CMA fines Facebook £50.5m

In the midst of competition concerns around Facebook’s takeover of Giphy, one of the largest providers of GIFs, the tech giant has now been fined £50.5m for its failure to comply with an initial enforcement order (IEO) imposed on it as part of the review into the acquisition. The fine is the highest imposed to date by the CMA for non-compliance with an IEO, and follows two attempts by Facebook to overturn the order in court.

The most recent and, until now, largest fine imposed by the CMA for non-compliance with an initial enforcement order was £325,000 (on ION in 2020). This fine, therefore, completely trumps previous penalties of this nature by some distance.

The CMA emphasised in its statement (here) that this is the first time a company has been found to be in breach of a freeze order by “consciously” refusing to report all the required information outlining its compliance with the IEO, despite the enforcement order being “standard practice” in an investigation. The CMA also noted that it afforded a lot of weight to the fact that Facebook’s failure to comply was “deliberate”, despite several warnings by the CMA, and thus stated that “this should serve as a warning to any company that thinks it is above the law”.

The CMA also issued a separate £500,000 fine on Facebook for changing its chief compliance officer on two occasions without seeking consent from the regulator beforehand.

Background

Facebook has been under a CMA IEO since June 2020. In August 2021, the CMA had provisionally found that Facebook’s purchase of Giphy would harm competition between social media platforms and eliminate potential challengers in the display advertising market. See its findings here.

The CMA reasoned that Facebook’s ownership of Giphy could allow it to deny other platforms access to its GIFs or, alternatively, amend its terms of access so that other platforms may be required to provide more user data in order to access Giphy GIFs. According to the CMA, the impact on digital display advertising may also be significant: prior to the deal, Giphy was considering advertising in a number of countries, including the UK, which would enable them to act as a potential challenger to Facebook and may have, in turn, encouraged innovation in other markets. This is of particular concern since the CMA found that Facebook had a share of around 50% of the £5.5bn display advertising market in the UK.

If the CMA’s review ultimately confirms its concerns it may require Facebook to unwind the deal, reportedly worth $400m. The regulator’s final decision is expected at the end of the year.

Initial enforcement orders and CMA powers

Interim enforcement orders are used to prevent merging parties from taking ‘pre-emptive action’ which may prejudice the outcome of the CMA’s review, or impede them from taking any appropriate remedial action, such as unwinding the deal. Government guidance on IEOs can be found here.

Under the Enterprise Act 2002, the CMA has the power to impose financial penalties where it considers that a person has failed to comply with an IEO without reasonable excuse. It may impose a fixed penalty of up to 5% of the merging parties’ combined global turnover.

However, the CMA is looking to toughen these enforcement powers further. The government ran a consultation, which closed in October, on reforming competition and consumer policy (here). The CMA’s new proposed fining powers for breaching IEOs include fixed penalties of up to 5% of annual turnover, as well as additional daily penalties of up to 5% of daily turnover while non-compliance continues. It would also grant the CMA the ability to disqualify company directors who make false declarations to the competition authority, and accept voluntary binding commitments from businesses at any stage.

Key takeaways

The CMA’s review of Facebook/Giphy continues and has now lasted for almost 18 months, involving appeals by Facebook in two separate courts. It is worth emphasising that Giphy achieved no UK turnover whatsoever and so the CMA’s concerns relate purely to anticipated or potential loss of innovation, which is – of itself – particularly novel. Facebook continues to challenge the CMA’s findings in its review, and the CMA’s process more widely.

It is sobering that this fine, whilst by any standards very significant, may well be exceeded by the CMA in years to come. The key takeaway for businesses is that (i) it is high risk to close a deal in certain sectors, even where the target achieves no UK turnover, without CMA clearance; and (ii) failure to abide scrupulously to the straightjacket imposed by an IEO carry very material risks.