Newsletter Competition 2/2019

Facebook has violated competition law in Germany

The beginning of the year 2019 can hardly be called good for Facebook. The German competition protection authority, Bundeskartellamt, in a decision of 7 February 2019 held that the social media giant had violated antimonopoly regulations by the manner in which it processed the personal data if its users. Taking into consideration inter alia the precedential nature of the charges, rather than being imposed a penalty, the company had to undertake a number of obligations aiming at eliminating the violations detected.

Facebook allegedly abused its dominant position on the German social media market. In order to use the platform, Internet users were required to accept the terms and conditions allowing Facebook to develop its users’ personal profiles. The profiles were created based not only on the data directly shared with the company, but also those obtained via third party websites or mobile applications. In the opinion of the German authority, one can hardly speak of a free consent on the part of users to such a broad extent of personal data processing. For a good couple of years Facebook has enjoyed a nearly monopolist position in the market. Having no attractive alternatives, Internet users are thus forced to accepts its terms if they wish to use social media portals.

Besides, few people are aware that Facebook has been profiling its users also on the basis of data from outside sources. Not only from Instagram and WhatsApp, which belong to the company, but also from entirely independent online services. It is sufficient if a website’s or mobile application’s interface features Facebook-related ‘Like it’ or ‘Share’ buttons. In such cases the Internet users’ data are shared with Facebook automatically, even if the portal’s icon is not clicked.

Facebook now has 12 months to stop the violations. The authority forbid the company to inter alia continue’ to use the current Terms and Conditions and to excessively process users’ personal data. It will now require user’s free consent for profiling based on external personal data sources. It will only be allowed provided that using Facebook will be independent from giving consent to unlimited personal data processing. In the absence of such consent, the company will not be allowed at all to collect date from external websites or applications. As far as the Facebook-controlled services are concerned, the Bundeskartellamt intends to have them internally ‘legally separated’ from the parent company. Naturally, they will be still in a position to process the personal data of their own users. Without a voluntary consent from its user, Facebook will not be allowed to aggregate the data gathered on websites with the information making up his or her personal profile in the social network.

The German decision is yet another, following the penalty imposed by the European Commission on Google, breakthrough in terms of competition law application in the high-tech industry. The competition authorities are frequently reluctant to take courageous action against digital giants.

The very definition of the market for the high-tech companies is a problem in itself. Facebook has challenged the narrow definition of the ‘social portal’ as adopted by the German authority. According to the company, it competes directly with such services as Snapchat, YouTube, Twitter as well as business-professional portals such as LinkedIn. However, Bundeskartellamt held that they are not entirely comparable as they only offer in part the functionality of a social network. Taking this approach, Facbook’s market share calculated on the basis of daily and monthly numbers of active users has exceeded 80% in both cases, which attests to the monopolisation of the market. The authority is at the same time of the opinion that its evaluation would not change even if other social network platforms were taken in the account in the calculations. Suffice it to consider the popularity of the Facebook-controlled services WhatsApp and Instagram, or the fact that Google+, currently the closest competitor to Facebook, has recently announced an intention of closing down in April 2019.

Another objection raised by Facebook was that Bundekartellamt had assumed the powers of data protection authorities and that the activities detected do not fall under competition law in the first place. The authority replied, however, that in the case of a company whose business model is actually based on user personal data processing and sale, e.g. for advertising purposes, the manner and scope of such processing will have impact on competition. Facebook, as a monopolist acting without voluntary consent and knowledge of its users, on the one hand increased the efficiency of its data profiling, thus maximising profits from the same; on the other hand, it even further consolidated its unrivalled position, making it even more difficult for other entities to enter the market dominated by itself.

Facebook has already announced that it will appeal against the Bundeskartellamt’s decision.

 

Discontinuation of the UOKiK’s proceedings in the case of an alleged collective dominant position on the mobile telephony market

On 2 January 2018, President of the UOKiK discontinued the antimonopoly proceedings against Polkomtel (of the Cyfrowy Polsat group, owner inter alia of the Plus brand), T-Mobile (inter alia T-Mobile and Heyah) and Orange Polska. The proceedings were instigated nearly 5 years earlier following information from President of the Electronic Communications Office and P4, the Play network operator, concerning alleged joint abuse of a dominant position by the three largest mobile phone operators.

The grounds were the ‘big three’ differentiating call rates to Play. They charged their customers higher rates for P4 customer numbers than those to other networks. Thus, the operators could limit the incoming calls to Play and thereby reduce Play’s wholesale revenue on account of settlements with them.

In his decision, President of UOKiK held that the reason for the discontinuation was lack of evidence for the existence of a collective dominant position of the operators in question. This is a theory developed in antimonopoly law to analyse a situation where not one, as is typically the case, but several entities monopolise a market collectively. It usually arises in markets having an oligopoly structure, such as the telecommunications market, where several major players enjoy a considerable advantage over their competitors. However, it is not easy to prove its existence. It requires demonstrating such market conditions and resulting interrelations among the oligopolists that make implementing a common strategy against weaker rivals more profitable than merely competing with them.

In the opinion of President of the UOKiK, there was not sufficient evidence in the case in question of the existence of concerted practices among the big three, or the occurrence of sufficient stimuli justifying an adoption of a common market strategy against P4. Maintaining excessive rates towards Play was ‘individually rational’ with each operator independently of the behaviour of the other players on the market.

Such a summary of a 150-page long decision made following a nearly 5-year long investigation may come as a surprise. It will remain a secret whether the weakness of the allegations or the power of the big three’s legal team proved to be of greater importance in the decision.

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