European Regulators Turn Aim to Facebook

By Mark Scott, The New York Times | Updated: 26 May 2015 09:24 IST

One arm of the European Union is looking into whether Facebook and other tech companies unfairly favor their own services over those of rivals. At least five data protection watchdogs across the region are questioning Facebook's privacy settings.

And in a case that could have broad implications for many tech companies, the region's top court will issue a preliminary decision next month on whether Facebook can continue transferring user data between Europe and the United States.

Move over, Google. Facebook is the latest American tech giant that Europeans love to hate.

For decades, European policymakers have taken aim at America's giant tech businesses, trying to force them to play by European rules. In the past, Microsoft and Intel were found guilty of abusing their dominant positions to shut out rivals. Google has most recently been under the microscope, and it faces accusations that it unfairly promoted some of its search products over those of competitors.

In recent months, though, regulators' gazes have turned to Facebook, raising questions about whether the social network has learned from the mistakes of companies like Intel, Microsoft and Google when dealing with Europe's policymakers and its legal system. And as Facebook runs into an increasing number of regulatory hurdles here, the scrutiny could potentially distract the company from its ambitions of becoming a one-stop-shop for Internet messaging, online publishing and digital advertising.

"Platforms like Facebook have grown quickly to become global forces," said Serafino Abate, a director at the Center on Regulation in Europe, a research organization in Brussels. "But with that size comes responsibility."

The scrutiny is mounting as the company's messaging and digital advertising services spread globally. More than 1.4 billion people now use Facebook, and hundreds of millions of people also rely on the company's mobile messaging services, WhatsApp and Facebook Messenger, and its photo sharing service, Instagram.

Facebook's core business, its social networking service, is especially popular in Europe. The company has almost doubled its number of European users to the service, to around 260 million, since 2010. Facebook also has more users in Europe than in the United States, according to eMarketer, a research company.

Regulators in Europe, however, are especially focused on how the company collects and handles those users' data. The region has some of the world's toughest data protection rules, and policymakers from France, Germany and Belgium are investigating whether Facebook broke Europe's laws after the company announced a new privacy policy this year.

If found to have breached the privacy rules, Facebook may face fines or demands that it change how the company handles people's data, though the company says it complies with the region's data protection laws.

"Obviously, there are privacy issues," said Mathias Moulin, deputy director of enforcement at the French data protection regulator, who is overseeing the watchdog's review of the company's activities and who will meet other regulators at month's end to discuss the investigations. "This is a global company. Facebook affects millions of people across Europe."

Taking a page from the playbooks of other U.S. tech companies, Facebook has not stood idle as regulators steadily lined up against it.

The company has hired a number of prominent former lawmakers and regulators, including Erika Mann, a former German member of the European Parliament. This month, the company also chose Kevin Martin, a former chairman of the Federal Communications Commission, to champion its cause in Washington, Brussels and beyond.

Facebook increased spending on lobbying 25 percent, to roughly $570,000, in 2013 compared with the previous year, according the latest figures available from the European Union's voluntary database of lobbying interests, which may not include all of Facebook's activities in the region.

"We expect scrutiny. We're not afraid of it," said Richard Allan, a former member of Parliament in Britain who has run Facebook's policy team in Europe for the past six years. "If you are the new kid on the block, there's always a reaction to that."

To get a sense of the European backlash against Facebook, you do not have to look much further than the experiences of Max Schrems, an Austrian law student who has led a vocal opposition to how the company collects and uses people's data from around the world.

Schrems, 27, recently said his concern about online data traces back at least to 2011 and a college class in California. In the class, he said, employees of several West Coast tech companies expressed open disdain for Europe's tough data protection rules, which enshrine a person's right to privacy as a fundamental human right.

After returning to Europe, he began a lengthy campaign against the type of data that Facebook collected on its users, including information on their physical locations.

To rein in the company's efforts, Schrems filed multiple complaints with the Irish data protection watchdog, which is responsible for policing Facebook's activities in its international headquarters in Dublin. That led to a three-month audit of how Facebook collected data, and changes to the way the company obtained and used people's online information.

Unhappy with how Ireland's regulator managed his case, Schrems intensified his campaign.

He appealed to the country's highest court, which referred the case to the European Court of Justice, the region's top court. A preliminary decision is expected by the end of June on whether Facebook and other companies can continue transferring data between Europe and the United States.

Many U.S. tech giants rely on moving online information between the regions to feed their business models, like personalized digital advertising. If the European court rules in favor of Schrems, those practices could be drastically curtailed.

Schrems also filed a separate Austrian class-action lawsuit against Facebook after collecting more than 75,000 online signatures. He said the company had violated Europe's privacy rules - accusations Facebook strongly denies - and his side could receive up to $14 million if he wins the case. A decision is not expected until at least early 2016.

"This is about limiting what Facebook can do with Europeans' data," said Schrems, who remains active on the social network despite his legal disputes. "How much should they be allowed to dig into the souls of their users? That's what we're fighting for."

Big European companies are also pushing for stronger oversight of Facebook, including the region's well-connected telecom industry.

After Facebook bought WhatsApp, the Internet messaging service, last year for $19 billion, many of Europe's cellphone carriers lobbied hard for the region's antitrust regulators to review the deal. Carriers say that by combining WhatsApp with Facebook's own messaging service, the company has a virtual monopoly over how people send messages on their smartphones.

Europe's antitrust authorities, however, eventually approved the takeover, and Facebook contends there are other Internet messaging services that compete with its offerings.

Yet lawmakers are now looking into whether Facebook's messaging services should be regulated like those offered by traditional carriers. And industry executives say that as the social network starts to offer other services like phone calls through the company's many smartphone applications, Facebook should play by the same rules that apply to traditional mobile operators.

"We can't forever be living in a world where we compete with one arm tied behind our backs and they don't," Pierre Louette, deputy chief executive at Orange, the former French telecom monopoly, said in reference to Facebook. "Our two worlds are colliding. Now that the worlds have met, we're all competing for people's attention."

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