Influence on Influencers: The Federal Supreme Court rules not all posts must be labelled as advertisement
The discussion about when and how Instagram influencers need to mark their posts has been going on for a while. Decisions of lower courts in Germany were inconsistent and never provided a clear guideline.
Now, the German Federal Supreme Court (BGH) has ruled on influencer posts in three parallel decisions No. I ZR 126/20, I ZR 125/20 and I ZR 90/20 that were rendered upon appeals against decisions of the appeal courts in Munich, Hamburg and Braunschweig. BGH decisions provide more a framework for advertising posts rather than detailed instructions. Influencer posts referring to producers of depicted products through “tap tags” without setting a reference to advertising are permitted as long as the content is not “exaggeratedly promotional”. For links, the situation is different.
BGH has not decided in detail how to label such posts that are advertisements but held that notifications in the body text of a post are not sufficient to lead out of surreptitious advertisings, if they are not highlighted in view of the other wording of the text.
Background of the cases
The Association for Social Competition (Verband Sozialer Wettbewerb e.V - VSW) brought all three cases before court. All disputes involved well-known influencers that used tap tags to link products in their post to third-party companies, without flagging them as an advertisement.
Such tap tags only become visible after the Instagram user clicks on the post. Another click on the tag then forwards the user to the tagged company’s Instagram profile. VSW objected to this use of tap tags as illegal surreptitious advertising and initiated lawsuits demanding injunctive relief from the three influencers. In the proceedings I ZR 126/20, I ZR 125/20, the influencers had not obtained a compensation from the company, which they had tagged.
In contrast, the influencer in the proceedings I ZR 90/20 had obtained a promotion but had stated the following in the body text of the post “*advertisement – as of tomorrow new in the shop”.
Tagging without a Compensation
In the proceedings I ZR 125/20 and I ZR 126/20, BGH ruled that the use of a “tap tag” as such without consideration is allowed without flagging it as advertisement as long as the post does not establish otherwise an “exaggeratedly promotional” character.
In contrast, BGH held in the proceeding I ZR 90/20 that post was inadmissible surreptitious advertising among others, since the influencer received a compensation for her post.
The court held that an Instagram post of an influencer only has to be flagged as advertisement when it is “exaggeratedly promotional”. This shall be the case if the overall impression of the post “solely praises the advantages of a product of this company without any critical distance in such a way that the presentation leaves the framework of factually prompted information." Whether or not a post has such character, must be verified in a comprehensive assessment of the individual case. In contrast to tap tags, links to a website of a producer of a depicted product, has to be evaluated as a commercial promotion.
Furthermore, BGH examined, whether the use of “tap tags” is a business act in the sense of § 2 (1) No.1 of the Law against Unfair Competition (UWG). If an act is primarily aimed at promoting the sale/supply of goods/services of one's own company or of a third-party company by influencing the consumer’s commercial decision, UWG applies.
Given this, influencers are acting as entrepreneurs if they advertise goods or services of others but also when they market their own image and commercialize it through advertising revenue. By using “tap tags”, influencers promote at least their own business by increasing their advertising value. Therefore, this is also a business act and can be examined under the regime of UWG.
A business act is non-compliant with regulations against unfair competition, if the commercial purpose of the act is not made clear, §5a (6) UWG. However, BGH stated that the commercial purpose (of promoting one’s own business does not need to be identified if “the appearance of the commercial purpose is designed in such a way that consumers can clearly and unambiguously recognize the commercial purpose at first glance”.
BGH held that one could easily recognize that the influencer posts in the proceedings I ZR 125/20 and I ZR 126/20 were commercial. The court stated that one has to keep in mind the distinctiveness of the medium Instagram and the closed user community. The average user will at first glance understand that a verified account (blue tick) with over a million of followers, and a five-digit number of likes under a post is a commercial account. Therefore, the post of this account will generally have a commercial purpose, as influencers profit by using such posts to increase their market value and support their image.
The question, whether the posts were also aimed at profiting a third-party company - and therefore in violation of § 5a (6) UWG due to another reason -- was left open. BGH held that the provisions of the German Tele Media Act (TMG), the State Treaty on Radio (RStV) and the Media State Treaty (MStV) are sector-specific lex specialis to UWG and limit the scope of application of the UWG.
