Considering The Competition Mandate — Consumer Choice About Data Privacy
The June 2020 Facebook case in Germany
A moment ago I opened an article on my phone news feed. This was related to a topic that I searched on my phone yesterday, evidencing targeted content related to my searches, which I often appreciate. Upon opening the page a pop-up message appeared, indicating that the content provider and its partners store and access non-sensitive information from my device and process my personal data in order to provide me with personalised ads, measure my preferences, and improve performance.
It went on to state that some of their partners do not ask for consent to process my personal data. This was followed by a link to a privacy policy and another link to choices of what processing to allow, should one want to go into more detail. The end of the pop-up then showed “accept” as the default, as was the default on all the sliders under the choices link. My only other option was to forego the news story. I exited, deciding that the news story wasn’t worth it without more lengthy scrutiny of the terms, which I did not have the time for right then.
This situation is not new to me, I face these pop-ups for agreements to privacy statements everyday, no doubt with a step change since the start of the COVID-19 pandemic, given how much of my everyday activity is carried out online.
The book has long since been closed on the idea that online services like this are free. My online searches and activities, and even scrolling behaviours, are all my way of paying for targeted content, part of an advertising process that I willingly participate in.
In this particular instance, I cautioned when I read that partners, or third party providers of the entity that I was dealing with, may not ask for my consent to process my personal data. It occurred to me that I had low awareness in this instance of how far my data would be going in order to get me access to this news article, and, whilst I feel positively about sharing useful personal data such as for pandemic tracking, this was nothing of that sort.
This resonated with recent news that I have been reading from Germany.
The latest on competition and regulation in digital markets: An overview of the Facebook case in Germany
The recent weeks have been a busy time for competition and regulation in the digital space in many parts of the world, also with developments on aspects of consumer choice regarding privacy and its place in competition policy.
As most will know the case in Germany against Facebook has been ongoing for some time. This is a case by the Bundeskartellamt (Germany’s Federal Cartel Office, FCO), which alleges that the excessive collection and processing of data is a violation of competition law, with a focus on lack of choice as an abuse of dominance and with dominance being defined in the market for social networks that offer a rich social experience.
The precise lack of choice that is discussed is that individuals who sign up to Facebook do not have a choice about whether their data may be combined with data from Instagram and WhatsApp (and other Facebook group subsidiaries), and third party pages (websites with embedded Facebook features) in order to produce more targeted advertising.
Although it appears that more privacy choice has been provided by Facebook to users in most parts of the world more recently, this is not mentioned in the recent German decision and therefore may still have limits. The focus on this article is not to ascertain this, but to discuss this case as given, within a competition framework.
This case was initially granted suspension by the Higher Regional Court, after an appeal from Facebook. What is now new (since late June 2020) is that it has preliminarily been found in favour of the FCO (in other terms against Facebook) at the level of the Federal Court of Justice, the highest court in Germany.
Whilst this is a preliminary judgement (with the press release here) and the reasons are being awaited, this case is novel in that the issue is determined as a competition-related one, something that has in the past been hotly negotiated, with consideration that such concerns may be better and solely dealt with in most countries under consumer and privacy law (in this case, GDPR is also applicable and relevant, but is not the focus of this article, nor the German competition case).
In this instance, the remedy is that there should not be the combination of data between the platforms and sites mentioned, unless a user voluntarily agrees to this.
According to the findings of the FCO, significant parts of private Facebook users want a lower level of disclosure of personal information.
If this remedy is implemented it will mean that in this case, Facebook would allow a user to access the core good (the Facebook app), without having to allow for the sharing of their data across the other platforms and sites mentioned, unless they choose to do so.
Established thinking may argue that the efficiencies that derive from more extensive data collection and processing and that hence promote the provision of value to social media users outweigh any consumer harm derived from the same. However this remedy may also be argued to simply ensure that efficiencies deriving from consumer buy-in are more fairly achieved.
In other terms, it does not prevent the data sharing (the very core of the business model in this and so many markets today), it only makes it such that users have a say in agreeing to this.
