Germany: Comparative Advertising - The New Law

This turnabout was triggered - as so often in recent years in the field of competition law - by a development at European level, namely the "Comparative Advertising Directive" (the Directive concerning misleading advertising so as to include comparative advertising, to give it its full name) (referred to below as the "Directive").⁶ Unlike the law in Germany hitherto, the Directive takes a positive stand on comparative advertising, provided it is objective, and sees truthful comparisons as a potentially valuable instrument in 'educating' consumers. A further aim of the Directive was to redress the imbalance that existed concerning the legislative situation in the various Member States (and the resulting obstacles to and distortions of competition), which was seen as detrimental to the Internal Market. The Directive therefore regards the use of truthful and objective comparisons in advertising as permitted in principle, provided certain requirements are met.

The deadline for transposing the Directive into national law was April 23, 2000.⁷ However, in an unprecedented move, the courts "beat the legislator to it" and even got in before the deadline: In a landmark decision issued on 5 February 1998 in the "Testpreis-Angebot" (test price offer) case,⁸ the Federal Court of Justice's First Civil Chamber (the one responsible for competition matters) went ahead and implemented the Directive - "off its own bat", so to speak - and without waiting for the legislator, by breaking with jurisprudential tradition and ruling that comparative advertising was already permitted in principle if the requirements set forth in the Directive were met. One of the main considerations that led to the FCJ's decision was that the Directive does not leave the legislator all that much scope anyway. The FCJ possibly wanted to save the legislator 'the bother' of having to implement the Directive and intervene in the field of competition law - an area that has traditionally been moulded to a large extent by the judiciary (case law), anyway. This did not prevent the legislator from transposing the Directive into German law, however, in the form of the Act of 1 September 2000⁹ on Comparative Advertising and for the Amendment of Competition Rules, which entered into force just the day after it was promulgated. Technically, the Directive was implemented in the main by the insertion of a new section 2 in the Unfair Competition Act, which now contains the main provisions pertaining to comparative advertising.

Though the purpose of promotional communication is very frequently a - direct or indirect, express or implicit - comparison with competitors and competing products, this does not necessarily mean that all advertisements that seek more or less subtly to achieve this purpose - or to cause consumers to draw a comparison themselves - are "comparative advertising" in the legal sense. The new section 2(1) Unfair Competition Act therefore seeks to define and delimit comparative advertising, thereby adopting more or less word for word the definition contained in Article 2a of the Directive. According to this definition, comparative advertising means any advertising which directly or indirectly identifies a competitor or goods or services offered by a competitor. Advertising is comparative not only when the advertising message is directed only at a particular competitor, however. Nor does the competitor actually have to be identified by name. According to more recent court rulings, a statement such as "We wouldn't expect you to put up with cheap composite rackets (graphite/fibreglass)" ("Billige Composite Rackets (Graphite-Fiberglas) muten wir Ihnen nicht zu") is also comparative advertising within the meaning of the Directive.¹⁰ Where it is not actually the supplier itself, but a third party, that makes the comparison for competitive purposes - like the tradesman in the FCJ case "Price Comparison List II"¹¹ who had compiled a list of offer prices from various different suppliers and was offering to deliver the articles listed at the specified prices plus a percentage surcharge - this may also be considered comparative advertising. Merely requesting customers to make a comparison should not be classified as comparative advertising, however.¹² And where an advertisement is couched in terms that are so general that the targeted sections of the public do not even recognize straight away that it refers to competitors, but gradually realize each time the virtues of the product/service in question are extolled that the advertisement is saying - between the lines, so to speak - that not all competitors can offer the same advantages, this is not comparative advertising, either.¹³ Nor are so-called system comparisons or superlative-type advertising (Alleinstellungswerbung) because these do not actually refer to competitors or their products.¹⁴

According to Article 3a of the Directive, comparative advertising is permitted if certain conditions, which are listed in the Directive, are met. While, technically speaking, the new section 2(2) Unfair Competition Act takes the opposite approach in that it lists the cases in which comparative advertising is contra bonos mores within the meaning of section 1 Unfair Competition Act, essentially the provision is modelled on the criteria listed in the Directive:

A) Substitutable Products

The goods/services compared naturally do not have to be absolutely identical or have exactly the same function because this would make it impossible to use comparative advertising at all in many cases. A comparison that draws attention to differences between various products on offer can be particularly useful and informative, but it must relate to goods that meet the same needs or are intended for the same purpose,¹⁵ which the FCJ¹⁶ aptly describes by using the term 'substitutable products'. Rather less apt is another requirement the FCJ imposes - and which is evidently intended to be cumulative - namely that the products have to "function in an identical manner". According to the word of the Directive, it is enough if the goods meet the same needs, even if they do differ in terms of their "function" (i.e. the manner in which they function, or rather meet consumers' needs).

