United States: German Court Divorces GDPR And Competition Law In Facebook Appeal

In February of this year the German antitrust agency, the Federal Cartel Office ("FCO"), issued a decision against Facebook regarding their handling of user data. Please see our previous blog-post detailing the FCO's arguments here

Facebook appealed and on August 26, 2019, the Düsseldorf Court of Appeal ("DCA") in an interim decision granted suspensive effect to Facebook's appeal against the FCO decision.

The DCA can order suspensive effect to an appeal if it has serious doubts whether the prohibition decision is legally valid. Despite the preliminary character of the DCA's decision, this could represents a significant setback for the FCO and have signaling effect beyond the German borders,. The DCA made certain important points on issues of law, which it will likely not revers during its main proceedings.

Background

The FCO found that Facebook had a market share of more than 90 percent in the German market for social networks and was thus in a dominant position. Furthermore, it considered Facebook's practice to ask for the user's consent for far-reaching data collection via group-owned services like Instagram or WhatsApp in exchange for the user to gain access to Facebook's social network in its terms & conditions to be abusive and harmful to said users. The FCO argued more specifically, that consent, was not freely given as required under the GDPR to be legally valid, since the user, due to a lack of comparable social networks, had no other option than agreeing to Facebook's conditions. Users, as a consequence, were no longer in control of their personal data..

While the DCA – for the sake of the interim proceedings – assumed that Facebook does indeed have dominant market power and that its user conditions, in general, qualify as terms & conditions within the meaning of the applicable German abuse of dominance provisions, the DCA held that the FCO had neither established abusive exploitation nor an abusive exclusionary restriction of competition by Facebook.

Exploitative abuse of Facebook's users

Abusive exploitation in competition law only exists where a dominant competitor introduces terms & conditions or prices that would most likely not have emerged in a competitive market. According to the DCA, the FCO did not adequately investigate whether Facebook's terms & conditions deviate from those that would exist in a counterfactual situation of a competitive market.

Apart from that, the DCA emphasized that terms & conditions introduced by a dominant competitor are only abusive in the meaning of competition law if they cause competitive harm to the user. Facebook's data collection practice, according to the DCA, does not fulfill this criterion. The DCA disagreed with the FCO's assessment that users are harmed by a loss of control over their data. In fact, the DCA argued, users can freely choose, by balancing the benefits and disadvantages of using an advertising funded social network that relies on user data, between (i) not using Facebook and protecting their data or (ii) using Facebook and allowing the use of their data. To support its argument, the DCA, somewhat simplistically perhaps, referred to the fact that while there are 32 million Facebook users, there are also 50 million non-users in Germany. Furthermore, the DCA pointed out that where a lack of control occurred only due to a lack of interest by users to read Facebook's terms and conditions properly, this could not be attributed to Facebook and held that the FCO did not argue that Facebook had not provided sufficient information for users1.

The DCA clarified that for purposes of competition law, the only question that mattered was whether users reached a sufficiently autonomous decision to allow the use of their data, not for instance whether user consent was also in line with mandatory data protection rules. The DCA explained that the dominant company's special responsibility under competition law only relates to potential effects on competition and not to pure infringement of other laws. In the DCA's view, a simple breach of law would only constitute an abuse of market power if the relevant conduct had not been possible under competitive conditions or, in other words, was the result of the market power. For the DCA, though, the FCO failed to prove a causal link between Facebook's abusive conduct, if any, and its market power.

This seems to unwind some of the groundbreaking fusion of data protection law standards in the context of competitive assessments the FCO suggested.

Exclusionary abuse of competitors

In the DCA's view, the FCO also failed to demonstrate to what extent Facebook's access to user data harms its competitors. According to the DCA, Facebook's market power mainly stems from network effects rather than from its access to user data as such. In the DCA's view, the fact that the social network Google+ had access to a comparable amount of user data, but was not able to attract a significant number of users, indicates that access to user data is not a decisive barrier to market entry for potential competitors.

The FCO has already confirmed that it will appeal the DCA's order. A decision of the Federal Supreme Court is expected in 2020.

Footnote

[1] The French data protection authority, however, had made this argument in its fining decision against Google LLC of January 21, 2019. See CNIL, "The CNIL's restricted committee imposes a financial penalty of 50 Million euros against GOOGLE LLC", January 21, 2019, available online.

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