Round 2 to Facebook: Landmark German data collection ban blocked by court

On 26 August 2019, the Higher Regional Court in Düsseldorf suspended the German Federal Cartel Office's ("FCO" or Bundeskartellamt) decision to prevent Facebook from combining user data from various sources such as Facebook, Instagram, WhatsApp and unrelated sites that use Facebook analytics and software. In its 37-page interim decision the Court raises, in unusually unambiguous terms, serious doubts about the legality of the FCO's decision. This interim decision suggests that the Court is likely to overturn the FCO's restrictions in final judgment on the company’s appeal.

In February this year, having liaised with EU privacy authorities during a three year investigation into Facebook's data collection activities, the FCO objected in particular to how Facebook pools data from third-party apps, including its own WhatsApp and Instagram apps, with Facebook data and how it tracks people online through Facebook's ‘like’ or ‘share’ buttons. It held that forcing users to give up their data in this way, without providing customers with the option of opting out, was an abuse of dominance. The FCO subsequently ordered that Facebook be significantly restricted in terms of how it can allocate data between its services, which has been perceived to constitute a structural separation of Facebook's businesses at the data level. For further details, please see also our Ashurst Competition Newsletter contribution of March 2019 on the landmark decision.

It is the first case in which an abuse of dominance decision has been based on an infringement of data protection law and the FCO's approach raised significant international attention. Facebook contested the ruling, taking it to the Court in Düsseldorf. The FCO has not enforced its February decision, because it was waiting for the Court's ruling.

The Court's view is that even if the FCO had shown that Facebook's data processing had violated data-protection rules, that did not automatically constitute an abuse of dominance. The Court has confirmed that a breach of competition law requires harm to competition, but that no such impact was caused by Facebook's conduct. The FCO had tried to establish such a link by alleging that:

• through its dominance, Facebook forced its users to agree to a practically unrestricted collection and assignment of non-Facebook data to their Facebook user account; and

• users are not aware of the scope of Facebook's collection and combination of data from external sources.

The Court rejected the FCO's argument that consumers were harmed by the loss of control over their data by noting that any data collection and processing takes place based on the users' consent. The Court said the fact that 80% of users do not read Facebook's T&Cs when signing up for the service does not constitute abusive behaviour. This line of argument has some merit in this case: if users had opted not to review Facebook’s T&Cs , they could not have played a significant part in the users’ decision to sign up to the platform.

The Court also did not agree that Facebook’s data collection constituted an exploitative abuse of its dominant position to the detriment of consumers because:

• the FCO had failed to investigate which T&Cs would have developed in more competitive market structures; and

• the user data can always be duplicated. Since users can continue to generate and make the same data available to other companies (including competitors of Facebook), providing their data to Facebook did not disadvantage users, nor restrict competition.

From the Court's reasoning it appears that the FCO may have undervalued the positive indirect network effects between the advertising side and the private user side of the platform by not considering either the benefits the data collected had in relation to improving Facebook's targeted advertising functionality, nor the benefit of this advertising to private users.

The Court confirmed, in clear terms, that an infringement of data protection law (or any other consumer protection law) should not automatically violate competition law simply because it is committed by a dominant company. Rather, a link to competition and a connection between the dominant company’s market power and the allegedly infringing conduct needs to be evidenced.

The Court's decision presents a significant win for Facebook and a serious blow to competition authorities who seek to use data protection law as a means of enforcing competition law. The FCO's president Andreas Mundt reacted to the Court's ruling by stating: "Data is market power in the digital economy. And that was what we were picking up on with our case. Some basic legal questions need to be clarified. That is why we will be lodging an appeal with the Federal Supreme Court."

While it can be expected that a final decision of the Federal Supreme Court will take several additional years, Germany is awaiting a new amendment of its Competition Act (Gesetz gegen Wettbewerbsbeschränkungen, "GWB") which was drafted by an expert commission ('Competition Law 4.0') and is aimed at assessing more effectively digital competition in sectors with large data businesses. The amendment is expected to cover new ways defining markets (taking into account conglomerate effects and the particularities of digital ecosystems) and examples of what might constitute an abusive conduct in digital markets. It is expected to have a significant impact on the legal framework on which authorities and courts will base their decisions in similar cases in the future.

See our "Competition policy in the digital era: a comparative guide" for further details on how other competition regulators around the world are approaching the digital economy.