The European Commission has fined Facebook €110 million for
providing incorrect or misleading information during the Commission’s 2014
investigation under the EU Merger Regulation of Facebook’s acquisition of
WhatsApp.
Commissioner Margrethe Vestager, in charge of
competition policy, said that the ‘decision sends a clear signal to companies
that they must comply with all aspects of EU merger rules, including the
obligation to provide correct information. And it imposes a proportionate and
deterrent fine on Facebook. The Commission must be able to take decisions about
mergers’ effects on competition in full knowledge of accurate facts’.
The EU
Merger Regulation obliges companies in a merger investigation to
provide correct information that is not misleading. The obligation applies
regardless of whether the information has an impact on the ultimate outcome of
the merger assessment.
When Facebook notified the acquisition of WhatsApp in 2014,
it informed the Commission that it would be unable to establish reliable
automated matching between Facebook users’ accounts and WhatsApp users’
accounts. It stated this both in the notification form and in a reply to a
request of information from the Commission. However, in August 2016, WhatsApp
announced updates to its terms of service and privacy policy, including the
possibility of linking WhatsApp users’ phone numbers with Facebook users’
identities.
On 20 December
2016, the Commission addressed a Statement of
Objections to Facebook detailing its concerns.
The Commission has found that, contrary to Facebook’s
statements in the 2014 merger review process, the technical possibility of
automatically matching Facebook and WhatsApp users’ identities already existed
in 2014, and that Facebook staff were aware of such a possibility.
The decision to fine has no impact on the Commission’s
October 2014 decision to authorise the
transaction under the EU Merger Regulation. Indeed, the clearance
decision was based on a number of elements going beyond automated user
matching. The Commission at the time also carried out an ‘even if’ assessment
that assumed user matching as a possibility. The Commission therefore considers
that, albeit relevant, the incorrect or misleading information provided by
Facebook did not have an impact on the outcome of the clearance decision.
The latest decision is unrelated to either ongoing national
antitrust procedures or privacy, data protection or consumer protection issues,
which may arise following the August 2016 update of WhatsApp terms of service
and privacy policy.
The fine
According to the Merger
Regulation, the Commission can impose fines of up to 1% of the aggregated
turnover of companies, which intentionally or negligently provide incorrect or
misleading information to the Commission.
In setting the amount of a fine, the Commission takes into
account the nature, the gravity and duration of the infringement, as well as
any mitigating and aggravating circumstances.
Facebook committed two separate infringements by providing
incorrect and misleading information in the merger notification form and in the
reply to a Commission request for information. The Commission considers that
these infringements are serious because they prevented it from having all
relevant information for the assessment of the transaction.
Moreover, the Commission considers that Facebook staff were
aware of the user matching possibility and that Facebook was aware of the
relevance of user matching for the Commission’s assessment, and of its obligations
under the Merger Regulation. Therefore, Facebook’s breach of procedural
obligations was at least negligent. The Commission has also considered the
existence of mitigating circumstances, notably the fact that Facebook
cooperated with the Commission during the procedural infringement proceedings.
In particular, in its reply to the Commission’s Statement of Objections,
Facebook acknowledged its infringement of the rules and waived its procedural
rights to have access to the file and to an oral hearing. This allowed the
Commission to conduct the investigation more efficiently. The Commission has
taken Facebook’s cooperation into account in setting the level of the fine.
On
the basis of these factors, the Commission has concluded that an overall fine of
€110 million is both proportionate and deterrent.
Background
This is the first time that the
Commission has adopted a decision imposing fines on a company for provision of
incorrect or misleading information since the entry into force of the 2004 Merger Regulation. Past Commission decisions in this
regard were adopted under the 1989 Merger Regulation in accordance with
different fine-setting rules.
The
Facebook/WhatsApp merger case
In
August 2014, Facebook, which is active in social networking, consumer
communications and online non-search advertising services, notified the
Commission of its plans to acquire the consumer communications services
provider WhatsApp.
The Commission cleared the transaction on 3 October 2014, after
assessing its impact on the internal market in relation to the following
services:
(i)
Consumer communications services: the Commission found that Facebook Messenger
and WhatsApp were not close competitors and that consumers would continue to
have a wide choice of alternative consumer communications apps post-merger.
Although consumer communications apps are characterised by network effects, the
investigation showed that a number of factors mitigated the network effects in
this case.
(ii)
Social networking services: the Commission concluded that, no matter what the
precise boundaries of the market for social networking services are, and
whether or not WhatsApp is considered a social network, the companies are
distant competitors.
(iii)
Online advertising: the Commission concluded that, regardless of whether
Facebook would introduce advertising on WhatsApp and/or start collecting
WhatsApp user data for advertising purposes, the transaction raised no
competition concerns. This is because, besides Facebook, a number of
alternative providers would continue to offer targeted advertising after the
transaction, and a large amount of internet user data that are valuable for
advertising purposes not within Facebook’s exclusive control would continue to
exist.
With
respect to all three services the Commission carried out its competitive
assessment also assuming a scenario where automated user matching would be
possible. It concluded that, even in this scenario, its conclusions as to the
lack of anti-competitive effects of the proposed transaction would stand.
Laurence Eastham writes:
Nobody can seriously argue with this Commission action. If
the ‘misleading’ information was judged under English law, at least one
individual might be facing a fraud prosecution, which might have been a more
effective remedy than this eye-watering but highly bearable fine.
Those in the tech law community still firmly in the
Remoaning camp must continue to wonder about how this would be handled
post-Brexit.
