As antitrust scrutiny of Google, Amazon, Facebook and Apple has ramped up on both sides of the Atlantic, it looks increasingly plausible that regulators might seek to break up the tech giants.
Germany’s Federal Cartel Office (or Bundeskartellamt, to give it its proper name) is exploring a similar, but gentler remedy. Instead of breaking up the tech companies wholesale, the FCO wants to stop these large conglomerates from freely passing data between their different consumer-facing businesses.
Facebook has been the FCO’s main target so far. In 2019, the competition watchdog ordered Facebook to change the ways it uses personal data. The FCO took issue with how Facebook passes user data between Facebook, Instagram, Messenger, and Whatsapp, while also sharing it with third-party websites.
The regulator ordered that Facebook must start collecting explicit consent from its users for their data to be shared between Facebook’s owned and operated services. And Facebook wasn’t allowed to block access to any of its services for users who didn’t consent to this data sharing, under the ruling.
The FCO’s decision quickly hit roadblocks, as Facebook appealed.
The regulator had originally given Facebook 12 months to comply with the ruling before it would start taking action. But in August 2019 a German regional court suspended this timeline, taking issue with the FCO’s framing of data sharing as a competition issue, rather than a privacy issue.
Now however the ruling is back on the table, as the German Federal Court of Justice overturned the regional court’s ruling last year.
That’s not to say the issue is resolved. Facebook is still appealing the initial ruling, with hearings set to take place this month. And it’s likely the case will land before the Federal Court of Justice, and perhaps even the European Court of Justice, before it’s fully resolved.
A possible blueprint for regulators
If the FCO’s decision does eventually come into force, it could lay out an interesting blueprint for other regulators to follow.
This separation of data between different products could help remedy some of the biggest industry complaints against all the tech giants, not just Facebook.
For example one common qualm with Google’s privacy moves is that they will benefit businesses with large sets of first-party data. And Google’s ability to combine first-party user data picked up across Search, YouTube, GSuite, Google Home, and Google TV is extremely hard to compete with.
Each of these properties would still be pretty formidable in their own right. But preventing Google from sharing user data between these services could at least dampen Google’s competitive advantage.
Jason Kint, CEO of Digital Content Next, a trade association for digital media companies, said the FCO ruling is one he regularly cites as a potential path for reigning in big tech.
“In the absence of breaking them up, it’s an interesting way to enforce business separation in the area where they abuse consumer expectations,” said Kint. “If data is the source of the duopoly’s power (our 2015 thesis), then this directly attacks the problem.”
“I would lean into this hard in the context of Google’s Privacy Sandbox, antitrust concerns and the considerations for gatekeepers in the European Commission’s new Digital Markets Act,” added Kint.
One potential benefit of this strategy is it’s easier for an individual country’s regulator to enforce. If the German Federal Cartel Office ordered Facebook to break up its business, Facebook would likely just exit the German market. But this smaller scale alternative, which can be applied on a market-by-market basis, is more realistic.
Professor Tommaso Valletti, head of economics and public policy at Imperial College London, emphasised that pushback from the tech companies and their extremely well-funded lobbyists will cause big delays. Even for the EU-wide Digital Markets Act, which seeks to better regulate the biggest tech companies, Valletti anticipates progress will be slow. For an individual regulator within a single market, progress will be even harder
DCN’s Jason Kint referenced how the EU’s General Data Protection Regulation should theoretically provide a strong platform for the FCO’s approach, laying out rules for explicit consent collection. But he said that “thus far Google has steamrolled over the purpose limitations of GDPR.”
Nonetheless, both Kint and Valletti said the FCO’s approach to regulation is an interesting one. And while the tech giants will contest the anti-competitive complaint aspect of the FCO’s ruling, Valletti added that taxing or limiting data sharing would be well grounded in standard economic theory.
Any data sharing between different businesses risks data leakage, an unintended negative consequence which in economic terms would be called a ‘negative externality’. And it’s very commonplace to tax or limit businesses as a way of handling negative externalities (like pollution, for example).
Thus, the FCO’s ruling could be justified even without the need to prove that internal data sharing within the biggest tech companies is anticompetitive.
