Facebook Inc. (FB) - Get Meta Platforms Inc. Class A Report may soon find itself in the sights of European Union antitrust regulators who have increasingly been targeting the dominant U.S. tech companies.
Germany's Federal Cartel Office is currently investigating whether Facebook's dominance has given consumers no choice but to agree to its terms and conditions. The antitrust watchdog argues that Facebook is "extorting" information from its users due to its ubiquity, and that the data is used to fuel Facebook's massive ad business, constituting a threat to competition.
By some accounts, Facebook, which recently reached a landmark two billion monthly users, has become an unavoidable part of the internet. The social media giant's huge global reach is part of what's earned Facebook a position among "the frightful five," a term used to describe the top five tech companies that are dominating our lives: Facebook, Apple (AAPL) - Get Apple Inc. Report , Amazon (AMZN) - Get Amazon.com, Inc. Report and Alphabet (GOOGL) - Get Alphabet Inc. Class A Report .
Figuring out whether Facebook truly has a monopoly depends on how "locked in" users are to the website, said Florian Wagner Von-Papp, director of the University College London's Institute of Global Law. Facebook may try to argue that users have accounts on several different social media platforms (LinkedIn, Twitter Inc. (TWTR) - Get Twitter, Inc. Report , etc.), but Wagner Von-Papp noted that Facebook has an element of clout that persuades users to join whether they'd like to or not. "If all your friends are on Facebook, you will join Facebook -- and not some new upstart -- in order to keep in touch," he added.
Facebook's steady flow of new users has been great for investors and for its bottom line, but it's not unnoticed by antitrust regulators. The European Commission's record-breaking $2.7 billion antitrust fine against Alphabet Inc.'s (GOOGL) - Get Alphabet Inc. Class A Report Google is a clear example of how EU officials are clamping down on Silicon Valley tech giants more and more.
"Why did Facebook and Google get 88% of all new digital ad money in the last year? Because they have all the data," said Jonathan Taplin, a professor at the USC Annenberg Innovation Lab and author of Move Fast and Break Things: How Facebook, Google and Amazon Cornered Culture and Undermined Democracy. "It's a virtuous cycle -- more data, more users, better targeting. The whole thing is a self-fulfilling prophecy."
The Federal Cartel Office, or Bundeskartellamt, is still trying to establish a link between Facebook's data collection practices and its market power. Other laws are in place, however, that are making life harder for Facebook, Twitter and other social media companies. In June, German lawmakers passed the Network Enforcement Act, referred to as the "Facebook Law," which could open Facebook and other social media companies up to fines worth as much as $57 million for failing to remove hate speech within 24 hours of it being identified. The law goes into effect in October.
Additionally, the EU's set of new, stricter privacy rules will go into place beginning in May 2018. The General Data Protection Regulation will allow the EU to fine tech giants up to 4% of their annual revenue for privacy violations. Facebook and Google have been "fighting the law like crazy," Taplin explained. Under the new laws, users can opt out of giving personal data, which could represent a gigantic shift in Facebook's typical data collection practices because for most users, agreeing to terms and conditions is a pretty mindless thing, he noted.
The EU generally to take a more aggressive stance against U.S. tech firms and assessing whether they're a threat to competition. U.S. regulators, meanwhile, have taken a more lax stance on the issue. In a big win for Facebook, a U.S. District Judge in San Jose, Calif. on Monday dismissed a lawsuit accusing Facebook of tracking users' internet behavior after they'd closed out of the website.
European regulators are unlikely to ease up on tech giants, especially if it can be established that privacy concerns are antitrust concerns, too. Andreas Mundt, president of the Federal Cartel Office, has said he's "eager to present the results" of the Facebook investigation this year, according to Bloomberg.
"Because Facebook has the greatest amount of user data (both in terms of 'friends' connections and what these users do on Facebook), they are dominant," Wagner-von Papp said. "If Facebook uses these data more intensively for mining than is allowed under law -- and is allowed to competitors -- it is strengthening its assumed dominant position."
Facebook shares were up 1.8% to $151.43 by's Friday close and are up 31% year to date.
Editor's Pick: This article originally published on July 7, 2017.
Visit here for the latest business headlines.