Meta vs. Germany: What has happened so far
Meta is at odds with the German Federal Cartel Office. The hunger for data is too great and the market position too powerful. This results in legal proceedings and a Meta sales stop. We summarize the events.
Almost 2.7 billion people worldwide use Meta services. What began in the spring of 2004 as a student network under the name thefacebook.com is now a billion-dollar corporation that includes the successful services Facebook, WhatsApp, Instagram, and the VR brand Oculus, which have since been integrated into Meta.
For years, Meta (formerly Facebook) has repeatedly come under criticism from data protectionists. Their criticism: that the company's collection of personal data is too great. In spring 2019, the German Federal Cartel Office also sided with the critics and accused Meta of abusing its dominant market position.
Following were lawsuits, legal proceedings and, in September 2020, a Germany-wide sales stop of Oculus VR headsets. And the matter drags on well into 2021, as this summary of what happened shows.
February 2019: The German Federal Cartel Office steps in
On February 7, 2019, the Federal Cartel Office (BKartA), Germany's competition regulator, announces that it has prohibited Meta from aggregating user data from various sources effective immediately. Meta only grants its users access to its social network in exchange for collecting data about them outside of the Facebook app and assigning it to the Facebook account.
This means that Meta collects data on platforms (Facebook, WhatsApp, Instagram, Oculus) without restriction. Meta then summarizes that data in a Facebook account. In addition, Meta takes the right to browse users' browsers or smartphone apps and read data from third-party websites or apps that have nothing to do with Facebook. Meta includes data in the Facebook user's account.
These are the consequences
Meta may continue to read out its services and collect data there. However, these must remain with the corresponding service and may not be processed together with other data. For example, Meta may only assign user data collected on WhatsApp to your WhatsApp account.
The data collected on various Group-owned services may now only be assigned to the Facebook account and processed together if the user gives his or her consent. The same applies to data collected by Meta from third-party websites. If consent is not given, this may not result in the user being denied access to Facebook.
This is how the German Federal Cartel Office comments
In the corresponding press release, Andreas Mundt, President of the German Federal Cartel Office, is quoted as follows:
"We are implementing a kind of internal unbundling of data at Facebook for the future. In the future, Facebook will no longer be allowed to force its users to agree to a de facto unlimited collection and allocation of non-Facebook data to their user account. The combination of data sources has been quite instrumental in Facebook's ability to create such a unique aggregate data set about each individual user and achieve its market power."
Facebook has a 95 percent share of the social media market with 23 million daily users in Germany. Mundt continued, "As a dominant company, Facebook is subject to special antitrust obligations and must take into account in the operation of its business model that Facebook users are practically unable to switch to other social networks."
Here's how Meta is responding
Meta is filing a lawsuit against the Federal Cartel Office's order. To prevent the conditions from applying immediately, Meta also applies for an emergency stay. The Düsseldorf Higher Regional Court (OLG) postpones a decision on the legality of the Federal Cartel Office's orders.
However, the OLG accedes to Meta's request for a stay and lifts the immediate enforcement of the orders. There are "serious doubts about the legality of the order" of the Federal Cartel Office.
June 2020: Federal Court of Justice upholds the decision
At the request of the Federal Cartel Office, an urgent decision is issued: The Cartel Senate of the Federal Court of Justice (BGH) sets aside the order of the Düsseldorf Higher Regional Court. The announcement of this urgent decision is made in a press release on June 23, 2020.
Facebook users cannot decide whether the "more intensive personalization of the user experience" should be based on data they disclose on Facebook.com or whether they want to give Meta potentially unrestricted access to their entire Internet usage data for this purpose.
According to the BGH, Facebook's personalized user experience is an "imposed service extension" because users can only purchase the desired service in combination with an undesired service. This is classified as anti-competitive because user data would be more and more exploited by the lack of choice. The ruling of the Federal Court of Justice is regarded as a leading decision under antitrust law on the abuse of market power in Germany.
These are the consequences
A final court decision on the orders of the Federal Cartel Office is still pending. However, Meta may not continue as before in the meantime. The comprehensive collection of user data must be stopped for the time being. Meta must also submit proposals to the Federal Cartel Office within the next four months on what a choice for users could look like.
This is how Meta and the Federal Cartel Office are reacting
Meta intends to continue defending its position. Spokespersons continue to emphasize that there is no abuse under antitrust law.
Andreas Mundt expresses his satisfaction with the course of the trial on tagesschau.de: "Data is a decisive factor for economic power and for assessing market power on the Internet." Antitrust intervention against the abuse of market power must therefore be possible in the case of unlawful collection and use of data, he said.
