EN| Germany’s Federal Court of Justice: Facebook’s terms of use hinder competition

von (Kommentare: 0)

This blog is about privacy law and competition law, among other things, so it is nice to publish anarticle that brings together both areas of law. What happens to individuals’ personal data once they have been fed into the databases of social networks worries privacy activists, and keeps quite a few data-protection officials and lawyers busy. However, another twist to the story is that certain types of data use may also hinder competition, and are therefore forbidden under competition law, not privacy law. In a decision issued on 23 June 2020 (case number: KVR 69/19), the German Federal Court of Justice ruled that Facebook is breaking the law if, in its terms of use, it solely offers its freebie users the option to include their entire „off-Facebook activities” in the data collected and used by the company for marketing purposes.

Facebook employs terms of use that allow the company to process and use any data that Facebook collects when a private person uses the internet, no matter whether they are on the actual Facebook platform facebook.com or outside of it (so-called “off-Facebook” use of the internet). Private users cannot use Facebook if they do not agree to these terms of use. The court case under discussion results from action taken by the German competition authority, the Bundeskartellamt, in February 2019. According to the German Federal Court of Justice (Bundesgerichtshof), the authority issued an official decision (Beschluss or Verfügung) prohibiting Facebook Ireland Limited, which operates the European part of the social networking service, from employing these terms of use and from processing personal data in the manner allowed by the terms.

Terms of use fall foul of German Competition Act

According to the German competition authority, the fact that the terms of use offered users no other option than to agree to the processing of their “off-Facebook” data contravened section 19(1) of the German Act against Restraints of Competition (Gesetz gegen Wettbewerbsbeschränkungen – GWB). The subsection simply stipulates: “The abuse of a dominant position by one or several undertakings is prohibited” („Die missbräuchliche Ausnutzung einer marktbeherrschenden Stellung durch ein oder mehrere Unternehmen ist verboten”).

In its decision, the authority argued that Facebook had a dominant position in the German market for social networking services. This fact is probably beyond dispute and was also confirmed by the German Federal Court of Justice in the ruling under discussion.

The authority further argued that Facebook was abusing this position by making private persons’ use of the network subject to users allowing Facebook to link data they generated on the internet “off facebook.com” with the personal data the company collects as a result of them using the Facebook network and website proper. Under the terms of use, Facebook is also not required to seek any further or future consent from users to such linking (Facebook mache die private Nutzung des Netzwerks von seiner [Facebooks] Befugnis abhängig, ohne weitere Einwilligung der Nutzer außerhalb von facebook.com generierte nutzer- und nutzergerätebezogene Daten mit den personenbezogenen Daten zu verknüpfen, die aus der Facebook-Nutzung selbst entstehen).

Competition authority claim based on GDPR violation

In what seems to have been its main line of argument, the competition authority argued that an abuse of the dominant market position was proved by the fact that Facebook could get away with terms of use and the processing of personal data that so clearly violated the provisions of the General Data Protection Regulation (GDPR). The authority gave Facebook one year to change its terms of use.

Facebook challenged the authority’s decision before Düsseldorf Higher Regional Court (Oberlandesgericht Düsseldorf), the competent appellate court (Beschwerdegericht),and partly won. Based on a petition by Facebook, the Higher Regional Court stayed the immediate enforcement of the decision in August 2019 and re-established the suspensory effect of the fact that Facebook was contesting the decision before the appellate court. The legal basis for this is section 65(3)(2) of the German Act against Restraints of Competition which regulates cases in which there are “serious doubts as to the legality of the decision being challenged” („ernstliche Zweifel an der Rechtmäßigkeit der angefochtenen Verfügung”). The appellate court ruled that users did not agree to the terms of use because Facebook’s dominant market position left them no option, but because they were just too “indifferent” (gleichgültig) to object to them. And the competition authority was not competent to rule on issues solely related to privacy law; thus its decision was probably illegal.

In its ruling of 23 June 2020, the higher court, the German Federal Court of Justice, set aside Düsseldorf Higher Regional Court’s ruling, however, thereby reinstating the immediate enforcement of the authority’s decision. The Federal Court of Justice ruled that any potential violation of the GDPR was irrelevant to the decision as to whether or not Facebook was abusing its dominant market position (Maßgeblich hierfür ist nicht die vom Kartellamt in der angefochtenen Verfügung in den Vordergrund gerückte Frage, ob die Verarbeitung und Nutzung von personenbezogenen Daten […] mit den Vorschriften der Datenschutz-Grundverordnung in Einklang steht).

Federal Court of Justice: users need more choice

According to the court, the terms of use were abusive for a different reason. The decisive issue here was that private users of Facebook must be given at least the following two options to choose from:

1) to use the network with a user experience that is more personalised, which includes unrestricted access by Facebook to data resulting from their “off-Facebook” internet use; or

2) to use the network on the basis of a personalised user experience that only uses data disclosed on facebook.com by the users themselves.

Facebook was abusing its dominant market position by only offering the first of these options.

