Lawfulness of AI-assisted advertising under the German Unfair Competition Act

Anyone using AI for advertising purposes should carefully check whether the intended use of the AI is lawful under unfair competition law.

Using artificial intelligence (AI) in marketing and sales is seen as a factor that drives companies' success. With the help of AI, companies can automate their marketing and make it more efficient. AI-assisted data analysis makes it possible to better understand and predict customers' behaviour. Systems that use AI can show customers personalised promotions and prices in a fully automated process. AI chatbots can contact potential customers directly.

The many ways that AI can be used in advertising to communicate with customers more directly and subtly, as well as to persuade them to make a purchase, raise the question of what AI-powered advertising is and is not permitted to do from a legal perspective. 

The challenges related to data protection and copyright law posed by the use of AI are already the subject of heated debate. By contrast, the legal limitations on the use of AI-assisted advertising imposed by the German Unfair Competition Act (UWG) are rarely discussed.

Observers should not forget that certain phenomena associated with the use of AI-assisted advertising, such as manipulation of consumers, a lack of transparency and lock-in effects, are at odds with the protections intended by the German Unfair Competition Act (UWG): The law is supposed to protect competitors, consumers and other market participants against unfair commercial practices. 

The German Unfair Competition Act (UWG) itself does not include any AI-specific statements on what kinds of AI-assisted promotional measures are permitted and what kinds are not. Whether it is permissible under unfair competition law to use AI-assisted advertising therefore depends on the individual case, which must be covered under the general rules of the German Unfair Competition Act (UWG).

The following aspects must be considered if AI is to be used legally for marketing purposes:

Those who use AI for advertising purposes are liable for violations of unfair competition law by the AI

AI is simply a tool that advertisers can use. It does not have legal personality in and of itself. Those who use AI in their marketing efforts are therefore liable for violations of unfair competition law by the AI. They are also not excluded from liability if they automate their marketing using generative AI and, for example, have their website generated entirely by an AI (article available in German only). 

In the event of a violation of the German Unfair Competition Act (UWG), there is a risk that competitors or consumer associations may file a claim for injunctive relief, compensation or confiscation of proceeds. Those found liable also face fines in such cases. 

False or inaccurate promotional information from a chatbot may constitute a violation of the German Unfair Competition Act (UWG)

Answers from AI language models may be false or at least inaccurate and may therefore be misleading. Misleading commercial practices are prohibited in accordance with sections 5 ff. German Unfair Competition Act (UWG). This means, for example, that those who use an AI chatbot to contact customers automatically are liable for the chatbot's misleading statements. It is therefore advisable to take measures to minimise the risk that AI chatbots share misleading information.

Advertising communications from a chatbot must be identified as such

In accordance with section 5a (4) German Unfair Competition Act (UWG), advertising must be identified as such. If chatbots are used for advertising, it must be made clear to customers that the communication serves commercial purposes. The only circumstance in which it is not necessary to identify communication as advertising is when the commercial purpose is immediately clear from context. This may be the case, for example, if the chatbot is used in an online shop.

AI does not usually need to be labelled

It is also misleading in accordance with section 5a German Unfair Competition Act (UWG) if crucial information that customers need to make an informed commercial decision is withheld. 

Often, the fact that an AI and not a real person is responsible for the commercial communication is not crucial information that has to be declared. For example, it may not be important to the audience that the personalised advertisement they are being shown was created using AI. However, it may indeed be important if chatbots are being used for commercial purposes and it matters to customers that they communicate with a real person. One such example to consider is interactions on a dating platform. 

Whether the subject of the agreement is AI-generated or simply delivered with the help of AI is a matter that should be carefully considered. It can often be extremely important to customers whether the subject of the agreement is entirely the product of humans or the result of the use of AI. If the latter, this must be declared.

Legal labelling requirements in the context of AI must be observed

Legal labelling requirements may apply in individual cases connected with the use of AI and associated automation. Violation of these labelling requirements may constitute an infringement of unfair competition law in accordance with section 3a German Unfair Competition Act (UWG). However, there is no general legal labelling requirement for AI-assisted content. 

There is a legal labelling requirement for automatically generated content according to section 18 (3) German State Media Treaty (MStV) for providers of telemedia in social networks. Users must be explicitly informed that automation was employed if the outward appearance of the user account involved suggests it was created for use by natural persons. 

In accordance with section 312d German Civil Code (BGB) in conjunction with article 246a section 1 (1) sentence 1 no. 6 Introductory Act to the German Civil Code (EGBGB), there is a requirement to inform consumers (article available in German only) when they are shown prices that were personalised based on automated decision-making.

In all likelihood, within the EU there will be a statutory requirement to label chatbots and deepfakes (article available in German only) as the products of AI in future. Article 52 of a proposed EU regulation laying down harmonised rules on AI (draft AI Act) provides for transparency obligations to apply to providers of chatbots and users of deepfakes. The regulation is expected to come into force in late 2023. The EU AI Act will then probably take effect over a transition period of 24 months and apply directly in the EU Member States.

AI-assisted advertising must be transparent and non-discriminatory

Violations of the German Price Indication Ordinance (PAngV) or section 19 German General Act on Equal Treatment (AGG), which prohibits discrimination on the basis of certain characteristics such as age, gender and ethnic background, are considered violations of unfair competition law in accordance with section 3a German Unfair Competition Act (UWG). This means that anyone who uses personalised or dynamic pricing that relies on AI must ensure that prices accurately reflect costs in accordance with the rules and that differences in pricing are not discriminatory. 

Using generative AI also carries a risk of discrimination. Discriminatory advertising may be a violation of unfair competition law in accordance with section 3 (1) German Unfair Competition Act (UWG). Therefore, companies that create their advertising using AI are well advised to check their promotional material for instances of discrimination and rule out the possibility of sexist advertisements, for example. 

If in doubt, advertising to people with chatbots without their express consent should be regarded as being a violation of unfair competition law 

Advertising via electronic mail is generally only permissible in accordance with section 7 (2) no. 3 German Unfair Competition Act (UWG) if the recipient has previously given their express consent to be sent promotional material. Electronic mail not only includes personalised email advertising created using AI; messages from a chatbot are also considered electronic mail. Therefore, if a company uses chatbots for advertising communication, it needs the recipient's express consent to be contacted. An exception can only be made in accordance with section 7 (3) no. 3 German Unfair Competition Act (UWG) if the customer is contacted within the framework of an existing customer relationship and similar goods or services are advertised.

Aggressive chatbots are in violation of unfair competition law

Aggressive commercial practices that limit customers' freedom to make decisions are prohibited. 

It is never permissible according to no. 26 of the Annex to section 3 (3) German Unfair Competition Act (UWG) to contact consumers persistently and against their will using means of communication intended for distance selling. This provision not only prohibits spam emails, but also aggressive chatbots. 

AI must not be used to put customers under pressure

It is also a violation of unfair competition law in accordance with section 4a (1) sentence 2 no. 3 German Unfair Competition Act (UWG) to exert influence over customers in such a way that their freedom to make decisions is significantly limited. This prohibited level of influence might be considered to exist if, for example, so-called dark patterns are used, meaning for example when a website or app's user interface is designed in such a way that users are induced to take actions they did not actually want to take.

However, simply using AI for advertising purposes, for example to create and use personalised advertisements, is not usually enough to constitute prohibited influence. Though it is true that AI makes it possible by collecting data to target customers and more subtly persuade them to make a purchase, this does not necessarily mean that consumers are subject to prohibited influence. 

The use of AI must meet requirements of professional due diligence

Even if using AI-assisted advertising is permitted in the above cases, this does not automatically mean that using AI is permissible under unfair competition law. Section 3 (2) German Unfair Competition Act (UWG) includes a general clause prohibiting commercial practices towards consumers that do not meet requirements of professional due diligence and are intended to have a material detrimental effect on their economic behaviour. Whether the use of AI meets requirements of professional due diligence must be closely examined on an individual basis. 

Using AI for advertising purposes is associated with a risk of liability under unfair competition law. Therefore, anyone who uses AI for advertising purposes should check carefully whether the intended use of AI is permitted by unfair competition law. They should also monitor whether the result of its use meets legal requirements.