Competition in a digital economy: German competition authority issues restrictions against Facebook’s data processing activities

ARTICLE

18 Feb 2019

On 7 February 2019, the German Competition Authority (Bundeskartellamt) issued a statement on its decision to impose wide-ranging behavioural restrictions on Facebook and its data processing activities.

The Bundeskartellamt’s decision concerns the extent of data collection activities which Facebook has been able to carry out on its users. By accessing Facebook’s social networks, individuals agree to terms of service which stipulate that Facebook can collect data outside of Facebook’s primary web and mobile interfaces, through sources including its proprietary apps Instagram and Whatsapp, as well as through external, third party sources, such as any website or app that has embedded so-called “Facebook Business Tools” such as the “Like” button and other similar services. The Bundeskartellamt’s view is that these business terms are not justified under either data protection principles, nor are they appropriate under competition law standards.

Facebook is therefore being required by the decision to halt this practice, including its practice of combining the data collected from across a number of sources in a comprehensive manner, except where a user has given voluntary consent. In this sense, ‘voluntary’ has been held to mean that access to and the use of Facebook’s services must not be subject to the users’ consent. Without this voluntary consent, the Bundeskartellamt reiterates that data processing can only be carried out in what it has called “an internally segregated” manner. The internal segregation of data is reminiscent of divestiture remedies typically reserved for merger control reviews, and it is notable that the German competition authority has adapted this remedy to an antitrust case.

Given Facebook’s dominant market position in the German market for social networks, it is subject to control against abuse of its dominant position under competition law. Facebook has 2.3 billion monthly active users worldwide of which 1.5 billion use Facebook on a daily basis. Facebook’s dominant position is reaffirmed considering that Google+ ceased to operate earlier last year, and in view of the lack of effective substitute services in the market, as well as Facebook’s economies of scale and direct network effects.

The German Competition Authority’s view was that Facebook’s terms, which made provision of their services conditional on granting extensive permission to the company to track and access their personal data, amounted to an exploitative abuse of dominance.

Facebook’s activities may well also be assessed under European competition law, under the norms contained in Article 102 TFEU prohibiting the abuse of a dominant position. This becomes especially likely given the cross-border dimension impacted by Facebook’s activities and the European Commission’s vocal attention towards the competitive behaviour of digital, data-driven businesses, which provide ‘free’ services in exchange for personal data. Similar issues raised by digital businesses were also remarked in a merger control context by the European Commission in Facebook/Whatsapp, which decision itself served as stimulus to the Bundeskartellamt to lobby for amendments German merger control laws to include a new ‘significant activities’ threshold to be able to assess mergers which otherwise may not have previously become subject to competition review based on a pure turnover-based threshold.

The Bundeskartellamt’s decision is not yet final. Facebook has one month to appeal the decision, and has issued press statements confirming that it will be seeking to challenge the decision.

We note that this ruling raises interesting questions regarding consumer welfare and competitive harm, which we expect to explore further in the coming months as regulators roll up their sleeves when assessing digital business mergers and antitrust cases. It also shows that competition authorities are adapting their methods to meet the demands of an evolving market, through an increasing readiness to encroach on regulatory tools that were traditionally not within their remit, to more effectively deal with issues raised in an economy where data is the new oil.

More information on the Bundeskartellamt’s decision can be found here