Germany Launches Novel Antitrust Approach to Combat Competitive Effects of Big Data

In a decision with worldwide implications, the German Federal Cartel Office, the German competition authority, is taking the novel approach of using competition law to curtail Facebook’s use of its users’ personal data.

In a decision announced on February 7, 2019, the Federal Cartel Office ruled that Facebook abused its dominance in the German market for social networks “based on the extent of collecting, using and merging data”[1] in violation of German competition law and the European General Data Protection Regulation.[2]  The decision targets two different data sources: (1) Facebook-owned services, including WhatsApp and Instagram; and (2) third-party websites that use Facebook capabilities, such as the “like” and “share” buttons or “Facebook Analytics.”

Under the order, Facebook-owned services and third parties may assign a user’s data to Facebook only with that user’s voluntary consent.  Facebook opposes the decision and plans to appeal.[3]

“An Internal Divestiture”?

The German regulators take a novel approach for a data case by alleging harm not only to data protection, but also to competition.

Germany’s novel enforcement approach is driven by a theory that 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.”[4]  Under this theory, because Facebook is a “dominant company,” it is “subject to special obligations under competition law,” including ensuring that users provide actual “voluntary consent” for assignment of their data.[5]

But what is “voluntary consent”?  The decision gives two clues.

First, Facebook cannot exclude, and perhaps cannot discriminate against, a user who does not provide consent:

“Voluntary consent means that the use of Facebook’s services must not be subject to the users’ consent to their data being collected and combined in this way.  If users do not consent, Facebook may not exclude them from its services and must refrain from collecting and merging data from different sources.”[6]

Second, the consent itself can’t be buried in the terms of service—it has to be more obvious.  Because users “practically cannot switch to other social networks,” an “obligatory tick on the box” to accept terms of service “cannot be referred to as voluntary consent.”[7]

But how does requiring “voluntary consent” remedy a harm to competition?  The Federal Cartel Office’s explanations are thin both on how competition has been harmed and on how voluntary consent would remedy that harm.

If the problem is undue market power because of data aggregation, why did the German regulators allow Facebook to aggregate the data, but only with additional barriers?  Indeed, the Federal Cartel Office describes the order as requiring an “internal divestiture of Facebook’s data,”[8] which ordinarily would mean a “loss or surrender of [the] asset” by sale, exchange, or firewall among the data sources, instead of mere obstacles to aggregation.[9]

On the other hand, if the consumer harm caused by data aggregation is the combination of consumers’ data, is that a harm that competition law can solve?  According to the Federal Cartel Office, the answer is yes.  In the view of the German regulators, “Facebook uses exploitative business terms” in combining consumers data, which causes three sorts of harm: “loss of control” for users, network and lock-in effects to “the detriment of other providers of social networks,” and “competitive harm . . . for advertising customers and competitors in the advertising market . . . .”[10]

Some American commentators are looking askance at this marriage of competition law and privacy protection.  As former acting Federal Trade Commission Chairman Maureen Ohlhausen has stated, the decision risks confusing “privacy, antitrust, and consumer protection” issues.[11]

Anticompetitive Data Aggregation: Coming to America?

It’s no secret that American tech companies leverage the network effects made possible by the Internet and data.  For example, Mark Zuckerberg, Facebook’s CEO and controlling shareholder, has stated that the continued success of Facebook is “not just about building the best features.  It’s about building the best community.”[12]  And Satya Nadella, CEO of Microsoft, has said that “data and digital technology is a new factor of production.”[13]

United States authorities have hesitated to endorse antitrust theories that companies have too much control over Big Data.[14]  And historically enforcement decisions—including the landmark 2011 consent decree between the FTC and Facebook—have focused on the harm to consumers’ privacy, rather than harm to competition.[15]  But Facebook’s proposed data architecture combination has raised eyebrows; and some commentators have renewed concerns that the FTC acted imprudently when it cleared Facebook’s acquisitions of its competitors.[16]  And now even some lawmakers in Congress have begun to pay attention.[17]

Facebook could be opening itself up to an investigation by a regulator, Congress, or a private suit.  Although private federal antitrust actions for damages have a four-year statute of limitations,  that does not apply to equitable claims—including an injunction to keep the data architectures separate, or even for divestiture.[18]  Rather, the defense of laches applies, which bars equitable claims four years after accrual of the plaintiff’s cause of action unless, inter alia, the court determines that delay is excused or that defendants would suffer no prejudice.[19]

Another question is whether Facebook can raise a laches defense at all.  A court may “measure the laches period from the time when the violation occurred rather than from the time of the prior merger.”[20]

Regardless, although “excusable delay” is found infrequently, a plaintiff may argue that it might be applicable with respect to Facebook.  When Facebook acquired WhatsApp and Instagram, Zuckerberg announced his intention to keep the features separate, to “build[] and grow[] Instagram independently . . . rather than just trying to integrate everything into Facebook.”[21]  As WhatsApp’s co-founder stated when it was acquired: “It’s not like we’re going to, on day one, send all this data over to Facebook.”[22]  While this assurance to the world is not a binding contract, reneging is generally not considered favorably.  Although here, the “asset” (data and architecture) has already been acquired, the transfer of reams of data to Facebook could raise new questions about the legality of the merger post-facto, and “a longer [laches] period might be permissible where the acquiring firm has merely held the acquired assets separately without integrating them.”[23]

Regardless, this isn’t just a problem for Facebook.  Given the ubiquity of using data and data analytics for competitive advantage, companies in industries as varied as health care, airlines, payments, agriculture and retail should pay attention and consider whether their use of data is exposing them to antitrust remedies.

