NSR Tech Policy: Meta’s Europe fine won’t affect its ads business in the short run

What’s new?

  • Earlier this week, the Ireland Data Protection Commissioner (DPC) fined Meta $414 million for violating Europe’s privacy law, the General Data Protection Regulation (GDPR). The order requires Meta to come into compliance with GDPR within 3 months.
  • The DPC found that Meta did not establish a proper legal basis for processing European users’ data, including using that data for personalized advertising. It also found that Meta had not provided enough transparency to its users about that legal basis.
  • Meta plans to appeal the decision.

Background:

  • The GDPR requires companies to use a valid legal mechanism to process Europeans’ data. Meta sought to base some of its data processing on its contracts with users.
  • In May 2018, when the GDPR came into effect, two European users initiated cases against Meta (then Facebook), claiming that Meta’s revised terms of service did not comply with the GDPR. The DPC’s fines stem from those complaints.

Key takeaways:

  • Meta will not stop running ads: While Meta is appealing the decision, it will not shift its ad practices. And even if European courts ultimately disagree with Meta about whether its contracts with users can serve as an adequate basis for data processing, Meta will simply shift to another GDPR-approved basis so that it can continue to serve ads to Europeans.
  • It’s still early in the game: It’s been over 4 years since the case was initiated, and it will take more time to resolve the appeal.
  • Meta is not alone: Some of the reporting on the case seems to suggest that the fines are due to behavior that’s unique to Meta, or that the fines break news about past misconduct by the company. Neither is the case. Any company operating a data business in Europe needs a legal basis for data processing. Meta sought to use “contractual necessity” as that legal basis, as many other companies do, and it made that justification public. The DPC’s fine reflects a dispute about an interpretation of new European privacy law but is not a revelation about Meta’s conduct. A resolution of the case will affect not only Meta, but any business that seeks to use “contractual necessity” as a basis for data processing.
  • Conflicts between regulators: This case showcases uncertainties in GDPR enforcement that will create difficulties for businesses, particularly smaller platforms. As the DPC explained in its press release, it disagreed with the European Data Privacy Board (EDPB) on the question of whether Meta’s contracts provide a lawful basis for data processing: the DPC determined the contracts to be sufficient, but the EDPB overruled the DPC and decided they were not. These conflicts create uncertainty for businesses trying to understand how to comply with GDPR. Smaller platforms may be harmed by these challenges more than well-established rivals, since smaller platforms typically are disproportionately harmed by compliance costs and burdens.

Bottom line:

  • This case is unlikely to impose significant constraints on Meta’s business or to disproportionately harm Meta relative to its competitors. The case will likely take years to resolve.

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