B) Definite Features

Comparisons must also relate to definite features of the goods/services and these features must be "material", "relevant", "verifiable" and "representative."¹⁷ For most conceivable kinds of advertising comparisons, meeting the requirements as to "material" and "relevant" will presumably present no great problem because, from the marketing point of view, there is every reason to compare material product features, which are naturally features that are particularly relevant from the consumer's perspective. "Verifiable" means that there must be evidence available to back up the factual claims made in the comparison.¹⁸ Consequently, simply comparing taste or aesthetic features is not permitted because such things cannot be proven (e.g. comparing a product's design or designer, at least as far as its appearance is concerned). On the basis of this provision, a comparison that highlights a special technical innovation - i.e. a certain new feature - that rival products do not have might well be a problem because it is questionable whether the feature concerned is already "typical" at the time the advertisement is published. The courts would be well advised, however, to err on the side of liberalness and take a 'comparison-friendly' approach in this respect, seeing that so-called innovation-related comparisons are already permitted now as a way of highlighting technical advancements.¹⁹ Dogmatically, the explanation for the fact that this kind of comparison is already permitted is that with conventional products it is the very absence (highlighted by the comparison) of the feature in question that is "typical" in the sense of the provision. Lastly, what is particularly important in practice in this regard is that the comparison may relate not only to product features, but also to the price.²⁰

C) Confusion

Comparative advertising may not create confusion between the advertiser and the competitor concerned by the comparison, its products or distinguishing marks (i.e. in particular its trademarks and trade designation).²¹ This requirement will probably not be all that important in practice, given that anyone wishing to compare himself with his competitor is presumably going to want to emphasize the ways in which he differs - in a positive sense - from his competitor, rather than be confused with him.

D) Unfair Exploitation Of Competitors' Reputation

Comparative advertising may not unfairly capitalize on or detract from the reputation of a competitor's distinguishing marks (i.e. his trade marks and trade names) meaning that it is not permitted to unfairly exploit or dilute others' well-reputed distinguishing marks. A typical violation of this provision would be where an advertisement quite obviously serves the purpose, not so much of drawing a comparison, but also, and indeed primarily, of establishing a connection between the advertiser's own (less well-known or less highly-regarded) product and a rival product sold under a prestigious trademark in order to trigger associations in consumers' minds. Cases of this kind have also been the exception in the past, however. In the interest of consumer education, the provision should not be interpreted overly strictly to the disadvantage of the advertiser: If comparative advertising is going to be permitted in principle, then why should consumers not know that an inexpensive (unknown) product exists that has essentially the same features as an established and expensive "prestige product"?

E) Objective

A competitor's goods/services, operations, and (personal and business) circumstances may not be discredited or denigrated,²² which means essentially that comparative advertising must be objective. The idea of comparative advertising is to make it possible for entrepreneurs to highlight what, looked at objectively, are the qualities of their own products/services. Just because an objectively formulated comparison shows competitors in a less favourable light, this does not automatically mean that it discredits them - this is just something that has to be accepted as an intrinsic aspect of comparative advertising. What is not permitted, on the other hand, is to refer to or present competitors in a derogatory or negative manner (in particular by making judgmental or even malicious comments about competitors or their products) which is not necessary for the purposes of the comparison.

F) Imitations

Lastly, when making a comparison, it is not permitted to present one's own product or service as an imitation of products/services that are sold under a protected trade mark. There is nothing wrong, therefore, in comparing 'no-name' products with well-known branded goods, but the advertiser must not create the impression that he is imitating these branded goods. The sense of this restriction is not quite clear: As long as it is permitted under competition law to imitate products - which is the case in principle in Germany in the case of products that are not protected by special rights²³ - surely truthfully informing consumers' about the existence of such products is in their interest? Nevertheless, advertisers will have to comply with this restriction as well in practice. One area in which it will probably be of special relevance is that of advertising for generic pharmaceutical products, which imitate branded products that are well established in the market and whose patent protection has expired.

