Facebook is faced with a fine of EUR110 million (US$122 million) for providing misrepresentative or incorrect information to the European Commission when it filed the acquisition of WhatsApp for merger approval in 2014.
In the notification, Facebook stated it would not be able to reliably link Facebook users’ accounts and WhatsApp users’ accounts. However, two years later, Facebook updated its terms of service, which then allowed for a matching of Facebook and WhatsApp user accounts. According to the Commission’s ensuing investigation, Facebook had the ability to link users at the time of the WhatsApp acquisition, when Facebook filed the WhatsApp acquisition for merger approval.
Implications: A Warning Shot for Business
The Commission sees this as a warning shot, says Margrethe Vestager, the EU’s competition commissioner: “Today’s decision sends a clear signal to companies that they must comply with all aspects of EU merger rules, including the obligation to provide correct information.” On her Twitter account, she posted: “We need accurate #facts to do our job.”
Yesterday’s decision will not affect the merger clearance approving Facebook’s acquisition of WhatsApp. Although the Commission has the power to withdraw the clearance if it is based on incorrect or misleading information, the clearance in this case was based on facts beyond the automated matching capability, and even analyzed the effects of such an automated matching. The Commission therefore decided not to withdraw the clearance of the transaction.
Risk of Major Fines Even for Procedural Violations: 1% of Global Turnover
The Commission over recent years has repeatedly fined companies for violation for procedural requirements, but yesterday’s decision is the first fine for providing incorrect or misleading information. Under the current guidelines, the Commission can fine companies up to 1 percent of their global annual turnover for violation of procedural requirements, while violations of substantive EU competition law can be fined of up to 10 percent of global annual turnover. Based on 2016 data, the Commission could have imposed a fine on Facebook of up to EUR248 million (US$276 million) for the procedural violation.
Earlier, the Commission had fined Germany’s E.On EUR38 million (US$42.2 million) and France’s Suez Environnement EUR8 million (US$8.9 million) for breaching seals during inspections, as well as Belgium’s Electrabel and Norway’s Marine Harvest each EUR20 million (US$22.2 million) for gun-jumping in acquisitions. A Czech energy company had been fined EUR2.5 million (US$3.3 million) for obstruction during an inspection by not blocking email accounts of employees, and failure to disclose complete information.
WhatsApp Acquisition Raises Antitrust Jurisdictional Debate
Facebook’s WhatsApp acquisition had sparked a debate on whether the current turnover-based jurisdictional test in European merger control was suitable to deal with acquisitions in the digital economy. The US$19 billion acquisition was initially not reportable to the European Commission, as WhatsApp in 2013 generated only US$10 million in annual turnover. However, the transaction triggered market-share-based tests in various EU Member States, and was referred to the Commission upon application of Facebook. There are now discussions of introducing a transaction value-based system, and Germany has just updated its merger control rules to capture transactions valued at EUR400 million or more, even where the target company has only minimal turnover.
Similarly, the transaction has shown a spotlight on whether seemingly free platforms to end users are subject to the antitrust rules, as end users do not pay for the platform’s services in money. However, competition authorities in Europe have clearly stated that they see these interactions as business transactions in which users pay for the platform’s services via their personal data. Germany has, for example, very recently amended its Competition Act to clarify that markets that are subject to antitrust review will not require a payment in money. In addition, the amendment sets the parameters according to which market power in digital markets is measured.