Facebook Under Fire as German Antitrust Cops Target Ad Model

  • Germany
  • 12/20/2017
  • Bloomberg Law

Facebook Inc. is on a collision course with one of Europe’s most powerful regulators as Germany’s Federal Cartel Office attacked the way the social network giant scoops up information on how users surf to drive its advertising revenue.

Users are unaware that Facebook — seen as Germany’s dominant social network — gathers data on how they visit other websites and don’t appear to consent to how that data is used, the Federal Cartel Office, or Bundeskartellamt, said in an email statement.

People only have the choice to accept the entire package or stop using the network, it said, attacking “inappropriate” terms of service widely used by internet sites. The FCO says it isn’t investigating how Facebook collects information on how its users act on the social network, only on their internet habits outside of Facebook’s walls.

Facebook generates vast revenues from serving targeted advertising to users it knows well. German regulators may seek changes from the company, saying Facebook could now justify its conduct or “offer possible solutions” to address concerns that its data collection and use may be an abuse of its market power.

A final decision won’t come before mid-2018 and may see the FCO close the case, accept commitments from Facebook or issue an order for Facebook to cease certain behavior.

No Consent
“We are mostly concerned about the collection of data outside Facebook’s social network and the merging of this data into a user’s Facebook account,” FCO President Andreas Mundt said in the statement. “We are not convinced that users have given their effective consent to Facebook’s data tracking and the merging of data into their Facebook account.”

Facebook immediately slammed regulators for painting an “inaccurate picture” of how it operates, honing in on the criticism that it is dominant, an important legal term that might curb future behavior.

“Although Facebook is popular in Germany, we are not dominant,” the company said in an emailed statement. “A dominant company operates in a world where customers don’t have alternatives” whereas Facebook is just one of many sites people use.

Data Protection
The company said it’s working with data protection officials to handle any privacy issues, a swipe at the FCO. The agency is using its formidable antitrust powers to examine concerns usually dealt with by data protection agencies with fewer tools to fine or stop companies’ actions. Facebook’s move to merge data with its messaging app WhatsApp has been criticized repeatedly by data authorities, with France warning the company on Monday for its failure to fully cooperate with a probe.

Facebook shares fell $2.30, or 1.3 percent, to $178.52. It was their biggest decline in two weeks. They’ve gained 55 percent this year.

“Regulation has become a much bigger concern and a potential longer-term obstacle,” Michael Nathanson, an analyst at MoffettNathanson Research, wrote Tuesday in a note to investors that asked whether it’s time to get out of Facebook shares.

Nathanson was focused mostly on the impact of Russian abuse of Facebook’s social media network ahead of the 2016 US presidential election.

“This is just the beginning of a bigger regulatory review of Facebook’s influence on our society,” the analyst also wrote.

Missing Piece
Privacy advocates welcomed the German move, saying consumers need better protection in digital markets, and that regulators need to consider privacy issues when looking at antitrust cases.

“This was the missing piece in competition policy and this change of practice is good news,” said Agustin Reyna, team leader for digital rights at European consumer association BEUC. “Facebook’s take it or leave it business model means that consumers have no choice but to hand over their data and accept it to being used for invasive targeted advertising.”

The probe tests the limits of competition law by weighing an Internet platform’s relationship with its users and the value of the data they provide. That may provide a template for more enforcement as other antitrust authorities and politicians seek ways to handle complaints about how Internet platforms have swelled rapidly, attracting hundreds of millions of users and grabbing advertising money that once went to newspapers and broadcasters.

Uncharted Frontier
Michael Carrier, co-director at the Rutgers Institute for Information Policy and Law in New Jersey, said there hasn’t been any significant antitrust cases challenging the abuse of data collected on users.

“This is a big deal,” Carrier said. “Data is an uncharted frontier of antitrust enforcement.”

If regulators begin looking at the accumulation of data more closely, it could pose challenges for big American tech firms. “Several large tech companies are valuable because of the data they collect on users,” he said. “If their use of data is an antitrust problem, that could have a real effect.”

EU Dimension
The German move comes a day after French privacy watchdogs gave Facebook’s messaging service WhatsApp a one-month ultimatum to stop sharing user data with its parent without getting the necessary consent.

While Google, Apple Inc. and Amazon.com Inc. have also come under regulatory fire in Europe, their control of personal data has not been in the front line. Europe’s other powerful antitrust regulator, the European Commission, has largely skirted personal data concerns when it took aim at Google over its search engine, its mobile-phone software and its online advertising contracts. Apple and Amazon have run into EU trouble over their tax affairs.

“This case has a clear European dimension,” Reyna said. “EU law prohibits the abuse of dominance. The EU’s competition body should carry out its own investigation. Facebook operates throughout the EU and is probably dominant in all European markets.”

— With assistance by Adam Satariano, and Alistair Barr