Facebook Fined $70M by UK Watchdog Over Giphy Acquisition

Facebook Fined Heavily by U.K. Watchdog Over Giphy Acquisition

Facebook – or the potential new brand name chosen by the technology corporation as it transitions towards the metaverse – has incurred a substantial fine of approximately $70 million (£50.5 million) from a U.K. regulatory body. This penalty stems from a deliberate failure to disclose information pertinent to the ongoing antitrust review of its Giphy acquisition.

First Breach of its Kind

This marks the inaugural instance of the U.K.’s competition watchdog identifying a company as having violated this specific type of order. The breach involved a “conscious refusal to report all the necessary information,” according to the regulator’s statement.

Some observers suggest this outcome reflects Facebook’s current public relations strategy of disregarding external opinions.

Oversight Board and Legal Obligations

The tech giant has recently invested in a self-proclaimed “accountability apparatus,” known as the Facebook Oversight Board. This may have created some ambiguity regarding its legal obligations to comply with established oversight bodies within democratic systems.

However, a more critical assessment of Facebook’s actions may be warranted.

CMA Scrutiny of the Giphy Deal

The U.K.’s Competition and Markets Authority (CMA) has been investigating Facebook’s acquisition of the animated GIF platform for over a year. In April, a more comprehensive phase of the investigation was initiated, prompted by concerns that Facebook’s ownership of Giphy could diminish competition within the digital advertising sector.

A Facebook representative initially asserted the company would “fully cooperate” with the CMA’s investigation. However, this claim has since been proven inaccurate.

Failure to Comply with Information Requests

According to the CMA, Facebook did not adhere to standard oversight procedures. Despite repeated requests, the company failed to provide the regulator with information required under an initial enforcement order (IEO).

The CMA concluded that Facebook’s non-compliance was intentional, leading to the significant financial penalty.

CMA’s Statement on the Breach

“This represents the first time a company has been found by the CMA to have breached an IEO through a deliberate refusal to report all required information,” the CMA stated. “Considering the multiple warnings issued, the CMA believes Facebook’s failure to comply was intentional. Consequently, a fine of £50 million has been levied for this substantial breach, which fundamentally hindered the CMA’s ability to prevent, monitor, and rectify potential issues.”

Previous Criticism from Tribunals

Last year, both the Competition Appeal Tribunal and the Court of Appeal criticized Facebook for its lack of cooperation with the CMA. Judges characterized its approach as potentially “high-risk” regarding compliance with the IEO and providing updates to the regulator.

Purpose of the Initial Enforcement Order

An IEO is designed to temporarily halt further integration of acquired companies, allowing them to continue competing while an antitrust review is underway, as is the case with the Facebook-Giphy purchase.

Facebook has been subject to a CMA IEO since June 2020. However, the watchdog reported that the tech giant “significantly limited” the scope of required updates related to its compliance with the order.

Concerns About Concealment and Potential Unwinding

The CMA’s unprecedented penalty appears to be driven by both Facebook’s deliberate disregard for compliance requirements and the potential for this behavior to conceal information about Giphy. This could make it more difficult for the watchdog to order a complete reversal of the acquisition – a potential remedy considered earlier this year.

Additional Fine for Compliance Officer Change

The CMA also imposed a separate fine of £500,000 on Facebook for changing its chief compliance officer twice without first obtaining the regulator’s approval.

CMA Official’s Commentary

Joel Bamford, senior director of mergers at the CMA, stated: “We cautioned Facebook that its refusal to provide crucial information constituted a breach of the order. Even after losing appeals in two courts, Facebook continued to disregard its legal obligations.”

He added, “This should serve as a warning to any company that believes it operates above the law.”

Explanation of the IEO Requirement

Mr. Bamford further explained: “Initial enforcement orders are a vital component of the U.K.’s voluntary merger control system. Companies are not obligated to seek CMA approval before completing an acquisition, but if they proceed with a merger, we can prevent further integration if we believe consumers may be adversely affected and an investigation is necessary.”

Facebook’s Response

In response to the CMA penalties, Facebook criticized the action as “unfair,” asserting it had pursued a “best effort compliance approach.”

An unnamed Facebook spokesperson stated: “We strongly disagree with the CMA’s unfair decision to penalize Facebook for a best effort compliance approach, which the CMA itself ultimately approved. We will review the CMA’s decision and consider our options.”

The company also provided background information that it requested not be directly quoted or attributed.

Instead, here’s a GIF: