Facebook Fined $70 Million By UK’s CMA

Facebook continues to reel with the punches, with the latest blow being a sharp jab to the body, landed by the British competition watchdog.

The UK’s Competition and Markets Authority (CMA) has fined Facebook £50.5 million ($69.6 million) for breaching an order imposed during its investigation into the social networking giant’s purchase of GIF platform Giphy.

This fine will be watched closely, as Facebook in September essentially told the UK CMA that it has no authority to enforce its decision about Giphy.

Competition concerns

Giphy is a provider of humorous short looping videos, and was headquartered in New York and Los Angeles.

In May 2020 Facebook announced it would purchase Giphy, but in June last year the UK’s CMA got involved in the matter and issued an initial enforcement order (IEO).

The IEO ensures that companies continue to compete with each other as they would have without the merger, and prevents the companies involved from integrating further while a merger investigation is ongoing.

The CMA imposed this type of order on Facebook in June 2020 in relation to its purchase of Giphy.

Other competition authorities are also said to be investigating the merger.

The CMA said it would look into whether the $400 million (£317m) deal “has resulted or may be expected to result in a substantial lessening of competition in any market or markets in the United Kingdom”.

The CMA essentially said it got involved because of the fact that Giphy does business in the United Kingdom.

In April this year, the CMA said it would deepen its investigation of the takeover of Giphy, after Facebook’s concessions failed to allay the UK’s concerns.

To be fair, the deal had raised competition concerns elsewhere, as Giphy is widely used on social media, and while Facebook said half of Giphy’s traffic originates from Facebook apps, such as Instagram and WhatsApp, Giphy also provides images to others including Snapchat, TikTok and Twitter.

Facebook had also previously said it plans to integrate Giphy into its Instagram photo app, potentially giving it access to large amounts of data.

Facebook for its part had said that Giphy’s integrations with other social platforms like Twitter Snapchat and ByteDance’s TikTok would not change.

But that did not cut any ice with the UK regulator.

In August the CMA announced that it had “provisionally found Facebook’s merger with Giphy will harm competition between social media platforms and remove a potential challenger in the display advertising market.”

Facebook responded in September, questioning the CMA’s authority in the matter.

CMA fine

And now the CMA has fined the American giant, saying Facebook had deliberately failed to comply with its order.

“Facebook has been fined £50.5 million for breaching an order imposed by the CMA during its investigation into Facebook’s purchase of Giphy,” the CMA said

“Facebook is required, as part of the process, to provide the CMA with regular updates outlining its compliance with the IEO,” it said. “Facebook significantly limited the scope of those updates, despite repeated warnings from the CMA. It was also criticised last year by the Competition Appeal Tribunal and Court of Appeal for its lack of cooperation with the CMA and “what might be regarded as a high-risk strategy” in relation to not complying with the IEO and not keeping the CMA updated as the IEO required.”

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, the UK watchdog said.

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.

Separately, the CMA has fined Facebook £500,000 for changing its Chief Compliance Officer on two separate occasions without seeking consent first.

“Initial enforcement orders are a key part of the UK’s voluntary merger control regime,” said Joel Bamford, senior director of mergers at the CMA.

“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.”

“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,” said Bamford.

“This should serve as a warning to any company that thinks it is above the law,” said Bamford.

The CMA said its investigation into Facebook’s merger with Giphy is ongoing and it will work constructively with the companies as things progress further.

No decision has yet been reached in relation to the merger.