Data-related businesses occupy an increasingly important role in the modern economy. During the past decade, companies such as Facebook, Amazon, Alibaba and Google/Alphabet have sprung up and become veritable giants by collecting and selling user data. Big data is currently one of the most discussed topics in competition and antitrust circles as it poses new questions, which are partly interrelated with consumer and data-protection rules.
The German Federal Cartel Office (“FCO”) is currently conducting an investigation into Facebook, and has just released its preliminary assessment that Facebook’s collection and use of data from third-party sources violates competition law. Assuming the preliminary assessment is maintained by the FCO, its investigation represents an important step towards defining the competition law framework applicable to the collection and trade of personal data.
In order to use Facebook, users must agree to the company's terms and conditions. These allow Facebook to collect and analyze a large amount of personal data, which in turn enables Face-book to provide targeted information on its users to its advertising customers.
The FCO has drawn a distinction between user data collected through the use of Facebook (“on Facebook”) and user data obtained from other sources (“off Facebook”). “On Facebook” data are not subject to the current proceedings – the FCO, however, expressly leaves open whether there may also be infringements for such data. Instead, the current investigation concerns “off Facebook” data. This is collected both through services owned by Facebook (WhatsApp, Instagram) and also embedded Facebook products (the “Like” button) on third-party websites and apps.
Due to the unprecedented nature of the case, during its investigation the FCO was in close con-tact with the European Commission, competition authorities of other EU Member States, data protection ombudsmen and consumer protection associations.
The FCO's view is that Facebook is dominant in the German market for social networks. Accord-ing to the FCO’s preliminary assessment, this product market does not include professional net-works (such as LinkedIn and Xing), messaging services (like WhatsApp) and other social media (such as YouTube or Twitter). According to the FCO, Facebook’s dominance stems from its share of over 90% of the relevant market, intensified by significant network effects.
The FCO's preliminary assessment is that Facebook abused its dominant position by making the use of its social network conditional on its users granting it approval to collect their "off Facebook" data and to merge that data with the user’s Facebook account. The FCO's view is that users thereby lose control over their personal data. In addition, there is an alleged potential harm for Facebook’s advertising customers, because they face a dominant supplier of advertising space.
Since this is the first case of its kind, it is being conducted by the FCO as an administrative pro-ceeding. This means that Facebook will not be fined if the provisional findings are upheld but the FCO may prohibit certain behaviour or require the company to make concessions.
The FCO's investigation has the potential to considerably widen the scope of competition law enforcement. While the FCO emphasizes that not every infringement of data protection law by a dominant company automatically violates competition law, it also indicates a general willingness to protect parties in an (allegedly) imbalanced negotiation position. Since early 2017, the FCO has had enhanced consumer law powers (and is currently conducting sector inquiries in relation to price comparison websites and smart TVs). However, such tools need to be distinguished from the FCO’s classic competition law enforcement tools, in particular the ability to impose significant fines on companies that are part of a cartel or abuse a dominant position.
While the FCO’s case against Facebook undoubtedly covers new ground, it is not the first time that competition authorities have dealt with the relationship between data protection and antitrust rules. In 2008, the European Commission investigated the potential competitive effects of collecting and exploiting a wide range of online usage data in its Google/DoubleClick merger control proceedings. The Facebook/WhatsApp merger proceedings also illustrate an increased awareness by competition agencies of the economic significance of data. While the European Commission cleared that transaction in 2014, three years later Facebook was fined €110 million for providing misleading information during the merger investigation about its ability to establish reliable automated matching between Facebook and WhatsApp user accounts. The case also led to Germany amending its merger control rules to take into account the increased importance of data (as under the previous rules, companies such as WhatsApp with low revenues but a powerful data position slipped under the merger control thresholds).
The FCO's final decision in the Facebook investigation is not expected until summer 2018. But the preliminary assessment reinforces that companies with data-intense business models now, more than ever, need to be familiar with competition law restrictions and how they may be applied to data. That's in addition to the impact that the General Data Protection Regulation (GDPR), which comes into force in May 2018, will have on all business with activities in Europe.