On 23 June 2020, the German Federal Court of Justice ("Federal Court") handed down a decision in preliminary proceedings in favour of the German Federal Cartel Office ("FCO") which, in 2019, objected to the business model of Facebook. Specifically, the Federal Court upheld the FCO's assessment that Facebook's processing of user data amounted to an abuse of its dominant position in the German social networking market.
| What you need to know - key takeaways |
- While the Federal Court adopted a slightly different route to the FCO, it confirmed the assessment of the FCO's finding of an abuse of dominance.
- Facebook has a dominant position on the German social networking market which it has been held to have been abusing by requiring its users to consent to Facebook collecting and assigning non-Facebook data to their Facebook user accounts.
- The FCO has prohibited this conduct, only for a lower court to lift that suspension. The Federal Court's interim decision has now reinstated the same restrictions.
|
In February 2019, FCO alleged Facebook was abusing its market dominance and objected in particular to how Facebook pools data from third-party apps (including WhatsApp and Instagram) with Facebook data and how it tracks people online through Facebook's 'like' or 'share' buttons (see our previous summary). The FCO's decision was subsequently overturned by the Higher Regional Court Düsseldorf (the "OLG Düsseldorf"), which raised "serious doubts about the legality" of the FCO's decision, in particular reading the lack of harm to competition and the lack of causality (see our previous summary). The OLG Düsseldorf's decision is now subject of review by the Federal Court.
The Federal Court's overturning of the OLG Düsseldorf will have come as a surprise to many, as it needed only determine if the OLG Düsseldorf's judgment was legal plausibility:
- The Federal Court found that there are neither "serious doubts" about Facebook's dominant position in the German social networking market, nor any such doubts that Facebook is abusing its dominant position with the terms of use.
- Quite remarkably, the Federal Court reached this conclusion for different reasons to those relied on by the FCO:
- Whereas most critical voices from a competition law perspective doubted that Facebook's data collection practices could be regarded as damaging competition, the FCO had focused on the alleged infringement of data protection rules (i.e. not competition rules) as the basis on which it concluded that Facebooks conduct constituted an exploitative abuse.
- The Federal Court, on the other hand, bypassed data protection issues entirely, and considered Facebook's terms of use to restrict the freedom of choice and decision-making sovereignty of its users (absent a dominant position, Facebook's customers would have the chance to switch to a competitor who might have given the user more choice over how their data was used).
According to the Federal Court, Facebook terms of use force its users to consent to the “practically unrestricted collection and assigning” of non-Facebook data to Facebook user accounts which suppresses its users' freedom to choose and thus violate the principle of independence in decision-making of market participants. Hence, by qualifying this as an exploitative abuse of market power the Federal Court, for the first time, seems to be applying the principle of decision-making sovereignty in an abuse of dominance case, thereby emphasizing the importance of autonomy in digital markets.
As a result of the decision, Facebook is required to implement the FCO's decision within 14 months. The main proceedings will continue to be heard before the OLG Düsseldorf. It may well be the case that the OLG Düsseldorf will stick to its former reasoning in favour of Facebook, even though the Federal Court will have the final say over the main proceedings should the final decision of the OLG Düsseldorf be appealed. However, in the main proceedings the case could also be submitted to the European Court of Justice, which could lead to helpful clarifications of the fundamental legal questions in this case of global importance.
