FCO opens new proceedings against Facebook

The German FCO has not lost its appetite to take on major tech companies. Today, it has announced that it has initiated abuse proceedings against Facebook to examine the linkage between Oculus virtual reality products and Facebooks’ social network.

The accusations against Facebook

Facebook’s Oculus “Quest 2” glasses are a virtual reality device. The aim of virtual reality products is to create a virtual world for the user to experience while using digital content. Three-dimensional vision which allows the human eye to perceive its surroundings in 3D is simulated with special technology. Facebook has begun to integrate its Oculus platform into the social network Facebook.com.

Previously the platform had been operated separately from Facebook.com but Facebook recently changed its policy so that from now on Oculus will only be offered as an additional function on Facebook's social network, under the name “Facebook Reality Labs”. The use of the latest "Quest 2" VR glasses will require registration using a Facebook.com account and existing Oculus accounts can no longer be used for registration and the new hardware.

According to its press release the FCO seems to be concerned that this conduct may be an abusive tying practice. The FCO’s president Andreas Mundt noted: “Linking virtual reality products and the group’s social network in this way could constitute a prohibited abuse of dominance by Facebook. With its social network Facebook holds a dominant position in Germany and is also already an important player in the emerging but growing VR (virtual reality) market.”

The FCO as a digital trend setter

The FCO’s most recent move is yet another blow to tech companies’ practices but is not surprising. It fits the FCO’s overall enforcement strategy which heavily focusses on the digital sector and adopts an interventionist stance.

Specifically in this field, the FCO sees itself as a ‘trend-setter’ and is frequently at the forefront of developments. It has not hesitated to start new investigations that can be seen as pilot proceedings. The effects of these proceedings can easily have an impact going well beyond Germany. For example, as a consequence of an FCO investigation, Amazon made adjustments to its business terms worldwide for sellers active on Amazon Marketplace. The FCO has also started a new ongoing investigation against Amazon. The FCO’s court battle with Facebook regarding the tech giant’s collection and use of data, which the FCO views as abusive as well, is also still ongoing.

The present case is another example of the interventionist stance adopted by the FCO in the tech sector and the boldness of its approach. This becomes in particular apparent in light of the fact that the glasses in question are not even for sale in Germany yet. This raises prima facie questions: Is there any effect at all in Germany and why should the FCO have jurisdiction? Might this even be a sign that the FCO is taking an even more proactive role?

A new theory of harm?

When it comes to the basis of the antitrust concerns, the present investigation – based on the very little information available at this stage – seems to raise  a number of  interesting questions. According to the press release, the FCO considers Facebook (i) to be dominant “with its social network” and (ii) to be an “important player in the emerging but growing VR field”. More specifically, the FCO “intends to examine whether and to what extent this tying arrangement will affect competition in both areas of activity”.

The FCO seems to be relying on a traditional toolkit of a tying abuse: Dominance in one area is extended through a tying practice in an adjacent area.

However, there are some novel elements that make the theory harm far less obvious:

• Tying cases traditionally involve a company dominant in the tying market that tries to leverage its dominant position into the tied market.
• Here it seems that the tying product is Facebook’s Oculus device while the tied product is Facebook’s social network.

This would mean that Facebook would use a product where it is not dominant (virtual reality) to strengthen its position in a market where it is already dominant.

It remains to be seen, how the FCO argues the case and whether it runs this as a more novel theory of harm. In its other investigation against Facebook concerning the data collection practices, the FCO appeared to adopt a theory focussed on data protection concerns to substantiate its theory of harm. It cannot be excluded, that data will also play a major role in the present proceedings.

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