Federal Cartel Office investigates Facebook – When does data collection become market abuse?

On 2 March 2016, the Federal Cartel Office (FCO) informed the public that it has initiated an investigation against Facebook for allegedly abusive behaviour on the market for social networking sites.

The FCO suspects that the provisions on data collection and usage in Facebook’s terms of use do not comply with the requirements of German data protection law. While the mere infringement of data protection law does not equal an infringement of antitrust laws, the FCO intends to review whether Facebook is able to assert its terms of use only due to the lack of substantial competition and thus having a market dominant position. If so, Facebook’s conduct may qualify as an “abuse by means of business terms”.

In one respect, the present investigation is a novelty: It is the first antitrust investigation ever that examines whether, by collecting and using vast amounts of personal data, a single company may obtain competitive advantages that were not attainable with functioning competition. In particular, the investigation will focus on the interaction between a large user base that generates an ever-growing amount of personal data on the one hand, and the data collecting company’s success on advertising markets on the other hand, which may be increased by the possibility of developing personalised and very targeted advertisements.

The Facebook investigation does not represent a “first” for the interface between data protection and antitrust law. Already back in 2008, while reviewing Google’s DoubleClick acquisition, the European Commission analysed the potential effects on competition that may arise from the collection and use of personal data resulting from online activities. Whilst this review was fairly limited, this topic received more scrutiny during the merger control review of the Facebook/WhatsApp transaction in 2014. The Commission came to the conclusion that the combination of Facebook’s and WhatsApp’s user data collection does not raise competition concerns.

Against this backdrop, one should not expect that the investigation will be completed within a short period of time. Further, it appears far from certain that the FCO’s suspicions could be proven swiftly and easily. First, establishing an “abuse by business terms” requires the FCO to prove that Facebook holds a dominant position on the market for social networks. To this end, it must be shown that operating a social network may qualify as a “market” in the meaning of antitrust law. In addition, an “abuse by business terms” might be established only if the authority can show with high probability, by making a comparison with a market having effective competition, that the company under investigation would not have been able to enforce its business terms if not for its dominant position. Identifying a market that is appropriate for such a comparison has been a challenge already in past cases concerning abusive conduct in the “old economy”. This challenge will also arise – and even more so – in the present investigation. Considering past abuse cases of the FCO, the Facebook investigation will perhaps take years, rather than months.

The Facebook investigation is not the only one dealing with the industry trend “Big Data”. In November 2015, the FCO and the French Competition Authority (Autorité de la Concurrence) started working on a joint study which should help identifying potential risks for competition that may follow from the collection, combination and use of large volumes of data. In the same month, the UK’s Financial Conduct Authority started a sector-specific consultation, to learn more about the potential effects of “Big Data” on the design and distribution of private motor insurance and home and content insurance products. In January 2016, the US Federal Trade Commission published its “„Big Data”-Report in which, mainly from the viewpoint of consumer protection, advantages and risks of “Big Data” are summarized and companies are provided with recommendations for compliant use of large data collections.

The data protection and antitrust issues surrounding the collection and use of “Big Data” form only one, though important, part of the questions arising from the increasing digitalization of life and the economy. Additionally, companies of both the “old” as well as the digital economy are also facing challenges from the perspective of contract and liability law, IP law, IT security, telecommunications and energy regulation and criminal law. In order to assess the issues which arise, the Federation of German Industries (BDI) and Noerr LLP have carried out a survey among numerous German companies’ legal departments on major legal problems of digital business. Moreover, the BDI instructed Noerr to prepare a detailed legal opinion on these matters. The summary of the survey and the legal opinion can be accessed here. The full version of the legal opinion can be requested here.