German FCO's landmark Facebook decision suspended on appeal

On 26 August 2019, the Düsseldorf Higher Regional Court (DHRC) granted a temporary injunction suspending the German Federal Cartel Office's (FCO's) landmark abuse of dominance decision against Facebook, pending final determination of the company's appeal. In an important judgment with potential ramifications for the enforcement of competition law in the digital economy well beyond the German borders, the DHRC criticised the FCO's decision in unusually clear terms, and expressed serious doubts as to its legality under German competition law. Whilst the decision is only an interim one, it no doubt provides an indication that the DHRC could overturn the FCO's decision in its final judgment on the appeal (although the interim decision itself will now likely be the subject of an appeal to the German Federal Court of Justice by the FCO).

Background

When the German Federal Cartel Office (FCO) issued its landmark abuse of dominance decision against Facebook on 6 February 2019, it immediately attracted a huge amount of attention. As discussed in more detail in our previous e-bulletin, for the first time a European competition authority found that user terms and conditions which breach data protection principles could constitute an abuse of a dominant position under competition law. The FCO has scrutinized Facebook's practice of making the use of Facebook's social network conditional upon the user consenting to Facebook's terms and conditions which allowed Facebook to collect user data from third party websites and apps (including Facebook-owned services such as WhatsApp and Instagram) and to combine this data with data from the user's Facebook account. The FCO considered that Facebook's practice amounted to an exploitative abuse in the form of exploitative business terms and ordered Facebook to adapt its terms and conditions and the underlying data processing practices.

In the immediate aftermath of the FCO's decision, it seemed that this interventionist and far-reaching decision could set a preliminary cornerstone in establishing what could be seen as the creation of "house rules" for the digital world, with potentially significant consequences, in particular for technology companies with data-reliant business models.

However, in a significant blow for the FCO, on 26 August 2019 the DHRC granted a temporary injunction suspending the FCO's decision, pending final determination of Facebook's appeal. In doing so, the DHRC criticised the FCO's decision in unusually clear terms, and expressed serious doubts as to its legality under German competition law.

No abuse in the absence of competitive harm

The DHRC considered that terms and conditions set by a dominant company will only amount to an abuse of that dominance in breach of competition law if they cause competitive harm. In the present case, the court rejected the FCO's assertion that Facebook's terms and conditions caused competitive harm either by way of exclusion of competitors or by way of exploitation of dominance to the detriment of consumers.

By way of summary of the key takeaways:

• DHRC emphasised that an infringement of data protection law by a dominant company does not automatically amount to an abuse of that dominance for the purposes of competition law. Rather, it must be shown that the relevant conduct/infringement of data protection law (or any other consumer protection law) would not have been possible under competitive conditions i.e. there is a causal link between the conduct and the company's market power (which the court held had not been sufficiently demonstrated by the FCO in this case).
• assessing whether terms and conditions set by a dominant company are abusive, it is necessary to consider what terms and conditions would have been likely to emerge in a more competitive market. The DHRC considered that the FCO had failed to properly consider this in the present case.
• the court's view, it has not been demonstrated that the provision of data to Facebook restricted the ability of other companies to compete. In particular, it would have been necessary to substantiate whether, in the individual case, the processing of the data leads to the establishment or reinforcement of market entry barriers. The court considered that the amount of data is clearly not decisive in order to successfully operate a social network.. The DHRC referred in this regard to Google+, a social media network created by Google which arguably had access to a similar amount of user data as Facebook, but which was not able to attract a significant number of users and was closed in April 2019.
• DHRC also rejected the FCO's assertion that Facebook users are harmed by a loss of control over their data, with no option to "opt-out" of Facebook's practices in relation to data collection and processing if they wish to use the Facebook social media platform. The court concluded that each user can decide whether or not to accept Facebook's terms and conditions, weighing up the pros and cons of using an advertising funded social media network that is reliant on user data. It also pointed out that c. 50 million Germans are not using Facebook (as compared to the c. 32 million monthly Facebook users in Germany).

What next?

Whilst the DHRC's decision is only an interim one, it no doubt provides an indication that the court could overturn the FCO's decision in its final judgment on the appeal. However, the interim decision itself is now likely going to be the subject of an appeal to the German Federal Court of Justice by the FCO, which has made clear that it strongly disagrees with the DHRC's approach. Reacting to the judgment, the president of the FCO, Andreas Mundt, emphasised that "data and data handling are decisive factors for competition in the digital economy […][and] we are convinced that we can act in this area based on the existing antitrust law. For this reason, we are going to appeal on points of law to the Federal Court of Justice to clarify these issues."

The FCO therefore seems unlikely to scale back its enforcement ambitions in the digital sphere without a fight. It is notable in this regard that prior to the DHRC's interim judgment, the FCO had already applied a similar approach in another recent abuse of dominance investigation into terms of business imposed by Amazon (which was closed without a formal commitments decision on 17 July 2019, after Amazon agreed to voluntarily amend its terms of business to address the FCO's concerns). In a case summary published by the FCO when closing its proceedings, the FCO expressly referred to its Facebook decision and confirmed its view that "exploitative abuse exists if the business terms no longer reflect a balance of interests, which is examined by weighing interests considering assessments under the [German Act against Restraints of Competition] and other potentially applicable legal provisions from areas other than antitrust law."  It remains to be seen how the FCO will proceed in ongoing and future cases pending clarification from the German Federal Court of Justice as to the correct legal tests to be applied in this context.

More generally, the enforcement of competition law in the digital era will no doubt remain a hot topic for competition authorities around the world (for a helpful summary of recent EU developments in this area, see further our recent article for CPI Antitrust Chronicle). From the German perspective, it is interesting to note in this regard that on 9 September 2019 a report from the German "Competition Law Commission 4.0" set out a wide-ranging list of recommendations, in particular relating to greater powers for consumers in relation to data use and portability, and greater regulation for dominant platforms.

Practical implications for businesses

Final determination of the Facebook case, and clarity on the key legal issues raised, is likely to take a number of years. In the meantime, potentially dominant companies which collect significant amounts of user data should remain alert to the increased focus of competition authorities around the world on abusive conduct in digital markets. User terms and conditions should be reviewed to maximise arguments that the user provides effective and voluntary consent for the collection and use of their data, and an integrated approach to compliance with competition and data protection laws (and other applicable consumer protection laws) should be adopted.

For further guidance on key legal considerations for organisations looking to develop or refine a data commercialisation strategy (including matters beyond competition law considerations), please see the HSF guide on "Data assets: protecting and driving value in a digital age".

Contacts