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Facebook fined 50 million pounds by UK’s competition regulator for breaching order

The order has to do with Facebook’s merger with Giphy which has been the subject of a UK probe since last year.

The Competition and Markets Authority (CMA) of the United Kingdom government fined Facebook 50.5 million pounds for allegedly breaching an order imposed by the authority during its investigation of Facebook’s merger with Giphy, a USA-based online database and search engine that allows users to search for and share short looping videos (GIFs).

The order that Facebook allegedly breached is an initial enforcement order (IEO) that is imposed on companies during the start of an investigation into a completed acquisition. An IEO essentially ensures that companies continue to compete with each other as they would without the merger, and prevent the companies involved from integrating further while a merger is ongoing, said a release by the office of CMA.

Facebook has been in the eye of the storm recently ever since Frances Haugen, a former FB employee-turned whistleblower, submitted eight complaints based on troves of internal documents to the US’ Securities and Exchanges Commission claiming wrongdoings and malpractices by the social media platform in its various processes. Closer home, Facebook and WhatsApp have been embroiled in a court battle with the Competition Commission of India, after the CCI in March this year, took up a suo motu investigation to ascertain “the full extent, scope and impact” of data sharing under WhatsApp’s new privacy policy and terms of use.

How did Facebook breach the order?

The CMA said that Facebook, as part of the investigation initiated on June 9, 2020, was required to provide CMA with regular updates outlining its compliance with the IEO. “Facebook significantly limited the scope of these updates, despite repeated warnings from the CMA,” the release said.

This is the first time a company has been found by the CMA to have breached an IEO by consciously refusing to report all the required information. Given the multiple warnings it gave Facebook, the CMA considers that Facebook’s failure to comply was deliberate. As a result, the CMA has issued a fine of £50 million for this major breach, which fundamentally undermined its ability to prevent, monitor and put right any issues. — Competition and Markets Authority

Joel Bamford, Senior Director of Mergers at the CMA, said, “Initial enforcement orders are a key part of the UK’s voluntary merger control regime. Companies are not required to seek CMA approval before they complete an acquisition but, if they decide to go ahead with a merger, we can stop the companies from integrating further if we think consumers might be affected and an investigation is needed.

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We warned Facebook that its refusal to provide us with important information was a breach of the order but, even after losing its appeal in two separate courts, Facebook continued to disregard its legal obligations. This should serve as a warning to any company that thinks it is above the law. — Joel Bamford, Senior Director of Mergers at the CMA

Competition Appeal Tribunal had dismissed the company’s appeal

After the CMA imposed the IEO on Facebook on June 9, 2020, Facebook requested a derogation. A derogation is a reprieve from part of the IEO and gives the business consent to do certain activities that would have been banned as part of the IEO.

However, the CMA denied Facebook’s request as it said it believed “it did not have the necessary information from Facebook to reach a decision. This led to Facebook applying for a review of the CMA’s decision (with the Competition Appeal Tribunal),” another release by the CMA said.

However, on November 13, 2020, the tribunal dismissed Facebook’s ground of appeal.

The corollary of the voluntary regime is that the CMA is given wide powers to suspend the integration of merging companies and it is for merging parties to satisfy the CMA that the relaxation of any interim measures imposed by the CMA is justified. It is therefore incumbent upon merging parties to co-operate with the CMA, particularly when making derogation requests” — The tribunal in its judgement

CMA Chief Executive Andrea Coscelli had said, “This is an important judgment from the Competition Appeal Tribunal and sends a clear message – initial enforcement orders are an essential part of the CMA’s merger toolkit, enabling it to protect both market competition and consumers as it undertakes merger reviews.”

Facebook also approached the Court of Appeal

After the Competition Appeal Tribunal dismissed Facebook’s appeal, it approached the Court of Appeal. A release by the CMA said that the Court approved of the regulator’s use of initial enforcement orders.

The Court noted, however, that “this process breaks down if those against whom Initial Enforcement Orders are made refuse to cooperate as happened in this case.” The Master of the Rolls, Chancellor of the High Court, and Lord Justice Philips unanimously agreed that there was no error in the Tribunal’s reasoning and that Facebook’s challenges to the CMA’s conduct were without merit.

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Among other subjects, I cover the increasing usage of emerging technologies, especially for surveillance in India

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