Facebook Competition and Data Privacy Laws

Facebook Competition and Data Privacy Laws

Facebook Competition and Data Privacy Laws

Facebook’s advertising model is contingent on tracking the billions of users including those on Instagram and WhatsApp as well as across the web and other smartphone apps. The data gathered provides sufficient information to profile users and identify the sites they frequent, the apps they use, where they shop, and what they like among others. Facebook continues to maintain that gathering these data helps the company show the most relevant ads that appeal to each user’s interests (Hollywood Adviser n.p). However, privacy advocates across the world have expressed their concerns, arguing that the company is not transparent enough regarding the kind of data it has as well as how it uses it (Hollywood Adviser n.p). Consequently, the majority of users lack an in-depth understanding of the inherent trade-off they make with their personal data when they sign up for Facebook. On February 2019, Germany’s competition regulator, the Federal Cartel Office (FCO), handed down its long-awaited decision regarding Facebook ruling that the free website exploits users by making it mandatory for them to consent to personal data collection before signing up for an account. As such, Facebook will no longer be allowed to force users to agree to the practice of unrestricted data collection (Jörg n.p). Moreover, the company was prohibited from assigning non-Facebook data to users’ individual accounts. The FCO decision is reinforced by Article 102 TFEU which prohibits companies from engaging in anticompetitive behaviours, especially through dominant undertakings. Combined with Article 101 TFEU, they both stand at the centre of the E.U competition law. Consequently, the concepts of market abuse and dominance are the Articles’ key tenents as well as some of the most reinterpreted issues in the EU. One of the primary reasons why it took the FCO a long time to come up with the decision is because the pronouncement was based on the revolutionary approach that links competition laws with data protection (Jörg n.p). Therefore, Facebook is at the crossroads of competition law and data protection. This paper seeks to critically evaluate and investigate the marketing approach adopted by Facebook from a legal perspective. The investigative evaluation primarily examines whether Facebook conforms to competition laws whilst carrying out its marketing strategy. Detailed discussions about competition laws and data protection have also been covered. Moreover, the paper assesses whether Facebook’s marketing strategy complies with the current competition laws.

Art 102 TFEU’s Abusive Privacy Conditions

The Facebook proceeding can potentially redefine the notion of abusive conditions, therefore, tighten the link between competition law and data protection. Facebook’s case highlights a new concept that could easily find its way into EU competition law or result in a complete overhaul of how enforcement agencies prohibit companies from abusing their dominant positions as included in Artical 102 TFEU (O’Donoghue and Jorge 89). Therefore, it is essential to establish whether the Facebook case is conceivable under EU competition law and whether companies should be fined by the Commission violating data protection laws (Kirschner and Aryn 1237). In both their wordings and structure, the § 19 ARC and Art 102 TFEU are almost the same (O’Donoghue and Jorge 78). The German version of both laws requires regulators to demonstrate that a company has a dominant position and has abused it before taking any action. The current German courts are contingent on European case laws when interpreting the ARC, especially when seeking to prohibit the use of trading terms and conditions that undermine effective and fair competition due to the dominant player in the industry abusing its position.

The FCO cites Art 102 TFEU when seeking to prohibit the exclusion and exploitation of any business undertakings by an industry player that enjoys a dominant market position. The Art 102 (a) holds that exploitative abuse occurs when a company targets customers by directly or indirectly imposing unfair trading conditions on them (O’Donoghue and Jorge 51). As such, the data privacy abuse such as the one alleged to have been committed by Facebook can be prohibited on the grounds that the company engages in unfair trading conditions. However, the problem with the Art 102 TFEU involves determining when the trading conditions unfair.

Most regulatory bodies such as the FCO do not have to refer to the Art 102 TFEU or other data protection laws to prove that a company has abused its dominant position but it can base its investigations and findings on the underlying terms being disproportionate. Most cases preceded over by the FCO rely on the proportionality tests prescribed by the GDPR, which helps in identifying the rules that might have been violated by a dominant company (Albrecht 287). The Art 5-11 GDPR provides a comprehensive list of principles that are designed to help regulatory bodies such as the FCO to determine the proportionality of data processing. Therefore, referencing the GDPR is necessary since the tests are more predictable and nuanced.

