Facebook and Whatsapp fined for breaching EU law and deceiving consumers

Di Davide Guadagnino

 

On 18 May 2017, the European Commission fined €110 million Facebook for providing misleading information during the 2014 takeover of WhatsApp in case COMP/M.7217. Calling it a “proportionate and deterrent fine”, the Commission established that Facebook infringed the procedural obligations laid down by the EU Merger Regulation.

Most notably, this decision follows the 2016 WhatsApp terms of service and privacy update, which included the automatic linking of WhatsApp users’ data with Facebook users’ identities for advertising and marketing purposes. When Facebook notified the acquisition of WhatsApp to the Commission in 2014 under the EU Merger Regulation, which requires undertakings to provide correct information to allow a timely and effective review of the merger process, it ensured an automated matching between Facebook and WhatsApp users could not be established.

However, the Commission’s scrutiny revealed that the technical possibility of matching users’ profiles between the two platforms, which was made effective in 2016 after the terms of use update, already existed in 2014 but had not been communicated to the Commission at the time of the merger.

Although it could impose a fine of up to 1% of the company’s aggregated turnover (it could have amounted to more than €250 million), the European Commission’s assessment was mitigated by Facebook’s cooperation during the investigation proceedings, where the company acknowledged its infringement and convinced the authority to reduce the amount of the penalty. The EU’s competition watchdog concluded that Facebook negligently provided incorrect information, but the gravity of these infringements would not affect the Commission’s clearance decision regarding the WhatsApp acquisition of 2014.

The 2016 WhatsApp terms of use update has also drawn the attention of the Italian Competition Authority (ICA), which on 11 May 2017 has imposed a penalty of €3 million on WhatsApp for infringing consumers’ rights (see ICA decision  PS10601).

First, the company was fined for undermining Article 20 of the Italian Consumer Code, most notably for infringing the ban on unfair business practices. According to the ICA, WhatsApp led users to believe they could use WhatsApp Messenger only if they accepted in full the new terms of use, including the provision of sharing users’ data with its parent company Facebook.

However, those who were already users at the time of the update could partially accept the new terms of use and still be able to use the application, but – according to the ICA – the existence of such an option had not been sufficiently represented.

On 11 May 2017, the ICA concluded a second investigation concerning the unfair nature of some contractual clauses of the WhatsApp terms of use, which were assessed as illicit since they caused a significant imbalance into consumers’ rights and obligations arising from the contract in breach of Article 33 of the Italian Consumers Code (see ICA decision CV154).

These clauses included inter alia a general limitation of WhatsApp liability, as well as the possibility for the company to unilaterally interrupt the service without notice, the right to introduce changes of economic nature to the terms of use without reason and the application of the Law of California.

WhatsApp has now 60 days for filing an appeal against the two ICA decisions before the Administrative Court of Lazio.