There is no such thing as free lunch... Facebook fined by GVH

There is no such thing as free lunch... One of the highest fine ever imposed in a consumer protection proceeding in Hungary, the brief introduction of the recent Facebook decision of the Hungarian Competition Authority

According to the recent resolution of the Hungarian Competition Authority Facebook Ireland Ltd. has infringed the provisions of the act on the prohibition of unfair commercial practices against consumers by advertising its services as free of charge on its site between January 2010 and August 2019 and in its Help Centre between January 2010 and October 2019. Though Facebook users did not have to pay effective cash for the services in question, yet Facebook benefited economically from the user’s data and activities on the platform, with which the users were paying for the services provided by the company.

After the examination of the details of the case the Hungarian Competition Authority imposed a fine of EUR 3.6 million in total, which is considered to be one of the highest fine ever imposed in a

consumer protection proceeding under Hungarian jurisdiction.

The value of information has been revaluated in our digital age, thus became the data, especially the personal data one of the most valuable and marketable resources of our time. Personal data, consumer preferences[1] and other user-generated contents possessing de facto economic value have become the main source of revenue of the “tech giants” such as Google or Facebook of our time. Taking into account these economic shifts, consumers have to be able to practice their rights related to the protection of their data more than ever.

Tech giants have often been targeted by the recent competition proceedings, not only in Europe, but also in the United States.[2] Hungary, with the recent decision of the Hungarian Competition Authority toed the line. The Hungarian Competition Authority initiated competition supervision procedure against Facebook Ireland Ltd[3] in October 2016, on the presumption that the company resorts a hint on its opening site referring to the gratuitous nature of Facebook’s service.[4] Until this procedure there has been no competition supervision procedure initiated against Facebook under Hungarian jurisdiction and no administrative or judicial procedures has been in progress parallel in the subject.[5]

In the course of the proceeding the Hungarian Competition Authority introduced the characteristics of the so-called zero price business conducts. The essence of these business conduct, resorted also by Facebook is that the conduct attracts users with the content of Facebook’s online platform and during the time the users spend on the platform, the platform operator collects detailed information about the user’s preferences and purchasing habits. Facebook then uses the collected information to sell targeted advertising solutions to its clients, which paid advertisements will appear among the posts of the targeted users.[6]

On the basis of a reasonable suspicion that the slogans ‘It's free and anyone can join’ and ‘Free and always will be’ used by Facebook may distract the attention of Facebook users from the fact that, there is an offset for the company’s services, the authority started to examine the details of the business conduct. During the proceeding the Hungarian Competition Authority examined the supply and the demand sides of the relevant market in details, called upon its previous judicial practice and highlighted that it is a matter of consumer interest – rather than a mere data protection question – that the consumer shall dispose personal data and should be able to control and foresee how a platform operator handles consumer data.

In addition, the authority also explained that certain commercial practices are especially capable to deceive consumer decisions, especially such conducts, during which the service provider communicates its service as free of charge. The authority stressed that in case a company communicates its service as free of charge, a reasonably thinking consumer shall not foresee any arising expenses in connection to the usages of the service. Moreover, such dominant expressions as “gratuitous” or “free of charge” are capable in themselves to determine the consumer’s interpretation and thereby able to provide basis for the consumer’s decision, irrespectively the auxiliary communication about the service in question.

The authority also emphasized that the time spent on Facebook results that the platform operator will acquire more and more detailed information about the consumer preferences of the users, thereby the clients resorting the targeted advertisement services of Facebook will be able to bombard the potential consumers with fine-tuned commercial messages via the platform. In the end, the potential clients of the company are keen to pay more for the more sophisticated way of targeted advertising, thereby the platform provided by Facebook becomes more and more valuable, the consumer preferences and personal data of the Facebook users directly generate higher revenues for the company.[7]

The Hungarian Competition Authority also noted during the proceeding that the possibility of the data processing was not transparent for the consumers on the basis of the documentation, especially under the data processing regulation and Facebook’s “Legal and Liability Declaration”.

