On February 7, 2019– in a devastating blow to global surveillance advertising, Germany’s antitrust arm, the Federal Cartel Office, ruled that Facebook’s tying of its data collection practices to usage of its services was unlawful.  In the public announcement of this ruling, the FCO president Andreas Mundt said:  “Facebook will no longer be allowed to force its users to agree to the practically unrestricted collection and assigning of non-Facebook data to their Facebook user accounts.” 

Not surprisingly, Facebook immediately blogged that it would file an appeal of this potentially ruinous ruling.  Though not ultimately based on the lack of “freely given” consent under GDPR, the ruling may ultimately have the same impact as if it were.  Interestingly, Facebook has previously shouted from the roofs that it was compliant with GDPR but never warned of a potential antitrust exposure – including in its most recent Annual Report.  

Other countries may also choose to use the antitrust route rather than wait on the pending Complaints filed against Facebook.  None of this should come as any surprise to Facebook given its own CEO saw the company as a “social utility” well over a decade ago.   

Interestingly, the FCO ruling considers the harm derived from Facebook’s data collection practices as the user’s “loss of control” rather than any specific pecuniary harm.  If affirmed, this novel antitrust ruling could be a watershed in surveillance advertising sufficient to crack the existing digital ad ecosystem and allowing for new business models to finally take hold.

In its Annual Report filed on February 5, 2019, Google’s parent, Alphabet, Inc., emphasized in a more pronounced way the privacy regulatory and business headwinds it now faces. Specifically, on pages 9 and 10 of the report, Alphabet writes “as the focus on data privacy and security increases globally, we are and will continue to be subject to various and evolving laws. The costs of compliance with these laws and regulations are high and are likely to increase in the future.” It goes without saying, proper compliance will never be optional for the company given that Google’s surveillance advertising accounted for over 85% of its total revenues in 2018.

According to its 10-K, those laws and regulations that may subject Alphabet “to significant liabilities and other penalties” include:

The California Consumer Privacy Act of 2018 that comes into effect in January of 2020, and gives new data privacy rights to California residents and regulates the security of data in connection with internet connected devices.

Privacy laws, which could be interpreted broadly thereby limiting product offerings and/or increasing costs.

Given the recent package of bills introduced in California to bolster CCPA and other privacy-related laws, Alphabet is certainly wise to include CCPA and unnamed “privacy laws” on its 10-K’s list of risk factors.

Alphabet also warns: “Changes to our data privacy practices, as well as changes to third-party advertising policies or practices may affect the type of ads and/or manner of advertising that we are able to provide which could have an adverse effect on our business.” As pointed out by Bloomberg, this wording is not merely reused boilerplate but represents new language.

Even though the duopoly of Google and Facebook are not going away anytime soon, Alphabet’s latest filing is an acknowledgement that upcoming regulatory and market changes may limit how these companies do business. In other words, the free reign they have had for so many years may finally be coming to an end.

In a December 18, 2018 bombshell expose, the New York Times admits it as well as more than 150 companies — “most of them tech businesses, including online retailers and entertainment sites, but also automakers and media organizations”, received special access to Facebook user and friend information.  For example, Microsoft was granted access to user names, Yahoo was able to view posts, Amazon could obtain contact information, and Netflix could even read, write and delete Facebook private messages as well as see all users on a particular thread. Today, these companies either deny the claims outright, claim they were not kept in the loop as to their access capabilities, or simply suggest that such practices terminated.

Facebook today posted a blog post to “clear up” what is set forth in the article.  According to Facebook, most of the features that gave rise to such usage “are now gone”:

We shut down instant personalization, which powered Bing’s features, in 2014 and we wound down our partnerships with device and platform companies months ago, following an announcement in April. Still, we recognize that we’ve needed tighter management over how partners and developers can access information using our APIs. We’re already in the process of reviewing all our APIs and the partners who can access them.

Netflix told the Times it was “unaware of the broad powers Facebook had granted.”  It further said:  “At no time did we access people’s private messages on Facebook, or ask for the ability to do so.”  A Microsoft spokesperson told CNBC in a statement:  “Throughout our engagement with Facebook, we respected all user preferences.”  In another statement to CNBC, Amazon said: “We only use information in accordance with our privacy policy.”  Indeed, in the New York Times article, there is this self-reference: “The Times — one of nine media companies named in the documents — had access to users’ friend lists for an article-sharing application it also had discontinued in 2011.  A spokeswoman for the news organization said it was not obtaining any data.”

Pushing aside the pristine parsing of words now being used, the fact remains Facebook users were never explicitly made aware of this massive exchange of consumer data between Facebook and its partners.

Not far different from this latest Facebook entangle, Vanderbilt University computer science professor Douglas C. Schmidt, in a study released in August 2018, found that:  “A major part of Google’s data collection occurs while a user is not directly engaged with any of its products. And while such information is typically collected without identifying a unique user, Google distinctively possesses the ability to utilize data collected from other sources to de-anonymize such a collection.” Indeed, Android mobile devices send 10 times more data to Google than iPhones.

