In strongly worded letter, Facebook says the CMA’s suggested divestiture of Giphy “is grossly unreasonable and disproportionate”
Facebook has hit back hard at the UK’s competition watchdog, and essentially told the UK Competition and Markets Authority (CMA) that it has no authority to enforce its decision about Giphy on the social network.
Giphy for those that don’t know, 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.
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 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.
The CMA began an initial investigation in January this year, and after the initial investigation, the CMA said that if the two companies remain merged, Giphy could have less incentive to expand its digital advertising.
This raised its concerns about Facebook’s existing market power in display advertising.
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.
Last month 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.”
The CMA is expected to issue its final report on the matter on 6 October, but if its concerns are not addressed, it could require Facebook to unwind the deal and sell off Giphy in its entirety.
However Facebook has issued a strongly word response to the CMA, which was published on its website.
In essence, the social networking giant refuted the CMA concerns, and concluded the British competition regulator had no authority to intervene on the matter.
“In summary, GIPHY currently has no existing commercial interest in conducting its activities in the UK,” said Facebook. “It does not carry on business in the UK for the purposes of section 86(1) of the Enterprise Act and in the absence of an enforcement order being capable of application to a company like GIPHY’s – a US company with commercial activities strictly limited to the US – this clearly demonstrates that the legislature was not intended to apply to acquisitions of such companies.”
“This underscores the importance of the CMA not relying upon a speculative loss of potential competition theory of harm (with a negligible, if any, future impact in the UK) as a basis for forcing the divestment of an exclusively US business,” said Facebook.
“The inability of the CMA to issue any order against GIPHY raises serious questions as to the enforceability of any divestment order and whether any such order could be effective,” Facebook warned. “These are questions which the CMA must carefully consider, and address, before taking the extreme intrusive step of ordering the sale of a company which does not carry on business in the UK.”