that, if the users chooses, can be cleared for delivery to her computer. Small website publishers committed to the principles of acceptable advertising can participate in the “Acceptable Ads Initiative” at no cost. Large website publishers have to pay Eyeo to play. Usually, this premium is set as a percentage of revenue increases seen as a result of users’ heightened engagement with a website’s advertising, presumably resulting from those ads’ more tolerable character. The “Acceptable Ads Initiative” sells itself as a win-win compromise solution: users can choose to be confronted only with tolerable ads while publishers stand to reap a revenue windfall by responding to users’ strong preference for unobtrusive ads. Similar to a personal trainer, the website publishers are paying Eyeo to help them discipline themselves—and they only pay if they see revenue improvements as a result of that discipline. A number of the world’s largest information-technology firms, especially those who are both vastly dependent on advertising revenues and who have deep pockets, have embraced the “Acceptable Ads Initiative.” Many website publishers, however, have turned to the courts in an attempt to block the ad-blockers.

Germany has been the frontline in this novel and enormously important legal battle, which involves nothing less than the Internet’s entrenched economic model. Two forces pointed toward the German courts. First, Eyeo has its headquarters in Cologne. Second, Germans—who are famously concerned about information-technology privacy—have embraced ad-blocking with enthusiasm. Website publishers have resorted to a wide-range of legal claims, including general tort remedies and anti-trust issues. Most prominently, however, they have focused on claims arising out of the Act against Unfair Competition (Gesetz gegen den unlauteren Wettbewerb – UWG). On one hand, they have argued that ad-blocking “black-lists” constitute a “deliberate obstruction of a competitor” (§4(4) UWG) because the revenue lost to ad-blocking radically limits website publishers’ competitive possibilities. On the other hand, they have argued that the “white-list” clearance of advertisements is an extortionate, “mafia” business model that constitutes an “aggressive business practice” (§4A UWG).

In a string of judgments issued over the last several years, the German courts repeatedly have rejected the web publishers’ challenges to ad-blocking. This jurisprudence was confirmed by a recent set of comprehensive judgments issued by Munich’s respected second-instance court (Oberlandesgericht). The Court considered suits filed against Eyeo by several major German media and advertising interests (ProSiebenSat.1, RTL, IP Deutschland, Süddeutsche Zeitung Digitale Medien) following victories for the ad-blocking firm in the first-instance courts. The Court again ruled in favor of ad-blocking after weighing the concerns of a wide range of stakeholders: website publishers, the ad-blocking firm, consumers, other market participants (such as advertising firms), and the general public.

The Court’s ruling had two key themes. First, as in previous German judgments, the Court credited the ad-blocking service for enabling individual users to make a choice about the Internet content they receive at their computers. “Fundamentally,” the Court explained, “the choice is made by the user.” The Court reinforced this conclusion by noting that, by liberating the user in this way, ad-blocking helped to promote individuals’ constitutionally protected interest in avoiding unwanted information, a doctrine referred to as “negative informational freedom.”

Second, the Court dismissed the allegations of a shakedown because it found that the website publishers had adequate means in the market—other than paying the “white-list” premium—for responding to the changes wrought by ad-blocking. The courts repeatedly have argued that website publishers can mitigate the ad-blocking’s effects on their revenue by blocking access to individuals who use an ad-blocking service, by taking advantage of a range of ad-blocker blocking technologies, or by shifting to an alternative revenue model such as pay-walls or premium access. The Court also emphasized that Eyeo’s AdBlock Plus service presently only blocks static (text-heavy) advertisements and does not affect increasingly popular (and ubiquitous) dynamic (audio or video) advertisements. For the German courts—and once again in the new judgments of the Munich Second Instance Courts—the principles of individual autonomy and market competition have categorically settled the confounding questions raised by these cases in favor of ad-blocking.

Besides offering a comprehensive survey of the innovative German ad-blocking jurisprudence, I argue in a new law review article that these principles should lead the American courts to a similar outcome when the American legal challenges to ad-blocking come. Claims such as tortious interference or misappropriation permit courts to consider the full range of interests implicated by ad-blocking, including Internet users’ desperate desire to avoid obtrusive advertising and website publishers’ need to adapt to market forces.