German Competition Law Newsletter — Highlight
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May – June 2020 German Competition Law Newsletter — Highlight — German Federal Court Of Justice Provisionally Finds Facebook’s Data Collection Practices Abusive German Federal Court Of Justice Provisionally Finds Facebook’s Data Collection Practices Abusive On June 23, 2020, the Federal Court of Justice DCA. The FCJ’s ruling may, nevertheless, have (“FCJ”) overturned the Düsseldorf Court of significant implications for data-driven businesses. Appeals’ (“DCA”) interim decision and rejected Facebook Inc.’s (“Facebook”) request to suspend Background the enforceability of the Federal Cartel Office’s (“FCO”) prohibition decision.1 The FCJ disagreed Under the current terms of service, users must with the FCO’s determination of an abuse based agree to Facebook’s practice of combining data on a violation of data protection law, but instead collected on the Facebook social media platform examined Facebook’s data usage exclusively under with data collected from sources outside of competition law. facebook.com. This includes other Facebook- owned services (e.g., WhatsApp and Instagram) Although the FCJ implicitly rejected the FCO’s as well as third-party websites with embedded reasoning, the decision amounts to a major victory Facebook software (e.g., the “Like” button and the for the German authority whose order was reviewed “Facebook Pixel”). quite critically by the DCA in the first instance. As a direct consequence, Facebook must end its The FCO’s Decision practice of combining user data from different sources without the users’ explicit consent. It must On February 6, 2019, the FCO found that Facebook also change its terms and conditions in Germany had abused its dominant position on the German within 12 months. The FCJ’s ruling was rendered market for private social networks through its in summary proceedings. Facebook’s appeal in data collection practices, because Facebook was the main proceedings is still pending before the combining user data from its social network with 1 Facebook (KVR 69/19), FCJ decision of June 23, 2020, only available in German here. The FCJ’s Press Release is only available in German here. The FCO’s translation of the Press Release is available in English here. This article has also been published as a Cleary Gottlieb Alert Memorandum on June 29, 2020, available here. clearygottlieb.com GERMAN COMPETITION LAW NEWSLETTER MAY – JUNE 2020 data from its other services as well as data from to demonstrate that Facebook’s market power third-party websites. The FCO prohibited this enabled it to use unlawful terms and conditions form of data consolidation and ordered Facebook (so-called strict causality)—which it failed to do. to change its terms of service in Germany within 12 months.2 Relying on earlier FCJ case law, the No Proof Of An Exclusionary Abuse FCO argued that the illegality of general terms and conditions under German civil or constitutional According to the DCA, the FCO did not show that law could also constitute an exploitative abuse the combination of user data from different sources under German antitrust law. Specifically, the FCO enabled Facebook to hinder its actual or potential alleged that Facebook infringed the EU General competitors on the market for private social Data Protection Regulation (“GDPR”) by making networks by raising barriers to entry. Specifically, users consent to the collection and combination of the DCA rejected adverse effects on the online their data across different services a prerequisite advertisement market because of a lack of for using Facebook’s social network. According Facebook’s dominance on that market. to the FCO, this practice also constitutes an exploitative abuse under competition law. The FCJ’s Interim Decision Facebook appealed the FCO’s decision to the DCA Following an appeal by the FCO, the FCJ overturned and also filed a request to restore the suspensory the DCA’s interim decision on June 23, 2020 and effect of its appeal. rejected Facebook’s request to suspend the enforceability of the FCO’s decision. The FCJ The DCA’s Interim Decision noted that it had no serious doubts regarding the legality of the FCO’s decision both with regard to On August 26, 2019, the DCA granted Facebook’s the finding of a dominant position on the German request and suspended the FCO’s prohibition market for private social networks as well as to decision.3 While the DCA did not criticize the the determination of an abuse of said dominant FCO’s conclusion that Facebook is dominant, it position through the use of terms and conditions. voiced serious doubts regarding the finding of an In interim proceedings, such a finding is particularly abuse for lack of competitive harm—regardless surprising when the legal review is limited to a of whether Facebook’s terms of service infringed mere plausibility check of the authority’s decision. data protection law. Most