Bundeskartellamt vs Facebook: the other side of the market, choice and next steps

The German Supreme Court has ruled: The Bundeskartellamt's finding of Facebook abusing its dominance by imposing exploitative terms on its users should not be suspended, and it thereby overruled a local court's preliminary decision. The case is a major test for the role of competition law in restricting the expanding surveillance by Big Tech. Two aspects of the Supreme Court's ruling stand out (note that this is based on their press release; the complete decision is not yet available): its mention of exclusionary abuse and of choice.

On the other side: exclusionary abuse on advertising markets?

The Supreme Court does not follow the Bundeskartellamt's focus on the question of whether Facebook's alleged breach of the EU General Data Protection Regulation amounts to an abuse of dominance. Instead, it puts the spotlight back on where the data is used: to target advertising, which is the main source of Facebook's revenues. The court finds that Facebook's superior access to data aggravates the lock-in on the social networking side and gives it ample room to finance its activities through advertising contracts which depend on the available data. Hence, the court does not "rule out" exclusionary effects on advertising markets, and it finds that no dominance on those markets is needed to find such effects.

This still leaves the main question open: do Facebook's data collection practices that build on the allegedly abuse terms have exclusionary effects on advertising markets? The Bundeskartellamt decision does not deal with that question in detail. Advertising markets have come under intense scrutiny recently, but the complex nature of those markets, including data brokers and other shady intermediaries, and the interdependencies with privacy mean that no final conclusions have been reached so far. The Bundeskartellamt even launched its own sector inquiry into online advertising in early 2018 (two years after the beginning of the Facebook case and one year before the decision), but it has gone quiet. More hope for a systematic and evidence-based assessment of advertising markets rests with the UK CMA: the final report on its advertising market inquiry is due on 2 July, and its interim report was already impressive. It details the relationship between the various market layers, captures the consumer attitudes which can appear contradictory at times, and discusses potential interventions for different market sides, including search, social networks, and advertising.

Choice: is it just about competition?

The Supreme Court also considers the effects of the terms on the users and agrees with the Bundeskartellamt on the idea that users have no choice in social networks, depriving them of informational self-determination. What is more, the court finds that this constitutes exploitation because it expects that competition would lead to the supply of less data-intrusive alternatives, based on the evidence on user preferences presented by the Bundeskartellamt.

This intuitively makes sense, and it suggests that the ball is back in the court of competition law, after a short detour into data protection law. But is choice about data terms purely a competition issue? The court frames it as a yardstick for the functioning of competition, but it is also a core concept from a data protection perspective. Its relevance is not confined to the Facebook case but extends to other markets where a dominant firm asks consumers to give "voluntary" consent to the collection of data about them. The European Data Protection Supervisor has been bringing up this issue at least since 2014. If dominant firms have a special responsibility not to harm competition, how does this translate into the requirements to collect consent? Should they face higher hurdles to rely on consent for collecting data?

Understanding the link between choice and consent as a conceptual concern that should be solved with both competition and data protection expertise seems appropriate. This would also relieve the authorities of the burden to demonstrate that more competition in the market for social networks indeed leads to less intrusive data collection practices. Consent vis-a-vis dominant firms is, by definition, not voluntary, and this is the main concern.

So, what's next?

The Facebook case is now back with the local court which may be more skeptical about the reasoning put forward by the Supreme Court, as far as can be inferred from its earlier decision. Hence, Facebook may still win the case in the main proceedings. Either way, it is likely to make its way up to the Supreme Court again. So we may witness a few more years of intense debate about the principles and the limits of competition law.

However, the issues at stake go far beyond the terms imposed by Facebook, and they should be treated as such: First, the workings of data-powered advertising markets warrant more attention, both from a competition and from a data protection perspective. We need to test if there are exclusionary effects, and if so, we should address them not by spreading the data more widely, given the sensitive nature of the "super profiles" that several players in ad markets build. Second, consumer choice needs to be preserved when dominant firms ask for consent to data collection. This applies, at the very least, also to Google which continues to make headlines by expanding into more and more markets, combining data from various sources. Its latest Fitbit acquisition is still under review in various jurisdictions.

For both issues, interestingly, the remedy proposed by the Bundeskartellamt makes for a useful starting point for discussion. It ordered Facebook to stop combining data from different sources without obtaining explicit consent from users. This goes to the heart of the business model based on targeted advertising embraced by many digital platforms: if consumers' use of the platforms no longer depends on their consent to wide-ranging data collection, they may get the chance to turn Facebook and others into less data-hungry platforms. That will affect the platforms' revenues, but maybe that is a price worth paying to preserve choice and privacy.