The German Federal Cartel Office ("FCO") announced today a formal proceeding against Facebook Inc., USA ("Facebook"). According to the FCO, there is an initial suspicion that Facebook has abused its dominant position in the market for social networks with its specific terms of service on the use of user data.

I.The Proceeding

The FCO has indications that Facebook has a dominant market position in the market for social networks. It announced to conduct further market investigations in this respect.

Facebook may abuse this dominant position by imposing unfair conditions on users. The FCO has the initial suspicion that Facebook's conditions of use are in violation of data protection law. According to the FCO, Facebook collects a large amount of personal user data from various sources. By creating user profiles the company enables its advertising customers to better target their advertising activities. In order to access the social network, users must first accept the terms of service. The FCO considers that it is difficult for users to understand the scope of this agreement. The FCO will now examine whether there is a connection between the possible dominant position of the company and the use of such terms of service.

The FCO is conducting the proceeding in close contact with the competent data protection authorities, the European Commission and competition authorities of other EU member states.

II. Assessment and Implications

The FCO's proceeding has several remarkable aspects.

The background of this development is the FCO's increased focus on the internet economy. Just recently, the FCO created an internet taskforce. Big Data is one of the FCO's enforcement priorities in this area.

With the present proceeding the FCO breaks new grounds by combining data protection with competition law. According to the FCO, data may increase market power and advance in knowledge and result in market foreclosure. This concerns in particular major internet platforms due to network effects. The FCO will now assess whether Facebook's collection of personal user data constitutes abusive conduct. The FCO's focus is not on possible violations of data protection laws for which the FCO is not the competent authority. Rather, the main question for the FCO is whether Facebook, due to its market power, can impose unfair conditions on its users. The yardstick for whether Facebook's conduct is abusive is hypothetical competition, i.e., whether Facebook could also have imposed such conditions on its users if it were subject to workable competition.

It also not clear whether Facebook holds a dominant market position. For instance, it is questionable whether Facebook is even active on a market in this respect, as it offers its services to its users free of charge. The FCO, and likewise the European Commission, consider that such services constitute a market activity. One argument here is the interdependence between the "free side" (services for users) and the "money side" (advertising revenue) of internet platforms. This questions has not been decided yet by German courts. The FCO has called upon the legislator to provide clarity in this respect.

The FCO's proceeding is another indication of its new focus on the internet economy. After a series of proceedings in the area of online distribution and new approaches in merger control, the FCO now combines data protection with abuse of dominance law.

Data protection will therefore gain further importance for companies possibly holding a dominant position.

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