In Germany, the competition law regarding the Facebook case is a novelty since the FCO based its preliminary assessment regarding the company’s abusive behaviour primarily on the fact that it violated data protection law. As such, the charges against Facebook are based on the concept of the abusive conditions developed by the German Federal Court of Justice (FCJ). Consequently, applying these concepts helps identify abuse, especially when a dominant company violates a specific consumer protection law. The concept is also conceivable in EU competition law. Similarly, the § 19 ARC prohibits companies from leveraging unfair practices, especially if they enjoy a dominant market position (O’Donoghue and Jorge 61). The Court of Justice of the European Union (CJEU) relies on a proportionality test to assess the legality of the terms and conditions being reviewed by a regulatory body but it does not refer to the standards outside competition law. Consequently, applying the proportionality test is likely to help identify privacy abuse that is contingent on data protection agreements without necessarily referencing other laws. However, the reference to data protection laws is imperative because it helps to improve the predictability and clarity in the proportionality test. The competition laws and policies seem to be moving from a laissez-faire doctrine, which advocates for minimum governmental interference in the social and economic affairs of people within the society, into a more consumer-oriented and proactive enforcement strategy (Keynes 272). Therefore, the emerging trends in competition law help to prove the abuse of data privacy has occurred more effectively.

On the contrary, the E.U Commission and CJEU do not include data protection issues in their competition assessment. However, these regulatory bodies use data protection laws when developing arguments aimed at limiting competition enforcement rather than broadening it. As such, the E.U Commission believes that the issues relating to data privacy should be solved by data protection law since competition law focuses solely on competition issues. For example, data protection law includes the regulatory policies and rules designed to protect users while competition law is articulated or use at a market level and primarily serves to protect the competitive process. However, most of the CJEU judgments highlight the lenient interpretation of the separation between data privacy and competition laws.

Nonetheless, a breach of competition law is more likely to result from a violation of domestic consumer protection law such as data privacy laws. Still, another major hurdle exists in regards to proving an abuse of dominance has taken place through data protection conditions because both data protection authorities and competition agencies are likely to penalize the same behaviour thereby infringing the rule of law and the ne bis in idem principle, which is the legal doctrine arguing that no legal action should be instituted twice for the same cause of action (Van Bockel 13).

Facebook Dominance through Data Collection Undermining Competition

The FCO is not a data protection authority but instead focuses on applying EU and German competition laws to protect the autonomy of market competition. Essentially, the FCO investigates any forms of restrictive agreements between business undertakings to safeguard competitive market structures. Facebook disagreed with the FCO conclusions and expressed its desire to appeal the decision to allow the German users to continue benefitting fully from its services (Janet n.p). However, if the appeal fails, the company would be forced to change how it processes its users’ data in Germany. The FCO new regulations mean that companies such as Facebook can only gather and combine personal data into a single profile only when the user has given explicit consent. The primary argument advanced by the FCO is that the company’s dominance provides it with an opportunity to impose prejudicial contractual terms on its users. As a result, Facebook does not conform to the current competition laws both in Germany and in the E.U. For example, the E.U and Germany competition laws seek to maintain market competition mitigating anti-competitive conducts such as the ones currently employed by Facebook to track users all over the Internet. Moreover, the users accepting the terms of service articulated by Facebook usually do not truly consent.

In 2018, Facebook users in Germany were 32 million amounting to a market share of more than 85 percent (Villota and Sang 132). The FCO notes that such amount of domination over social media gives Facebook the power to oversee all activities related to data collection. Villota and Sang further add that being a dominant company makes Facebook subject to specific obligations under the country’s competition laws (89). Also, the company is required to take into account the fact that users cannot switch to other social media networks when operating with the current business model (VT Editors n.p). In most cases, users are forced to either refrain from using Facebook or to accept the comprehensive combination of data from different sources (David n.p). The FCO further argues that the company leverages its vast data collection to reinforce its market supremacy thereby resulting in a feedback loop where users are forced to use the site as well as allow it to track them online. As such, Facebook engages in unfair competitive practices because the involuntary tracking of its users makes the company more dominant whilst vindicating its privacy violations.