3. Special Rules For Price Comparisons

Comparing prices is a particularly useful advertising instrument in many branches of business, one topical and typical example being the telecommunications market, because the service offered - telephony - is basically always the same, no matter who is supplying it. This is why, from the consumer's point of view, it is usually the price that is the main criteria when it comes to deciding on a supplier.²⁴ As already mentioned, price comparisons are now permitted in principle, provided the other requirements laid down in section 2(2) Unfair Competition Act (new version) are met.²⁵ If objective, a price comparison is by no means disparaging within the meaning of section 2(2), no. 5, Unfair Competition Act (new version).²⁶ It is advisable, however, to compare the actual prices of individual goods/services, and not a whole range, for example. If they were to make such generalised comparisons, advertisers would run the risk of being untruthful because one or other of their goods/services concerned could actually be more expensive that the competitor's equivalent.²⁷

Concerning price comparisons, section 2(3) Unfair Competition Act also provides that where a comparison refers to a offer that involves a special price or other special conditions, it must specify when the offer ends and (if it has not yet started) begins. What exactly is meant by 'special' price and 'special' conditions in this context is not defined. This can presumably be interpreted as meaning that the price, or other selling conditions, differ from the price/selling conditions normally granted by the undertaking concerned for the product/service in question. Furthermore, this rule can only apply where, at the time the advertisement is published, the offer concerned has a fixed end. Indefinite special offers therefore do not come under this provision.

According to section 2(3), 2^nd sentence, Unfair Competition Act (new version), where an offer applies only as long as the goods or services are available, price-related comparative advertising must indicate that this is the case (i.e. by using the customary phrase "as long as stocks last"). All in all, this provision corresponds to section 3a(2) of the Directive. Though presumably not absolutely necessary,²⁸ it was inserted so as to be absolutely sure of having complied with the obligation to implement the Directive.

4. Advertising For Medicinal Products

As a result of Article 2 of the Act on Comparative Advertising, a new section 11(2) has been added to the Act on Advertising for Medicinal Products. According to this provision, except where it addresses medical professionals only, advertising for medicinal products for human use may not use statements that give to understand that the product's effect is the same as, or better than, some other medicinal product or treatment. This implements Article 5b of Council Directive 92/28/EEC of 31 March 1992 on the advertising of medicinal products for human use.²⁹ De facto this means that advertising on the basis of the product features of medicinal products is more or less prohibited.

III. Consequences

Ever since the FCJ issued its landmark judgment in the "test price offer" case on 5 February 1998, comparative advertising has been permitted in Germany provided the requirements laid down in the Directive are met. The revision of the Unfair Competition Act has not really changed much, except that the requirements to be met if comparative advertising is to be permitted are now laid down in the new section 2 Unfair Competition Act (essentially identical to the Directive). Most companies have so far refrained from making any significant use of the new possibilities open to them, which is hardly surprising. Even abroad, comparative advertising is a but a sparingly used marketing instrument. Companies that do want to use comparative advertising on a substantial scale would be well advised, legally speaking, to confine themselves to specific product features that are easily presented and objectively verifiable and to compare these specifically with competing products in a form that cannot give rise to misunderstandings. If the newly codified rules are adhered to, then comparative advertising will in future be a legally permitted marketing method which may well make a valid contribution to consumer education.

