A violation of competition law? – The German Federal Cartel Office’s Facebook case
Facebook’s data collection policies remain a point of dispute, occupying scholars, antitrust authorities and the judiciary alike. Prof. Dr. Reinhard Ellger, Senior Research Fellow at the Max Planck Institute for Comparative and International Private Law, has provided input on several occasions in the case against Facebook that the Bundeskartellamt (German Federal Cartel Office) opened in March 2016 for the abuse of its dominant market position. We spoke with him about the proceedings and problems with the Bundeskartellamt’s arguments.
Background: In February 2019, the Bundeskartellamt decided that Facebook was not permitted to require users to consent to the collection and use of personal data that the users did not post in their own Facebook account, but that Facebook instead received from third-party websites (off-Facebook data), in order to conclude a contract. Facebook filed a complaint about this and at the same time applied for interim relief to order the suspensive effect of the appeal. The Higher Regional Court in Düsseldorf granted Facebook’s request on 26 August 2019. The Bundeskartellamt has announced that it will appeal the decision to the Federal Court of Justice.
The Bundeskartellamt accuses Facebook of abusing its dominant position in its behaviour towards its users. But Facebook is far from the only existing social media network. Do you think Facebook still dominates its market?
Reinhard Ellger: „Definitely, if, like the Bundeskartellamt, you are looking at the market for general social networks. In this category, Facebook has a market share of more than 95 per cent, as measured by users who use Facebook daily. Other general social networks have at most shares of 0 to 5 per cent each. Services such as LinkedIn, for example, or job boards offer only a sub-set of Facebook’s services and are thus not to be included in the relevant market.“
Yet you take a critical view of the line of argument that Facebook is abusing its dominant position.
Reinhard Ellger: „The Bundeskartellamt’s proceedings concern an allegation of abuse of business terms under Section 19 of the Act against Restraints of Competition. However, it is difficult to determine whether there is a causal relationship between Facebook’s dominant position and the imposition of unfair contractual terms. Facebook’s dubious terms are contained in the terms and conditions, which potential users read very little or not at all.
It might be possible that the services Facebook offers for free are more important to its users than protecting their right to determine the use of their private data. The imposition of unreasonable terms and conditions on consumers of digital services does not necessarily indicate that this imposition is based on the use of the dominant position. This is also a point that the Higher Regional Court in Düsseldorf took up in its decision of 26 August 2019, and it constitutes an important element of the court’s fundamental critique of the Bundeskartellamt’s Facebook decision. I agree with this criticism.“
The decision of the Higher Regional Court in Düsseldorf has been described in the press as a “heavy blow” (Handelsblatt, 26 August 2019) and a “bitter” defeat for the Bundeskartellamt (FAZ 26 August 2019). How do you assess the decision?
Reinhard Ellger: „On multiple points, the Düsseldorf Higher Regional Court’s decision staunchly criticises the Bundeskartellamt’s legal solution to the Facebook case. First, the court criticises the fact that the Bundeskartellamt did not pursue the question of whether and, if so, to what extent the data protection clauses in the contracts with Facebook users have exhibited anti-competitive effects. Second, the court reproaches the Bundeskartellamt for not having applied the right criterion for causality between market dominance and imposition of unreasonable terms in user contracts.
The case is now at the Federal Court of Justice, which has, however, not yet made a decision either in the proceedings for interim relief or on the substance of the matter. For that reason it is still too early to draw any lessons from the case. In my view, however, the case has clearly shown that it is not the role of antitrust law to establish general monitoring of the legality of the behaviour of market-dominant companies in legal relations. Rather, it is the task of the antitrust authorities to safeguard freedom of competition and the openness of markets.
By contrast, it would have been a matter for data protection legislation to establish effective oversight of data processing, including by internet giants such as Facebook. This requires sufficient funding and staff for data protection authorities. By the way, in its recently published recommendations, the Competition Law 4.0 Commission suggested that data protection oversight of the non-public realm should be pooled more.“
An antitrust investigation into Facebook was recently opened in the US. Do you believe that this will lead to abuse proceedings?
Reinhard Ellger: „That is difficult to predict because the American competition authorities on the federal level, the Antitrust Division of the Department of Justice und die Federal Trade Commission, have far-reaching discretion. At present, the competition authorities have opened preliminary investigations of Apple and Google as well as Amazon and Facebook; the overwhelming majority of relevant state-level authorities have also announced that they will likewise launch preliminary investigations of these internet companies.
The decision about whether to carry out proceedings against one or more of the internet giants concerned will depend not least on whether the competition authorities are able to base the claim of potential abusive conduct on facts that can be proved in court proceedings.
In parallel to the competition authorities’ preliminary investigations on the basis of the applicable competition laws, the Judiciary Committee of the US House of Representatives has opened proceedings to investigate possible restrictive business practices by the major internet companies. This is about determining whether the existing legal framework is sufficient to safeguard competition in digital markets or whether the regulations need to be adjusted to fit the new circumstances of these markets.“
What consequences do you expect in future?
Reinhard Ellger: „The Facebook case shed light on some of the difficulties that antitrust law is confronted with when it comes to protecting competition in digital markets. That is why it is not unlikely that the adaptation of the applicable competition law to the particular conditions of digital markets which began with the 9th Amendment to the Act against Restraints of Competition will be continued in future.
Such future changes may focus above all on equipping antitrust law to deal with the influence of network effects and the availability of large volumes of personal data on the development of dominant positions in digital markets, as well as with the associated possibilities of abuse, and to remedy the uncertainties that exist in the application of the law – as was seen in the Facebook case.
The Competition Law 4.0 Commission that was established by the German Federal Minister for Economic Affairs and Energy has presented recommendations for safeguarding competition under the specific conditions of digital markets. These recommendations are oriented first and foremost to advancing European competition law, but they may also provide food for thought for legislators of German antitrust law. “