German Federal Supreme Court on the legal nature of media agency contracts

Written on 17 Aug 2018

When it comes to media planning and media buying, most advertising companies (advertisers) rely on the services of media agencies (agencies), because these have detailed knowledge of where the advertiser can reach its desired target groups most effectively, what forms of adver-tising should be used and which prices are demanded for the various advertising spaces.

As a rule, in their agreements with the advertisers the agencies explicitly undertake to safeguard the interests of the advertisers. When placing TV spots or other advertisements (collectively ads) with the offerors of advertising space (the media) the agencies usually contract with the media in their own name, but for the account of the advertisers, who, accordingly, bear the costs for the ads placed.

However, in their arrangements with the media, agencies are often arranging and receiving discounts, rebates and non-cash benefits like free-spots etc. (collectively: benefits) – be it in relation to placing ads for (several) advertisers, be it for certain services rendered from the agencies to the media. In this context, advertisers often claim to be entitled to these benefits as they were obtained in consideration of the ads placement, whereas agencies often refuse to forward some or all of these benefits to the advertiser and argue that these benefits were given independently of their contractual obligations to the advertisers.

Under German law, the validity of these arguments depends on the legal nature of the contract between advertiser and agency (media agency contract): Are the agencies acting as mandataries in the sense of sec. 675, 662 et seq German Civil Code (BGB) or are they rather dealing as intermediaries on a separate trade level? As mandataries, the agencies would be obliged to provide information and hand over to their mandators (the advertisers) all benefits derived from executing the mandate according to sec. 666, 667 BGB. If, to the contrary, the agencies were acting as intermediaries, they would be generally entitled to keep said benefits received from the media.

In a recent lawsuit, a well-known confectionery manufacturer asked its media agency for information on benefits that the agency and its affiliated companies received from media companies. The manufacturer had concluded a contract with the media agency, according to which obliged the media agency took over the entire media planning and media purchasing for the manufacturer in order to obtain better conditions from the media by bundling booking volumes. Ads bookings were to be made exclusively on behalf of the media agency, but for the manufacturer’s account. During the execution of the contract the manufacturer became aware of the fact that an affiliated company of the media agency received bonuses in kind (free spots) from certain media.

The reasons for these benefits were disputed between the parties. The manufacturer argued that these were volume discounts granted by the media, which were to be attributed proportionately to the manufacturer’s media volume which it had commissioned the media agency with. However, the media agency claimed that the manufacturer was not entitled to any part of the bonuses.

Following an action of the manufacturer who raised claims for information and accounting against the media agency, the Bundesgerichtshof (Federal Supreme Court, judgment of 16 June 2016, III ZR 282/14) held that media agency contracts are generally to be qualified as agency agreements: An agency undertakes to carry out services as a mandatary in the commercial interest of the advertisor as the mandator (in particular media planning and purchasing). When the agency contracts with the media in its own name, but for the advertisor's account, it shall initially be entitled to collect all benefits from the media, but shall be obliged to inform and render account for and return all benefits obtained from the services to the advertisor in accordance with sec. 666, 667 BGB.

The fact that benefits were granted from the media to a third party instead of being granted to the agency as their contractual partner does not necessarily exclude the latter’s obligations. In such cases, according to the Bundesgerichtshof, the courts will have to determine whether the third party acted only as a straw man of the agency in order to veil the granting of the benefits.

Finally, the Oberlandesgericht München (Higher Regional Court of Munich, judgment of 8 November 2017, 7 U 4376/13) dismissed the action at stake on the grounds that the manufacturer was not able to furnish prima facie evidence that the benefits received by the media agency’s affiliate company were attributable to the agency's assets from an appropriate economic point of view.

As a lesson to be learned, it should be noted that despite some legal writers’ different opinion, German courts tend to qualify media agency agreements as agency agreements which are subject to sec. 675, 662 et seq BGB. Accordingly, agencies are basically obliged to return (and inform and render account for) what they have obtained from their services to the advertisers. However, they are not prevented from entering into agreements with media companies as long as genuine exchange contracts are concluded. Rather than by sticking to a mere technical perspective, German courts will deal with these questions on the basis of an economic interpretation of the underlying agreements.