On August 26, 2019, the Düsseldorf Court of Appeal (“DCA”), in an interim decision, suspended the German Federal Competition Office’s (“FCO”) prohibition decision against Facebook, Inc. (“Facebook”), expressing “serious doubts” about its legal basis. This decision marks not only the second major setback for the FCO after the DCA’s annulment of the FCO’s Booking.com decision on price parity clauses earlier this year. It might also constitute a major setback for the FCO’s efforts to act as a leading enforcer of competition law in the digital economy.
On February 6, 2019, the FCO found Facebook’s data policy an abuse of a dominant position, in particular by requiring users to consent to the extensive collection and processing of their personal data from Facebook’s own services as well as from third-party platforms. Given the lack of alternative and comparable social networks, users had no other choice than to agree to Facebook’s data collection practices if they wanted to use the social network. According to the FCO, the users’ consent for the data collection was therefore not given freely (as required under the EU General Data Protection Regulation (“GDPR”)). The FCO found that this practice amounted to an exploitative abuse of a dominant position to the detriment of Facebook’s users. It also is an exclusionary abuse to the detriment of its competitors because Facebook’s processing of extensive data enabled it to optimize its targeted advertising activities, thereby increasing entry barriers for Facebook’s actual and potential competitors.
The FCO ordered Facebook to stop amalgamating user data from different sources without their freely given consent and to alter its terms and conditions within twelve months. Facebook then appealed the FCO’s decision to the DCA and, in addition, requested the court to suspend the decision’s effects in the interim.
The DCA’s Interim Decision
The DCA held that Facebook’s data policy did not give rise to any relevant competitive harm. Irrespectively of whether Facebook’s data policy constituted an infringement of the GDPR, the DCA concluded that the FCO’s decision raised serious doubts about the legal basis for both the alleged exploitative abuse to the detriment of Facebook’s users as well as the alleged exclusionary abuse to the detriment of its competitors.
Serious Doubts Regarding Exploitative Abuse Of Facebook’s Users
An exploitative abuse requires that a dominant firm imposes prices or other trading conditions that differ from those likely to exist on a market with effective competition. The DCA held that, for an exploitative abuse, it did not suffice that unfair or unlawful contractual conditions were imposed by a dominant company, but that there must also be a causal link between dominance and the abusive conduct. According to the DCA, the FCO did not establish the existence of a causal link between Facebook’s dominance and its far-reaching data collection practices, namely that Facebook’s data collecting and processing practices (and thus the alleged GDPR infringement) were only made possible because of its dominance and that competitors, for this reason, would not be able to apply similar practices.
In addition, the DCA held that Facebook’s data collection practice did not lead to a loss of the users’ control over their personal data and thus did not harm users. The fact that the use of Facebook is linked to the user’s consent to the use of additional data does not mean a loss of the user’s control over the data. Users can choose freely between Facebook and other social media platforms and must therefore balance the benefits and disadvantages of using an advertising-funded social network. By consenting to the data collection, users did also not suffer an economic loss, as the personal data could be easily duplicated (in contrast to a “normal” user charge).
Probably No Exclusionary Abuse Of Competitors
In the DCA’s view, the FCO also failed to demonstrate to what extent Facebook’s access to user data resulted in a foreclosure of actual or potential competitors. In particular, the DCA considered the FCO’s finding that Facebook’s access to considerable amounts of user data created high entry barriers for its competitors, “not comprehensible”. In this regard, the DCA pointed out that Facebook’s market power mainly stems from direct and indirect network effects rather than from its access to its users’ data. In the DCA’s view, the fact that the social network Google+ had access to a comparable amount of user data, but was not able to attract a significant number of users, indicates that access to user data is not a decisive barrier to market entry for potential competitors.
The FCO has appealed the DCA’s interim order to the German Federal Court of Justice (“FCJ”); a decision is expected only for 2020. The DCA has indicated that it will commence oral hearings in its own main proceedings only after the FCJ’s decision on the FCO’s appeal of the DCA’s interim order. While the FCO’s prohibition decision was a major setback to Facebook’s publicly announced plans to technically integrate the infrastructure of its three messaging apps (Facebook Messenger, WhatsApp and Instagram), the suspension of the FCO’s prohibition decision means that it could now proceed with these plans, which could make the FCO’s original remedy plans unfeasible.
While the DCA does not fundamentally reject the FCO’s approach that certain data protection law violations may amount to an abuse of a dominant position, it does not agree with the FCO’s interpretation of the FCJ case law on which the FCO based its Facebook decision. The FCO followed from the FCJ’s decisions in VBL Gegenwert II and Pechstein that contractual terms and conditions agreed upon in an imbalanced negotiation, and infringing German civil law, constitutional rights or any other legal principle, which aims to protect a contracting party in an imbalanced negotiation position, could also constitute an exploitative abuse by a dominant company under German competition law. In contrast, the DCA held that the case law does not support this interpretation. The DCA took the position that in contrast to the Facebook case, the anticompetitive effects of the behavior at hand in the FCJ’s precedents was rather obvious. Further, the DCA held that a strict causal link has to be shown between the dominant position and the unlawful terms and conditions. This means that in its Facebook decision, the FCO should have conducted a hypothetical comparison of Facebook’s actual terms and conditions with the hypothetical terms and conditions it would have been able to impose under competitive market conditions. Should users be indifferent with regard to the terms and conditions, or if they would agree to similar terms in their interaction with companies that do not hold a dominant position, there would be no abuse of a dominant position.
The FCJ held in its VBL Gegenwert II decision that not every use of unlawful terms and conditions by a dominant company constitutes an abuse of a dominant position, and the DCA’s reasoning is certainly in line with that. It remains to be seen whether the FCJ, when ruling on the case at hand, will confirm a narrow understanding of its VBL Gegenwert II and Pechstein precedents, or soften the “strict causality” requirement and, thus, overrule the DCA.
 Booking (VI – Kart 2/16 (V)), DCA decision of June 4, 2019, only available in German here. See also our article in the German Competition Law Newsletter May – June 2019, p. 4 et. seq., available here.
 Facebook (B6-22/16), FCO decision of February 6, 2019, available in English here. See also our article in the German Competition Law Newsletter January – February 2019, p. 1 et. seq., available here.
 Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC (General Data Protection Regulation).
 For the sake of the interim proceedings, the DCA only assumed, but did not analyze further, that Facebook has a dominant position on the market for private social networks.
 For this reason, the DCA even questioned whether Facebook’s data collection actually infringed data protection law at all.