: The fate of Facebook’s business model may lie in the hands of the European Union supreme court

United States

The supreme court of the European Union has been drawn into a German battle over whether Facebook’s broad collection of user data is in breach of competition rules, in a landmark challenge threatening the viability of the technology giant’s business model.

The decision will be closely watched on both sides of the Atlantic amid a global effort to regulate Big Tech that has picked up speed over the past year.

The case involving the German competition regulator, the Bundeskartellamt, represents a unique nexus between privacy and competition laws. The regulator has effectively used data protection regulations as a method of challenging Facebook’s market power.

The Higher Regional Court in Düsseldorf said on Wednesday that it would ask the Court of Justice of the European Union (ECJ) to issue an opinion on whether the competition regulator was right to determine that Facebook FB, -2.92% was in breach of the EU’s data protection rules, called the General Data Protection Regulation (GDPR).

The court in Düsseldorf said it could only issue a decision on the fate of Facebook’s broad collection of user data after the ECJ weighs in, effectively putting a hold on a verdict until the Luxembourg-based court has its say.

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“The question of whether Facebook is abusing its dominant position…because it collects and uses the data of its users in violation of the GDPR can not be decided without referring to the ECJ,” said the court, chaired by Prof. Dr. Jürgen Kühnen, in a written statement that has been translated.

Wednesday’s hearing is just the latest development in a case that stretches back to February 2019, when the Bundeskartellamt ordered Facebook to curb its data collection.

The regulator said at the time that the social media giant abused its market position by harvesting user data across its platforms, including WhatsApp and Instagram, as well as from third-party services. Facebook was given a year to seek users’ consent for the company to combine personal data across platforms.

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The social media giant appealed, and the Higher Regional Court in Düsseldorf suspended the Bundeskartellamt’s order. The regulator appealed to the Federal Court of Justice in Karlsruhe, a higher body, which then overruled the Düsseldorf court’s decision in June 2020 and reinstated the order until the case was settled.

The case returned to Düsseldorf, where the original question of whether the competition regulator was right in deciding that Facebook’s collection of user data is anticompetitive moved a step closer to being settled on Wednesday.

One of the reasons the Bundeskartellamt’s challenge against Facebook is so meaningful is that it threatens one of the pillars of Facebook’s business model: selling comprehensive user profiles to advertisers. If the social media giant is unable to combine user data from across its platforms, as well as third parties, its ability to create comprehensive profiles will be hampered.

“Today, the Düsseldorf Court has expressed doubts as to the legality of the Bundeskartellamt’s order and decided to refer questions to the Court of Justice of the European Union,” Facebook said in a statement to MarketWatch. “We believe that the Bundeskartellamt’s order also violates European law.”