EU Commission fines Facebook €110m for providing misleading information in relation to WhatsApp acquisition

Introduction

On 18 May 2017, the EU Commission announced that it had imposed fines of €110m on Facebook for providing incorrect or misleading information when, in 2014, the EU Commission was investigating Facebook’s acquisition of WhatsApp, under the EU Merger Regulation (Regulation No 139/2004) (the EUMR). Facebook cooperated with the EU Commission’s investigation, admitted fault and does not intend to appeal the decision.

Background

In August 2014, Facebook notified the EU Commission of its proposed acquisition of WhatsApp. The EU Commission cleared the transaction unconditionally at the end of a Phase 1 review having analysed its impact on the internal market in relation to: 1.) consumer communications services; 2.) social networking services; and 3.) online advertising. The EU Commission’s recent press release (IP/17/1369) states that in Facebook’s merger notification form Facebook stated it would be unable to establish reliable automated matching between Facebook and WhatsApp’s users’ accounts. When the EU Commission requested further information, Facebook repeated the assertion.

However, in August 2016 WhatsApp announced that it was planning to update its terms of service and privacy policies. The changes included linking WhatsApp users’ phone numbers with Facebook users’ identities. As a result, on 20 December 2016 the EU Commission launched a formal investigation into Facebook’s conduct by sending it a Statement of Objections. The related press release (IP/16/4473) stated that the EU Commission held a preliminary view that the technical possibility of merging the data of the two companies already existed at the time of the acquisition. The EU Commission, therefore, had concerns that Facebook had either intentionally, or negligently, submitted to it false or misleading information on two occasions.

Under Article 14(1) EUMR the EU Commission has the power to fine an undertaking up to 1% of its worldwide turnover for offences of this nature. The EU Commission also has powers under the EUMR to revoke a merger clearance decision if it is based on incorrect information; however, in the press release announcing the formal investigation, the EU Commission noted that, in this case, the outcome of its investigation would not have an impact on the merger clearance decision.

Following its investigation, on 18 May 2017 the EU Commission concluded that Facebook had committed two infringements: one relating to the provision of information in the notification form and the second relating to the response to the request for further information. It concluded that Facebook staff were aware of the technical possibility of linking the data between the two companies at the time of the acquisition and Facebook’s breach of its procedural obligations “was at least negligent”. However, the EU Commission’s press release also noted Facebook’s cooperation during the conduct of the investigation and willingness to waive certain procedural rights in order to bring swiftly the matter to a close. The EU Commission concluded that Facebook’s cooperation with the investigation was a factor taken into account when setting the fine, but €110m represented a proportionate sanction with deterrent effect.

Commentary

Facebook’s acquisition of WhatsApp was extremely high profile at the time, in part because of the high price paid for a business (approximately $19bn) for a company with a comparatively low turnover. On the basis of the parties’ turnover thresholds, the EU Commission did not originally have jurisdiction to review the transaction. The parties submitted a reasoned submission (under Article 4(5) EUMR) requesting the EU Commission to review the transaction, hence its subsequent review. The EU Commission has identified a potential lacuna in its jurisdiction in relation to acquisitions such as this and others involving targets with substantial value, but without significant turnover (in particular in the digital economy and in the pharmaceutical industry). Further, it has subsequently consulted on reforms to the current merger control regime (see article Simmons & Simmons responds to Commission’s consultation on EU merger control regime). Therefore, Facebook’s ongoing conduct was likely to have been subject to significant scrutiny by the EU Commission.

The size of the fine imposed is also significant. There have only been a handful of previous cases in which the EU Commission has imposed fines for providing false or misleading information, but these were under the old EU Merger Regulation where the penalty was capped at €50,000 for each infringement. For example, in 2004 the EU Commission fined Tetra Laval €45,000 for supplying incorrect or misleading information in a notification and the same amount for supplying incorrect information in response to information requests. Facebook’s fine clearly far exceeds these previous sanctions and it remains to be seen whether the increased fining ability of the EU Commission in relation to these types of transgressions will act as a greater deterrent for firms.

It is also notable that General Electric is reportedly currently under investigation for the same offence in relation to its acquisition of LM Wind Power. The Commission’s investigation is still in its early stages, but the outcome of that investigation will also be revelatory as, if there was a further infringement decision for this type of procedural offence, it would represent the second in quick succession following a 13 year hiatus by the Commission. Similarly, national competition authorities have recently increased enforcement action for these types of infringements. The Hungarian Competition Authority has revoked its approval for two mergers in the previous year, on the basis that the acquiring companies had provided “incomplete and misleading information” about the mergers.

These recent enforcement actions by the EU Commission and national competition authorities, reiterate the importance for companies of complying with the procedural regulations of the relevant authority in the context of preparing merger filings and when responding to requests for information. The warning from Margrethe Vestager, the EU Commissioner for Competition, in a recent speech (18 May 2017) to the Romanian Competition Council is clear: “If we get information that’s wrong or misleading…we can’t do our job quickly and well. And that is something we can’t accept”.