Preliminary consideration of the activities of media agencies

The main object of the media agency/media contractual relationship is the placement of advertising by advertising customers. Consequently, the media agencies “broker” advertising between the advertising client and the media – at least in purely factual terms. In view of the above, it seems conceivable that the contractual relationship between advertising client/media agency has an influence on the contractual relationship between media agency/media. It therefore seems reasonable in the present case to first consider the contractual relationship between the media agencies and the advertising clients:

Contractual relationship advertising client/media agency

State of opinion: agency agreement within the meaning of Section 675 BGB versus “own economic level” (proprietary trader)

Agency agreement within the meaning of § 675 BGB

With regard to the content of the contractual relationship, namely media buying and media processing, media planning, media consulting and media analysis, it is conventionally assigned to the law of agency (Section 675 BGB): The advertising client does not advertise itself, but has advertising done for it. This activity corresponds to the (still) prevailing opinion on the concept of “agency” within the meaning of Section 675 BGB, according to which the agent is obliged vis-à-vis the principal to carry out an independent activity of an economic nature to safeguard the financial interests of third parties (see BGH judgment of June 16, 2016, case no. III ZR 282/14, NJW-RR 2016, 1391; Münchener Kommentar zum BGB, 5th edition, Section 675, para. 3 et seq. with further references).

The above definition still corresponds to the activities of media agencies today, which are carried out independently by media agencies in the sense of the above definition of the prevailing opinion – namely in the absence of a deviating agreement in their own name and for their own account – in any case also in the perception of the financial interests of the advertising clients (see Martinek, Mediaagenturen und Mediarabatte, 2008, p. 27; jM 2015, 6, 9 f., 13f.). This classification is also confirmed in the opinion of former BGH judge Dr. Gerhard Schäfer of 31.1.2009.

Depending on their content, these agency agreements are classified as service contracts (Section 611 BGB) or contracts for work and services (Section 631 BGB). A contract for work and services is likely to exist if an individual measure is the subject of the contract – in terms of success – and a contract for services is likely to be involved if it is a purely temporally and/or objectively defined contract.

“Own economic level”

The prevailing opinion described above contrasts with the view held by the media agencies themselves and supported by not unimportant voices in the literature (in particular Prof. Michael Martinek, loc. cit.), according to which the provisions of contract law, and thus also the law on the provision of agency services, have led to an “alienation” from the model of the agent with a view to the practice of the media agency business that has developed over decades, with the consequence that the law on the provision of agency services should remain inapplicable. This view is primarily based on the fact that media agencies now represent a “separate economic level”, meaning that the classification of media agencies as “intermediaries” is no longer appropriate.

This view is essentially based on the following circumstances of media business practice:

• Acting in their own name and for their own account: entrepreneurial riskUnless otherwise agreed in individual contracts, media agencies act in their own name and for their own account. This means that they also bear the entrepreneurial risk arising from the placement of advertising measures in the media, such as payment of placement costs even in the event of insolvency or refusal to pay on the part of the customer. They are liable to their client for errors made by the medium, for example if the advertisement is not printed on time or is printed incorrectly.
• Remuneration system: relying on non-tariff discountsIn practice, advertising clients require media agencies to hand over or pass on the media commission received from the media (agency commission). In practice, this is usually done by means of an offsetting process: the advertising client agrees a remuneration with the media agency amounting to a certain percentage of the media placement volume; in reality, the percentage is between 0.8% and 2.0%. The advertising client uses the remainder of the 15% agency commission to pay the creative agency (around 7%) and keeps the rest for itself, leaving the media agencies with only a small fraction of the agency remuneration granted to them by the media. In order to achieve their commercial goals for their company, they therefore see themselves obliged to generate additional income from the media in the form of non-tariff discounts, bonuses or remuneration for additional services or for bundling the budgets of several clients. Thus, the agency’s own brokerage activities in the business of media agencies tend to take a back seat today.

