Data Wars (Episode III) - Enforcement Strikes Back in the Facebook Case

The German Federal Court of Justice (BGH) set a further milestone in the proceedings against Facebook when it agreed with the Federal Cartel office (FCO) that the company is abusing its dominant position on the social networks market because it does not provide users with a choice concerning the company’s use of data generated outside of Facebook. Following the Düsseldorf Higher Regional Court (OLG)’s crushing of the FCO’s decision last year, such a clear statement was not expected. While the FCO and the OLG extensively debated whether a violation of the General Data Protection Regulation (GDPR) could lead to a competition law infringement, the BGH put this question to one side. This is how the saga developed:

Episode I – The Force Awakens

In its bold but heavily criticised decision last year, the FCO found that Facebook’s data policy, which requires users to consent to it collecting and merging data from a large variety of third-party sources, constituted an exploitative abuse of the company’s dominant position on the social networks market in Germany. The FCO decision focused on an alleged violation of the GDPR. This approach drew a lot of criticism. Apart from the question whether Facebook’s terms violated the GDPR, commentators asked whether the FCO was using competition policy instruments to pursue objectives that are unrelated to competition. Critics argued that the regulator was overstepping its authority. More generally the question of GDPR infringements, as basis for finding abusive conduct under competition law, was considered to be highly questionable.

Episode II – A New Hope

Upon appeal, the OLG overturned the FCO’s decision in August 2019. It could not find a loss of control for users. Users could freely decide about using Facebook’s platform and could also duplicate their data for other applications. All that was required was a balancing of the advantages resulting from the use of an advertising-financed (and therefore free) social network and the consequences associated with the use of the additional personal data by Facebook. Further, even if a GDPR violation by a dominant player was confirmed, this would not automatically result in an abusive anticompetitive practice. In order to infer an exploitative abuse contrary to competition law, from violations of other areas of law, a strict causality between market power and abuse is required. This causal link was missing. The OLG did not see any connection between users’ consent to the terms of use and the market position of Facebook, and so it did not see any abuse.

Episode III – Enforcement Strikes Back

While the OLG did not see a harm to consumers, the BGH’s decision is remarkably consistent with the FCO’s initial intention to “give back choice to consumers”. In public statements, the FCO President had criticised Facebook for forcing users to make an all-or-nothing choice between agreeing to unlimited data collection or not using Facebook at all.

The BGH has now confirmed this view and decided that Facebook’s terms of use are abusive because they do not leave consumers with a choice between either using the network with a more intensive personalisation of the user experience (which may come with potentially unlimited access for Facebook to users’ “off-Facebook” internet usage), or usage of Facebook with personalisation based only on data disclosed on Facebook.com.

Another twist of this decision, which surprised most commentators, is that the BGH came to this conclusion without addressing the question which was considered to be at the heart of the matter: whether an infringement of legal provisions outside competition law (data protection rules) could constitute an abuse under competition law, if conducted by a dominant company. The FCO spent a lot of effort on arguing that Facebook’s terms of use violate the GDPR. It collaborated intensively with data protection experts and officials. The OLG, on the other hand, argued extensively why it was not convinced by the FCO’s reasoning.

However, this question is quickly brushed aside by the BGH. In its view, in light of Facebook’s dominant position and the high barriers to switching to another social media platform, the lack of choice to the customer constitutes an exploitative abuse irrespective of whether GDPR rules are violated. Consequently, competition could no longer effectively exercise its control function. As a considerable number of users want less disclosure of personal data, with competition in the market for social networks functioning properly, a corresponding offer could be expected, which interested users could switch to.

In addition to an exploitative abuse on the social network market, the BGH also considers Facebook’s terms liable to impede competition on the social network and online advertising markets (‘exclusionary abuse’). Access to data is considered an essential parameter of competition for both these interdependent markets. Facebook’s access to a considerably larger database than its competitors further strengthens the already pronounced lock-in effects.

This is interesting from two angles: First, consumer sovereignty is taken as parameter for determining an abuse. Limitations to free choice on the demand side may constitute abusive behaviour if, due to the dominant market position, competition no longer serves as a corrective. Second, the BGH also turns to the question of two-sided markets by considering the interrelation of the social network and online advertising markets. The court states that “a considerably larger database further reinforces the already pronounced “lock-in” effects [and] improves the possibilities of financing the social network with the proceeds from advertising contracts.” It will be interesting to see what effect the statement of reasons, once published, will have on the future assessment of two-sided markets.

It should also be kept in mind that all of this played out in summary proceedings. The main proceedings against the FCO decision are still pending. Back to Düsseldorf. The saga continues…