Retail and Consumer Goods28.01.2021Cologne Newsletter
Smartphones not only serve as multimedia communication platforms, they have also become indispensable everyday companions, even "advisors" for all questions of our daily life, thanks to an almost endless selection of practical apps. Many of these apps - when set up accordingly - access the user's specific location to display shops, restaurants or special offers in the immediate vicinity. It's no wonder that this very opportunity is being used by stationary retailers, who are turning to providing potential customers with location-based advertising via their devices. A particularly attractive option in this connection is so-called geofencing. This article addresses the question of whether and under what conditions geofencing is permissible under fair trading law and what you have to watch out for.
Marketing is particularly effective when it takes all circumstances into account, especially in the environment of mobile applications or at the point of sale. Through geofencing, potential customers are addressed in a targeted manner and activated at the location where they happen to be at that precise time. Since it is nowadays possible to very accurately pinpoint the location of these potential customers via their smartphones, businesses can contact them in close proximity to their point of sale. These are so-called "location-based services", which include the use of geofencing methods. Geofencing is a term used to describe services that trigger automated events, such as the sending of push notifications or text messages to smartphones, whenever a person enters an area that has previously been virtually marked out. This could be, for example, a 30-metre radius around each branch of a particular company. When people enter this geofencing zone, they are detected via GPS location or radio cell query and automatically receive a message on their smartphone containing location-relevant information, e.g. advertising for the company. By contacting potential customers in the vicinity of a company's own point of sale, customers can be made aware of special offers, discount campaigns or events at the point of sale and motivated by these incentives to purchase goods.
Geofencing zones can be selected arbitrarily. Thus, it is technically possible not only to create incentives for customers to enter one's own store, but also to "address" potential customers of the competition. From a marketing point of view, it is therefore quite clever to set up a geofencing zone in front of a competitor's point of sale and thus purposefully contact a potential customer who is in front of or already on the premises of the competitor’s shop and to send him a particularly attractive discount voucher via push message or SMS to his smartphone.
Unfair hindrance of a competitor
This is exactly where it gets interesting in terms of fair trading law: the German Unfair Competition Act [Gesetz gegen den unlauteren Wettbewerb, UWG] protects not just consumers from unfair business practices; companies also have to adhere to certain rules of conduct, which are primarily set out in § 4 UWG. For example, § 4 (4) UWG stipulates that competitors may not unfairly hinder each other.
Whether and to what extent such marketing campaigns using geofencing are unfair under the aspect of a targeted hindrance of competitors pursuant to § 4 (4) UWG has not yet been decided by the supreme courts. As a general rule, a competitor has no right to maintain its customer base or to the continuation of contractual relationships. The customer base is not a protected legal right. On the contrary, penetrating into another party's customer base and soliciting customers, even if it is done purposefully and systematically, is the core of the free market economy and lies in the nature of competition. This is especially true when it concerns just potential customers of a competitor.
The unfair hindrance of a competitor therefore presupposes an interference with the competitive development possibilities of this competitor, which goes beyond the interference inherent in all competition and displays certain characteristics of unfairness. The penetration of another party's customer base (one speaks of "intercepting" and "soliciting" customers) only becomes unfair if the advertiser shows particularly inappropriate (unfair) behaviour towards the potential customer or towards his competitor.
Interception of customers
According to the case law, a competitor is being unfairly hindered if potential customers are being inappropriately influenced in order to win them over or retain them as one’s own customers. The case law focuses on whether the advertiser quasi pushes itself between the prospective buyer and the competitor in order to force him to change his purchase decision. The concept of the purchase decision is to be understood in the sense of a business decision, which also covers upstream decisions, e.g. visiting and entering a shop. Whether undue influence has been exerted depends on the means used and the typical reaction of the customers. Here, the overall circumstances and the individual case must always be taken into account.
A case of inappropriateness definitely - but not only - exists when the customer is unreasonably harassed, put under pressure or otherwise aggressively influenced or misled, or if the measures are primarily aimed at ousting the competitor. In contrast, it is not sufficient that the measures may have an adverse effect on the competitor's sales.
Sending advertisements to the smartphones of potential customers who are in close proximity to a competitor's shop does not necessarily constitute undue influence. In our view, such advertising strategies certainly conform with competition law if the measures are limited to informing the potential customer about other purchase possibilities; even if these induce him to compare the offers and change his purchase decision. Insofar as small purchase incentives are set in this context, for example by offering discounts or other benefits, this still cannot be classed as aggressive influencing or exerting of pressure. On the contrary, such advertising is likely to be in the customer's interest because it gives him a choice and a means of comparison. However, aggressive wording should be avoided. This especially applies to wording that markets a product or a discount promotion through sales pitches that use great persuasive efforts and exert great pressure.
Solicitation of customers
In contrast to the interception of customers, customer solicitation involves inducing customers to terminate a contractual or business relationship. In other words, the customer is already in a contractual relationship with the competitor or had at least decided to conclude the contract. The special circumstances which make the solicitation of customers unfair, either in isolation or in the overall view, may include the use of unfair means and methods. Here, an overall assessment of the conduct must be made, taking into account the content, purpose and motivation as well as the accompanying circumstances. Methods that may constitute unfairness include: unfair enticement, inducement to breach a contract, surprise and coercion.
The boundary to the unfairness of an enticement, and thus at the same time to the targeted hindrance of a competitor, is only crossed if the offer is designed in such a way that the average customer is noticeably impaired in his ability to make an informed decision, for example if the advertising campaign has misleading content - through incorrect information about the content of one’s own offers - or puts the customer under pressure, takes him by surprise or even coerces him.
Depending on the design of the advertising campaign, the deliberate inducement (enticement) to breach a contract by means of a corresponding advertising message can also constitute unfairness. This presupposes that the enticer is aware of the customer's commitment and takes the initiative to breach the contract. Accordingly, a campaign in the course of which customers of a competitor are contacted after leaving the shop and promised a benefit for returning the goods just purchased would be deemed unfair. Caution therefore especially has to be exercised with regard to the specific content of the advertising campaign. Aggressive wording should be avoided as well as disparaging the competitor.
Measures which serve to attract customers cannot already be regarded as unfair merely because they may have an adverse effect on the competitor's sales. They only become unfair if they are aimed at ousting the competitor, unreasonably harass the customer or unreasonably influence the customer in an uncalled-for manner. Provided that companies observe the boundaries of fair trading law - in addition to those of data protection law - a legally compliant use of geofencing zones in the geographical vicinity of competitors and the use of related marketing strategies is perfectly permissible. Ultimately, however, the assessment of legal admissibility will, as is so often the case, depend on the individual case, in particular the manner in which the customer is addressed and the content. In order to avoid running the risk of being cautioned by competitors, companies are certainly advised to subject planned advertising campaigns to a comprehensive legal examination beforehand.