Ercüment Erdem Att. Mert Karamustafaoglu

Second Stage in Facebook File

September 2019

“The distinction between the past, present and future is only a stubbornly persistent illusion.”
A. Einstein

Introduction

The popular TV series, Dark, begins with an Einstein phrase: “The distinction between the past, present and future is only a stubbornly persistent illusion.” (Der Unterschied zwischen Vergangenheit, Gegenwart und Zukunft ist nur eine Illusion, wenn auch hartnäckige).

Recent developments within the scope of the Facebook file are also a revolution in terms of competition law and data protection law. The debates on today's agenda will determine the changing content of the future digital economy, big data, and competition law.

With the decision of the Federal German Cartel Office (“Cartel Office") dated 6.2.2019, Facebook's data collection activities were thoroughly examined. The Cartel Office found that Facebook dominated the Federal German market in terms of social media platforms, and detected that it abused its dominant position in the scope of data collection activities. Therefore, an issue that could be subject to data protection law has also been considered as a competition law problem. This resulted in a new type of violation in terms of competition law.

The Facebook Decision of the Cartel Office 

In accordance with the general terms and conditions provided by Facebook, users could only benefit from the social networking services provided by the undertaking on the condition that they accept the Facebook data processing policy. In addition to users' data, such as Instagram and WhatsApp, Facebook, as a third party, was processing data from non-Facebook web pages and applications. By combining all of this data, almost a complete Facebook user data system had been created.

The decision of the Cartel Office basically examines whether Facebook's data collection activities should be considered as a violation of competition or not. For this purpose, it was firstly determined whether Facebook is in a dominant position. In calculating Facebook's market share, the Cartel Office made a distinction between daily active users and monthly active users. In 2018, Facebook had 1.52 billion daily active users and 2.32 billion monthly active users, worldwide.[1]

The Cartel Office found that Facebook dominates the social network market in Federal Germany. In terms of the German market, Facebook has a market share of approximately 95%, with 23 million daily, and 32 million monthly, users. Competitive social networks, such as Google+, Snapchat, YouTube, Twitter, Xing and LinkedIn have not been seen in the same relevant product market, as they offer services that are limited as compared to Facebook. In addition, the high market shares of applications, such as Instagram and WhatsApp, which are part of the same economic group as Facebook, were also among the factors strengthening Facebook's dominant position.

Andreas Mundt, Chairman of the Cartel Office, has made a remarkable statement. [2] Andreas Mundt stressed that Facebook, as a dominant undertaking, has a special obligation in terms of competition law, and that it is impossible for Facebook users to switch to other social networks as a practical matter. Mundt said that the fact that users had to allow such intense data collection in order to use Facebook, does not create a reasonable justification considering the market power of the undertaking. This is because users face either allowing this data processing activity, or not being able to benefit from this social network. Therefore, Andreas Mundt stated that there can be no explicit consent given through free will.

As a result, it has been determined by the Cartel Office that Facebook's data processing activity is abuse of its dominant position and constitutes a violation of competition. Also, Facebook collects user data through other companies in the same group, such as Instagram and WhatsApp, as well as data on other websites and, overall, maintains very detailed user data.

The Cartel Office considers Facebook's activity of collecting data, especially from third-party internet resources, as an exploitative practice, describing it as an abuse of dominant position[3]. Facebook, as a dominant undertaking, unlike its competitors, extensively collects consumers' data, and this is a violation of competition under Article 19 (1) of the Federal German Competition Act. The Cartel Office referred to the case-law of the Federal Supreme Court of Appeals for the characterization of this behavior as being exploitative.

This is referred to as exploitative behavior if disproportionate contractual obligations are imposed depending on the market power or superiority of one party, as regulated under Article 307 and subsequent Articles of the German Federal Civil Code. Therefore, the Cartel Office underlined that this "unusual" type of competition violation that appeared in the Facebook file was, in fact, a type of well-known exploitative behavior from the standpoint of German law. In addition, it was determined by the Cartel Office that Facebook's imposing its data processing policy on the basis of market power, constitutes an application of disproportionate conditions against consumers in terms of data protection law.

As a result, the Cartel Office did not impose an administrative fine on Facebook but, instead, requested changes to the data processing activity. Accordingly, Facebook will be able to continue to collect data on channels, such as WhatsApp and Instagram, within the same group. However, in order to transfer the data obtained from these channels to the Facebook accounts of the said users, explicit consent must be obtained; otherwise, this data will not be automatically transferred. In other words, users benefitting from Facebook services, and Facebook's data collection activities, will be separated from each other. Facebook will be able to process the data of users of other social media platforms in the same group, such as WhatsApp and Instagram, with Facebook data, provided that express consent is obtained.

Transferring and processing of third-party data with Facebook data will only be possible with the express consent of the users, and of their free will. In this context, the Cartel Office also stated that the concept of obtaining the express consent of the users using their free will can be understood as not making use of the Facebook services, conditional on the granting of this consent.[4]. The Cartel Office has allowed a period of 20 months for the necessary changes to be made in the data processing activities. Facebook is also obliged to submit a detailed plan for changes to be made within four months.

The Facebook decision of the Cartel Office is particularly critical in terms of identifying the relevant market, determining market power, and dominant position. Undoubtedly, the most important finding is that it is necessary to distinguish using Facebook services and data collection activities. In other words, it may be possible to use the Facebook service for users who do not accept the processing of such data in such a large and extensive scope.

Instead of a Conclusion, the Decision of the Higher Regional Court

The Higher Regional Court of Düsseldorf (“OLG"), which has been determined as the competent court for the decisions of the Cartel Office, is making very detailed decisions, which can result in changing case-law, from time to time, in terms of competition law.

While discussing what will change after the Facebook decision of the Cartel Office, and the new limits of competition law, it has decided to suspend execution of the decision of the Cartel Office (“OLG YD Decision”) [5]. This decision, which is approximately 37 pages in length, has added new dimensions to the discussions.

The OLG YD Decision opposes the Cartel Office's assessment of competition law and the data protection law. The OLG states that even if Facebook's data processing activities contain legal incompatibilities under the data protection law, there is serious suspicion that this is also a breach of competition. Thus, the OLG has brought serious counter-arguments about the most innovative findings of the Cartel Office. The OLG states that users have no economic losses due to Facebook's data protection policy. The reason behind this is that users' data is not lost after the transfer to Facebook. Unlike precedents of the Federal Court of Justice referred to in the decision of the Cartel Office as exploitation, it is stated that the data obtained by Facebook is reproducible and consumers are not harmed by this activity.

As a result of the OLG YD Decision, Facebook does not have to implement the decision of the Cartel Office. It will be able to continue its existing data processing activities, at least until the end of the trial. One thing is certain, however: The limits of competition law will drastically change at the end of this judicial process. Even if the OLG cancels the decision of the Cartel Office at the end of this process, Andreas Mundt's statement[6] that he will ultimately carry the case to the European Court of Justice, shows the determination of the Competition Authority on this matter. Therefore, it is seen that competition law will be a serious obstacle for Facebook and similar enterprises to act “unlimited" in their policies to obtain big data. In other words, the Cartel Office explicitly tells the companies having “big data," such as Facebook, "Die Fette Jahren sind Vorbei,"[7] as exhibited in a Federal German movie.

[7] In a movie from 2004 called "The Edukators," a small group of three people sneak into the homes of wealthy individuals, and pretend as if it is theft, but relocate items without stealing anything in order to draw attention to the inequality of opportunity. They also leave a piece of paper with the words "profitable years are over" to give the hosts a lesson.