On 23 June 2020, the German Federal Supreme Court found that Facebook violated German competition law by abusing its dominance in the market for social networks. The ruling, upholding the decision by the competition authority, is a major victory for advocates of addressing data-related competition concerns under Article 102 TFEU and its national equivalents. However, instead of focusing on the intersection between competition and data protection law in its reasoning, as the competition authority had, the Federal Supreme Court relied on the concept of restriction of consumer choice.

This article, available here, casts light on the Facebook case and its practical relevance.

Section 2 reviews the Facebook infringement decision.

In 2019, the German Bundeskartellamt found that Facebook had abused its dominant position on the German market for personal social networks by imposing unfair terms and conditions on its users. The Bundeskartellamt’s case linked antitrust violations with data protection law, and relied on alleged infringements of the EU’s General Data Protection Regulation (GDPR)) as a key element of its assessment that Facebook’s conduct was abusive.

To arrive at this conclusion, the Bundeskartellamt started from the premise that state action must ‘uphold the protection of constitutional rights’, including the fundamental right to data protection under Article 8 of the Charter of Fundamental Rights of the European Union (the Charter). From this starting point, the Bundeskartellamt derived the proposition that data protection rules must be applied in antitrust cases whenever a sufficient degree of market power is involved. The decision then moves on to assess whether Facebook’s conduct complied with the GDPR – and concludes it does not, since users were not fully aware of the collection and processing of their data and therefore could not express a genuine form of consent.

To bridge competition and data protection law, the Bundeskartellamt relied on Federal case law establishing that the imposition of contractual terms infringing mandatory rules on general contractual conditions can be abusive when those terms are a result of the firm’s market dominance. The Bundeskartellamt extrapolates from this case law that abusive conduct can be established when abusive terms and conditions are imposed solely as a result of a dominant market position or superior bargaining power. Thus, Facebook’s failure to comply with data protection rules in its terms and conditions can infringe competition rules inasmuch as the imposition of the relevant terms and conditions was a consequence of Facebook’s market power. Taking advantage of its dominant position, Facebook is able to have superior access to users’ personal data by rendering the usage of its social networking service conditional upon users granting permission to the limitless harvesting of their data. This take-it-or-leave-it offer leads to a lock-in effect for users to the disadvantage of competitors.

Section 2 also provides an overview of the judicial appeals.

In an interim appeal, the Düsseldorf Higher Regional Court (Oberlandesgericht Düsseldorf) suspended the Bundeskartellamt’s decision. This ruling was appealed to the German Federal Court.

In a fast-tracked decision, the German Federal Court upheld the Bundeskartellamt’s decision. However, instead of relying on the intersection between competition and data protection law, the Court focused on how Facebook’s conduct restricted consumer choice. The Court held that Facebook takes advantage of its dominant position by rendering the usage of its service conditional upon user consent to the platform’s terms and conditions, in practice subjecting users to an opt-in requirement to the challenged data collection and processing practices. Facebook thereby imposes an extension of its social network (‘aufgedrängte Leistungserweiterung’), whereby users are forced to consume a service that may go beyond their needs or wants. Further, Facebook’s practices, combined with market characteristics such as network and lock-in-effects, lead to the platform’s market power being further entrenched.

As a result, there is a causal link between Facebook’s market dominance and the abuse. This causal link does not require a strict counterfactual assessment, since less stringent requirements regarding the causality between market dominance and the abuse may apply when it is clear, from an objective point of view, that the market power of the company enhances its ability to impose conditions that are detrimental to the contracting party (the user) and likely to lead to harmful effects on the market and competition.

The ultimate impact of the German Federal Court’s judgment is that the order of the Düsseldorf Higher Regional Court is revoked and that Facebook must temporarily comply with the Bundeskartellamt’s decision. In particular, Facebook was prohibited from applying service terms that make access to Facebook’s social network conditional to  user consent to the consolidation of their onsite data with data from outside Facebook (e.g. from WhatsApp). Instead, the user must voluntarily agree to the consolidation of both types of data.

Section 3 comments.

Although the Bundeskartellamt tries to justify its decision on competition law grounds, reference to traditional competition law is scarce. The authority concludes that Facebook’s practice is detrimental to consumers, but ‘exploitation’ is not mentioned once. When assessing Facebook’s data collection practices, the authority mainly refers to the fundamental right to data protection, and finds that the legitimate interests and rights of the users cannot be outweighed by Facebook’s business interests. It is as if the Bundeskartellamt labours under the presumption that it is almost impossible to justify Facebook’s breaches of data protection rules due to the constitutional importance of data protection rights – which makes Facebook’s business conduct close to an abuse by object.

This approach proved controversial. Amongst the questions it raised, two are particularly prominent: should any violation of data protection law by a dominant undertaking amount to an abuse of dominance? Is the Bundeskartellamt competent to determine that Facebook infringed the GDPR, instead of the data protection authority? On appeal, the German Federal Court elegantly tried to circumvent these questions by relying on consumer choice instead of on the GDPR as a parameter for the legality of Facebook’s conduct. However, in trying to bring the Facebook case back into the ‘pure competition’ fold, the Facebook case expands the type of possible theories of harm linking data harvesting to reduced consumer welfare. Such theories rely not so much on neo-classical as on behavioural economics, and take into account customer characteristics such as bounded rationality and willpower when evaluating the effects of digital services – and their terms and conditions – on users’ decision-making.

At the same time, the German Federal Court does not ignore data protection law. The constitutional right to data self-determination/privacy anchors its concern with consumer choice, since it ‘guarantees that the individual […] has a substantial say in deciding on the attributions that apply to his or her own person’. Since the same constitutional provision underlies data protection laws, references to data protection are still present in the judgment. When determining whether Facebook’s conduct was compulsory, the Court argued that consent is not given voluntarily if the performance of a contract is made dependent on consent regarding some terms and conditions when those terms are not required for the contract’s performance. When determining whether this is the case, the competition authority can refer to the content of data protection law and include considerations stemming from data protection law in its assessment. In effect, the reasoning under data protection law by the competition authority identified the abusive conduct as restriction of choice, even if it was mistakenly based on a data protection assessment – and should thus be upheld.

Comment:

This short note provides a good introduction to the particulars of the Facebook case in Germany.  

Personally, I am still confused as to the role that causation is supposed to play in this dispute, and about how the existence of data protection rules are supposed to trigger a balancing of interests to determine whether competition law was infringed – as already mentioned above.

Maybe my difficulties merely reflect how this case seems to reflect a very particular, German approach to competition law – nowhere more apparent than in the focus by on the constitutional values underpinning the claim all instances, a matter unlikely to be relevant for competition enforcement in the majority of jurisdictions.

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