How Germany's anti-trust watchdog could change the way Facebook works

by Cathrin Schaer / 11 April, 2019
Reichstag. Photo/Getty Images

Germany’s parliament buildings in Berlin. Photo/Getty Images

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In the brave new world of the attention economy, a German regulator is intent on changing the way the social-media giant operates.

Outside, the sky is grey, it’s drizzling a miserable icy rain and passers-by are hidden under umbrellas. Inside this central Berlin hotel, the walls are grey, the carpet and curtains a muddy beige and the coffee is – typically German – bitter. Most of the 400 attendees at this International Conference on Competition are wearing black, and over two days of panels and debates, the most exciting sight is a single, slightly colourful PowerPoint presentation. Mostly, everybody just talks. And talks.

Welcome to the new and slightly unlikely front line in the fight against the evil that social media can do. It may not seem thrilling but, just a day before the horrifying events in Christchurch, during which murderous acts were live-streamed on social media, conference participants were discussing what to do about problems presented by the likes of Facebook.

In the hotel auditorium, there was nervous anticipation. “Competition law feels like a bit of a brave new world these days,” said Kristina Nordlander, a partner in Brussels legal firm Sidley Austin who specialises in the field.

Margrethe Vestager, the European Commissioner for Competition, talked about the need for authorities to be “more assertive” during this “new industrial revolution”. Just six days later, she would fine Google €1.49 billion (about NZ$2.45 billion) for violating EU competition rules. Another speaker, Daniel Ek, the co-founder and chief executive of music-streaming platform Spotify, told everyone “we are at a vital inflection point in history. These next few years are pivotal.”

Part of the reason the 400 or so assembled lawyers, judges and academics – a who’s who of international cartel law from more than 60 countries, ranging from Sweden and South Africa to China – are talking about Facebook and Instagram like giddy schoolkids might be that the biennial event is hosted by Germany’s Federal Cartel Office. And just over a month ago, this national competition regulator, also known as the Bundeskartellamt, issued a groundbreaking decision against Facebook that could significantly change the way the US-based social-media giant works. It was a world first, and experts say that if the decision is approved, it could amount to a sort of internal break-up of the company’s data-gathering processes. There were no multibillion-euro fines involved; simply a German directive telling Facebook to stop what it describes as “exploitative abuse”.

Mark Zuckerberg. Photo/Getty Images

Facebook chief executive Mark Zuckerberg. Photo/Getty Images

“Attention economy’

To understand why the world’s competition authorities are carefully watching this case, a closer look at how Facebook and other social-media platforms work is required.

These platforms operate as part of the “attention economy”: you sign up to the service for free and in return, you show the platform operator – say, Facebook – what you like and what you don’t, where you holidayed and what sort of sports you watch, among other things. The platform operator then uses that information to send you advertising targeting your tastes. The longer your attention lingers and the more you engage with content on the platform (clicks, likes, comments, watching video), the more information the platform has about you and the more information it can sell to advertisers and other clients. That’s how the platform makes money with a “free” service: you “pay” with your data, it’s paid for by advertisers.

Over the past few years, this business model has evolved and it has started to feel a little like the deal you signed was with some sort of digital devil. Platforms such as Facebook, YouTube and even Twitter, known in the competition world as “data-opolies”, want to keep you online and engaged, so they use software – specifically, algorithms – to bring you more content that encourages this. Unfortunately, that attention-getting content has gone from cute, fluffy kittens to something more extreme. Now, you can be watching a news item about migration one minute, then the next you’re listening to speakers from UK far-right parties and then actual neo-nazis. And while you look on, whether you’re shocked, intrigued or overjoyed, the platforms harvest your metadata to make money.

“The data-opolies make the rules, and no matter who wins or loses, they profit. The more data they have, the more money they can attract,” is how one conference panel member, Maurice Stucke, a US law professor and co-author of the seminal 2016 book Big Data and Competition Policy, puts it.

In her book The Age of Surveillance Capitalism: The Fight for a Human Future at the New Frontier of Power, author and Harvard professor Shoshana Zuboff says, “Digital connection is now a means to others’ commercial ends. At its core, surveillance capitalism is parasitic and self-referential.”

Author Shoshana Zuboff. Photo/Supplied

“Making vast fortunes”

For some time now, analysts such as Zuboff and Stucke have argued that this evolution in social media has been too little regulated. Recent events, such as those in Christchurch as well as horrors in other countries, have led to an ever-louder chorus from politicians and the public alike, who want social-media giants brought to order.

“There’s a crisis of legitimacy,” Andrew Tyrie, head of the UK’s Competition and Markets Authority, said in Berlin. “The public … feel they are being exploited. And the digital economy amplifies this erosion of trust. [The public] have the sense that they are being manipulated, their data is being harvested while a handful of people are making vast fortunes. And I think they’re probably right.”

The Bundeskartellamt started what it calls an “administrative proceeding” against Facebook in early 2016. It wasn’t necessarily a popular decision among anti-trust lawyers at the time, but the agency, considered one of the world’s leading cartel authorities, has traditionally had slightly broader definitions about what it can police than counterparts elsewhere. This is partially the result of contemporary political attitudes – there was growing scepticism in Germany about Gafa (Google, Amazon, Facebook and Apple) at the time – and also history: when it was founded in 1958, it was supposed to prevent the re-emergence of the cartels that had made Germany such a dominant economic power before the world wars.

In February, after three years’ work, the Bundeskartellamt issued the decision against Facebook. In it, the Germans say Facebook should not be collecting users’ data from different sources, and combining it. Facebook harvests data from more places than you might think: from Facebook itself, but also from the Facebook-owned WhatsApp messaging service and from Instagram, as well as – surprise! – any site that uses Facebook’s software. So, that’s basically any website with a Facebook “Like” or “Share” button, anything from your neighbourhood cafe to the local rugby club, and that counts whether you’re logged into Facebook at the time or not. Facebook then takes all that information and combines it with your Facebook profile to paint a disturbingly precise data portrait of you.

