Targeted Advertising and Consumer Protection Law in the European Union.

• Author: Zard, Lex

TABLE OF CONTENTS I. INTRODUCTION 800 II. TARGETED ADVERTISING 806 A. What Is Targeted Advertising? 806 B. How Does Targeted Advertising Work? 811 III. TARGETED ADVERTISING AND CONSUMER PROTECTION LAW 821 A. EU Consumer Protection Law 823 B. Contracts for Targeted Advertising 826 C. Personalizing Advertisements to Consumers 836 D. Targeted Advertising and the Fitness Check of Consumer Protection Law 846 IV. CONCLUSIONS 852 I. INTRODUCTION

One of the key characteristics of the twenty-first century is the rise of online platforms. Some of these platforms act as gatekeepers of the internet that leverage their access to user data and attention and are able to enclose consumers, business customers, and competitors in relational dependency. (1) Such online platforms (2) include marketplaces, (3) search engines, (4) social networks, (5) app stores, (6) and on-demand media streaming services. (7) Companies such as Alphabet (8) and Amazon.com were nearly bankrupt in the early 2000s, and Meta platforms did not exist; (9) together, they exceeded $4 trillion in market capitalization in 2022. (10) These three companies joined Apple and Microsoft Corporation on the list of the most profitable companies in the world, which are now commonly known as Big Tech." (11)

This rise is not surprising, as the users of online platforms place great value on their services. (12) Moreover, internet users often do not directly pay money for these services. Instead, online platforms monetize their services in two different ways. The first way services can be monetized entails charging a commission to retailers (and/or developers) who sell their products, services, or content to users of the platforms. (13) Such primarily transaction-based online platforms include, for example, Amazon Store and Apple App Store. The second type of monetization entails charging advertisers who want to promote their products, services, and content to the users of the platform. (14) Such primarily advertising-based online platforms include Google Search, YouTube, Facebook, and Instagram. The profitability of these online platforms stems from their position as intermediaries, which enables them to provide their business users and non-business users with access to one another, as well as visibility and techniques that render their users legible for such matching. (15) Intermediation capabilities of advertising-based online platforms allow their business users to target advertisements to their preferred audience with a high degree of specificity. (16) Consequently, non-business users access online platforms without monetary payment and are exposed to ads that are often personalized. (17)

Google and Meta have expanded their advertising practices outside of their platforms by creating advertising networks (e.g., Google Display Network and Meta Audience Network) that, on the one hand, track users across the internet and, on the other, target them with advertising on a wide variety of websites, including their own. Advertising networks compete in a fully automated auction process that determines the placement of a particular advertisement to target a specific internet user. (18) While Google and Meta operate the most prominent advertising networks and are the primary beneficiaries of targeted advertising, thousands of relatively minor advertising intermediaries have emerged (including those operated by other online platforms, such as Amazon Ads and Apple Search Ads) to create a massive, global targeted advertising ecosystem. (19) This ecosystem enables the functioning of the internet so that non-business users can access the digital services and content of online platforms as well as other publishers (e.g., online newspapers, digital games, etc.) they value without monetary payment. (20)

Nevertheless, targeted advertising has been subject to much controversy within the European Union (EU). While it makes digital services and content accessible to internet users without monetary payment, it is primarily dependent on the processing of the personal data of users, which is protected by the fundamental rights framework of the EU. (21) Also, tracking users across the internet is in tension with rules on privacy set out in the Directive on Privacy and Electronic Communications (ePrivacy Directive). (22) In 2016, the EU updated its personal data protection and privacy rules with the landmark General Data Protection Regulation (GDPR) (23) to more effectively safeguard Europeans' privacy and personal data rights with regard to targeted advertising. (24) Moreover, targeted advertising practices have raised issues beyond privacy and data protection, such as consequences of incorrect inferences, consumer manipulation, discrimination, and loss of reputation, as well as issues related to market power, lack of competition, and harm to political processes. (25) The rise of targeted advertising and online platforms came as a significant blow for traditional media, which suffered heavy financial losses. (26)

