The European Commission has decided to fine Facebook with 110 million euros for supplying misleading information during the Commission’s investigation under the EU Merger Regulation of Facebook’s acquisition of WhatsApp.
The fine is the outcome of the investigation opened by the Commission after Facebook’s announcement, in August 2016, of the update in WhatsApp’s terms of service and privacy policy, including the possibility of linking WhatsApp users’ phone numbers with Facebook users’ identities. Thus, Facebook would improve the service by, for example, allowing it to offer better friend suggestions or displaying more relevant ads on WhatsApp users’ Facebook accounts.
During the 2014 merger review process Facebook stated that it would be unable to establish the technical possibility of automatically matching Facebook and WhatsApp users’ identities. However, in the Statement of Objections (SO), the Commission found that, contrary to Facebook’s statements, actually this possibility already existed in 2014 and in fact Facebook’s staff were aware of it.
In setting the amount of the fine, the Commission has considered that Facebook committed two separate infringements by providing incorrect and misleading information: in the merger notification form and in the reply to a Commission’s request for information. The Commission concludes that these infringements are serious because they prevented it from having all relevant information for the assessment of the transaction, and Facebook’s breach of procedural obligations was at least negligent.
Nonetheless, the Commission has also considered the existence of mitigating circumstances, notably the fact that Facebook cooperated with the Commission during the procedure. In particular, Facebook acknowledged its infringements of the EU Merger rules in its reply to the SO and waived its procedural rights to have access to the file and to an oral hearing. Furthermore, it is understood that the company will not appeal the fine.
The Commission insists that this fining decision has no impact on the Commission’s October 2014 decision to authorize the transaction. The Commission has always stated that the clearance decision was based on a number of elements going beyond automated user matching (the Commission highlights that at the time of the assessment, it also carried out an ‘even if’ assessment that assumed user matching as a possibility). Therefore, the Commission considers that, although relevant, the incorrect or misleading information provided by Facebook did not have an impact on the outcome of the clearance decision.
One could argue that the lenient profile taken by the Commission in Facebook/WhatsApp’s merger review had an impact which cannot be compensated now with a fine.
This is specially so if we consider the (not really deterrent) amount of the fine, which is far below 1% of the transaction value, i.e., it could be considered reasonable in order to avoid the complexity and duration of a Phase II and the proposal of commitments.
From this Blog we already shared our surprise two years ago when the merger was cleared in just one month, taking into account the features of the case. On the one hand, the fact that the merger affected a combined amount of 1,7 billion users worldwide and 300 million users in Europe, with very high market shares worldwide (and extremely high at a regional level and national level in some Member States). On the other hand, the strong position which Facebook would enjoy in the online advertising market thanks to WhatsApp acquisition, because it allowed access to approximately 600 million users personal data (around 1 billion today).
Now it seems that the Commission was mistaken not only in considering unlikely that WhatsApp would become a source of user data valuable for advertising purposes. It is not also clear that a proper analysis on data-related markets was carried out by the Commission, taking into account that data-related markets are nowadays much more complex and go beyond the simple provision of online advertising. As we already said in our last post regarding WhatsApp’s privacy policy change, the Commission was focused on the monetary transactions only and disregarded the non-monetary exchanges produced in the digital environment, where free services are provided against “data compensations”. These new business models give raise to new forms of analysis where data is considered not just an asset but also a sui generis currency.
The issues related to the WhatsApp’s change of its privacy policy are not only associated to the merger. The German data protection authority required WhatsApp to refrain from sharing its users’ data with Facebook last September. Recently, the Italian competition and consumer protection authority (AGCM) has fined WhatsApp with 3 million euros for inducing its users to accept the already mentioned terms of service and privacy policy. From AGCM’s point of view, WhatsApp made its users believe that, if they did not subscribe to the new terms within 30 days, they would not be able to use the service anymore; on the other hand, in order to influence its users’ decision, WhatsApp preselected the option to share their data (opt-in), while the option of not to give their consent was not immediately available.
Telefonica welcomes the evolution of the Commission in the analysis of such kind of transactions, although we consider there is a long path ahead in improving merger analysis in digital ecosystem.
