Facebook uses terms of service that also provide for the processing and use of user data collected during internet usage independent of the Facebook platform. The Federal Cartel Office has prohibited Facebook from processing such data without further consent from private users. The Cartel Senate of the Federal Court of Justice ruled today that this prohibition may be enforced by the Federal Cartel Office.
Facts of the case:
Facebook Ireland Limited, based in Ireland (hereinafter: Facebook), operates the social network Facebook in Europe, providing private users with a communication platform on the internet. Other subsidiaries of the Facebook group offer additional internet services, notably Instagram, WhatsApp, Masquerade and Oculus.
Private users do not pay a fee for using the social network. However, their participation in the network requires them to agree to the Facebook terms of service upon registration. These terms stipulate that Facebook provides each user with a personalized experience. For this purpose, the user's personal data is used, which Facebook obtains from the use of other group-owned services such as Instagram as well as from other internet activities of the user outside of facebook.com. The terms of service refer to a data policy that further explains the collection and use of personal data.
The network is financed through online advertising. For this purpose, advertisements can be placed on Facebook pages. Furthermore, companies can connect their own websites or mobile applications (apps) with Facebook pages in various ways using different programming interfaces ("Facebook Business Tools") provided by Facebook. For instance, Facebook users can express their interest in these pages or specific content via plugins ("Like button" or "Share button"), post comments, and log into third-party websites using a "Facebook Login" with their user data registered with Facebook. The success of a company's advertising can be measured and analyzed using measurement and analysis functions and programs offered by Facebook. This involves not only recording the behavior of private users on Facebook pages but also, through corresponding interfaces (Facebook Pixel), tracking visits to third-party sites without requiring the user to take any active steps. Through the analytical and statistical functions of "Facebook Analytics," companies receive aggregated data on how Facebook users interact with the services they offer across various devices, platforms, and websites.
Previous Procedural History:
The Federal Cartel Office considers the use of the terms of service to be a violation of the prohibition under Section 19 (1) GWB (Act against Restraints of Competition) against abusing a dominant market position. Facebook is dominant in the national market for providing social networks. It abuses this position by making the private use of the network dependent on its authorization to link user and user-device-related data generated outside of facebook.com with personal data arising from Facebook usage itself, contrary to the provisions of the General Data Protection Regulation (GDPR). By decision of February 6, 2019, the Federal Cartel Office prohibited Facebook and other group companies from using such terms of service and processing personal data accordingly.
The Düsseldorf Higher Regional Court has not yet ruled on the appeal filed against this decision. However, at Facebook's request, pursuant to Section 65 (3) of the German Act against Restraints of Competition (GWB), it ordered the suspensive effect of the appeal due to serious doubts about the legality of the order. Such an order means that the Federal Cartel Office's injunction may not be enforced until a decision has been made on the appeal.
Decision of the Federal Court of Justice:
The Cartel Senate overturned the decision of the Düsseldorf Higher Regional Court and rejected the application for an order of suspensive effect of the appeal.
There are neither serious doubts about Facebook's dominant market position in the German market for social networks nor about Facebook's abusive exploitation of this dominant market position through the terms of use prohibited by the Federal Cartel Office.
The decisive factor here is not the question highlighted by the Federal Cartel Office in the contested order, namely whether the processing and use of personal data of Facebook users, which arises from their internet usage outside of facebook.com and independent of a Facebook login, complies with the provisions of the General Data Protection Regulation.
Rather, it is crucial that terms of use are abusive if they do not offer private Facebook users a choice:
– whether they wish to use the network with a more intensive personalization of the user experience, which involves potentially unrestricted access by Facebook to characteristics of their “off-Facebook” internet usage, or
– whether they only wish to agree to personalization based on the data they disclose on facebook.com itself.
The abuse judgment – which, according to established case law, requires both the finding of adverse effects on the relevant markets and a balancing of all involved interests, guided by the GWB's function aimed at freedom of competition – is essentially based on the following considerations:
As an operator of a social network, Facebook is active in two markets. On the one hand, it offers private users the platform as a medium for presenting their person in social relationships and for communication. On the other hand, it enables companies to advertise within the network, thereby also financing the user platform, for the use of which users pay no (monetary) fee. However, by promising to provide its users with personalized experiences and thus communication content beyond the mere platform function, fluid transitions and interdependencies arise between services provided to users and the refinancing of platform provision through various forms of online advertising.
As a dominant network operator, Facebook bears a special responsibility for maintaining the existing competition in the social network market. The high importance of data access from an economic perspective must also be considered.
The lack of choice for Facebook users not only impairs their personal autonomy and the protection of their right to informational self-determination – which is also protected by the GDPR. Against the background of the high switching barriers that exist for network users (“lock-in effects”), it also represents an antitrust-relevant exploitation of users, because competition can no longer effectively exercise its control function due to Facebook's dominant market position. According to the findings of the Federal Cartel Office, significant portions of private Facebook users desire a lesser extent of personal data disclosure. With functioning competition in the social network market, a corresponding offer would be expected. Users for whom the extent of data disclosure would be a key decision criterion could switch to such an offer.
The terms of use structured in this way are also capable of hindering competition. While Facebook's market position is primarily characterized by direct network effects, as the benefit of the network for private users and advertising companies increases with the total number of people connected to the network, Facebook's market position can only be successfully challenged if a competitor manages to attract a sufficient number of users within a reasonable timeframe to make the network attractive. However, access to data is an essential competition parameter not only in the advertising market but also in the social network market. Facebook's access to a significantly larger database further reinforces the already pronounced “lock-in effects.” Furthermore, this larger database improves the possibilities for financing the social network with revenues from advertising contracts, which also depend on the scope and quality of the available data. Finally, due to the negative effects on competition for advertising contracts, an impairment of the online advertising market cannot be ruled out. Contrary to the opinion of the appellate court, it is not necessary to establish that there is an independent market for online advertising for social media and that Facebook also holds a dominant position in this market. The impairment does not have to occur in the dominated market but can also occur in a non-dominated third-party market.
Decision of the Federal Court of Justice of June 23, 2020 – KVR 69/19 –
Previous Instance:
Düsseldorf Higher Regional Court – Decision of august 26, 2019 – VI-Kart 1/19 (V), WRP 2019, 1333
Source: Press release of the Federal Court of Justice of June 23, 2020
