Facebook succeeds in blocking German FCO’s privacy-minded order against combining user data

Facebook has succeeded in blocking a pioneering order by Germany’s Federal Cartel Office earlier this year that would have banned it from combining data on users across its own suite of social platforms — Facebook, Instagram and WhatsApp — without their consent.

Pioneering because the antitrust regulator had liaised with EU privacy authorities during a long-running investigation of Facebook’s data-gathering activities — leading it to conclude that Facebook’s conduct in the German market where it also deemed it to hold a monopoly position amounted to “exploitative abuse.”

The Bundeskartellamt (FCO) order had been likened to a structural separation of Facebook’s businesses at the data level.

Facebook appealed, delaying application of the order, and today’s ruling by the Dusseldorf court grants a suspension (press release in German) — essentially kicking the matter into very long legal grass.

The FCO has a month to lodge an appeal. A spokeswoman confirmed to TechCrunch it will do so. But with the order suspended pending what could be years of appeals there’s little near-term prospect of any change to how Facebook does business based on this particular regulatory intervention.

It’s undoubtedly a major victory for Facebook — to win at the very first appeals layer — and a major blow for regulatory “innovation” (for want of a better word) which sought to evolve the interpretation of current competition law to respond to the outgrowth and dominance of a surveillance-based digital business model via applying privacy-focused conditions to data processing.

Europe’s data protection regulators do have the power to order the suspension of infringing data processing, under the bloc’s updated privacy framework (GDPR).

But so far such orders are as rare as hen’s teeth — barring a recent threat to Google also by a German privacy regulator. (Just the threat of an order in that case triggered a voluntary suspension of the data processing in question.)

This made the FCO’s order against Facebook all the more notable for boldness and forethought. And means Facebook’s success in cutting it down at the first legal hurdle is a depressing result for those in the EU hoping platform power linked to privacy-hostile surveillance of internet users might be regulated in a meaningful time frame via an existing antitrust lens.

The European Commission’s own “big tech” antitrust interventions have so far focused their attention elsewhere, in addition to taking years to conclude.

Commenting on the Düsseldorf Higher Regional Court’s decision today in a statement, FCO president Andreas Mundt said: “Data and data handling are decisive factors for competition in the digital economy. The Higher Regional Court of Düsseldorf has today responded differently than the Bundeskartellamt to key legal issues. These legal issues are highly significant for the future state of competition in the digital economy. We are convinced that we can act in this area based on the existing antitrust law. For this reason, we are going to appeal on points of law to the Federal Court of Justice to clarify these issues.”

We’ve also reached out to Facebook for comment.

Professor Rupprecht Podszun, a chair for civil law, German and European competition law at Heinrich Heine University, who has been following the FCO’s intervention, dubs the court ruling a “major blow” for the regulator.

“The FCO had accused Facebook of abusing its dominant position by unlawfully gathering and combining user data. Thus it had ordered Facebook to change its Terms & Conditions within a year. The judges from Düsseldorf have stopped enforcement of this decision now. They have serious doubts as to the lawfulness of the decision,” he said via email. “The case is regarded as a landmark case against the digital giants and it had gained worldwide recognition. To fail at the Düsseldorf court, at the very first step, is a bitter result.”

Podszun said the Düsseldorf court did not accept it follows from a possible violation of privacy rules that it is automatically a violation of antitrust rules if a dominant company is acting. That would require the court to see competitive damage — which it did not in this case.

Additionally, the court took the view that users decide autonomously whether they agree with Facebook’s T&Cs when signing up for the service. It also did not agree that consumers are exploited by Facebook’s data collection since they could continue to make the same data available to other companies.

From here on in he believes legal back and forth is likely to take years — hence, even if the FCO were to prevail at a higher court in future the impact on Facebook’s business at that point would likely be long out of date. (Meanwhile, earlier this year it emerged that Facebook is working on merging the back-end infrastructure of its three social networks — seeking to further collapse cross-platform user privacy, even as it scrambles discrete business units in a way that would complicate any regulatory order to break apart its business.)

“The Cartel Office had shown courage in its decision and had explored new paths. The Higher Regional
Court did not follow this reasoning. The FCO took a long shot by integrating a privacy investigation into the competition assessment. I have a lot of sympathy for that, because data has become a crucial competitive factor. Thus, I think that data collection must be a topic for antitrust law,” said Podszun.

“The law is at its limits with the internet giants. It is too slow. A final decision in a few years on the privacy terms of Facebook is too late either way. Before taking the decision, the FCO had investigated the case for three years. The Google Shopping procedure of the European Commission took seven years. You cannot tame these companies with such proceedings and lengthy litigation in court.”

“The decision is a wake-up call to legislators: If you want to regulate Google, Amazon, Facebook & Co., the existing tools are not enough,” he added. “A new version of the Antitrust Act is currently pending in Germany. This is an opportunity to change the legal bases. Also, the authorities for data protection need to step up their efforts – they seem to lack the bravery of the antitrust watchdog.”

Asked how legal bases need to change to enable local antitrust law to respond intelligently to data-mining platform giants, Podszun suggested four areas of focus — telling TechCrunch:

  • Competition law needs to get away from traditional market definition. There should be a rule that the authorities can interfere with companies like GAFA [Google, Apple, Facebook, Amazon] in cases where they move into new markets where they are not yet dominant but can easily tip the market. Conglomerate effects and digital ecosystems currently are a blind spot in competition law.
  • There may be room for a new example of what constitutes an abuse in digital markets.
  • The German Competition Office should have powers in consumer law fields (currently, there is no public enforcement of economic consumer protection issues in Germany). An integrated approach with consumer and competition issues could be helpful (including privacy, possibly). Privacy enforcers are particularly weak in Germany.
  • Procedures need to be speeded up, e.g. by stricter time limits, less haggling over access to file, more technically savvy staff and more priority-setting by the authorities.

“All very difficult – but it’s vital to have some fresh air here,” he added. “Whether this would have helped in the case under debate is a different question.”