Has Germany Opened a Path For US Antitrust Action Against Facebook?
- July 7, 2020
- Posted by: Tim Walters, Ph.D.
- Category: Customer Experience, Data & Privacy
A late June court decision will significantly restrict Facebook’s ability to collect personal data in Germany. The effects could extend to the entire EU, if Facebook is foolish enough to appeal the case to the EU’s Court of Justice. (Or if regulators are aggressive enough to refer it to the EUCJ.) Most notably, however, the court’s reasoning could offer a blueprint for effective antitrust action against Facebook in the US.
Background: Facebook versus the antitrust regulator
The decision by the Bundesgerichtshof (BGH) – Germany’s highest court for civil and criminal cases – confirmed (and, crucially, potentially broadened) the February 2019 ruling by Germany’s anti-trust regulator (the Bundeskartellamt/Federal Cartel Office, or FCO) that Facebook may not combine personal data from the social platform with that from other Facebook properties (e.g., WhatsApp, Instagram), or from third-party sites with Facebook “like” buttons, unless they obtain valid consent from the user. (Valid consent as dictated by the GDPR.)
Predictably, Facebook appealed the 2019 ruling, on three grounds. First, Facebook argues that it faces “fierce competition” in Germany and is therefore not a “dominant company” (a near monopoly that leaves no meaningful social networking alternatives for users to switch too). But, as I wrote in “Facebook Again Acting Like a Spoiled Teenager”:
“Suggesting that Facebook faces fierce competition from the likes of Tinder and TikTok is like the owner of the one bar in an otherwise dry town saying his customers could just as well drink NyQuill or sniff glue.”
Second, Facebook maintains that it does not need valid consent from users, since by accepting the revised terms and conditions introduced with the GDPR in May 2018, every Facebook user in the EU has willfully entered into a “contract” for the delivery of personalized advertising – and servicing this contract requires Facebook to collect massive amounts of personal data.
As I noted in “Is Facebook ‘Radically’ Evil?” (hint: yes), this position is both manifestly absurd and an abuse of the contract basis for data processing that has already been rejected by EU data protection authorities. (Moreover, Facebook’s emphasis on advertising rather than social networking could be used against them in the antitrust strategy sketched below.)
Third, Facebook holds that the FCO has no authority to restrict the processing of personal data, which is the purview of Germany’s data protection authorities.
The high court’s reasoning
Facebook enjoyed an initial victory in August 2019, when a court in Dusseldorf effectively agreed with their second and third arguments against the FCO ruling. (Analysis in German.)
But the high court’s June decision firmly rejected the lower court’s reasoning and reinstituted the FCO planned prohibitions, noting in the German press release:
“There are neither serious doubts about Facebook’s dominant position on the German social network market nor the fact that Facebook is abusing this dominant position.”
Dissolving the zero-price market antitrust dilemma
The BGH agreed with the antitrust regulator that Facebook’s excessive access to personal data strengthens its market dominant position (via network lock-in effects) and diminishes the prospects for effective social networking competitors. European antitrust law and sanctions have long been concerned with preserving effective market competition.
In contrast, in the US antitrust has focused on the abuse of market power to harm not competitors but consumers/buyers – especially and most clearly via predatory pricing, that is, pricing that could not be sustained in a context of effective competition.
But then, what if there is no price? Facebook, Instagram and WhatsApp (like Google search and Gmail) are free. Where is the consumer harm if predatory pricing is impossible?
As this informative white paper on “Antitrust and ‘Big Tech’” from the Congressional Research Service notes, “some courts and commentators have responded to this difficulty . . . by concluding that such [zero-price] markets are categorically exempt from antitrust scrutiny.”
Of course, an increasingly popular response to the zero-price dilemma is to stress that the price Facebook extracts is not in dollars but in data – and in fact, it can easily be shown that Facebook ratcheted up surveillance only after it achieved monopoly power around 2014.
However, as highlighted in the Frankfurter Allgemeine newspaper, the German court highlights the strict financial aspects of Facebook’s abusive market position:
“The BGH severs this Gordian knot by locating the competitive harm in the market for online advertising, even though Facebook does not there have a demonstrable dominant market position.”
In other words, in financial terms, the consumers harmed by Facebook’s (near) monopoly status as a social network are not the users (who pay nothing) but the advertisers (who pay plenty). (And/or competing advertising platforms, which, without Facebook’s access to data, cannot offer equally effective or price competitive ad inventory.)
As the court succinctly remarks in the last line of the press release:
“The harm does not have to occur in the controlled market but can also occur in an uncontrolled third market.”
I can’t judge whether the US legal environment and antitrust case law would enable this approach. But it is certainly worthy of consideration by a bold state attorney general.