German Federal Court of Justice sets Facebook limits on data use
In its decision, the German FCJ first clarifies that there are no serious doubts about Facebook's dominant position on the relevant German market for social networks and thus also no doubts about Facebook's position as the addressee of the prohibition enshrined in section 19 (1) of the German Act Against Restraints of Competition. The FCJ thus rejects Facebook's argument that the relevant product market is a "market for user attention". In German competition law, markets are normally defined based on the "demand market concept" (Bedarfsmarktkonzept), which focuses on the interchangeability of products or services from the customers' point of view. The FCJ confirms that this concept can be applied without modifications even if users do not provide any monetary consideration. Their view continues to be decisive because they decide on the selection of the service provider and thus "bring supply and demand together". In addition, as the needs of the private users of Facebook are different from the needs of its other users, namely the advertisers, it is not possible to include the two user groups in a uniform market. Facebook is a platform with multiple (two) markets sides, and both sides need to be analysed separately. On this basis, the FCJ concludes that Facebook dominates the relevant user market taking into account the following aspects: Proportion of daily active users of over 90%; no significant parallel use of other services ("multi-homing"); high barriers to switching; direct and indirect network effects; no significant substitution competition with services such as YouTube or Twitter.
In the opinion of the FCJ, this "imposed extension of services" is detrimental to competition because – in the same way as compulsory coupling – it leads to exploitation of the users as well as to an restriction of competition. The exploitation lies in the fact that users are forced to share more and more of their data due to the lack of choice. The FCJ emphasises the special and increasing value of data when it is combined with other data. As regards the anticompetitive effect, the court explains that the additional data enables Facebook to further personalise the user experience and thus to improve its offer compared to offers made by (potential) competitors. Since the potential for competition is low already in view of high market barriers (direct network effects), there is a risk that (potential) competitors could easily be defeated when competing with Facebook for the advertising contracts, which are required to pay off the network. Facebook's approach makes it possible to continuously increase the quality and efficiency of data processing. This in turn helps Facebook to defend its dominant position.
Finally, the FCJ carries out a "balancing of interests" to confirm that Facebook's conduct is abusive. In this context, the court stresses that the right to "informational self-determination", which is rooted in the German constitution, must be taken into account by the courts when interpreting Section 19 (1) of the German Act Against Restraints of Competition. Also, the provisions of the General Data Protection Regulation (GDPR) cannot justify Facebook's actions.
The decision of the FCJ is without doubt a landmark decision that will shape the application of antitrust law and the rules on the abuse of market power in Germany for the foreseeable future. It now remains to be seen how the Higher Regional Court of Düsseldorf will decide in the main proceedings. A first oral hearing is scheduled for this November.
Click here for the full text of the decision
Any questions? Please contact: Prof. Dr. Karsten Metzlaff or Dr. Till Steinvorth
Practice groups: Antitrust & Competition, Data Privacy