Anti-competitive Nature of Advertisements in Internet Business Directories

Recently, complaints have been mounting regarding internet-based business directories that allow searches for companies in a particular industry. However, these companies are not always asked for their consent beforehand, which can lead to legal consequences.

Such directories exist in large numbers for virtually every industry. In particular, business sectors with everyday relevance such as pharmacies, catering establishments, therapeutic practices, physicians, etc. are highly sought-after, as they promise a profitable business.

The unsolicited listing of businesses of the respective industry in such directories is not as such to be objected to. After all, this fact represents an opportunity to be perceived by potential customers. However, it is problematic that the providers distinguish in their search results between paid (advertising) and free entries (editorial content) without disclosing this publicly. Moreover, the paid entries are often accompanied by various predicates and a comprehensive presentation of the company. Here, the line to anti-competitive conduct is easily crossed.

Advertising Character of Paid Business Directory Entries

The form of company presentation is advertising within the meaning of competition law, as it aims to promote sales and this measure is undertaken in commercial dealings. Accordingly, the provisions of the Act Against Unfair Competition (UWG) generally apply.

What is not problematical from a competition law perspective is the fact that individual companies present themselves (or have themselves presented) in a favourable light against payment of a fee. The decisive aspect is rather that businesses which have so far made no contributions to the provider continue to appear alongside the premium entries in the search results. This regularly creates an incorrect impression that the highlighted and preferred search results offer customers qualitatively higher-value and more comprehensive services and are thus the better choice.

Relevance in Competition Law

If this misconception is not eliminated by clear identification of the affected entries as "advertising" or as so-called "sponsored links", this form of presentation of the search results is to be objected to from a competition law perspective on multiple grounds.

The simultaneous display of paid and free entries on the search results page leads, due to the non-disclosure of the sorting criteria, to a direct comparison between the listed companies. Since the editorial (free) entries are referenced and the companies behind them are made identifiable, this constitutes comparative advertising within the meaning of § 6 UWG. Whilst this has been fundamentally permissible for some years if certain rules are observed, this includes, amongst other things, that the comparison is factually accurate. This, however, is precisely not the case here, because in the free results the service spectrum of the business is consistently presented incompletely. This, however, does not generally correspond to the truth, which makes the comparative advertising anti-competitive.

Furthermore, there may be concealment of the advertising character of the entry pursuant to § 4 No. 3 UWG and thus misleading of the consumer, to whom it is not disclosed that the design of the advertisement presented as attractive(r) to him is based solely on the payment of fees and in no way on the reputation, experience or quality of the service provision by the listed company.

Finally, the provider's conduct also aims to induce the companies, which are listed without being asked and appear tending to be inferior alongside the premium advertisements, to book a paid advertisement. On the other hand, the unfavourable presentation virtually compels action. The pressure thereby exerted or the unsachlich influence emanating therefrom is prohibited pursuant to § 4 No. 1 UWG and is therefore anti-competitive. Furthermore, the offence of unfair obstruction of competitors may also be made out.

Legal Remedies

The affected companies need not simply accept the storage and display of their data in the presented form; in particular, payment of a fee to avert the disadvantageous presentation is not required. Rather, the problem can be addressed by means of competition law. Competition law provides an array of instruments that make it possible to proceed against the entry and its display on the search results pages as such by way of injunctions and cessation claims. The enforcement of these claims is effected, due to the heightened urgency, predominantly in preliminary injunctive relief, prepared by appropriate legal notice. Furthermore, a claim for damages exists insofar as the disadvantaged company has been harmed.

Respondents to Claims

The operator of the business directory is initially liable for cessation, injunction and damages as a tortfeasor (so-called tortfeasor liability). Whilst this party is generally not a competitor in the industry served by him, he does, through his conduct, promote the competition of his paying customers, who naturally satisfy the competitor status. This fact is sufficient to proceed against the platform operator on a competition law basis.

Furthermore, pursuit of direct competitors who have booked a preferred advertising display is also conceivable.

Measures by the Operator

It is strongly recommended to operators of such platforms to avoid the impression that their offering is throughout editorial in nature. Insofar as payment of a fee is taken as the occasion to give preference to these customers in priority and presentation, it is absolutely necessary to disclose the criteria for this distinction between paid and free entries. This can be done, for example, by identifying the premium advertisements with notices such as "advertising", "sponsored link" or similar remarks.

In addition, companies that are to be listed as free entries alongside the paid premium entries should be asked for permission in advance in order to prevent unwelcome (legal) surprises.