Reed Smith Client Alert

Authors: Alexander R. Klett

Last week the German Federal Supreme Court (FSC) finally released its full decision, with reasons, in the Gameforge “Runes of Magic” litigation. The court had already made its decision on 17 July 2013 (file no.: I ZR 34/12). It held that advertising the “free to play” online game “Runes of Magic” with the sentence “seize the good opportunity and give your armour and weapons that certain ‘something’” within a longer advertising text on the Internet, using language addressed to children, was an unfair commercial practice and therefore violated the German Act Against Unfair Competition (the “Act”). The Act (at no. 28 in the annex to section 3(3)) prohibits the direct request, addressed to children in advertising, to purchase the products advertised therein. This provision is part of the so-called black list, directly taken from European Directive 2005/29/EC of 11 May 2005 concerning unfair business-to-consumer commercial practices in the internal market. No. 28 of the Directive’s annex I (which lists commercial practices that are, in all circumstances, considered unfair) prohibits including in an advertisement a direct exhortation to children to buy advertised products or to persuade their parents or other adults to buy advertised products for them. This provision should, therefore, be part of unfair competition legislation in all EU member states because of the Directive.

The lower courts had been of the opinion that, in the case at issue, the invitation to buy the “in game objects” was not integrated “directly” into the advertisement, and that the play instinct of children had also not been taken unfair advantage of. When it became clear, by way of the press release of the German FSC on 18 July 2013, that the FSC came to the opposite conclusion, the FSC’s reasoning was desperately awaited. One had to wonder whether the “free to play” business model, which relies on being able to sell so called “in game objects”, was in danger in Germany altogether if elements which are intrinsic to the model are found to be unfair competition if children are involved as consumers of the games.

In its reasoning, the FSC points out that its decision is a default judgment because the defendant was not present at the oral hearing. At the same time, however, the FSC stresses the fact that it did not reach its decision because of the defendant’s failure to appear at the oral hearing, but rather that the court examined the factual and legal situation carefully before reaching its decision. While the defendant can file an opposition (and has done so) against the default judgment and thus request another oral hearing before the FSC, it appears unlikely at this time that the FSC will change its position following a new oral hearing in the matter.

The FSC takes the view that the wording in question in the advertising by the defendant for “Runes of Magic” violates no. 28 in the annex to section 3(3) of the Act. The FSC does not take a final position on the question whether “children”, for purposes of the Act, are only minors below the age of 14 or are minors below the age of 18. It is also irrelevant, according to the court, whether the game in question is played by adults as well. The court finds that the tone of the wording in the advertising as a whole is such that it is addressed mainly to minors, including minors under the age of 14. It is not, in the court’s view, an advertisement directed to a general audience and by which minors may merely also feel they are addressed, neither is it an advertisement directed clearly to adolescents where only a few children under the age of 14 may feel addressed by the advertisement. According to the court, the constant use of the second person singular (as opposed to the formal and adult use of the second person plural in German language) together with terminology used that is predominantly typical for children as well as being customary English language terms, indicates that the advertisement as a whole directly targets minors, including minors under the age of 14. The court takes the view that the statement “seize the good opportunity” contains a direct request to purchase something in the sense of the Act. It is sufficient for a violation of the Act, according to the court, that this statement is made via the Internet. The court elaborates in great detail on why this request is a direct request to make a purchase addressed to children, contrary to the finding of the lower courts. The fact that a link needs to be clicked on to get to the actual goods to be purchased is not decisive, according to the FSC. One click on this link will lead the children to the products in question, which can then be purchased immediately. If an additional link was sufficient to negate a violation of the provision in no. 28, the provision which is intended to protect children could, in the court’s opinion, be circumvented easily. According to the FSC, advertising on the Internet has a more significant suggestive effect for children as consumers compared with advertising in print media, because purchases can be made immediately and it is not necessary to go to a store or to place an order in writing or by telephone first.

This decision will require a very careful review of the language used in advertising, not just by games companies, but also by other companies, that enables children to make purchases online. Interestingly, the court does not consider isolated uses of the second person singular in German language advertising as sufficient to find illicit advertising directed at children, but the continued use of this form together with customary English language terms used by children, and adolescents in this specific case, was found to violate the provision in no. 28 of the Act. To mitigate or eliminate the risk of similar attacks by competitors or consumer protection associations in Germany, the use of the second person singular should be limited or reduced as much as possible, and the other terminology used should be reviewed to sound more characteristic of adults. The decision, which has now been published, does not define precisely the borderline between permitted and illicit wording used, but it does provide some guidance that should be used to reduce the respective risks.

In our view, the “free to play” model is therefore not quite defunct in Germany. However, wording used in advertising relating to this model needs to be addressed to a more educated and older audience to avoid negative outcomes in litigation, such as that suffered by Gameforge.

Client Alert 14-003