Germany’s antitrust enforcer accuses Facebook of unfair competition in data collection

Germany’s top antitrust enforcer is going after Facebook with a new interpretation of competition law, saying the way it harvests user data constitutes an abuse of market dominance.

The German Federal Cartel Office (FCO), the authority responsible for the enforcement of the German Law Against Restraints of Competition, has published preliminary findings Tuesday that accuse Facebook of using its power as the dominant social network in the region, where it has more than 90 percent market share to arm-twist users into allowing it to collect data about them from third-party sources, such as websites with “like” buttons.

“Data protection, consumer protection and the protection of competition interlink where data, as in Facebook’s case, are a crucial factor for the economic dominance of a company,” said Andreas Mundt, head of Germany’s cartel office.

Specifically, the FCO argues that Facebook as the only major social network in Germany leaves users no choice but to accept its terms of service, which include consent for the collection of third-party data.

However, Facebook denies the FCO claims, saying it complies with European privacy laws and that the cartel office’s report “paints an inaccurate picture” because the company faces ample competition from services the office didn’t include in its definition of the social-network market, including YouTube, Twitter, and Snapchat.

“We look forward to answering officials’ questions and demonstrating how Facebook contributes to a competitive marketplace,” said Yvonne Cunnane, Facebook’s head of data protection.

The FCO’s case against Facebook is one of the biggest efforts by a regulator to expand the traditional antitrust law to cover controversial business practices associated with the digital era.

Though the FCO findings won’t lead to fines, analysts say they could pave the way for Germany to order changes in the way Facebook does business when it issues a final decision as early as next summer, and that if upheld at the European Union court, this new line of attack could eventually expand the boundaries of competition law within the bloc to encompass questions of online privacy.

The FCO’s investigative findings are the latest ways that European regulators have used antitrust law go after big tech firms. Earlier this year, the European Commission, the EU’s top competition enforcer, fined Google €2.4 billion for abusing the dominance of its search engine to favour its own shopping-ad service and the expense of rivals.

Only last year, the commission used competition rules governing state aid to order Apple to pay €13 billion in unpaid taxes to Ireland.

The way companies like Facebook or Alphabet Inc.’s Google collect and use of personal data, in particular, has been a thorny topic in academic and policy circles.

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“This is in the avant-garde—at or near the outer boundary of classic competition law,” said Nicolas Petit, a professor of competition law at University of Liège, in Belgium. “The theory is quite uncharted.”

In prior cases where data has been an issue, antitrust officials have generally not found any reason to object to a deal or allege anticompetitive behavior. The EU cleared Facebook’s 2014 purchase of chat service WhatsApp without conditions, saying it wouldn’t distort competition by giving Facebook too much user data.

The EU later fined Facebook €110 million ($129.6 million) for giving misleading information during the review of the WhatsApp purchase but didn’t challenge the deal itself.

EU competition officials say they have been keeping close tabs on Germany’s antitrust investigation into Facebook, and are scrutinizing other cases for potential problems posed by companies holding massive amounts of data. In particular, the officials say they are concerned that such clout could keep rival companies from entering the market, though they have yet to open a case solely on that basis.

For Facebook, the potential for privacy to become an antitrust issue is a new headache. The company is under scrutiny for not doing enough to stem the spread of terrorist propaganda and Russian disinformation on its platform. In Europe, it is also facing privacy investigations over WhatsApp, including a formal order from France’s privacy regulator to stop sharing data on the chat service’s users with Facebook for “business intelligence” purposes before the end of the month.

Europe is the second-largest region by revenue for Facebook after the U.S. and Canada, with $2.43 billion in ad revenue in the third quarter. Germany has about 32 million monthly active users, accounting for about 8.8% of the total in the region at the end of September.