S3Corp. Tech Blog

Facebook Faces EU Scrutiny Over WhatsApp Deal

Background on the WhatsApp Acquisition

In 2014, Facebook completed its $19 billion acquisition of WhatsApp, one of the world’s most popular messaging apps. At the time, the merger raised questions about the implications for user privacy, data sharing, and competition in the tech industry. Facebook assured the European Commission during its review of the merger that it was not technically feasible to match user accounts across Facebook and WhatsApp. This assurance played a role in the Commission’s decision to approve the acquisition.

However, this claim came under scrutiny in August 2016 when WhatsApp updated its privacy policy, stating that it would link users’ phone numbers with their Facebook accounts. The announcement marked a significant shift in how data between the two platforms was managed and raised questions about whether Facebook had misled regulators during the merger review process.

Accusations by the European Commission

The European Commission has accused Facebook of providing misleading information during its investigation of the acquisition. Commissioner Margrethe Vestager, who oversees competition policy, stated that companies are required to provide accurate information in merger reviews. The Commission alleges that Facebook’s 2014 claim about the inability to link user accounts contradicted its later actions.

According to the Commission, evidence suggests that Facebook already possessed the technical ability to link accounts in 2014, contrary to its earlier statements. This raises the possibility that Facebook either intentionally or unintentionally misled regulators during the merger process.

The potential consequences for Facebook are significant. If the Commission determines that the company intentionally or negligently misrepresented facts, it could face a fine of up to 1% of its annual turnover. With Facebook generating billions in revenue, this penalty could amount to hundreds of millions of euros.

Facebook’s Defense

Facebook denies any wrongdoing, asserting that it acted in good faith throughout the investigation. A company spokesperson stated that Facebook consistently provided accurate information regarding its technical capabilities and intentions.

Facebook contends that the technical capability to link accounts only emerged in 2016, well after the acquisition was finalized. The company also argues that it still cannot achieve the level of precision needed for cross-platform messaging that regulators were concerned about in 2014.

In a statement, Facebook emphasized its cooperation with the European Commission and expressed satisfaction that the approval of the merger was not solely based on the disputed information. The company remains committed to addressing the Commission’s concerns and has been asked to respond to the accusations by January 31, 2017.

Regulatory Concerns Across Europe

The controversy over data sharing between Facebook and WhatsApp has sparked regulatory investigations across Europe. Following WhatsApp’s announcement of its new privacy policy in August 2016, regulators voiced concerns about the implications for user privacy and data protection laws.

The UK’s Information Commissioner’s Office (ICO) launched an investigation to determine whether the policy changes violated UK data protection laws. The ICO concluded that Facebook had not obtained valid consent from users for the data-sharing arrangement and ordered the company to stop using data collected from WhatsApp users in the UK.

In Germany, the Hamburg Commissioner for Data Protection and Freedom of Information issued a similar order, instructing Facebook to stop collecting and storing WhatsApp user data in the country.

In October 2016, European data regulators collectively called for Facebook and WhatsApp to halt data sharing while the policy changes were under review. These actions highlight widespread concern about the potential misuse of user data and the broader implications for privacy rights in the digital age.

Broader Implications for Tech Companies

The accusations against Facebook underscore the challenges regulators face in overseeing mergers in the rapidly evolving tech industry. As companies increasingly rely on data integration to drive business growth, ensuring compliance with competition and privacy laws has become a critical focus for regulators worldwide.

Conclusion

The European Commission’s investigation into Facebook’s acquisition of WhatsApp highlights the importance of transparency in merger reviews. While Facebook maintains that it acted in good faith, the allegations of misleading regulators could have significant financial and reputational consequences for the company.

The broader scrutiny of Facebook and WhatsApp’s data-sharing practices reflects growing regulatory efforts to safeguard user privacy and enforce compliance with data protection laws. As the tech industry continues to evolve, companies must navigate an increasingly complex regulatory landscape, balancing innovation with the need to uphold ethical and legal standards.

This case serves as a critical reminder for businesses operating in data-driven sectors to prioritize transparency, ethical practices, and compliance in their operations.