notably, the FCJ considered the compliance of Facebook’s terms and conditions with data Doubts Regarding Proof Of An Exploitative protection law to be irrelevant, while at the same Abuse Of Facebook’s Users time underlining the economic importance of access to data and its relevance for the competition First, the DCA noted the FCO failed to show law assessment. that Facebook had required the disclosure of an excessive amount of data or had employed unfair Exploitative Abuse Regardless Of Data terms and conditions, because the FCO did not Protection Issues establish what terms and conditions would be offered in a hypothetical competitive market. The FCO’s analysis indicated that a considerable number of Facebook users would like to disclose Second, the DCA found that the use of unlawful less personal data on Facebook. According to the terms and conditions by a dominant company FCJ, in a competitive market for social networks, was insufficient to conclude that there was an competing offers that allowed users to disclose exploitative abuse. The FCO would have had less data would also exist. Users for whom the 2 Facebook (B6-22/16), FCO decision of February 6, 2019, available in English here. See also our article in the German Competition Law Newsletter January – February 2019, p. 1 et seq., available here. 3 Facebook (VI-Kart 1/19 (V)), DCA decision of August 26, 2019, only available in German here. See also our article in the German Competition Law Newsletter July – August 2019, p. 1 et seq., available here. 2 GERMAN COMPETITION LAW NEWSLETTER MAY – JUNE 2020 disclosure of data is a relevant factor would Interestingly, the FCJ rejected the DCA’s conclusion then have the option to switch to these service regarding the absence of an abuse of a dominant providers. Against this backdrop, the FCJ found position on the market for online advertising. Facebook’s data collection practices to be abusive, According to the FCJ, there is no need to establish particularly because Facebook did not leave Facebook’s dominance on a separate market for users a choice between a more personalized user online advertising, because a restriction of experience based on the combination of data from competition does not have to occur on the different sources or an experience based solely dominated market (in this case the market of on the data disclosed on facebook.com. Choice social networks), but can also occur on a non- for all economic operators is a prerequisite for a dominated third market (in casu the market for competitive process and therefore in line with the online advertising). overarching goal of German competition law to protect competition. However, the FCJ’s reasoning Conclusion appears not to be based on an established abuse of dominance doctrine. The FCJ’s decision clearly dismisses the FCO’s attempt to enforce data protection law through This finding seems to hint at a strict causality antitrust law. The FCJ instead focuses on an requirement. However, this remains unclear, innovative theory of harm rooted in competition particularly in light of the fact that the FCJ law which emphasizes consumer choice as a also found a hindrance of competitors where a prerequisite for the competitive process. However, normative causality standard applies. Under the it also raises the question of how the hypothetical latter standard, it suffices that the relevant conduct counterfactual scenario of data collection under increases the dominant company’s market power. competitive conditions is determined. It will be Moreover, there are doubts regarding the strict interesting to see the full reasoning of the decision causality of the dominance for the abuse as non- on this point. dominant companies also apply far-reaching terms and conditions for the processing of user data. Implications In addition, the DCA had criticized the FCO for 10th Amendment of the ARC not having properly investigated the counterfactual scenario of data collection under competitive Against the backdrop of the draft proposal for conditions. the 10th Amendment of the German Act against Restraints of Competition (“Draft Proposal”), the Exclusionary Abuse Vis-à-Vis Facebook’s long-term impact of the FCJ’s decision remains to Competitors be seen. The decision could influence the Draft Proposal, which has still not been introduced The FCJ noted that Facebook’s position in the into parliament and is unlikely to enter into force market is primarily based on direct network before 2021. The FCJ’s ruling suggests that the effects, since the total number of users increases existing rules on abuse of dominance are flexible the usefulness of the network for each user. The enough to address new types of conduct on access to data from different sources was found to multi-sided markets, particularly because effects reinforce these lock-in effects. Furthermore, access on markets without dominance can also be taken to more data was held to improve Facebook’s into account.