In its reasoning, the court stated that Facebook served two markets. On the one hand, the company enabled private users to use the platform to present themselves and their social relationships to other people, and to communicate. On the other, it enabled companies to distribute advertising via the Facebook network, with the online advertising market serving to finance the user platform, for which users did not have to pay (at any rate, not money).

(Facebook ist als Betreiber eines sozialen Netzwerks auf zwei Märkten tätig. Es bietet zum einen privaten Nutzern die Plattform als Medium zur Darstellung der Person des Nutzers in ihren sozialen Beziehungen und zur Kommunikation an. Es ermöglicht zum anderen Unternehmen Werbung im Netzwerk und finanziert damit auch die Nutzerplattform, für deren Nutzung die Nutzer kein (monetäres) Entgelt zahlen.)

Anti-competitive behaviour on two markets

Facebook was abusing its market position in both markets (social networking services for private users, and online advertising), the court ruled.

On the market for social networking services for private users, Facebook was using the platform effect, or rather the great obstacles that prevented users from switching to other social networking services (hohe Wechselhürden), to “lock in” users. Based on this “lock-in effect”, users were being “exploited” (ausgebeutet), i.e. practically forced to give away their personal data and give up their “informational self-determination” (informationelle Selbstbestimmung). “Informational self-determination” is a term coined by the German Federal Constitutional Court (Bundesverfassungsgericht) and is defined as “the authority of the individual to decide himself, on the basis of the idea of self-determination, when and within what limits information about his private life should be communicated to others”.

The lock-in effect was relevant to issues of competition law because, due to Facebook’s dominant market position, competitors were unable to provide any checks on Facebook’s market behaviour (der Wettbewerb kann wegen der marktbeherrschenden Stellung von Facebook seine Kontrollfunktion nicht mehr wirksam ausüben). According to the court, the German competition authority stated that many private Facebook users actually wanted to disclose less of their personal data. If effective competition were in place in the market for social networking services, the court opined, one would therefore expect a competitor to emerge who offered a service to match this demand.

(Nach den Feststellungen des Bundeskartellamts wünschen erhebliche Teile der privaten Facebook-Nutzer einen geringeren Umfang der Preisgabe persönlicher Daten. Bei funktionierendem Wettbewerb auf dem Markt sozialer Netzwerke wäre ein entsprechendes Angebot zu erwarten.)

Added revenue being used to strengthen a dominant position

Facebook’s terms of use were playing their part, however, in hindering any such competition. The company’s dominant position, and the obstacles preventing users from switching, were partly the result of the company’s great trove of data, which it was also amassing due to the disputed terms of use. The large amounts of data particularly benefited its financial position, because Facebook was able to sell more and pricier advertising due to its superior pool of data. The added advertising revenue enabled the company to invest more in its private-user platform, further strengthening the network’s appeal—and intensifying the lock-in effect (Die so ausgestalteten Nutzungsbedingungen sind auch geeignet, den Wettbewerb zu behindern. […] Der Zugang von Facebook zu einer erheblich größeren Datenbasis verstärkt die ohnehin schon ausgeprägten „Lock-in-Effekte“ weiter. Außerdem verbessert diese größere Datenbasis die Möglichkeiten der Finanzierung des sozialen Netzwerks mit den Erlösen aus Werbeverträgen.)

The terms of use therefore also conceivably had a negative impact on competition within the market for online advertising (not only within the market for private social networking services). Contrary to the findings of Düsseldorf Higher Regional Court, the lower court, the German Federal Court of Justice ruled that it was irrelevant in this respect whether a discrete market for online advertising on social media actually existed and whether, if it did exist, Facebook dominated this specific market as well. A company with a dominant market position was not allowed to abuse this position, and this included any type of abuse that was based on its dominant position, even if such abuse occurred within a different market from the one the company dominated.

(Wegen der negativen Auswirkungen auf den Wettbewerb um Werbeverträge lässt sich schließlich auch eine Beeinträchtigung des Marktes für Online-Werbung nicht ausschließen. Entgegen der Auffassung des Beschwerdegerichts bedarf es insoweit keiner Feststellung, dass es einen eigenständigen Markt für Online-Werbung für soziale Medien gibt und Facebook auch auf diesem Markt über eine marktbeherrschende Stellung verfügt. Die Beeinträchtigung muss nicht auf dem beherrschten Markt eintreten, sondern kann auch auf einem nicht beherrschten Drittmarkt eintreten.)

In 2019, Facebook not only applied for a stay of enforcement, but also contested the effectiveness of the competition authority’s decision itself. The main proceedings on the issue of whether or not the decision ordering Facebook to change its terms of use is effective have yet to take place before the Federal Court of Justice. Legal expert Christian Rath believes, however, that the court will rule along lines similar to those taken in the current proceedings. That the court used such strong expressions as “exploitation” (Ausbeutung) to describe the way Facebook treats its (non-paying) customers really does seem to bode ill for Facebook’s chances of success.

Edward Viesel

Please note: in order to improve readability of this article, when quoting from German texts in the original German, I have often shortened phrases or adapted them to the present English-language text without indicating such changes. If in doubt, please refer to the original sources provided as links.

Zurück