In response to the FCO ruling to ban Facebook from gathering and combining its user’s data to track them without their consent, the company argues that the authority does not appreciate the fierce competition it faces in Germany and even misinterprets its compliance with the General Data Protection Regulation (GDPR) (Alkire, Johannes, and Willy 19). Moreover, Facebook argues that the FCO undermines the underlying mechanisms put in place by the EU competition laws to ensure consistent data protection standards. Facebook goes ahead to cite Twitter, Snapchat, and YouTube as one of their most fierce and direct competitors in response to the FCO’s ruling. One of Facebook’s primary objectives when responding to FCO’s decision involves illustrating that there was a lack of competition. Although Facebook argues that popularity is not dominance, the FCO disagrees and explains that the primary functions of YouTube, Snapchat, and Twitter serve are totally from Facebook (Competition Policy International n.p). As a result, most of these social media sites cannot be considered as viable alternatives to Facebook.

Initially, the FCO and other antitrust regulators within the EU used to consider data and privacy as not part of their responsibility. For example, the old philosophy perceived antitrust as being concerned with price and that free products could not harm consumers (The Week n.p). However, emerging trends such as digital technology and mobile applications have seen most of these myths being discredited. Therefore, one of the implications of the FCO ruling is that it makes it clear that competition and privacy are inextricably intertwined (Alkire, Johannes, and Willy 78, The Week n.p). The Facebook services are provided to users free of charge but the value of the advertising spaces created by the pool of users’ increases with the detail and amount of user data gathered (The Week n.p). Therefore, it is in the area of data use and data collection where Facebook, as a dominant corporation, should conform to the competition and data protection rules and laws applicable in Germany and the E.U.

Facebook Dominance Undermining User’ Privacy and Control

For a long time, most of the services offered by online platforms such as Facebook, Google, and Twitter among others were revered for being innovative and practical. However, times have changed and the same platforms are now among the most powerful and valuable companies in the world. The increased dominance of Facebook in the social media sector has awaked public opinion which now coincides with tightening up of antitrust enforcement by the authorities such as the FCO against online platforms. For example, Google was fined by the European Commission over $5 billion for engaging in illegal practices using its Android mobile devices and $3 billion for its comparison shopping service (Houser and Gregory 78). Most of the regulatory bodies focus on taming dominant companies’ desire for user data to safeguard the privacy of consumers.

As such, the FCO plays an instrumental role in strengthening competition and consumer protection in the World Wide Web. The FCO investigations on the effects of Facebook’s dominance and practices of data collection have helped redefine the intersection between data protection and competition laws. As such, the decision by the FCO serves as a prototype case for EU law. The FCO ruling suggests that the harm caused to Facebook’s users from the data collected is not in cost but instead in the loss of privacy and control (Competition Policy International n.p). Facebook users find it difficult to control and dictate how their personal data should use and to who it can be shared with. Moreover, users are unable to dictate the kind sources of data from which Facebook gathers information and combines it to create user profiles. The problem is worsened by the users’ ignorance of Facebook data practices, especially in regards to privacy and control. According to a survey conducted by the Pew Charitable Trusts (Paul and Lee n.p), over 75 percent of American Facebook users were not aware that Facebook maintained profiles about them (VT Editors n.p). Another 51 percent of those surveyed note that they were not comfortable with the practice but also said there is little they could do to a dominating company such as Facebook (Paul and Lee n.p, Hollywood Adviser n.p). However, Facebook defends the move to track its users because it helps in developing safer and better services. Moreover, the company notes that the FCO ignores the much it has done in complying with the General Data Protection regulation passed by the EU in 2018 (Hollywood Adviser n.p). Nonetheless, the FCO’s argues that under the GDPR principles, Facebook lacks the effective justification to gather collecting data through other company-owned services such as Instagram and Whatsapp or and Facebook Business Tools such as the Share and Like buttons that appear (Hollywood Adviser n.p).

The FCO is opposed to Facebook dominance because it undermines the site user’s privacy and control. Moreover, the dominating market position enjoyed by Facebook not only reinforces anticompetitive behaviours but also in its view, the FCO argues that Facebook has failed to prove beyond a reasonable doubt that gathering data from its users is in the best interest of every consumer and that the site cannot function without it. One of the primary implications of the FCO ruling regarding Facebook’s use of its users’ data is that Germany may become a grand experiment in helping determine whether or not the surveillance economy is essential in promoting competition in social media (Hollywood Adviser n.p). Consequently, other countries across the world may demand that they too are given the same option.