1. As still ruled by the FCJ on 19.9.1996 - I ZR 72/94, MDR 1997, 476 = GRUR 1997, 304/5 - Energiekosten-Preisvergleich II.
2. FCJ, judgment dated 5.6.1956 - I ZR/55, GRUR 1957, 23/4 - Bünder Glas; judgment dated 26.6.1959 - I ZR 81/58, GRUR 1959, 488 (491) - Konsumgenossenschaft; judgment dated 26.2.1960 - I ZR 166/58, GRUR 1960, 384 (387) - Mampe Halb & Halb I; judgment dated 20.2.1986 - I ZR 202/83, MDR 1986, 997 = GRUR 1986, 618 (629) - Vorsatz-Fensterflügel.
3. ZB FCJ, judgment dated 13.11.1951 - I ZR 44/51, GRUR 1952, 416 (418) - Dauerdose; judgment dated 29.3.1960 - I ZR 145/58, GRUR 1961, 237 (240) - TOK-Band.
4. E.g. FCJ GRUR 1962, 45 (48) - Betonzusatzmittel.
5. Cf. the above-cited FCJ rulings.
6. Directive 97/55/EC of the European Parliament and of the Council of 6 October 1997 amending Directive 84/450/EEC concerning misleading advertising so as to include comparative advertising.
7. Article 3 (1) of the Directive.
8. FCJ GRUR 1998, 824 et seq.; confirmed by FCJ, judgment dated 15.10.1998 - I ZR 69/96, MDR 1999, 820 = GRUR Int. 1999, 453 et seq. - Vergleichen Sie; FCJ, judgment dated 23.4.1998 - I ZR 2/96, GRUR 1999, 69 et seq. - Preisvergleichsliste II; FCJ, judgment dated 15.7.1999 - I ZR 14/97, MDR 1999, 1453 = GRUR 1999, 1109 (1111 et seq.) - Generika-Werbung.
9. Federal Law Gazette I, 1374; the Government's memorandum of legislative intent concerning the draft law, at: Bundestags-Drucksache 14/2959 dated 20.3.2000 (Bundesrat's comments and Government's response at Bundestags-Drucksache 14/3433); Berlit, BB 2000, 1305 et seq.
10. FCJ, judgment dated 5.2.1998 - I ZR 211/95, MDR 1998, 1238 = GRUR 1998, 824 (828) - Testpreis-Angebot.
11. FCJ, judgment dated 23.4.1998 - I ZR 2/96, GRUR 1999, 69 et seq.
12. FCJ, judgment dated 22.5.1986 - I ZR 11/85, MDR 1987, 206 = GRUR 1987, 49 - Cola-Test; differently now, however: FCJ, judgment dated 15.10.1998 - I ZR 69/96, MDR 1999, 820 = GRUR Int. 1999, 453 (454) regarding the price-related request to "compare with XY's catalogue" - criticized by Völker, WuB IV B. § 1 UWG 3.99.
13. As ruled, quite rightly, by FCJ, judgment dated 15.7.1999 - I ZR 14/97, GRUR 1999, 1111/2, with affirmative commentary by Helm, WuB V B. § 1 UWG 1.00.
14. Memorandum of legislative intent (footnote 9), p. 10; Berlit, BB 2000, 1305/6.
15. UWG new version § 2(2), no. 1; Article 3 (1) (a) Directive.
16. FCJ, judgment dated 15.10.1998 - I ZR 69/96, MDR 1999, 820 - GRUR Int. 1999, 453/4 - Vergleichen Sie.
17. UWG new version § 2(2), no. 2; Article 3a (1) (c) Directive.
18. Similarly: memorandum of legislative intent concerning the government draft (footnote 9), p. 11.
19. Cf. section I, above.
20. For more details, see subsection 3, below.
21. UWG new version § 2(3); Article 3a (1) (d) Directive.
22. UWG new version § 2(2), no. 5; Article 3a (1) (e) Directive.
23. Baumbach/Hefermehl, Wettbewerbsrecht, 21^st ed. 1999, § 1, no. 439 et seq.
24. Concerning recent court rulings: Völker, NJW 2000, 2787 (2790/1).
25. Concerning price comparisons: FCJ, judgment dated 15.10.1998 - I ZR 69/96, MDR 1999, 820 = GRUR Int. 1999, 453/455 - Vergleichen Sie; Berlit BB 2000, 1305 (1308/9); Tilmann, GRUR 1999, 546 (549/50).
26. FCJ, judgment dated 15.10.1998 - I ZR 69/96, MDR 1999, 820 = GRUR Int. 1999, 453 (455) - Vergleichen Sie.
27. Cf., however, for the permissibility of a sweeping price comparison in individual cases: FCJ, judgment dated 15.10.1998 - I ZR 69/96, MDR 1999, 820 = GRUR Int. 1999, 453 (455) - Vergleichen Sie.
28. See also the memorandum of legislative intent concerning the draft law, as footnote 9, p. 12.
29. OJ EC L 113, p. 13.