Edited by Gary J. Malone

[1] Press Release, Bundeskartellamt, Bundeskartellamt prohibits Facebook from combining user data from different sources (Feb. 7, 2019), https://www.bundeskartellamt.de/SharedDocs/Meldung/EN/Pressemitteilungen/2019/07_02_2019_Facebook.html.

[2] Frequently Asked Questions, Bundeskartellamt, Bundeskartellamt prohibits Facebook from combining user data from different sources: Background Information on the Bundeskartellamt’s Facebook proceeding, Feb. 7, 2019, https://www.bundeskartellamt.de/SharedDocs/Publikation/EN/Pressemitteilungen/2019/07_02_2019_Facebook_FAQs.pdf?__blob=publicationFilge&v=6.

[3] Yvonne Cunnane, Why We Disagree with the Bundeskartellamt, Facebook Newsroom, Feb. 7, 2019, https://newsroom.fb.com/news/2019/02/bundeskartellamt-order/.

[4] Press release, supra note 1 (emphasis added).

[5] Id.

[6] Id.

[7] Id.

[8] Id.

[9] Divestiture, Black’s Law Dictionary (10th ed. 2014).

[10] Frequently Asked Questions, supra note 2.

[11] Dorothy Atkins, Ex-FTC Head Says German Facebook Order Sows Confusion, Law360, Feb. 12, 2019, https://www.law360.com/articles/1127534/ex-ftc-head-says-german-facebook-order-sows-confusion.

[12] Evan Osnos, Can Mark Zuckerberg Fix Facebook Before It Breaks Democracy?, New Yorker, Sept. 17, 2018, https://www.newyorker.com/magazine/2018/09/17/can-mark-zuckerberg-fix-facebook-before-it-breaks-democracy.

[13] Lianna Brinded, Microsoft CEO Satya Nadella: We need to do to data what we did with electricity, Yahoo Finance UK, Jan. 24, 2019, https://finance.yahoo.com/news/microsoft-ceo-satya-nadella-need-data-electricity-094923107.html (emphasis added).

[14] See Bloomberg Law, ‘High’ Threshold for Regulating Big Tech’s Data: Justice Dept., Aug. 20, 2018, https://news.bloomberglaw.com/tech-and-telecom-law/high-threshold-for-regulating-big-techs-data-justice-dept.

[15] FTC, Facebook Settles FTC Charges That It Deceived Consumers By Failing to Keep Privacy Promises, Nov. 29, 2011, https://www.ftc.gov/news-events/press-releases/2011/11/facebook-settles-ftc-charges-it-deceived-consumers-failing-keep.

[16] Lauren Feiner, Facebook’s plan to merge its messaging services ignites further antitrust concerns, CNBC, Jan. 27, 2019, https://www.cnbc.com/2019/01/27/facebooks-plan-to-merge-messaging-services-ignites-antitrust-concerns.html.

[17] See Senator Mark Warner, Potential Policy Proposals for Regulation of Social Media and Technology Firms, Aug. 2, 2018, https://www.scribd.com/document/385137394/MRW-Social-Media-Regulation-Proposals-Developed.

[18] See ITT v. GTE Corp., 518 F.2d 913, 929 (9th Cir. 1975), overruled in part on other grounds by California v. Am. Stores Co., 495 U.S. 271 (1990).

[19] Id.

[20] Id. at 928.  See also United States v. E.I. DuPont du Nemours & Co., 353 U.S. 586, 607 (1957) (“the test of a violation of section 7 is whether, at the time of suit, there is a reasonable probability that the acquisition is likely to result in the condemned restraints”) (emphasis added).

[21] Facebook Newsroom, Facebook to Acquire Instagram, Apr. 9, 2012, https://newsroom.fb.com/news/2012/04/facebook-to-acquire-instagram/.

[22] Seth Fiegerman, WhatsApp Cofounder on Facebook:  We’re Not Getting ‘Swallowed by the Borg’, Mashable, June 5, 2014, https://mashable.com/2014/06/05/whatsapp-brian-acton-interview/#8uuqzhyhiZql.

[23] V P. Areeda & H. Hovenkamp, Antitrust Law ¶ 1205b, at p. 310 (4th ed. 2016).

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