50 Shades of Tying: An Incisive into EC’s Facebook Marketplace Decision

Introduction 

The European Commission (EC) recently passed a contravention order against Meta Inc for violation of Article 102 of the TFEU. The Commission has held that the social media giant has abused its dominance by indulging in illegal tying of Facebook Marketplace with general Facebook and imposed unfair trading conditions on advertisers when it comes to online display advertising. The EC has imposed a monetary penalty of £797mn (~$900mn) along with directions to the company to untie Facebook Marketplace with Facebook and ensure that the advertiser data gathered in online display advertising is not utilised for the benefit of Marketplace.

The case was initiated by the EC in 2020 on receipt of multiple confidential complaints against Meta. The Commission conducted a detailed factual inquiry by obtaining information from various third parties. The bulk of the EC order revolves around the delineation of relevant markets, developing theory of harm on the tie of Facebook Marketplace with Facebook and the analysis of the terms & conditions made applicable on various advertisers in the online display advertising in the context of Marketplace. The Commission held that Facebook has abused its dominance in the relevant markets to the detriment of fair play in the markets.

Relevant market

One of the key aspects of this decision is a detailed discussion on the applicable relevant markets. The Commission made a succinct comparison between personal social networking services on one hand and professional social networking services, consumer communication services, content discovery platforms, video entertainment platforms and hybrid social media platforms on the other before making a conclusion. This distinction is important as it allows the competition authority to determine any realistic competitive constraint which may be acting on Facebook. 

While this differentiation was robust, the analysis conducted by the EC on the boundary between personal social networking services, content discovery platforms and hybrid social media platforms may require a relook as the boundary drawn between the markets may be blurred. This is because EC went into hyper technicalities when it comes to classifying platforms such as Facebook, Instagram, Snapchat, TikTok and Pinterest under different headers even though the core functionality of sharing audio-visual content for entertainment purposes on a personal basis remains the same. The EC could have considered a broader relevant market of ‘personal social media platforms’ which would have been able to better capture the market dynamics and any competitive constraint acting on Facebook. Similarly, buy-and-sell groups (BSGs) existing on Facebook could very well have been captured in the contours of ‘online classified advertising services (OCAS)’ as defined by the Commission. 

Theory of harm on tying

The bulk of the EC’s analysis revolved around the tie between Facebook Marketplace and Facebook. While there is a catena of EU case laws which prohibit tying, this decision remains unique from the standpoint of granular details and the theory of harm developed. The Commission has done a notification-by-notification analysis where it held that Facebook not only ensures prominent placement for Marketplace on its website, but also integrates it with other functionalities such as Jewels notifications and Showcase units [Para 849]. This granular analysis is important as it finally contributes to the EC’s theory of harm. The Commission has held that such a tightly-knitted integration increases barriers to entry for other competing OCAS providers ultimately derailing the competitive process. 

The Commission could have conducted a more robust analysis of the efficiency defence available to the company when developing its theory of harm. For instance, Meta submitted that Facebook Marketplace offers innovative features and positively contributes to the overall growth of the OCAS segment. While the Commission duly rebutted the innovative aspects of Facebook Marketplace by citing lower ratings, the fact that the impugned tie also contributed 800 million users to the OCAS segment, a size higher than the combined market share of all the competitors of Facebook Marketplace, remains unchallenged [Para 886]. This gap is important because competition is a public good and the Commission ought to balance the pro-competitive and anti-competitive effects of an activity before reverting a finding of contravention under an effects-based approach.

Unfair trade practices 

The second finding of abuse revolves around unfair trading conditions imposed by Meta on various advertisers in the online display advertising market. The Commission held that Facebook has become an inevitable partner in the online display advertising services on social media and various terms & conditions of its data use policies amount to a conflict of interest in the OCAS market. For instance, phrases such as ‘We can analyze your app, website, content, and data for any purpose’ and ‘analyzing the data we have about users’ as part of its service terms allows the company to access ads-related data generated by competing OCAS providers resulting in a potential conflict with Facebook Marketplace. The only limited check on the data use exists in Business Tool Terms which is further constrained when Meta acts as an advertiser itself.

The analysis conducted by the EC on fairness is specific when it comes to Meta sharing, instead of receiving data with third parties and subsequent T&Cs imposed by it. The Commission in a concise manner has highlighted how Meta expects a higher level of accountability from various third parties when it comes to provision of data through WhatsApp Business, Facebook Messenger and other modes [Para 1264]. This analysis is important from the perspective of defining market standards and how Meta’s dominance has contributed to the deterioration of it.

Conclusion 

The EC decision on Facebook Marketplace churns forward-looking jurisprudence on multiple aspects. First and foremost, there is discussion on applicability of multiple relevant markets which is likely to assist the Commission in its future cases. As far as the finding on abuses is concerned, the analysis on unfair trading companies seems to be on a stronger footing as compared to the one on tie. This is because of the strength of the evidence and non-applicability of efficiency defence in the former. The fact that broad lapses on internal data sharing policies of the companies is a subject matter of concern even in the Digital Markets Act highlights the need for an integrated approach when it comes to resolving disputes. This would be in line with the declared objectives of law and policy, primarily of having coordination between various departments of the government.

Sumit Jain is a Founding Director at the Centre for Competition Law and Economics, India.

Nikita Shah is an Assistant Professor at Nirma University, India.