Affiliate Marketing: A violation of the Act against Unfair Competition (UWG)?
picture from Albrecht Fietz of Pixabay
In order to stand out from the competition, companies often have to think of creative ways to attract the attention of end customers. Entrepreneurial skill is required, especially in competitive markets where many competitors offer similar products. One common strategy is to offer rewards to business partners in order to motivate them to sell your own product more intensively (affiliate marketing). But how should such a bonus system be viewed from a legal perspective? Is it a legitimate competitive act or an unlawful influence on the end customer that puts competitors at an unreasonable disadvantage? One answer is provided by the Act against Unfair Competition (UWG) and the relevant court rulings.
Affiliate marketing: What does the Act against Unfair Competition (UWG) regulate?
The Act against Unfair Competition is an important set of rules in German commercial law. It ensures fair competitive conditions by prohibiting and sanctioning unfair business practices. The aim of the UWG is to protect both consumers and companies from unfair competition. It thus promotes a fair and innovative business environment. The UWG defines certain groups of cases for this purpose. Should certain conduct fall into one of these categories, it always constitutes a violation of the UWG.
At the same time, the UWG also has general clauses. These cover all unfair conduct that cannot be subsumed under a specific case group, but nevertheless contradicts the basic idea of the law. Due to the open formulation of these general clauses, however, it is rarely clear whether such conduct is incompatible with fair competition. This usually requires a look at court rulings and legal commentaries. These differentiate between various scenarios in relation to affiliate marketing, which we will examine in more detail below.
Rewards for commercial companies and dealers
First of all, a distinction must be made as to whether the rewards offered are aimed at sales and trading partners or their employees. There are fewer concerns with regard to the former. A retailer generally sells goods and products from various partners and suppliers. Which products it prefers to sell depends primarily on economic considerations. On the one hand, this means that a retailer will not be overly influenced by such a bonus system. It pursues long-term interests and wants to retain certain customers and contractual partners in the long term. The incentive provided by the bonus will therefore rarely lead to him risking business relationships with other partners by selling less of their products.
On the other hand, the end customer also generally assumes that a retailer is guided by his own economic interests. The average consumer is also aware that they do not always receive objective and neutral advice from business-minded retailers. There is therefore generally no undue influence on the retailer or the consumer. However, it can become problematic if the retailer misleads the end consumer about the characteristics of the product due to the premium offered. Or even if the consumer can rely on neutral, uninfluenced purchasing advice from the retailer due to the circumstances. In these cases, the company offering the bonus can also be held jointly responsible.
picture from Gerd Altmann of Pixabay
Rewards for employees of sales partners – Affiliate Marketing
The problem is different if the reward is not aimed at the sales partners but at their employees. In this case, it is particularly problematic if the employer is unaware of the incentives or does not consent to them. The employees then find themselves in a predicament. They are caught between the incentive provided by the reward and the contractual relationship they have with their employer. The reward system therefore impermissibly influences the right to issue instructions that the sales partner actually has over its employees. This can be seen as an unlawful influence on competition and therefore a violation of the German Act against Unfair Competition (UWG).
The situation is also legally problematic if the end customer is a consumer. While the average consumer in contact with a retailer assumes that the retailer is guided by its own interests (see above), this cannot necessarily be applied to its employees. In the past, case law has regularly assumed that the average consumer does not generally assume that the employee is influenced by self-interest. In this case, the reward system could therefore constitute a violation of the UWG.
However, the emphasis is on “could”. The legal situation is not clear. Rather, it depends on many factors: How strong is the incentive provided by the reward? Is the reward suitable for influencing the employee’s behavior? What are the Customer’s expectations of the advice given by the employee? Are there external circumstances that influence a particular trust or mistrust? How should the situation be assessed if the end customer is not a consumer but a merchant? In the latter case, less stringent standards are applied, as entrepreneurs generally assume less neutral advice than an unbiased consumer.
picture from Daniel Reche of Pixabay
Contractual obligations of certain professional groups
The situation is different for professional groups that are obliged to provide neutral and objective advice either by law or on the basis of contractual provisions. Examples include doctors, lawyers, auditors, financial advisors, etc.. End customers place increased trust in representatives of these professional groups. A reward system aimed at these professions must therefore be assessed much more strictly. As a rule, a violation of the UWG can be assumed. However, this also depends on the specific individual case. A general assessment is rarely possible. Advice from lawyers should not be foregone. Please contact our law firm LLP Law|Patent to avoid a violation of the UWG and its legal consequences.
Robert Lankes | Rechtsanwalt (Lawyer)
Mr. Robert Lankes supervises the areas of corporate law, IP rights and construction and real estate law at LLP Law|Patent. He will support you in choosing the right legal form, for example, in forming a company, in disputes between shareholders and in company purchases. In the IP area, he will represent you in the context of competition, warnings and interim relief, and in the main proceedings. In construction and real estate law, he advises developers and tradesmen as well as tenants or co-owners. Mr. Lankes is an experienced negotiating partner and litigator in negotiations and discussions with third parties, as well as in court.
