Is Facebook liying?

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Is Facebook liying?

The European Commission has sent a Statement of Objections to Facebook alleging the company provided incorrect or misleading information during the Commission’s 2014 investigation under the EU Merger Regulation of Facebook’s planned acquisition of WhatsApp.

Competition Comissioner Vestager recalled that:

“Companies are obliged to give DG COMP accurate information during merger investigations. They must take this obligation seriously. Our timely and effective review of mergers depends on the accuracy of the information provided by the companies involved. In this specific case, the Commission’s preliminary view is that Facebook gave us incorrect or misleading information during the investigation into its acquisition of WhatsApp. Facebook now has the opportunity to respond.”

When reviewing Facebook’s planned acquisition of WhatsApp, DG COMP’s officials looked, among other elements, at the possibility of Facebook  matching its users’ accounts with WhatsApp users’ accounts. In its notification of thetransaction in August 2014 – and in a reply to a request of information – Zuckerberg’s lawyers indicated to the Commission that the company would be unable to establish reliable automated matching between the two social media’s user accounts. While the Commission took this information into account in its review of the transaction, it did not only rely on that information when clearing the transaction.

In August 2016, WhatsApp announced some updates to its terms of service and privacy policy, claiming the possibility of linking WhatsApp user phone numbers with Facebook user identities. WhatsApp explained that this was done with a view to improving the service by, for example, allowing Facebook to offer better friend suggestions or displaying more relevant ads on WhatsApp users’ Facebook accounts.

The Commission Statement of Objections takes the preliminary view that, contrary to Facebook’s statements and reply during the merger review, the technical possibility of automatically matching Facebook users’ IDs with WhatsApp users’ IDs already existed in 2014.

At this stage, the Commission has therefore concerns that Facebook intentionally, or negligently, submitted incorrect or misleading information to the Commission, in breach of its obligations under the EU Merger Regulation.

A company’s obligation to provide correct and non-misleading information in a merger investigation is obviously essential for DG COMP to review mergers and takeovers effectively. Notifications and information requests are the primary sources of information for the Commission’s review of such transactions. Under the tight deadlines of a merger investigation, it is particularly important that the case handlers can rely on the accuracy and completeness of the information provided, regardless of whether it has an impact on the outcome of the assessment.

According to our information, the current investigation is limited to the assessment of breaches of procedural rules and – as the Commission’s October 2014 decision to clear Facebook/WhatsApp was based on a variety of factors going beyond the possibility of matching user accounts, – it shall not have an impact on that decision, which remains effective. Our sources also confirm that the current investigation is also unrelated to neighbouring privacy, data protection or consumer protection issues.

Menlo Park’s based company has now until 31st January 2017 to respond to the Statement of Objections. If DG COMP’s preliminary concerns in this case were confirmed, the Commission could, impose a fine of up to 1% of Facebook’s turnover. In August 2014, Facebook notified DG COMP its plans to acquire WhatsApp. Two months later, the Commission cleared the proposed acquisition assessing the impact of the transaction on markets for consumer communications services, social networking services and online advertising services.

With respect to consumer communications services, DG COMP established, based on available information, 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 that case.

As regards social networking services, the Commission could conclude 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, if anything, distant competitors.

The transaction raised also no competition concerns with respect to online advertising, as – regardless of whether Facebook would introduce advertising on WhatsApp and/or start collecting WhatsApp user data for advertising purposes – a number of alternative providers besides Facebook would continue to offer targeted advertising after the transaction and a large amount of internet user data that are valuable for advertising purposes are not within Facebook’s exclusive control.

A Statement of Objections is a mere formal step in an investigation, by which the Commission informs the companies concerned of the objections raised against them. The companies have then the right to examine the documents, reply in writing and request an oral hearing to present their comments on the case to representatives of the Commission and the national competition authorities.

While under the merger regulation DG COMP has to respect strict deadlines, this kind of inquiry has no legal deadline and its duration depends on a number of factors, including the complexity of the case, the extent to which the companies concerned co-operate with the Commission and the exercise of the rights of defence.

We shall thus expect, beginning of next year, some interesting news from Zuckerberg lawyers…

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