- On 25 June 2020
On the one hand, the decision and in particular the clarity with which the FCJ affirms the abuse of dominance comes as a surprise. The Düsseldorf Higher Regional Court (“HRC Düsseldorf”) as the lower instance had relatively unmistakably put a stop to the FCO’s view. On the other hand, the FCJ has recently reversed decisions of the HRC Düsseldorf in cartel cases more frequently – in some cases in very clear terms.
The legal basis for the FCO’s intervention is the abuse provision of § 19 para. 1 of the Act against Restraints of Competition (“ARC”), which prohibits the abuse of a dominant position by one or more companies. A decision based on § 19 para. 1 ARC always presupposes the establishment of a market-dominant position within the meaning of § 18 ARC. According to the wording of the law, a dominant position requires that an enterprise on a relevant product and geographic market is without competitors , is not exposed to any substantial competition or has a superior market position in relation to its competitors.
The decision of the FCO, which Facebook opposes
In March 2016, the FCO initiated proceedings against Facebook for abuse of a dominant market position and concluded these proceedings with a so-called cease and desist order on 06 February 2019. This is an administrative act which initially does not entail a fine. With its decision, the FCO essentially prohibited Facebook from collecting user data from third-party sources, assigning it to Facebook accounts and further processing the data. Third party sources are on the one hand third party sites that are provided with interfaces, such as the “Like” or “Share” buttons, or on which the analysis service “Facebook Analytics” is used. In addition, third-party sources also include the group’s own services such as Instagram or WhatsApp. The FCO therefore does not apply the “group privilege” of antitrust law – presumably consistently – to the abuse case at hand.
According to the FCO, Facebook is dominant in the German social networking market with a market share of over 90%. In the view of the FCO, the collection and processing of data from third party sources is abusive, violating provisions of the GDPR. The reason for this assessment is, among other things, that according to the FCO there is a loss of control for the user: He can no longer have self-determined control over his personal data. Moreover, it is not clear which data from which sources are used for which purposes.
Facebook filed an appeal against this decision of the FCO with the HRC Düsseldorf and at the same time applied for the suspensive effect of the appeal to be ordered.
At the end of August 2019, the HRC Düsseldorf granted the latter and ordered the suspensive effect of the appeal. The judges from Düsseldorf justified the order issued in summary proceedings with serious doubts concerning the legality of the contested decision of the FCO. The final decision in the appeal proceedings is still pending.
From an antitrust point of view, the HRC further stated, there was hence a lack of evidence of a causal link between the dominant position and the alleged infringement of data protection law.
The FCO appealed against the order of suspensive effect granted by the HRC Düsseldorf, which is why a decision by the FCJ was outstanding.
In its decision of 23.06.2020, the FCJ has now reversed the decision of the HRC Düsseldorf and rejected the application of Facebook to restore the suspensive the effect of the appeal.
- whether they want to use the network with more intensive personalization of the user experience, which includes unlimited access to data on their Internet usage outside Facebook, or
- whether they only want to agree to personalization based on data that they themselves provide on facebook.com.
Based on this line of argument, the FCJ avoids possible issues in the context of the causal link between the dominant position of Facebook and a violation of data protection law, which the court of lower instance had criticized.
In addition to impairing the personal autonomy and the right to informational self-determination of Facebook users, the lack of choice also constitutes a relevant exploitation of the users under cartel law. Due to Facebook’s dominant position, competition could no longer effectively exercise its control function. The FCO’s findings showed that a considerable proportion of private Facebook users would like to see a lower level of disclosure of personal data. In the event of functioning competition on the market for social networks, a corresponding offer would be expected.
The FCJ further states that Facebook, as an operator of a social network, is active on two markets: on the one hand in the provision of a social media platform for private users and on the other hand in the market for online advertising
According to the FCJ, the exploitation of the dominant position in the market for social networks, which allows Facebook to collect and process a large amount of data through both Facebook’s own as well as third-party services, could also lead to impairments in the market for online advertising. For the corresponding advertising contracts in this area depend in particular on the scope and quality of the available data.
In this context, the FCJ – unlike the previous instance – emphasizes that it is not necessary to establish an independent market for online advertising for social media and that Facebook holds a dominant position there. For the impairment did not necessarily have to occur on the dominated market (i.e. the market for social networks), but could also occur on a non-dominated third market (market for online advertising). Therefore, according to the FCJ, the terms and conditions of use are capable of impeding effective competition.
As a result of this decision, Facebook will have to implement the strict requirements for the collection and evaluation of user data resulting from the FCO’s order immediately – at least until a final decision is made in the main proceedings. This decision is still to be rendered by the HRC Düsseldorf. However, it will be difficult to uphold the view taken by the court so far. The FCJ essentially confirmed the FCO’s line of argumentation and sees neither serious doubts with regard to Facebook’s dominant position on the German market for social networks nor that Facebook is not abusing this dominant position with the terms and conditions of use prohibited by the FCO.
As regards the market for online advertising, the HRC Düsseldorf will have to examine whether there are negative effects on this market, irrespective of whether Facebook is actually dominant on this market. In this respect, the FCJ merely stated that an impairment cannot be excluded. In light of the high market shares of other market participants in the field of online advertising, this is not certain. However, given the probably also high market share of Facebook, it is likely.
Both for private users and for companies and businesses using the platform, no changes are to occur in the short term, according to Facebook’s own statement.
In any case, observers of the proceedings agree that the (preliminary) decision of the FCJ is a spectacular success for the FCO. The proceedings against Facebook are considered a pioneer case worldwide.