August 2020: Facebook compulsion for Oculus users
Meta announces that from October 2020, the use of new Oculus devices will require a Facebook account. It will no longer be possible to use newly commissioned VR headsets with an Oculus account alone. Oculus and Facebook accounts are paired when a device is first set up.
Those who already own an Oculus VR headset may continue to use them only with an Oculus account until January 1, 2023. After that, however, the pairing requirement will apply here as well. At this point, it is already clear that a new version of the standalone VR headset is coming.
These are the consequences
An official announcement of the Oculus Quest 2 (review) does not exist at this point. However, it is already clear that using a Quest 2 requires a Facebook account. Particularly precarious for German VR enthusiasts: There is still no final decision on the order of the Federal Cartel Office.
The BGH's emergency decision in June means that Meta may no longer commingle data from the group's own services. Also legally questionable is the connection of different products, like an Oculus headset and a social media account. The GDPR (Art 7, Para. 4) contains a prohibition of tying, which prohibits the collection of personal data for the conclusion of a purchase contract.
September 2020: Meta stops Oculus sales in Germany
On September 16, 2020, Meta announced the Oculus Quest 2 standalone VR headset in the livestream of its annual XR trade show Connect. Sales start on October 13, 2020 - but not worldwide: Meta stops the sale of Oculus headsets in Germany.
The company cites "discussions with regulatory authorities" as the reason. Meta temporarily suspended sales on their own initiative and not on the instructions of the authorities. When asked by MIXED, a spokesperson for the German Federal Cartel Office stated that no talks on the topic of Oculus had taken place between the office and Meta. The sales stop was "very surprising".
It is also clear that the special VR motion data that Meta can collect with Oculus devices would have provided additional fuel for the upcoming negotiations. Meta is the first company that can collect intuitive and unconscious motion data from people on a large scale and contextualize it with other profile data. Initial studies show that motion data can help identify and characterize people, serving to build even more detailed profiles.
These are the consequences
Retailers will no longer be resupplied effective immediately, although remaining stocks are still sold. VR customers from Germany have to order the devices from abroad. Meta does not guarantee whether imported devices "work as intended," but so far there have been no problems. Those who already own Oculus headsets and an Oculus account can continue to use them.
November 2020: adjournment of the main proceedings to 2021
A decision in the main proceedings between Meta and the Federal Cartel Office is still pending. A first oral hearing was scheduled for November 25, 2020. In response to an inquiry from MIXED, the Federal Cartel Office confirmed that this date was postponed to March 26, 2021.
A court spokesman for the Düsseldorf Higher Regional Court also confirmed this to antitrust law blog D'Kart. Both parties would need more time. Bundeskartellamt President Andreas Mundt told D'Kart:
"In view of the BGH's reasons for the decision, which were still outstanding at the time, we had suspended the execution of the decision until the end of November. As of Dec. 1, the deadlines are now running again and we expect proposals from Facebook in the coming months on how they intend to comply with our order in concrete terms. In addition, our colleagues are of course intensively engaged in preparing the oral proceedings."
These are the consequences
After the summary proceedings at the Federal Court of Justice in August, Meta had a deadline to submit proposals on what a choice for users would look like in the future to the Federal Cartel office within the next four months. The Federal Cartel Office suspended the deadline until the end of November shortly after the summary proceedings.
The postponement of the oral proceedings from November 2020 to the end of March 2021, also postpones Meta's deadline. Meta must therefore submit its proposals to the Federal Cartel Office by March 31, 2021, at the latest. A final verdict in the negotiations is also not certain. Experts expect the case could drag on until the end of 2021.
December 2020: Federal Cartel Office initiates abuse proceedings
In the meantime, the German Federal Cartel Office initiates further steps against Meta. An abuse proceeding examines the linking of Oculus devices such as the Oculus Quest 2 with Meta's social network.
Since October 2020, the data company has required users of Oculus VR headsets to link their Oculus and Facebook accounts. Andreas Mundt, President of the German Federal Cartel Office, sees account tying as a possible abuse of Meta's dominant position.
"Facebook [Meta] is dominant in Germany with its social network and is also already a significant player in the still young, growing VR market," Mundt is quoted as saying in a Federal Cartel Office release. He said that the intention is to investigate whether and to what extent the tie-up affects competition in the virtual reality and social media sectors.
January 2021: Quest 2 sales stop continues, possible WhatsApp Lawsuit
The sales stop of Oculus devices in Germany still holds. German users can only import Oculus devices like the Quest 2 from abroad and use them without restriction.
On March 26, 2021, there is an oral hearing in the main case against Meta regarding the group's data collection and data utilization practices. The Düsseldorf Higher Regional Court is then to decide whether Meta is abusing its dominant position. This delays the Oculus Quest 2 launch in Germany until no earlier than April 2021.
