...sharing misleading information
The European Commission (EC) has filed charges against Facebook over allegations that the social network provided misleading information during its acquisition of instant messaging app WhatsApp.
It is claimed that a recent change to data sharing between the two services shows that Facebook misled the EC during its merger investigation in 2014, as the company claimed that the technology to link the accounts did not exist.
With the threat of a fine imminent, Luke Corcoran – specialist in Commercial Law – explains the complexities surrounding a merger and outlines how Facebook will likely respond to a fine from the EC.
Facebook acquired the WhatsApp messaging service in 2014, at which time Facebook told the EC that it would be impossible to match users’ accounts between the two services.
However, a WhatsApp update in August this year took the unprecedented move of linking a user’s Facebook and WhatsApp accounts, so that the two services could share data and target specific ads to users across both platforms.
The EC claim that the change to policy terms shows that Facebook misled their merger investigations in 2014.
There are strict EU rules on mergers, with the Council Regulation (EC) No. 139/2004 providing a legal basis for EU Merger Control. As part of EU regulations any mergers or acquisitions that could significantly reduce competition in the Single Market are prohibited.
The EC will then investigate details of the merger, with a two phase process coming before a final decision is made by the Commission.
While the EC is not attempting to reverse the merger, it is thought that they may fine Facebook 1% of its turnover, which would represent a huge fine, similar to that passed to Apple by the EC earlier this year after it was alleged that they had paid less than 1% tax to Ireland on their European profits.
Availability of technology
The basis of the EC’s claim that they were misled by Facebook in the run-up to the merger centres on the availability of the technology that links user accounts between Facebook and WhatsApp.
If it is found that Facebook knew, or suspected that, the technology could be implemented prior to their acquisition then it is claimed that they willingly, or inadvertently, misled the EC.
The filing of charges by the EC could be the first sign that a long-running saga is coming to an end, as since the WhatsApp update in August there have been a string of challenges for Facebook.
Just a month after the update, Germany ordered that Facebook stop collecting WhatsApp user data; another month after this blow, European regulators asked that the sharing of user data is paused, an order that Facebook abided by in early November.
As Luke explains, the EU rules on mergers are complex; however it is likely that Facebook will appeal any subsequent fine that arises from this charge:
“This is yet another story of the European Commission trying to take a large multinational firm to task over alleged improper or unfair tactics.”
“EU rules on large-scale mergers or acquisitions are complex and require businesses to think carefully about how any post-deal expansion could change any circumstances or promises that were in place during the initial EC investigation.”
“Much like the €13billion fine passed to Apple by the EC, this ruling is centred on an ideal that the Single Market should represent a level playing field for businesses, both big and small.”
“Beyond providing misleading information, the EC could claim that Facebook have cornered off a monopoly for its advertising revenue if it can tap into WhatsApp user data; based on statistics for last year, this would represent 33% of all internet users in Europe.”
“As the focal point for any charge would be whether the technology existed in 2014, when the acquisition took place, it is likely that Facebook would be able to lodge an appeal to any subsequent fine, which could run into hundreds of millions of Euros.”
“The burden of proof would fall to the EC, who would have to show that Facebook actively knew, or should have at least been aware, that the technology to link Facebook and WhatsApp accounts was available before they made their acquisition.”
Written by Luke Corcoran.
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