But is this really a competition issue?
In this particular case the FCO determines that access to data on both sides of the platform in question (facing advertisers and facing social media users) is a competitive parameter in these business models. The FCO goes further to state that any anti-competitive effect does not necessarily need to happen in the market (or the side of the market) in which there is dominance, for this to be a competition concern. The latter, at the outset, suggests lateral thinking, albeit undoubtedly and strongly case- and context- specific.
In the Facebook case the issue is argued to be about competition, based on the fact that if one does not agree to the data-sharing mentioned, then there is no real alternative to turn to for the service in question. And absent a change, this is expected to increasingly be the case. Said differently, the lack of choice on this particular platform supports a lack of choice in the market in general, since it encourages further data collection and processing by this (large) entity, which may in turn further entrench their position in the market (I describe the process by which this can happen in an overview of the Facebook/WhatsApp merger).
Additionally, if the market was competitive, it is argued that Facebook would provide options that allowed for more privacy, something that it does not at present do in Germany and that the FCO’s research shows there is preference for.
These may be likened to (non-price) exploitative and exclusionary practices in most jurisdictions.
Whilst the preliminary decision does not detail competition in the advertising market, it does state that consequent issues here cannot be ruled out, given that less competition here can even effect higher advertising prices and less advertising opportunity.
In short, there is limited competition, least of all on parameters of privacy, something that is hoped for in future and that appears to be a nexus at which broader competition may be either fostered or discouraged.
One might argue that any competitor may enter the relevant market and that there are sufficient examples to suggest that one does not need a great deal of initial data to become a real competitor, just as there might be examples of firms that have had a great deal of data and that were not able to compete successfully. A potential counterargument to this is that one should also be careful to draw the general corollary that, in this case, Facebook does not enjoy its position due to high and increasing economies of scale and scope in data.
Where to from here?
The German case is expected to go on for some time and will be a space worth watching. Concurrently, many suggestions to dually target competition concerns and in the same breath consumer choice and rights with regard to data are being discussed in forums around the world, with practical aspects to be tested on a case- by case- basis.
Across the world these discussions centre on “companies with paramount significance for competition”, or “companies with strategic market status”. Discussion about these companies increasingly refers to those in the digital space.
In the same week as the German preliminary decision was released, the UK CMA published its report on competition in digital markets, a lengthy but highly relevant document. Many other global forums provide useful debates on various aspects of this topic. I cover some of these in separate articles.
Any and all regulation and/ or other approaches considered in these markets would need to focus on the business model in question, with many different business models and ways of monetising (for example, via advertising or via devices) present in platform industries and other data-centric industries. Generalising is not possible.
Clear, coherent and plausible theories of harm where there is concern would need to be the starting point in considering any regulation or competition approach in these types of markets.
In all of this the balance between fostering competition and fostering incentives for optimal and sustainable innovation and progress, will need to be carefully balanced.
For now, a step forward in Germany and one worth watching from around the world
The strong voice out of Germany focuses on “re-installing the sovereignty of consumers”. The competition-related aim in this is also to avoid future markets being characterised by large firms to which no competitor can reasonably catch up due to certain data forming both a barrier to entry and a source of market power.
Germany’s Facebook case appears to be a forerunner in the space of data dominance, with this possibly related to a pre-1989 German history where personal data was unfairly controlled and following which policies may be geared toward avoiding this.
This is however a global area of interest. Whilst there does not appear any reason for alarm on either side of the case and at this point, the Facebook case in Germany does suggest that a simple step such as conscious opt-in of consumers to having their data used in various ways by businesses may support a competitive landscape of data-centric businesses over the long-term.
This space — increasingly informed by developments such as relating to this case, market studies like the CMA’s, and ongoing efforts from around the globe — is worth watching as it will eventually and inevitably influence the way in which data-centric businesses are run, with nudges informed by competition, consumer protection, and privacy developments.
This case does not necessarily detract from the very business model that makes sense in this space, but rather takes a step forward in allowing users a choice about what they can give and get.
*No conflicts, all written in my personal capacity
