The leader of this week's Economist is about "taming the titans". The big 5 (Alphabet, Facebook, Amazon, Apple, Microsoft) are often accused of being "BAADD" – big, anti-competitive, addictive and destructive to democracy. In an interesting read, the New York Times considers 2017 to be a turning point for these tech giants. Despite their continued unprecedented expansion, they have also begun – reluctantly – to accept a certain degree of responsibility to the offline world. The Economist concludes that the tricky task for policymakers is to restrain these giants without unduly stifling innovation.
How could existing competition laws be better used to protect consumers? In this blog we will touch upon this question against the backdrop of a recent conclusion by the German Bundeskartellamt in respect of Facebook.
German competition authority sends written objections to digital platform
The Bundeskartellamt has concluded that the general conditions of Facebook contravene data protection rules and comprise an abuse of dominance. This is the latest measure taken by competition authorities to deal with online platforms.
A Facebook account leads to loss of control
To join Facebook you need to accept the general terms and conditions. One of the provisions grants Facebook the right to collect data on Facebook users surfing third party sites with an embedded Facebook 'Application Programming Interface' (API's), including WhatsApp and Instragram. API's include the 'like-button'. A user does not even have to push the like button for the information on the third party site to be collected. Facebook reserves the right to add the information it gleans to the information on the Facebook account and to use it for any data processing purposes including providing targeted information to advertisers. This is the case even if the user has amended the settings of their account to exclude the collection of information from other sites. By creating a Facebook account, the user totally loses control over his or her personal data. It is questionable whether the user is sufficiently aware that Facebook saves all this information.
Abuse of dominance?
The Bundeskartellamt found that Facebook has a dominant position in the digital social network market in Germany. It held that other social media platforms do not have the same membership and are therefore not seen as alternatives by account holders nor by advertisers. Other social media and messaging services such as YouTube and WhatsApp provide complementary services and are not substitutes. Facebook is used by Germans to communicate with other Germans, leading to the conclusion that there is a separate German market on which Facebook has a quasi- monopoly. The Bundeskartellamt found that the far reaching information provisions in the general terms and conditions contravene data protection rules and therefore comprise an abuse by Facebook of its dominant position under German law. The terms are seen as unfair and an exploitative abuse.
Facebook will now be given the opportunity to react to the report of the Bundeskartellamt. In a statement entitled `Popularity does not equal Dominance`, Facebook has expressed its view that there is no question of dominance in Germany. Facebook is just one of the ways people interact. It added that Facebook needs to continue to innovate to remain attractive to its users and avoid a loss of customers to other social media platforms. Moreover Facebook has said it will comply with the General Data Policy Regulation which will come into force in May 2018 and will introduce additional controls. The Bundeskartellamt expects to discuss solutions with Facebook. If such solution is elusive, the Bundeskatellamt make take a decision requiring Facebook to amend its behavior.
The bigger picture
Many competition authorities are struggling with the question of how to supervise digital platforms. Concerns include the strength of such platforms, as in this case and the long running Google investigation of the European Commission. They also include restrictive terms imposed by platforms, such as the "Most Favoured Nation" clauses in relation to hotel bookings. Privacy issues have been raised not only in this case but also in the Google/Double Click merger and the Facebook/WhatsApp merger. The French and German authorities also wrote a joint paper on data and competition law in 2016. The effect of platforms on advertising markets and media are additional areas of concern. A few days before the publication by the Bundeskartellamt of its preliminary findings against Facebook, the Australian competition authority announced that it was going to carry out a thorough study of online platforms. The result of such study are due to be published in 18 months. In the meantime other competition authorities will not stand still. Even the Dutch authority, which is known for its non-interventionist approach to platforms, has announced that it will be looking into this area, specifically as concerns the effect on media. In the Economist's leader there is also a call for further scrutinizing mergers to assess whether the deal poses any threats, even if the target is small at the time and merger notification thresholds are not triggered. The leader furthermore calls for a new set of rules and regulations that should give people more control over their (personal) information, including the possibility of compulsory data-sharing requirements calibrated to the firm's size. This should foster innovation rather than suppress competition.