Appreciation

If the subject matter of a service contract or a contract for work is an “agency”, the agent is obliged to return to the client everything that he obtains from the agency (Section 675 (1) in conjunction with Section 667 BGB). This is the relevance of the dispute:

The view that media agencies, as a separate economic level, no longer act as an agency in accordance with the model of the German Civil Code deserves consideration. For the most part, media agencies operate their own business at their own economic level. The operation of this own business can in fact be described as a necessity resulting from the fact that advertising customers regularly successfully enforce the passing on of the tariff discounts. Against this background, the media agencies can only generate their own income in other ways, e.g. by negotiating customer-independent discounts that only they are entitled to.

Nevertheless, according to the current ruling of the Federal Court of Justice from 16.6.2016 cited above (case no. III ZR 282/14, NJW-RR 2016, 1391), in case of doubt a duty to forward is to be assumed because, in its opinion, the media agency is a “typical business agent”. The guiding principles of the BGH are as follows (NJW-RR 2016, 1391, beck-online):

1. media agency contracts are, by their legal nature, generally to be qualified as agency contracts in which one party (media agency) undertakes to carry out an independent economic activity to safeguard the financial interests of third parties (in particular media planning and buying) and the other party (advertising client) undertakes to pay a fee.

2. if the media agency makes media bookings in its own name but for the account of the client, it shall initially also receive all discounts and other benefits as the media’s contractual partner; however, due to its status as a media agency, it shall not be entitled to any discounts or other benefits. However, as a typical managing agent, it is subject to the duties of disclosure and surrender pursuant to Sections 666, 667 Alt. 2 BGB.

3 The fact that a special benefit is not paid directly to the contractor but to a third party does not preclude the contractor from being liable for restitution. The decisive factor is whether an overall assessment of the circumstances of the individual case shows that the contractor is to be regarded as the beneficial owner of the asset (following BGH, NJW 1987, 1380).

It follows from guiding principle 3 that the obligation to disclose must be assessed on the basis of the circumstances of the individual case. In line with this, the Higher Regional Court of Munich expressly stated in its ruling of December 23, 2009 (case no. 7 U 3044/09) that the obligation to pass on (obligation to surrender) discounts and benefits can be regulated in individual contracts. The parties should do this in order to avoid the dispute described above.

Contractual relationship media agency/media (publisher)

Starting point: Independence of contractual relationships/freedom of organization

It follows from the above that the contract between the media agency and the media (publishers, TV stations, etc.) is independent of the contract between the media agency and the advertising client. Apart from so-called direct business, there is no contractual connection.

Consequently, the so-called “advertising implementation contract” or “media purchasing contract” is generally subject to the unlimited contractual freedom of the parties.

“Advertising implementation contract”/”Media purchasing contract”: Contract for work or service

Unless otherwise stated in the individual contract, the following shall apply:

In the past as well as today, “advertising implementation contracts” or “media purchasing contracts” are to be classified as service contracts or – probably more frequently – contracts for work within the meaning of Sections 611, 631 of the German Civil Code (BGB) without the character of an agency agreement:

The medium is obliged to place the advertisement (= success), the agency is obliged to pay the agency net of the list prices.

The fact that the agencies take on various other tasks vis-à-vis the media (in particular: consulting tasks) does not give the advertising implementation contracts or media purchasing contracts the character of an agency, as the media agencies, which always engage various media, keep the option of becoming active. Consequently, there is basically no obligation to act.

These contracts are also not contracts in favor of a third party within the meaning of Section 328 of the German Civil Code (BGB), as claims of the advertising customers are not established.

However, it should be noted that these (mostly) contracts for work and services have the following special features:

• (Traditional) obligation of agencies to adhere to the price list via Section 242 BGB
• Obligation of agencies to respect the sales interests of the media via Section 242 BGB
• Payment of the so-called AE commission to the agencies as remuneration for the agency services (increasingly rejected by publishers)