As the core practices in targeted advertising have remained somewhat unaffected by the GDPR, the EU has taken further steps to tackle the risks of such practices. In response to the potentially negative effects of targeted advertising on elections and political processes, the European Commission (the Commission) proposed the Regulation on Transparency and Targeting of Political Advertising. (27) In response to the lack of competition in the online platform ecosystem, the EU adopted the Digital Markets Act (DMA), introducing new competition law rules for online platforms engaged in targeted advertising. (28) The Commission has also opened a formal antitrust investigation against Google and Meta. (29) In order to safeguard EU residents from the potentially significant harmful effects of personalization using artificial intelligence (AI) technologies, the Commission has introduced new rules in the Proposal for Artificial Intelligence Act (PAIA). (30) Targeted advertising is also associated with significant risks of discrimination, to which the non-discrimination laws of the EU also apply. (31)

However, targeted advertising is, first and foremost, a market practice directed toward consumers. The economic logic behind the targeted advertising ecosystem creates an incentive for publishers (including online platforms) to create online environments that modify consumer behavior in the interest of maximizing the profit of the ecosystem. (32) Such online environments may exploit consumers' decision-making vulnerabilities and lead them to transactional decisions that may go against their best interests. (33) Such manipulative practices of targeted advertising may erode consumer autonomy and lead to inefficient market outcomes. (34) The EU legal framework for consumer protection is the central area of law that safeguards consumer autonomy in targeted advertising. Nevertheless, consumer protection law has received only limited attention when it comes to regulating targeted advertising. (35)

This Article examines the EU's legal framework on consumer protection to determine the extent to which its provisions safeguard European consumers from potential harms stemming from targeted advertising. In doing so, this Article elaborates on the requirements for publishers of targeted advertising and the limits of targeted advertising imposed by the consumer protection law in the EU. (36) The EU legal framework for consumer protection envisages Unfair Commercial Practices Directive (UCPD), (37) the Consumer Rights Directive (CRD), (38) the Unfair Contract Terms Directive (UCTD), (39) the Digital Content Directive (DCD), (40) and most recently, the Digital Services Act (DSA). (41) Moreover, this Article refers to other EU legislation (e.g., on personal data protection, privacy, or competition law) so long as it is relevant to consumer protection law provisions. Otherwise, legislation that does not intersect with consumer law provisions is outside of the scope of this Article. Moreover, in addition to the provisions themselves, this Article references case law. publications of regulatory authorities, and academic literature to illuminate how the provisions are currently understood and practiced. Additionally, the Article incorporates the technical, economic, and societal aspects of targeted advertising and the application of the relevant legal provisions in these areas.

The targeted advertising ecosystem and market are complex, and to elaborate on the extent to which they are limited, a description of the practices and their technical underpinnings is necessary. With this aim in mind, Part II of the Article sheds some light on what targeted advertising is and how it works. Part III analyzes the EU's legal framework for consumer protection for targeted advertising. Firstly, Part III.A provides an overview of consumer protection legislation and maps out how it limits targeted advertising in two stages: first, when consumers enter into contracts with publishers that monetize their digital content or services via targeted advertising (contracting stage) and, second, when consumers are presented with a personalized advertisement (advertising stage). Part III.B analyzes consumer protection laws in the contracting phase, and Part III.C for the advertising stage. Moreover, Part III.D addresses central challenges and gaps in consumer protection law that the Commission may want to consider in its re-thinking of consumer protection regulation to better address the challenges of the digital age.

2. TARGETED ADVERTISING

   To discuss the limitations of European consumer protection law on targeted advertising, it is critical to understand what targeted advertising is and how it works. This is especially important given that there are several similar concepts and terms that overlap in the legal doctrine and in the business practices of targeted advertising. Therefore, first, Part II.A examines what targeted...