Facebook has become embroiled in an explosive row with Britain’s markets watchdog that could result in a fine of up to £3billion.
The social media giant has lost a legal case to overturn an order by the Competition and Markets Authority in June that demanded Facebook freeze a host of business activities while officials investigated its $400 million (£300million) takeover of image firm Giphy.
Facebook, founded and run by 36- year-old Mark Zuckerberg, is now under investigation after court documents revealed it could not ‘certify compliance’ with the edict imposed by the watchdog.
Tension: Facebook, founded by Mark Zuckerberg, has lost a legal case with the CMA
Any breach could see the CMA impose a fine of up to 5 per cent of Facebook’s turnover, court documents reveal, which last year was $70billion.
Facebook’s spat with the watchdog is the latest sign of the growing tension between the American tech giants and British regulators.
The CMA has promised to crack down on the hundreds of acquisitions by the tech titans under what has been labelled their ‘killer’ strategy that stifles competition.
Last week, the watchdog launched a consultation to clamp down on damaging takeovers by the digital giants. It is bringing forward plans that could stop Facebook, Google and other internet giants swallowing hundreds of start-ups that might otherwise grow into rivals. The plans were first revealed by The Mail on Sunday last month.
The CMA wants to block mergers and acquisitions even if there is only a modest chance that competition will be harmed in the future. It is also trying to stop tech giants from using their power to muscle in on new markets.
But the acrimonious row between Facebook and the watchdog over the Giphy takeover signals that any future crackdown will be heavily disputed by the tech firms. Giphy is a library of images, or Gifs, which social media users can send in messages on apps such as Twitter, Instagram and Facebook. It is one of the largest sources of Gifs and Facebook has used its technology in its apps for years. According to Facebook, half of Giphy’s usage comes through Facebook-owned apps, which include Instagram and Facebook Messenger.
Under the takeover plans, Giphy, which was founded in 2013, is set to become part of the team that works on Instagram.
However, the CMA slapped an order on Facebook banning it from undertaking certain business activities while investigators look into the giant’s acquisition of Giphy.
The CMA is concerned the takeover by Facebook could do irreversible harm to Giphy’s competitors if it went ahead unchecked. The CMA is particularly concerned that Facebook could axe its current contract with Giphy’s rival, Tenor. The CMA said this could ultimately force Tenor to shut down.
The watchdog normally asks merging companies to remain as separate entities during a takeover investigation. This is so the target company can be sold off again if it blocks the deal.
Facebook complained that the order was ‘irrational and disproportionate’, according to court documents, because of its close existing relationship with Giphy.
But the court ruled that the watchdog was right to stick by its decision until it had received a compelling reason from Facebook to change the terms. The CMA is now investigating whether Facebook has halted its business activities as required, after the company suggested it could not fully comply with the order.
The size of any fine will depend on the severity of any breach, if one has occurred. The CMA fined PayPal £250,000 in a similar case in 2019. The court documents state that the fine in the Giphy case could be as high as £3billion. Lord Tyrie, the former chairman of the CMA, has said that companies should receive larger fines for refusing to cooperate with the watchdog. The Government is now examining the proposals he set out to beef up the authority in 2019.
The CMA is set to reveal within weeks its plans for how to regulate the increasingly powerful tech giants.
Dr Andrea Coscelli, head of the CMA, is finalising proposals that could be pushed through Parliament in 2021.
He is expected to call for a Digital Markets Unit to be set up to enforce a code of conduct to make sure that tech titans do not exploit consumers and exclude rivals from the market.
The ideas are all based on an influential report for the Treasury published last year by President Obama’s former chief economist Jason Furman, who criticised the tech giant’s ‘killer’ takeovers of potential rivals.
Dr Coscelli has also hit out at the dominance of Google and Facebook in the digital advertising market. He warned that they now occupy an ‘unassailable position’ after they hoovered up two-thirds of the £13billion market in 2019.
In response to the Giphy case and a potential fine, a Facebook spokesman said: ‘We are cooperating fully with the UK Competition and Market Authority’s inquiry and will continue to do so.
‘We are reviewing the Tribunal’s decision and considering our options.’