Italian court says Facebook isn’t free
An interesting ruling has been handed down in Italy in a case involving Facebook’s violation of the collective interests of consumers and data protection. The court held, contrary to common opinion and the social media site itself, that Facebook is not free.
As reported online, the Lazio Regional Administrative Court in Rome has issued a judgment on an appeal by Facebook Inc. against a decision by the Italian Competition Authority (Autorità Garante della Concorrenza e del Mercato—AGCM), which in November 2018 imposed a fine of EUR 10 million on Facebook Ireland Ltd and Facebook Inc. for violating the collective interests of consumers. The AGCM found that Facebook misled consumers registering to use the site by not informing them appropriately and in due time (when establishing an account) that the data they provide will be used for commercial purposes. As the AGCM found, Facebook stresses that the site is free of charge, rather than pointing to the commercial aims it pursues in providing social media services. This encourages users to decide on a transaction they might not otherwise pursue, i.e. to register for and use the social media site. (The other issue examined in the decision was imposing on users the broadest possible consent to transfer their data to third parties.)
Facebook Inc. appealed, and on 10 January 2020 the Lazio Regional Administrative Court issued a ruling partially upholding the decision of the Italian Competition Authority, specifically the fine for misleading consumers as to the free nature of the site, given the commercial value of the data shared with the site, but cut the fine to EUR 5 million.
The issue of the commercial value of data within the context of a site that operates nominally free of charge, but de facto is not free, proves the most interesting aspect of the judgment. Essentially it means that registration of users on the social media site is transactional in nature. The court found that the data shared by consumers have a significant economic dimension due to their further commercial exploitation. The court analysed users’ personal data from a new perspective, treating them as resources subject to negotiation and commercial exploitation as well as a potential subject of commercial exchange between the operator of the site and the consumers using the site. The content of the personal data provided by the consumer, and the profiling enabled by the data, constitute consideration provided by the user in exchange for the services of the social media site. As found by the AGCM, “Revenue from online advertising relying on profiling of users based on their data accounts for the entire turnover of Facebook Ireland Ltd and 98% of the turnover of Facebook Inc.”
The conclusion that personal data have economic value is not new. The commercial value of personal data was stressed by the European Commission in the Commission Staff Working Document of 25 May 2016 entitled “Guidance on the Implementation/Application of Directive 2005/29/EC on Unfair Commercial Practices.” As recognised in par. 1.4.10 of the document, “Personal data, consumer preferences and other user generated content, have a ‘de facto’ economic value and are being sold to third parties.” This value was also analysed in the Commission’s review of a merger involving Facebook Inc. (Case M.7217, Facebook/ WhatsApp, decision of 3 October 2014).
As found by the Italian Competition Authority and upheld by the court, recognition of the economic value of personal data entails an obligation for the operator of a social media site to ensure transparency in the transfer of data and completeness of the information it provides, and prohibits the operator from misleading users. Users therefore must be aware of the exchange of consideration making up the transaction of subscribing to the service, which constitutes a bilateral contract for use of social media.
Dr Marcin Kulesza, Competition practice, Wardyński & Partners