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German High Court Slams Facebook’s Data Collection Practices As It Reinstates Order

Posted  July 2, 2020
By J. Wyatt Fore

In a landmark ruling, Germany’s highest civil court criticized Facebook for allegedly abusing its “dominant market position on the social network market” as it reinstated an order by the Federal Cartel Office (“FCO”) restraining Facebook’s data collection practices.

The Federal Court of Justice reversed an appellate court’s preliminary suspension of the order restraining Facebook, pending full judicial review.  Although the German high court’s decision is preliminary and allows Facebook to challenge the FCO’s order on the merits, the decision will have broad ramifications for Big Tech in Europe and throughout the world.

The FCO’s initial order adopted a novel theory—that Facebook abused its dominant position based on its collection and merging of user data.  The data comes from both Facebook-owned websites, such as WhatsApp and Instagram, and also from third-party sites that use Facebook capabilities, such as the ‘like’ and ‘share’ buttons.  Facebook’s collection and merging of data from these separate sources empowered Facebook to create “super profiles” of users, which it could sell to advertisers.

The FCO concluded that this data collection harms not only competition—by enabling Facebook to enlarge its power in the markets for social networking and advertising—but also users’ rights to self-determination over their personal information.  To remedy this harm, the FCO order bars Facebook-owned services and third-party applications from assigning a user’s data to Facebook without the user’s voluntary consent.

Some have criticized the FCO’s theory for applying a competition law solution to solve a non-competition law problem, i.e., harm to user privacy and informational self-determination.  But the German high court disagreed.  To the court, in a competitive social-networking market, users would be able to demand better terms and conditions regarding their data.  Thus, because “[t]here are no serious doubts about Facebook’s dominant position,” its failure to give users a voluntary choice for collection of their data (that would be present in a competitive market) is an abuse of dominance.  And further, because Facebook monetizes this user data by selling to advertisers, harm in “the market for online advertising cannot be ruled out.”

Competition enforcers are increasingly concerned about the market power of data-driven businesses.  Given the Federal Court of Justice’s blessing of the FCO’s theory linking user data rights and competition law, the decision will almost certainly create even more headaches for Big Tech, including in the United States.

For example, as this blog has already noted, Facebook’s acquisition of data assets may raise concerns under section 7 of the Clayton Act, which bars mergers where the effect “may be substantially to lessen competition, or to tend to create a monopoly.”  Just as the FCO ordered an “internal divestiture,” i.e., a separation of Facebook’s data assets, a U.S. antitrust enforcer could also seek similar relief, i.e., structural separation of data assets.  Importantly, the Clayton Act’s injunctive relief provision contains no statute of limitations, and the defense of laches (the equitable analog to statutes of limitations) does not apply against the government.  See, e.g., United States v. Summerlin, 310 U.S. 414, 416 (1940).

Given the FTC’s previous fines against Facebook for its data management practices, and the current investigation into its pattern of acquisitions, Facebook’s antitrust problems are just beginning.

Edited by Gary J. Malone

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