Conclusion

This paper has critically evaluated Facebook to investigate the marketing approach adopted by the organization from a legal perspective. The investigative evaluation primarily examines whether Facebook conforms to competition and privacy laws whilst carrying out its marketing strategy. The discussions developed about competition laws and data protection indicate Facebook’s marketing strategy does not comply with the current competition laws thereby forcing the FCO to ban it from collecting data from different sources and combining it to create user profiles. According, to the FCO, Facebook enjoys a dominant market position but is abusing the privilege. The FCO investigates specific types of acquisitions and mergers as well as enforcing the rules developed to mitigate the abusive practices often present among dominant market players. The FCO took a long time to arrive at a decision because it was the first of its kind since unlike the previous decisions this one linked together competition with data protection laws.
 

Works Cited

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Alkire, Linda, Johannes Pohlmann, and Willy Barnett. “Triggers and motivators of privacy protection behavior on Facebook.” Journal of Services Marketing (2019). https://www.emeraldinsight.com/doi/abs/10.1108/JSM-10-2018-0287

Competition Policy International. “CPI EU News: FCO Facebook Quadriptych.”Competitionpolicyinternational. (2019). https://www.competitionpolicyinternational.com/cpi-eu-news-fco-facebook-quadriptych/

David, Meyer. “Facebook Ruling, Disney Bet, Gucci Top: CEO Daily for February 7, 2019.” msn. (2019). https://www.msn.com/en-us/news/technology/germany-sets-new-limits-on-facebook-data-collection/ar-BBThfox

Hollywood Adviser. “German regulators just outlawed Facebook’s whole ad business.” Hollywood Adviser (2019). http://hollywoodadviser.com/german-regulators-just-outlawed-facebooks-whole-ad-business/

Houser, Kimberly A., and W. Gregory Voss. “GDPR: The End of Google and Facebook or a New Paradigm in Data Privacy.” Rich. JL & Tech. 25 (2018): 1. https://jolt.richmond.edu/files/2018/11/Houser_Voss-FE.pdf

Janet, Peischel. “The Internet Marketer: Facebook’s ad business outlawed by German regulators.” Napavalleyregister. (2019). https://napavalleyregister.com/business/columnists/janet-peischel/janet-peischel-s-the-internet-marketer-facebook-s-ad-business/article_765f4adb-4e91-5d3e-a204-ff639c456e37.html

Jörg, Witting. “Facebook – at the cross-roads of data protection and competition law.” Twobirds. (2019). https://www.twobirds.com/en/news/articles/2019/germany/facebook-at-the-cross-roads-of-data-protection-and-competition-law

Jörg, Witting. “Facebook – at the cross-roads of data protection and competition law.” lexology. (2019). https://www.lexology.com/library/detail.aspx?g=64c10c81-ad12-4859-90a2-541f469d52b7

Keynes, John Maynard. “The end of laissez-faire.” Essays in persuasion. Palgrave Macmillan, London, 2010. 272-294. http://www.stephenhicks.org/wp-content/uploads/2015/03/Keynes-J-The-End-of-Laissez-Faire.pdf

Kirschner, Paul A., and Aryn C. Karpinski. “Facebook® and academic performance.” Computers in human behavior 26.6 (2010): 1237-1245. https://dspace.ou.nl/bitstream/1820/2880/1/Facebook_and_Academic%20Performance.pdf

O’Donoghue, Robert, and Jorge Padilla. The law and economics of Article 102 TFEU. A&C Black, 2014. https://books.google.com/books?hl=en&lr=&id=oIjqAwAAQBAJ&oi=fnd&pg=PT23&dq=Art+102+TFEU&ots=tIOtT_Amur&sig=hFIsD6iSTK7yCgWwPYRG4dA04OU

Paul, Hitlin, and Lee, Rainie. “Facebook Algorithms and Personal Data”. pewinternet.org. (2019): https://www.pewinternet.org/2019/01/16/facebook-algorithms-and-personal-data/

The Week. “Germany hits Facebook with restrictions on its data gathering.” Theweek. (2019). https://theweek.com/speedreads/822450/germany-hits-facebook-restrictions-data-gathering

Van Bockel, Bas. The ne bis in idem principle in EU law. Vol. 72. Kluwer Law International BV, 2010. https://books.google.com/books?hl=en&lr=&id=r_aYLoMTar8C&oi=fnd&pg=PR13&dq=ne+bis+in+idem+principle&ots=NLVhODwDTt&sig=PViK3YBPCc6IIKM6alMVMBA4cJI

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