Facebook’ abuse of dominance over data collection confirmed by the Federal Court of Justice

By Marcio da Silva Lima, Dr. Joerg Witting

07-2020

The Federal Court of Justice (FCJ) rejected Facebook’s application for suspensive effect in connection to its appeal to the Higher Regional Court of Düsseldorf against the decision of the Federal Cartel Office (FCO) prohibiting Facebook from collecting and processing Facebook users’ data generated outside Facebook.com on other digital platforms (like WhatsApp, Instagram and third-party websites/apps) and internet services without the user’s explicit consent.

Background

In February 2019, the FCO found that Facebook violated German competition law by abusing its dominant market position in the area of digital social network platforms. In particular, the FCO held that Facebook conducted abusively by making the use of Facebook.com dependent of Facebook being authorized by its users to collect and process user data not only generated on Facebook.com but also on other platforms like Whatsapp, Instagram, etc.

As a result, the FCO issued a prohibition order on Facebook prohibiting the latter from using its respective “Terms of Services”, i.e. collecting and processing user data across the different digital platforms and services without the users' explicit consent. The FCO’s decision received a lot of attention due to its ground-breaking approach linking data protection and competition law (for more information see our previous article here).

Rejected order of suspensive effect

Upon Facebook’s appeal to the Higher Regional Court of Düsseldorf, the latter suspended the effect of the FCO’s prohibition order due to serious doubts on its legality.

While the Düsseldorf Court has not yet issued a final decision on the appeal lodged against the FCO’s prohibition, the FCJ, however, dismissed the suspensive effect of the appeal, thus overruling the decision of the Düsseldorf Court and confirming the FCO’s initial finding of an abusive behaviour.

The FCJ ruled that there were no serious doubt about Facebook's dominant position on the German social networking market or about an abusive exploitation by the US giant. However, in contrast to the FCO’s decision, the decisive question was not whether the non-consented processing of Facebook users’ data was or was not in accordance with German data protection law and, therefore, with German competition law. The decisive factor for the FCJ was rather that users data generated outside the Facebook platform was linked to their personal data without further consent of the users, thus not letting them choose between:

  • allowing Facebook to have a potentially unlimited access to their data and even data relating to their "off-Facebook" Internet use through Facebook; or
  • allowing Facebook to only collect and process the data they disclose on facebook.com themselves.

Potential negative effects on the market for online-advertisement

In light of the above, the FCJ further stated that Facebook’s abusive behaviour on the market for social network was likely to impede effective competition on the online advertisement market. The court argued in this regard that Facebook's market position is primarily characterised by direct network effects, since the benefit of the social network increases with the total number of people connected to the network, also resulting in significant “lock-in-effects”.

However, the FCJ held that access to data is an essential parameter of competition not only in the advertising market, but also in the social network market. In particular, a large database would improve the possibilities for the social network to generate revenues through advertising contracts which, on the other side, also depend on the volume and quality of the available data. The fact that competition could be impaired on the market for online-advertisement (and not on the market for social network) would, however, not be relevant as in the FCJ’s view, an abuse of a dominant position would not necessarily have to lead to impacts on the dominated market (i.e. the market for social media network) and consequences on a third market would therefore be relevant as well from a competition law point of view.

As a consequence, Facebook must now follow the FCO’s prohibition order, i.e. ceasing from collecting Facebook users’ data from sources outside Facebook.com at least until the Higher Regional Court of Düsseldorf has ruled whether there are, in fact, negative effects on the market for online advertising (which would legitimate the FCO’s prohibition order).

For further information please click here to read the FCJ’s press release (in German – the decision is not published, yet).

For more information please contact Marcio da Silva Lima or Jörg Witting.