The defence and the reasoning of Facebook was based on the gratuitous nature of its accessibility and on its strive on to provide the best available user experience. According to the opinion of the company the Hungarian Competition Authority misinterpreted the business model of Facebook and stressed that Facebook focuses on the tailored user experience, for which it is inevitable to resort the user’s data shared in the course of the time spent on the social media platform. Without the “selection process” affecting the user’s data Facebook would be a “massive mass of content lacking any social context”, noted the company. Moreover, Facebook expressly denied that the gratuitous nature of its service can be provided against the data “payment” of the users and emphasized that its conduct is fully in compliance with the general industry practice of double-sided markets.

The Hungarian Competition Authority rejected the defence of the company and found that the slogans of Facebook suggested that the company’s services were provided free of charge confused users both in terms of the responsibility relating to the use and in terms of the contractual obligations, as the slogans implied the absence of risks and obligations, while there was actually a multi-level user commitment in the background which, was not fully transparent. On the basis of the facts of the proceeding it turned out that it is irrelevant whether a market player directly sells the acquired data or provides technological access thereto, as Facebook did. Furthermore, the Hungarian Competition Authority noted that numerous users were not aware of the extent and the value of the transferred data and did not generally read the general terms and conditions of online platforms.

Consequently, the authority was of the opinion that the examined conduct is not only harmful for short and long term business decisions, but also to some real economic processes, if users believe that it is possible to use a service without any cost or without any risk.

In its reasoning the Hungarian Competition Authority also highlighted the fact that though the consumers acknowledged the collection of their data by accepting the company’s data processing regulation and its Legal and Liability Declaration, but this acknowledgement does not indemnify Facebook from the liability of falsely advertising its service as gratuitous.

Taking into account the extent and the severity of the infringement the authority considered an imposition of a fine to be well-founded.

With regard to the amount of the fine to be imposed the Hungarian Competition Authority could not rely on the advertisement expenditure of Facebook, which is conventional in cases related to commercial conducts due to lack of relevant data, therefore the authority took into account part of the advertising income of Facebook Ireland Ltd., the income realised in Hungary as a basis for setting the amount of fine to be imposed. Furthermore, the authority considered - as a mitigating factor - the fact that Facebook had globally modified the slogans in question and the content in its the Help centre that gave rise to concerns.

As a consequence of the proceedings initiated against Facebook under several jurisdictions the company updated its terms of use due to the pressure exerted by the European Commission and other consumer protection authorities. The reshaped terms of use now describe the profiling activities and the targeted advertisements of Facebook in details.

The decision is available in Hungarian here:

https://www.gvh.hu/dontesek/versenyhivatali_dontesek/dontesek_2016/vj-852016189

 

[1]Not only consumer preferences, but also political preferences are subject to monitoring by the tech giants. The so-called Cambridge Analytica scandal was revolving around political preferences, namely the political preferences of the voters were monitored and – allegedly - influenced by personalized messages by way of data processing. Though mostly U.S. citizens were involved, the data of approximately 32.000 Hungarian users has also been affected.

[2]There have been recent procedures against Google LLC initiated by the competition watchdog of the European Commission and similar proceedings against Facebook had recently been made in Italy, in addition the Federal Trade Commission (FTC) of the United States also examined the business conduct of the company.

[3]Facebook Ireland Ltd is the company with which the Hungarian enterprises wishing to advertise their services are contracted.

[4]Taking into account that almost 6 million Facebook users are registered in Hungary, the economic competition is presumably affected by the case.

[5]The similar business conduct of Facebook has been examined in Germany initiated by the Alliance of Consumer Protection Organizations, aiming to prohibit the possible infringement committed by the similar gratuitous statement displayed on the opening site of Facebook.

[6]On the basis of the business reports of Facebook it can clearly be established that the majority of its revenue can be originated from advertisements and service fees, approximately 5 million advertisers globally generated a revenue of USD 26.9 billion in 2016 for Facebook.

[7]It is to be highlighted that if several types of advertisement could be relevant to a certain Facebook user, the advertisements “compete” with each other in the framework of a special “auction” procedure aiming to determine the price to be paid for the targeted advertisement appearing in the Facebook feed of the user, thereby increasing the price for the advertising possibility for the client.

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