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
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.
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…