Victory for Facebook as Düsseldorf court suspends the Bundeskartellamt's decision

Germany

In a dramatic, if temporary, turnaround, Facebook achieved its first success against the February 6 decision of the Bundeskartellamt (B2 – 22/16), which had ruled that Facebook had abused its position as a market leader in Germany and had violated antitrust law. Expressing a clear criticism of this ruling and expressing serious doubts about its legality, the Düsseldorf Higher Regional Court stated it did not see any anti-competitive result from Facebook's data collection and processing. As a result, the Düsseldorf court granted the tech giant's temporary injunction and ordered the suspensive effect of the Facebook complaint (VI-Kart 1/19 (V)).

Facebook's terms of use and third-party sources

Antitrust proceedings against Facebook were initiated in March 2016 and centred on the company's terms of use for the collection and processing of data from "third-party sources". Under these terms, users can only use the social network if Facebook is allowed to collect data about the user from outside of Facebook (i.e. on the Internet or on smartphone apps), and assign the data to the user's Facebook account.

Outside the social network, Facebook collects data from the group's other services (e.g. WhatsApp and Instagram) and from third-party websites and apps via "Facebook Business Tools" (e.g. Facebook "Like-Buttons", "Facebook Login" or "Facebook Analytics"). By combining its own and third-party data, Facebook can create an exact profile for each user.

Bundeskartellamt ordered "internal unbundling"

When reviewing the nature of Facebook's terms of use, the Bundeskartellamt classified Facebook as the market leader on the German market for social media and has ruled that its unique terms represented an abuse of market power in violation of antitrust law. The German watchdog obliged Facebook to adapt its terms of use and to change its business model in regard to data collection and processing. Regarding data, the Bundeskartellamt ruled that a kind of "internal unbundling" should take place.

Interim decision

After this decision, Facebook filed an appeal with the Düsseldorf Higher Regional Court (VI-Kart 2/19 (V)). The complaint did not have a suspensive effect by law, i.e. Facebook would have been obliged to implement the decision within the twelve-month period set by the German watchdog. As a result, Facebook applied for a temporary injunction against the Cartel Office's decision.

Such an application is justified if there are serious doubts as to the legality of the decision under appeal (Section 65 (3) sentence 1 no. 2 of the German Act against Restraints of Competition). In the context of a summary review, the annulment of the decision must be predominantly probable. According to the Düsseldorf court, these conditions were met. The question whether Facebook's data processing complies with the GDPR was left open since it was not relevant to the temporary injunction.

Abuse of conditions between data protection and antitrust law

In reviewing the Cartel Office's decision, the Higher Regional Court Düsseldorf expressed concerns about the Office's assumption that Facebook was guilty of exploitive abuse that was detrimental to Facebook users. In the context of abuse of conditions (Konditionenmissbrauch), alleged abuses are examined against the principles of antitrust law and the legal system. The necessary weighing of interests can be based on data protection law principles, which creates an interface between data protection and antitrust law.

Facebook users: no economic weakening or loss of control

The judges, however, did not see any anti-competitive results from Facebook's data collection and processing. They further ruled that the collection of third-party data did not lead to the exploitation of its users, and argued:

  • An economic weakening of the user did not occur in this situation since the data could easily be duplicated and the user could make it available to third parties (e.g. Facebook competitors) as often as he liked.
  • The user does not suffer from a loss of control over its data. The collection and processing of third-party data is carried out under the Facebook terms of use with the consent of the Facebook user (i.e. with his knowledge and will, and thus "very much" under his control). The fact that the right to use Facebook is dependent on the user consenting to data collection and processing does not constitute a predicament or loss of control. In this respect, the Bundeskartellamt was of the opinion that the obligatory "tick the box" for consenting to the terms of use did not constitute a sufficient basis for such intensive data processing. The Cartel Office argued that because the user is in a predicament (i.e. he can either accept an extensive data combination or renounce the use of Facebook altogether), there is no voluntary consent. The Higher Regional Court Düsseldorf responded that tying the use of Facebook to consent merely requires the user to weigh the advantages of using the free advertising-financed social network, on the one hand, against the consequences of the platform's use of third-party data, on the other. The user can make this assessment uninfluenced and autonomously. 

Indifference or convenience of the Facebook user

Furthermore, according to the court, the Bundeskartellamt's assertion that private Facebook users have difficulty in understanding the exact data being collected, the extent of the collection, and the company to which data is passed to, is insufficient and sweeping. In the opinion of the Düsseldorf judges, it is not a reflection of Facebook's market power if a customer does not read the terms of use and subsequently does not have an overview of the scope of data processing he has consented to. Instead, this lack of information probably results from the indifference or convenience of the Facebook user.

No causal link between market dominance and any breach of data protection rights

In addition, the court ruled that the necessary causal link between Facebook's dominant market position and the possible breach of data protection law does not exist. The decisive factor was judging whether user consent (upon registering) for the processing and combining of third-party data was so influenced by Facebook's dominant market position that the declaration of acceptance was no longer an autonomous decision by the user. The Bundeskartellamt failed to prove this, said the Düsseldorf judges, who argued that at the time of registration, a user is not in any way dependent on Facebook. In short, he can accept or reject the offer autonomously, self-determinedly and without undue influence.

No exclusion of competitors

The Düsseldorf judges also did not see any exclusionary abuse to the detriment of Facebook's competitors (Section 19 (1), (2) no. 1 of the German Act against Restraints of Competition), observing:

  • The order issued by the Federal Cartel Office for the termination of the proceedings would be ineffective in putting an end to any exclusionary abuse. This is because the decision only prohibits the use of third-party data in the event that a Facebook user does not consent separately. The exclusion of Facebook's competitors does not depend on whether or not Facebook users agree to this data processing.
  • It cannot be established that the terms of use contribute to the exclusion of Facebook's actual or potential competitors. No market entry barriers would be raised on the market for social networks.

A blow to the Bundeskartellamt

The Higher Regional Court Düsseldorf's decision can be viewed as a blow to the Bundeskartellamt. The Facebook proceedings had become a flagship project for the ambitious German watchdog, which has been working at the vanguard of and breaking new ground over data rights issues and antitrust law. It remains to be seen what will remain of what Bundeskartellamt President Andreas Mundt has called the "antitrust guardrails in the Internet economy" ("kartellrechtliche Leitplanken in der Internetökonomie").

Tearing down the "guardrails"

In its decision, the Düsseldorf Higher Regional Court reveals its inclination to "tear down" the Federal Cartel Office's "guardrails". The judges found strong words to criticise the Office, such as "insufficient", "not even close to", "it is obvious", "no sufficient investigations" and "the approach is too short-sighted" ("unzureichend", "nicht ansatzweise"; "wie auf der Hand liegt", "keine hinreichenden Ermittlungen", "Betrachtungsweise greift zu kurz").

The Cartel Office is unlikely to change the Higher Regional Court's mind regarding the main proceedings. The Bundeskartellamt's best hope may be the German Federal Court of Justice, to which the Office will lodge an appeal of this interim decision (announced by Andreas Mundt, according to the New York Times, 26 August 2019, online article).

In the end, the German Federal Court may ultimately decide the fate of both Facebook and the Bundeskartellamt in the realm of the German Internet economy.

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