07 Feb, 2019

German Competition Authority: Facebook is a dominant company in the social networks market

The German Competition Authority (“Bundeskartellamt”) issued a decision which will have significant impact on both Facebook’s data policy and competition issues in relation to social networks.  The decision came after an almost three-year investigation into the practices of this social network.

Internal divestiture of Facebook’s data

The Bundeskartellamt has imposed far-reaching restrictions on Facebook, concerning its data processing practices.  So far, Facebook users have only been able to use the platform if they agreed to the terms and conditions which provide that user data can be collected outside the platform, including from websites and apps owned by Facebook, as well as from third party websites and smartphones.  These data could be combined and assigned to a user’s Facebook account, thereby enabling Facebook to build a unique database on each individual user.

The Bundeskartellamt concluded that there are two types of third party sources from which Facebook obtains user data.  On one hand, there are services owned by Facebook, such as WhatsApp and Instagram.  On the other hand, there is data collected from third party websites and apps which embedded the so-called “Facebook Business Tools”, e.g. “Facebook Analytics”, the “Like” button or “Facebook login”.  These data are being transmitted to Facebook instantly through application programing interfaces (APIs) the moment the user opens a website or installs an app for the first time.  Even if users have blocked web tracking in their browser or device settings, Facebook’s terms and conditions enable the platform to combine these data with user’s Facebook account and use it.  Bearing in mind said difference in the types of sources, Bundeskartellamt’s decision provides:

  • Facebook-owned services such as WhatsApp and Instagram may continue to collect data. However, the assignment of these data to user’s Facebook account will only be possible when the user voluntarily consents such assignment.  In case of absence of such user’s consent, the data must remain within the respective service and cannot be processed in combination with Facebook data;
  • Collecting data from third party websites and assigning them to a Facebook user account will also only be possible if a user gives a voluntary consent.

These restrictions create several consequences.  There must be a voluntary consent for assigning data to user’s Facebook account.  Nevertheless, if a user does not give its consent, the platform should not play hardball and refuse to provide its services.  This requires Facebook to adapt its terms of service and data processing policy so not to require collection and use of data from other websites and apps as a necessary condition for using the platform.

Andreas Mundt, President of the Bundeskartellamt commented: “With regard to Facebook’s future data processing policy, we are carrying out what can be seen as an internal divestiture of Facebook’s data. In the future, Facebook will no longer be allowed to force its users to agree to the, practically, unrestricted collection and assigning of non-Facebook data to their Facebook user accounts. The combination of data sources substantially contributed to the fact that Facebook was able to build a unique database for each individual user and thus to gain market power.”

Facebook is the dominant company in the German social networks market

The Bundeskartellamt also assessed the relevant market for social networks in Germany.  It concluded that Facebook holds a dominant position with a user-based market share of more than 90%.  Other services with similar features, such as WhatsApp, YouTube, Snapchat, LinkedIn, Twitter, Pinterest and Instagram, were not included in the relevant product market, due to the fact that they only partly overlap with Facebook and are not its direct competitors.  Moreover, it is suggested that the market share would not change significantly even if these were included in the relevant product market, since almost all of the most popular services belong to the Facebook group.

The conclusion reached by Bundeskartellamt is that Facebook’s conduct essentially presents a so-called “exploitative abuse”, in which a dominant company uses exploitative practices to the detriment of both consumers and competitors on the market.

Facebook will appeal the decision

As a reaction to the decision, Facebook published a blog post, stating that “the Bundeskartellamt’s decision misapplies German competition law to set different rules that apply to only one company”.  It announced that it will take the Bundeskartellamt’s decision to court.  The company emphasized its principal counterarguments:

  • the Bundeskartellamt found that 40% of social media users in Germany don’t even use Facebook, and its apps compete directly with YouTube, Snapchat, Twitter and others;
  • Facebook complies with the General Data Protection Regulation (“GDPR”) and is accountable for protecting people’s information;
  • the use of information across services helps to make them better and protect people’s safety.

Wider perspective

Data privacy has recently been an important issue for European policymakers, resulting in the adoption of the GDPR which came into effect on May 25, 2018.

The focus of national watchdogs is generally on global tech companies for which data are the essential part of their business models.  These companies will have to put every effort to adapt their data privacy practices in order to comply with state of the art data protection standards.  The recent EUR 50 million fine for Google can serve as an indicative example of the consequences which non-compliance might bring.

The cases at hand are specific in a way that they present a point where data privacy and antitrust intersect.  Tech giants’ abusive practices concerning data privacy affect directly other competitors on market, raising significant antitrust concerns.  It is therefore certain that the period ahead of us will bring important new developments in relations to both data privacy and protection of competition.