Germany takes on Facebook in first-ever competition probe

02 Mar, 2016 4:53 pm

FRANKFURT – Germany’s cartel office is investigating Facebook (FB.O) for suspected abuse of market power over breaches of data protection laws in the first formal probe of the social network for violating competition rules.

The watchdog said it suspected that Facebook’s terms of service with its users regarding how the company makes use of their data may abuse the company’s possibly dominant position in the social networking market.

Facebook, the world’s biggest social network with 1.6 billion monthly users, earns revenues from advertising based on data it gathers about its users’ social connections, opinions and activities in their postings.

“For advertising-financed internet services such as Facebook, user data are hugely important,” Federal Cartel Office President Andreas Mundt said.

The cartel office said it had considerable doubts about whether Facebook users had been properly informed about how their data were used, which it said could violate stringent German data protection laws.

“There is an initial suspicion that Facebook’s conditions of use are in violation of data protection provisions,” the regulator said in a statement announcing the probe.

Facebook is nearly the twice the size of the world’s second largest social network, Tencent’s (0700.HK) QQ of China. Nearly 84 percent of Facebook’s members are outside the United States and Canada.

The company has faced strong criticism from politicians and regulators in Germany, where data protection is strongly regulated, over its privacy practices.

Co-founder and Chief Executive Mark Zuckerberg visited Berlin on a charm offensive last week.

A Facebook spokeswoman said on Wednesday: “We are confident that we comply with the law and we look forward to working with the Federal Cartel Office to answer their questions.”

The regulator said it was investigating whether Facebook abused its market power by failing to adequately inform its users of the scope and nature of data collection on their Internet surfing habits.

Facebook owns four of the top eight social network services globally including its core profile service, two separate instant messaging services, WhatsApp and Facebook Messenger, and its picture-sharing service Instagram.

“This is certainly an unusual case,” Mark Watts, head of data protection at London-based law firm Bristows, said of how the investigation marks the first time that data protection issues have become a significant factor in a competition case.

TAKING EUROPEAN LEAD

The German cartel office is taking the lead in the case while advising the European Commission and competition regulators in other EU states.

The cartel office said it was working closely on its probe with the European Commission, competition authorities in other European Union states, data protection authorities in Germany and consumer rights groups.

European Commission spokesman Ricardo Cardoso said the EU executive shared the view of the German cartel office that the mere infringement of data protection rules by a dominant company did not automatically amount to a competition violation.

“However, it cannot be excluded that a behavior that violates data protection rules could also be relevant when investigating a possible violation of EU competition rules,” he added, while declining specific comment on the new case.

Speaking in Germany in January, top EU antitrust enforcer Margrethe Vestager said her agency was taking a harder look at whether the collection of vast amounts of consumer data by big Internet companies violates competition rules.

A spokesman for the Belgian competition authority declined to comment on whether it was cooperating with the German probe. The French and Irish competition regulators were not immediately available to comment.

The EU has accused Facebook rival Google, a unit of Alphabet Inc (GOOGL.O), of favoring its own shopping services in search results at the expense of rivals, and is weighing possible sanctions against the world’s most popular search engine.

However, the commission previously considered and rejected big data issues when it approved Google’s acquisition of online advertising firm DoubleClick in 2008 and Facebook’s purchase of WhatsApp in 2014. –Reuters

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