It sounds intrusive. But try to opt out and you will eventually be confronted with a notice telling you that if you opt out of the data harvesting, you may no longer use Facebook’s services. And, of course, because there is only one service like Facebook, and all your friends are on it, you stay.

Margrethe Vestager, European Commissioner for Competition; and Andreas Mundt, German Federal Cartel Office president. Photo/Getty Images

According to the Germans, that’s the problem. “Because of Facebook’s market power, users have no option to avoid the combination of their data,” the Bundeskartellamt’s statement on the case explains. Apart from selling the information to advertisers, Facebook can use that data “to optimise its own service and tie more users to its network”, so it effectively becomes even more powerful, a beneficiary of the so-called network effect.

All this means a hugely dominant company can exploit its position in the market to abuse its customers (who have no other choice) and buy up any potential competitors, such as WhatsApp, before they become challengers (known as “killer acquisitions”).

Facebook is contesting the Bundeskartellamt’s decision. But if the German courts upheld it, then, rather than reactively fining Facebook or forcing it to shut down extremist content and censor hate speech, this will proactively disrupt Facebook at a basic level.

“The German cartel office is doing really important work, because it has associated the problem of privacy with the problem of monopoly and market power,” says Matt Stoller, a fellow at the Open Markets Institute in Washington. He says: “The scale of the problem is enormous, and I personally don’t think this is enough.”

Stoller regularly advocates that Facebook and other giants be broken up, noting that they have flouted many rules in pursuit of profit. “It’s a pretty aggressive approach, although I think it will be seen in retrospect as incredibly mild.”

Asked what he would like to see happen, Bundeskartellamt head Andreas Mundt told the Listener: “We need some kind of structure where the platform and the services are separate. That is, the platform is quasi-neutral. But that may be looking into the distant future.”

Andrew Tyrie, head of the UK’s Competition and Markets Authority; Matt Stoller, Open Markets Institute fellow; Chris Noonan, University of Auckland associate law professor. Photos/Supplied

Andrew Tyrie, head of the UK’s Competition and Markets Authority; Matt Stoller, Open Markets Institute fellow; Chris Noonan, University of Auckland associate law professor. Photos/Supplied

International attention

For New Zealanders, still coming to terms with the Christchurch murders, the question must also be whether this pretty distant German legal case could help prevent some of the horrible social-media-related aspects of the past few weeks. Could it prevent extremists from communicating, or radicalising others? Would it stop them from live-streaming acts of brutality?

If the case is successful, it could affect New Zealand law, says Chris Noonan, an associate law professor at the University of Auckland and author of the book Competition Law in New Zealand. “The German Facebook case has attracted international attention and the relationship between competition law and privacy has been much discussed,” he says.

“New Zealand courts often rely on competition-law decisions from other jurisdictions – decisions from Australia, the EU, the UK and the US are often cited. So, the Facebook case may affect the policy environment, even if a similar outcome is not possible under New Zealand competition law.”

Germany changed its competition law in June 2017 to make data one of the ways in which market power can be measured. New Zealand is not as far ahead.

But people are paying attention in this country. Noonan says digital services are a major focus of this year’s biennial Competition Matters conference organised by the Commerce Commission, the body that oversees this country’s mergers and monopolies.

And as Berlin-based lawyer Peter Stauber wrote last year, the case could have wider ramifications in the long run. “The outcome of the proceedings will be pioneering in many ways. Facebook could be forced to adapt its data privacy provisions to the requirements of [German] competition law. But what would be more serious would be the establishment of strict conduct requirements linked to market domination, which could be the starting point of future abuse proceedings.”

Maurice Stucke, US law professor; Scott Morrison, Australian PM; Elizabeth Warren, US Democratic presidential candidate. Photo/Supplied

Maurice Stucke, US law professor; Scott Morrison, Australian PM; Elizabeth Warren, US Democratic presidential candidate. Photo/Supplied/Getty Images/Getty Images

Addictive user interfaces

The European Commission, an EU institution responsible for proposing legislation, implementing decisions, upholding EU treaties and managing the EU’s day-to-day business, has already talked about starting a similar case, as have the British. In the US, politicians such as Democratic presidential candidate Elizabeth Warren are calling for the Federal Trade Commission to look at the issue. The Australian Competition and Consumer Commission has also held an inquiry into digital platforms. And in the wake of the Christchurch terror video, Australian Prime Minister Scott Morrison floated tough new criminal laws to crack down on social media.

However, for now, the sad but ultimately realistic answer for New Zealand is that this will probably not prevent some of the social-media-related abuse of recent weeks. “I’m not sure it would address the use of these platforms to radicalise,” Stoller of the Open Markets Institute says. “The only way to stop that would be to eliminate advertising as a business model, which we should do. That way, these platforms would have no incentive to retain customers, so they wouldn’t build in addictive user interfaces that prioritise inflammatory content.”

It’s all about the “free service”, says law professor Stucke. “Look at the difference between YouTube and Netflix [a paid service]. Because YouTube uses an advertiser-driven model, its motivation is to keep you watching.”

Bundeskartellamt president Mundt: “We have a lot to do. Competition law is a very important part of this, but it won’t solve all the problems. Everything we do with Facebook now is just one step on a much longer journey, because in the future, we need to be far more involved in this area. But first of all,” he says, smiling wryly, “we’d just like Facebook to respect this decision.”

This article was first published in the April 6, 2019 issue of the New Zealand Listener.

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