Large tech companies have become more powerful in the past decade thanks to two things: their ability to deliver goods and services that people want, and their ability to collect and cross-pollinate the personal data of billions of their customers.
It is the latter that concerns government regulators, particularly in the West.
The multibillion-dollar fines and settlements seen so far for privacy infringements may be just pocket money for the tech giants. But a new regulatory offensive—expected to be rolled out more fully, especially in Europe, this year—threatens some of Silicon Valley’s most successful business models. The General Data Protection Regulation, a sweeping rule now being enforced across the European Union, was a first volley. It requires strict adherence by companies to a new set of privacy rules.
In a different approach, one tackling both data and competition issues at the same time, German regulators have issued a ruling requiring Facebook Inc. to keep personal data of German users that it gathers through its main site separate from data that it gathers on its other services—WhatsApp, Instagram and Facebook Messenger. Users would need to give permission for their data to be shared across the platforms. The German regulator ruled that Facebook’s ability to merge data is an abuse of power and ordered the company in Germany to change its terms of service, the long document that all users of an internet service agree to before using it.
Facebook was granted an appeal in the Higher Regional Court of Düsseldorf. The case is now expected to be heard later this year in the Federal Court of Justice, Germany’s highest court.
Facebook declined to comment on the regulatory ruling for this article. But a member of Facebook’s legal team in a blog post last February referred to the German regulators’ approach as “unconventional.” The company also has said that it keeps data about its users secure, and founder and Chief Executive Mark Zuckerberg has talked up a more “privacy-focused” social network, including plans to encrypt messages sent through his company’s messaging services.
The effort by Germany’s regulators reflects a broad strategic tack in antitrust investigations around the world in which the collection and collation of data by tech companies in specific markets is seen as instrumental in the companies’ ability to achieve dominance in those markets.
“It’s the combination of the data that enables these big boys to do targeted advertising,” says Thomas Vinje, chairman of antitrust practice at Clifford Chance LLP in Brussels.
It is also why antitrust efforts and data-privacy protection are converging. Normally, the two issues are pursued by different sets of regulatory bodies, but more crossover is happening, says Mr. Vinje.
“Privacy and competition are reinforcing one another,” Yves-Alexandre de Montjoye, an academic who has advised EU antitrust authorities on digital policy, said at an antitrust conference in December.
Europe’s top antitrust cop, Margrethe Vestager, now has a second, broader role, as the European Commission’s vice president for digital policy, deciding how the EU should regulate internet businesses.
In her antitrust role, Ms. Vestager has already imposed billions of dollars of fines on Alphabet Inc.’s Google, alleging a series of anticompetitive behavior in a handful of cases. Google has defended its practices, and has appealed in most cases. This year, Ms. Vestager is expected to look more closely at how massive data troves drawn from a range of sources by one company can create unfair advantages. For instance, Google can leverage people’s search, browsing and location data from Android phones to help it maintain its role as an online-advertising juggernaut.
A Google spokesperson says that the company is engaging with regulators and that it uses data to make its products more helpful to consumers.
In Australia, the country’s antitrust authorities, who deal with anticompetitive practices like price fixing, recently sued Google for the way it harvests users’ location data to show targeted advertisements. Google has said it intends to defend itself against the regulator’s claims, filed in October.
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The U.K. is also making data collection a bigger focus of antitrust probes into big tech firms, says Will Perrin, a researcher who helped set up the U.K.’s main communications regulator, Ofcom. In December, for instance, the Competition and Markets Authority, Britain’s competition watchdog, issued a press release that said personal data collection “plays an important role in driving Google and Facebook’s powerful market position.” It added that the default settings of online services on things like location data, “have a profound effect on choice and the shape of competition.”
Apart from their new focus on data, regulators are also looking to make internet companies more liable for the content they host. Critics say that existing laws, such as Europe’s 19-year-old E-Commerce Directive and the 24-year-old Communications Decency Act in the U.S., are out of date and have loopholes that allow Facebook and Google to use the principle of freedom of expression to insulate themselves from liability for hosting such content as child pornography or terror propaganda.
Later this year, the EU plans to revamp its law with new, sweeping rules aimed at changing that, in legislation known as the Digital Services Act.
Regulators in Britain, Canada and Asia are working on similar measures.
The U.K. is also likely to consider legislation that will empower a new regulator with sweeping power to better police internet content. The legislation borrows from the decades-old “duty of care” principle, which underpins its health and safety laws: A disturbing video could create the same kind of liability for a tech platform as a banana peel on a shop floor.
The concept, while not yet tested in court, could help regulators get around the freedom-of-expression defense often employed by big tech companies.
Ms. Olson is a reporter for The Wall Street Journal in London. She can be reached at parmy.olson@wsj.com. Rochelle Toplensky, a columnist with Heard on the Street, contributed to this article. Email her at rochelle.toplensky@wsj.com.
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