Facebook Dealt Blow as German Court Strikes Business Model

(Bloomberg) -- Facebook Inc. suffered a setback in a key challenge to its business model as Germany’s highest civil court said that it has “no doubt” that the social network misuses its dominant market position.

Judges at a hearing on Tuesday ruled that Facebook must comply with a strict order curbing the network’s leeway in tracking users’ browsing and smartphone apps even as it fights the original ruling in a lower court.

“We have no doubt that Facebook has a dominant market position on the social network market and that it misuses its position,” said presiding judge Peter Meier-Beck of the Federal Court of Justice in Karlsruhe.

In February 2019, the Federal Cartel Office made a landmark attack on Facebook’s advertising model, telling the company to stop “unrestrictedly collecting and using” data and combining it with users’ Facebook accounts without getting their “qualified” consent. One click to agree to its voluminous terms wasn’t enough for that as user had no choice other than to agree to everything. The regulator was breaking new ground by using antitrust law to tackle data privacy.

Facebook on Tuesday said it will continue to fight the order in the Dusseldorf court where the main case is pending. There will be no immediate changes for people or businesses who use products and services in Germany, the network said.

“Today’s decision relates to the preliminary proceedings on the stay order,” Facebook said. “The main proceedings, before the court of appeals, are ongoing and we will continue to defend our position that there is no antitrust abuse.”

The company initially won a suspension of the antitrust decision in a lower tribunal in August and was asking the top judges to keep the order suspended while the sides continue to argue over it. The dispute will now return to the court in Dusseldorf.

Nevertheless, Facebook now must comply with the order despite the ongoing case. The company has four months to work out a plan how to adhere to the restrictions on data collection in Germany and then another 10 months to implement the changes.

The German judges on Tuesday said it doesn’t matter whether Facebook’s terms are in line with European Union data laws. Rather, the terms are illicit because they don’t grant users the right to choose between allowing Facebook to track them or to limit data collection to what users post on their accounts.

“As a dominant network, Facebook has a special responsibility to keep competition alive on the social-network market,” the court said. “The high economic value of data must also be taken into account.”

Most users would want to disclose less data and if the competition worked properly on that market, they would have the chance to chose a platform that offered them more privacy, according to the judgment.

Andreas Mundt, head of the Federal Cartel Office, said the ruling outlines how data and competition interplay.

“Data is a crucial factor for economic power and for judging market power on the internet,” he said. “If data is collected and used illegally, antitrust law must be able to step in to impede misuse of market power.”

The ruling may encourage further antitrust enforcement targeting Facebook. EU regulators have an early-stage probe into the company’s classified ads service and are scrutinizing how it handles data. Digital advertising is also getting antitrust attention in France, Germany and the U.K.

Regulators are looking at how Amazon.com Inc. collects data from retailers through its platform. Apple Inc. and Alphabet Inc.’s Google have also attracted antitrust complaints over how they treat competitors.

©2020 Bloomberg L.P.