Market conditions in online advertising sector: Federal Cartel Office launches sector inquiry

The Federal Cartel Office has launched a sector inquiry into the online advertising sector. The inquiry will focus on the market structure and the market opportunities of various players in this highly technical sector. The Federal Cartel Office has identified various issues (such as “walled gardens”) which it sees as highly relevant from a competition point of view. Companies active in the relevant market should already review their business practices in terms of their compatibility with competition law.

What is the focus?

The Federal Cartel Office is using the new year to launch another sector inquiry: in the coming months it will analyse market conditions in the online advertising sector. The German authority will focus on the effects of current and foreseeable technical developments on the market structure and the market opportunities of the various players. It will specifically examine the significance of different technical services and the way in which they function. These include options for measuring visibility, collecting data and preventing fraud as well as services more on the level of the actual marketing and procurement of ad spaces.

The Federal Cartel Office justifies its decision to launch this inquiry with the great economic importance of this sector for advertisers and content providers active on the Internet and refers to prevailing discussions about the difficult competitive environment in this market. In its press release, the Federal Cartel Office expressly refers to the two Internet giants Facebook and Google, whose market power is also being or has been investigated in other proceedings conducted by the German competition authorities (see articles here and here) as well as the European Commission. The digital economy is, therefore, shortly after the completion of the European Commission’s sector inquiry into electronic commerce (final report here) once again the subject of a sector inquiry.

During the sector inquiry the Federal Cartel Office will for example follow up on accusations that companies such as Google and Facebook have set up closed systems, referred to as “walled gardens”, which providers and operators equip with user restrictions which allegedly prevent users from obtaining deeper access to the platform. These advertising platforms are, therefore, allegedly less transparent for advertisers, which would make the independent measurement of advertising reach or the impact of advertising more difficult. Such closed systems also allegedly make it more difficult to combat online “ad fraud”. The Federal Cartel Office also specifies the issue of access to and the processing of data as being highly relevant from a competition point of view.

At the same time as the launch of the sector inquiry was announced, the Federal Cartel Office published a paper on “online advertising” in the series of papers entitled “Competition and Consumer Protection in the Digital Economy” (which can be downloaded using the following link). In this paper, the authority identified the following additional issues as being of particular interest in the online advertising sector: mobile advertising, AMP (accelerated mobile pages), brand safety and ad blockers.

It cannot be ruled out that these issues will be included in the sector inquiry.

What should companies expect?

Carrying out a sector inquiry does not mean that there is any concrete suspicion that specific companies have infringed relevant laws. Rather, such an inquiry serves to initially identify any sector-wide deficiencies that may require additional measures in the future.

The Federal Cartel Office will initially hold talks with various companies from the business communities concerned to gain a close insight into their individual views on the above aspects and to further limit the scope of the investigation. Based on this, first questionnaires will be sent to market participants in spring 2018, to which these companies then have to respond within one to two months.

Companies are required to respond to the Federal Cartel Office’s questionnaires, to disclose information on their current financial and economic status, and to provide relevant documentation. Moreover, the Federal Cartel Office may also ask companies to provide internal documents, such as market studies, which contain information on the market situation and competitive conditions.

Experience shows that completing questionnaires for the Federal Cartel Office and identifying and compiling the relevant documents can be a time-consuming affair. Companies should thus take the necessary organisational steps early on to ensure timely completion of the questionnaire.

If information and documents are not provided at all, not provided in full, or provided incompletely or late, the Federal Cartel Office may then fine the undertaking concerned up to EUR 100,000.

When will the results be available?

After analysing the companies’ responses to the questionnaire, the Federal Cartel Office will publish a final report. Judging from past sector inquiries, the investigation may take one to two years.

What will the consequences be?

The Federal Cartel Office’s questionnaire should be completed with diligence and care. Every response may significantly affect the results of the inquiry and thus trigger future administrative or even legislative measures.

Both companies which are approached by the Federal Cartel Office as well as those which are not directly affected should consider reviewing their business practices to make sure they comply with competition law.

Of course, it is still too early for companies to change current business models. However, companies should still examine whether their business processes and contractual terms and conditions comply with current legislation and case law.