TMG, MStV and RStV regulate sales-promoting statements in tele media, commercial communication or advertising and are therefore more specific than the UWG. According to these provisions, sales-promoting statements in telemedia (also covering Instragram), commercial communication or advertising must be clearly recognisable as such. However, as the influencers did not receive a compensation for their posts from the “tagged” companies the posts were not commercial communication or advertising within the meaning of these provisions and therefore not surreptitious advertising.
Game changer: Compensation for Tags
In the proceedings I ZR 90/20, BGH came to a different opinion and held that tthe advertisement as such was not recognizable at a first glance. BGH held that the average user was not able to realize the commercial purpose of the post before clicking on the “tap tag”. Therefore, the commercial purpose should have been indicated. Besides, the influencer received compensation for her post, with the result that it creates a commercial communication advertising according to TMG.
The Court of Appeal had held notification in the body text of the post “*advertisement – as of tomorrow new in the shop” was not sufficient as it was not clear if the notification referred to the tap tag and since “advertisement” was not highlighted in view of the other wording of the body text. BGH did not object to these allegations. Therefore, the post was held as a surreptitious advertising and therefore as a violation of § 6 TMG and as well of § 5a UWG.
As a consequence, the compensation of an influencer is important under two aspects. Firstly, the compensation is decisive for the applicability of TMG as lex specialis to UWG. Secondly, the omission to declare that the influencer has obtained a compensation for the tagging also leads to a violation of Sec. 5a UWG.
Outlook: Amendments of the German Law against Unfair Competition (UWG)
As of May 28, 2022, the new, amended UWG will apply and new regulations with special impact on influencers will be introduced.
The new wording of Sec. 2 (1) No.1 UWG defines "business act" in relation to a business transaction that is directly and 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.
§ 5a (4) UWG new version) will have the following wording:
One also acts unfairly if one fails to disclose the commercial purpose of a commercial act unless this purpose is immediately apparent from the circumstances, and the failure to disclose is likely to cause the consumer or other market participant to take a commercial decision that he would not otherwise have taken. A commercial purpose does not exist in the case of an act in favor of another's company if the person acting does not receive any payment or similar consideration for the act from the other's company or does not allow themselves to be promised such consideration. The receipt or promise of consideration is presumed, unless the person acting makes a credible case that they did not receive such consideration.
The outcome of BGH’s decisions are in line with the new wording of UWG. However, under the new law, the evaluation whether a post of an influencer is “exaggeratedly promotional” and the differentiation between tap tags and linking may not be upheld. The relevant criterion will be likely whether the influencer has received a compensation.
Even after three parallel decisions of the German Federal Supreme Court, the legal requirements for influencer posts are still not entirely clear. Besides, BGH may adapt its case law after the upcoming reformation of German Unfair Competition Law in 2022. For the time being, the three decisions have established guidelines for evaluating if a post must be labelled.
The main criteria is and will be if the influencer has received a compensation for the post. Tap tags as such do not automatically lead to the assumption of an advertising surplus and therefore not to an obligation to label the advertisement. In contrast, a link to the producer of the tagged product does create a problematic surplus.
To evaluate whether consumers understand the commercial purpose of a post at first sight, several aspects have to be taken into account. These are inter alia: How many followers does the account have? Is it a verified account (blue tick)? How many likes do the posts of that account in general get? How expensive are the promoted products? The less obvious an influencer is using the account primarily for business purposes, the more attention must be drawn to the promotional nature of postings. To be on the safe side, influencers should label at least such posts, which are not obviously commercial at first sight.
Notifications in the body text of a post are often not sufficient to lead out of surreptitious advertisings, especially if they are made in hashtag clouds or not highlighted in view of the other wording of the body text. In this regards, BGH has not set guidelines in the three decisions. With the previous case law of the District Courts, such notifications have to be separated clearly from the rest of the body text. Besides, influencers should use a wording that discloses the commercial purpose and the relationship to their clients clearly. Notifications like #ad are not sufficient.
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