The initiation of abuse proceedings in the meantime, which specifically refers to the merging of Oculus and Facebook user accounts, could further delay the sales launch.
Depending on the outcome of the proceedings, many things could happen. Germany regulation could remove Meta's profile linking. A permanent sales stop of Oculus devices in Germany could result. If the German Federal Cartel Office stays true to its line in dealing with Meta, there could soon be a third proceeding - perhaps even at the EU level.
If WhatsApp users do not agree, they cannot continue using the service. This is a similar problem to the linking of Facebook and Oculus accounts.
The only difference is that the EU Commission already prohibited data exchange between WhatsApp and Facebook in 2014. That is why Meta spokespeople emphasize that new regulations would not apply to users in the EU and the UK.
February 2021: Change in law strengthens Federal Cartel Office
Changes to the "GWB Digitization Act" have been in force since January 19, 2021. Its new Section 19a enables the Federal Cartel Office to intervene in the event of digital groups (such as Meta) threatening competition.
It allows the office to temporarily prohibit companies with "particular cross-market significance for competition" from engaging in certain types of conduct. In the corresponding press release, the Federal Cartel Office lists examples of such conduct as the self-preferential treatment of the group's own services or obstruction of third parties' market access by withholding certain data.
In order to keep future decision-making processes short, appeals against decisions by the Office will come directly before the Federal Court of Justice. The first instance in antitrust proceedings, the Düsseldorf Higher Regional Court (OLG), will no longer apply. Meta filed an appeal there in 2019 against a ruling by the Federal Cartel Office.
The Düsseldorf Higher Regional Court then ordered a postponement of the injunction, preventing its enforcement. It was not until June 2020 that the Federal Court of Justice again declared the injunction legally binding. The Federal Cartel Office is now examining whether the new paragraph also applies in the abuse proceedings against Meta in the Oculus case.
An extension of the proceedings depends on whether Meta falls under the new regulations for companies with outstanding cross-market significance for competition. According to Federal Cartel Office President Andreas Mundt, such a position could be considered in view of Meta's strong market presence as owner of social networks Facebook, WhatsApp, and Instagram.
March 2021: Higher Regional Court hands the case over to the European Court of Justice
On March 24, 2021, the oral hearing in the main case of Meta against the Federal Cartel Office takes place at the Higher Regional Court in Düsseldorf. Now it is to be finally clarified whether the BKartA's order in February 2019 was lawful and Meta is indeed guilty of market abuse.
The OLG criticizes both the Federal Court of Justice and the Federal Cartel Office on several points. It said there was no substantiated evidence of Meta's abuse of power. Further, it is not clear which data Meta is now collecting unjustly and which is necessary to maintain services.
The Federal Cartel Office had not clearly differentiated this. Similarly, in the case of user data from Instagram or Oculus, there were no viable determinations as to whether Facebook actually forced users into services they might not want.
In addition to inaccuracies of the Federal Cartel Office, there was also an illegality, according to the OLG. The BKartA should not have sent its order simultaneously to Meta Inc. (USA), Meta Germany, Meta Ireland, and other companies affiliated with the group. The data processing concerned Meta Ireland alone - no other bodies had anything to do with the case.
Despite the detailed criticism of the Federal Cartel Office's actions and the argument of the Federal Court of Justice, the Düsseldorf Higher Regional Court does not pass judgment. Overall, the BKartA had relied too much on German law, although European law would actually apply in this case. In addition, it is unclear whether the Federal Cartel Office should have taken action at all.
It was possible in principle that an abuse of market power could be brought about by a breach of consumer protection standards. However, it could not be determined whether Meta actually violated the GDPR and whether the data protection authority in Ireland should not have intervened. These questions should now be clarified by the European Court of Justice (ECJ). A ruling by the ECJ is unlikely before 2023.
May 2022: BKartA finds Metas to be of overriding importance to competition across markets
More than a year passes before the German Federal Cartel Office can use the changes in the GWB Digitization Act. On May 4, 2022, the BKartA announces that it has formally proven Metas' superior cross-market importance for competition. Effective immediately, instruments of extended abuse control, introduced with Section 19a GWB in February 2021, apply to Meta.
Federal Cartel Office President Andreas Mundt said in a press release, "Meta's creation of a digital ecosystem with a very large number of users makes it the central player in the social media sector. According to our investigations, Meta is thus also a company of outstanding cross-market importance in the antitrust sense."
The BKartA will now be able to take action against any competition violations by Meta more efficiently than before. They can also intervene more quickly in the event of practices that endanger competition. Meta waives its right to appeal the BKartA's decision. This does not mean that the Group agrees with all the findings. For the next five years, Meta will now be subject to special abuse supervision by the Federal Cartel Office.