On August 13, 2018, the AP Newswire released an expose on Google’s geo-data collection practices – but only after retaining Princeton researchers to confirm exactly how Google was able to gather this data.   Stemming from this usage of consumer information, there is a newly consolidated Google class action suit.  Not surprisingly, Google is defending by claiming its data collection could be stopped by changing certain settings – users would simply need to turn off “web and app activity” settings that would, in effect, disrupt full usage of many of their apps.

Once upon a time, Google’s Code of Conduct was built on the motto “Don’t be evil”.  It’s parent company – Alphabet, however, chose not to even use the motto in its own Code after forming in 2015.  And, Google earlier this year explicitly removed the “Don’t be evil” motto from its Code of Conduct.  Instead, Google’s current Code of Conduct reads:  “And remember… don’t be evil, and if you see something that you think isn’t right – speak up!”  The fact those who do actually speak up are being fired or resign – such as one whistleblower on the company’s lack of gender diversity or another who left based on Google’s plans for Chinese censorship, this glib new wording should not instill much confidence going forward.

Given Google’s masterful ability to silence class action lawyers with buckets of cash and consumer cy pres funds, it is not expected the pending consolidation will effectuate any real change.  Moreover, despite Facebook’s numerous congressional representations regarding how it complies with GDPR on a global level, if not for the likes of EPIC and Max Schrems there would be no real pressure on either Facebook or Google to change any of their practices.

With 2019 coming closer into view, it becomes clear that many companies using and maintaining consumer data will likely continue into the New Year with their existing practices given they do not really care about compliance risk – nor do users apparently really care about privacy risk.  Until such time as the compliance and privacy risks are superseded by even greater risks – or overtaken by demonstrated economic benefits to both users and owners of data, it seems likely this status quo will remain intact in the coming year.

The first new business that can address this current apathy by creating tangible and easily understood economic benefits for all participants might very well succeed in modifying an entire ecosystem.  The motivation for launching such an enterprise is readily apparent. As recognized in the Times article:  “Personal data is the oil of the 21st century, a resource worth billions to those who can most effectively extract and refine it.”

On November 19, 2018, the UK’s Register reported how even though the Washington Post was in technical violation of the GDPR, the UK’s privacy enforcement arm, the Information Commissioner’s Office, admitted in private emails that it was not likely going to seek extra-jurisdictionally any potential penalties.

According to the Register, the Washington Post’s online subscription options offers readers a free option (for a limited number of articles); a $6 a month option (for unlimited articles); and a $9 a month option that allows users to switch off tracking and cookies.  With the free and $6 a month options, readers, however, must consent to the use of cookies, tracking and ads.

Acting on a complaint apparently ginned up by the Register, a Case Manager from the UK ICO reviewed these policies and purportedly decided they were in violation of applicable privacy law.  (“I am of the view that the Washington Post has not complied with their Data Protection obligations.   This is because they have not given users a genuine choice and control over how their data is used.”).

Pushing aside the fact the pricing model set forth in the article may be stale – the current pricing is apparently set at a higher rate, and the fact EU residents can apparently opt out of the WaPo’s terms that may be in violation of GDPR, the article still brings home a very important point, namely that consent cannot truly be “freely given” when it is given only in response to a threatened change in pricing.

By way of background, Article 7 (4) of the EU’s GDPR states: “When assessing whether consent is freely given, utmost account shall be taken of whether, inter alia, the performance of a contract, including the provision of a service, is conditional on consent to the processing of personal data that is not necessary for the performance of that contract.”  By charging a different price for the same services based solely on whether consent is given, there is certainly technical violation of GDPR.

Moreover, under the recently enacted Section 1798.103 (“Right to Equal Service and Price”) of the California Consumer Privacy Act, this alleged violation is made even more stark:  “A business shall be prohibited from discriminating against a consumer because the consumer requested information pursuant to sections 1798.100 or 1798.101, or because the consumer directed the business not to sell the consumer’s personal information pursuant to section 1798.102, or because the consumer exercised the consumer’s rights to enforce this Act, including but not limited to, by: (a) denying goods or services to the consumer; (b) charging different prices or rates for goods or services, including through the use of discounts or other benefits or imposing penalties. . . .”

Whether by way of GDPR or CCPA – or other laws still not enacted, companies will eventually be tested on the adequacy of “freely given” consents.  And, the extra-jurisdictional limitations of GDPR will certainly not curtail US enforcement under an even more direct CCPA.  In other words, despite what others may suggest, marketers and others embedded in the digital ad ecosystem should likely get their consent proofs in order – especially as “big brands continue to redirect their ad spend and adapt their advertising practices to the GDPR.”

Between the recent 60 Minutes GDPR feature with Max Schrems – an educational piece that can only further draw consumer ire, or the actual four Complaints filed by Schrems that will likely resolve these issues, a Consent Armageddon is headed our way beginning in 2020 – the year CCPA also comes online and GDPR enforcement efforts will be more fully staffed.    More importantly, with the proper mechanisms in place, sometime after 2020, data subjects will finally have the power to fully exert ownership and controlled use of their own data – a property class that should be treated no differently than gold or silver.