Giphy Inc. (“Giphy”) is a US provider of a searchable GIF library whose GIFs and stickers can be accessed through many of the most popular social media platforms in Austria via an API.
Meta Platforms Inc. (formerly Facebook, Inc., recently renamed “Meta”) acquired Giphy in May 2020, exceeding the statutory notification threshold of EUR 200 million. Since the merger was not notified for examination despite a notification obligation (§ 9 para. 4 of the Austrian Cartel Act – KartG), the Cartel Court imposed a fine of EUR 9.6 million on Meta following an application brought by the AFCA (see AFCA’s press release of 31 August 2021). Meta subsequently notified AFCA of the merger, and the Authority carried out a Phase I investigation of the merger.
On 17 August 2021, the AFCA and the Federal Cartel Prosecutor filed a request for examination with the Cartel Court owing to competition concerns (see also AFCA’s press release of 18 August 2021). A number of possible negative effects had to be investigated, with the AFCA particularly fearing that Meta would:
- restrict non-discriminatory access to Giphy for other online services
- obtain sensitive information about rival online services through numerous other apps’ integrated interface to the Giphy library
- stifle potential competition with Giphy for advertising clients.
Giphy merger underpins Meta’s dominance in the market
The Cartel Court confirmed the AFCA’s arguments in essence, stating that the merger, as notified with the AFCA, would strengthen Meta’s position in the market and impede competition.
The Cartel Court found that Meta dominated the market for social media (social networks such as Facebook but also instant messaging services such as WhatsApp). Meta held large shares in the market and benefited from the relatively high barriers to entry (e.g. through direct and indirect network effects).
The Cartel Court also affirmed Meta’s dominant position in the Austrian online advertising market, and irrespective of whether search advertising providers such as Google are included in this market. The Cartel Court also found growth barriers for the online advertising market (for example because of access to end user data that enables targeted advertising).
The Cartel Court also confirmed AFCA’s assertion that Meta’s competitors might be denied access to Giphy services or only be given limited access after the completed merger. Meta would therefore have been able to boost its market position in relation to both social media and online advertising in a manner distorting competition.
The Cartel Court therefore reasoned that the merger could only be approved subject to conditions (§ 12 para. 3 KartG).
Cartel Court sees competition concerns dispelled by conditions
Under the conditions prescribed by the Cartel Court, and after all Austrian and international merger investigations have been completed, Meta must:
- provide non-discriminatory access to Giphy’s GIF library for competing social media providers (for the duration of five years) and
- grant alternative GIF libraries, under certain conditions, access via programming interfaces (API) to Giphy’s GIF library to allow the establishment of an additional GIF provider other than Giphy (Meta) and Tenor (Google) (for the duration of seven years).
An official will be appointed tasked with monitoring implementation and compliance with these commitments.
Cartel Court sees no horizontal competition concerns because of merger
Based on the expert opinions submitted, the Cartel Court concluded that Meta’s dominance would only be increased owing to vertical effects (danger of competitors being denied access to Giphy). Giphy’s (potential) activities as a provider of online advertising services and its access to sensitive information from a competition perspective would not increase its market dominance.
Considering that Meta dominates the markets for social media and online advertising, the AFCA specifically highlighted the need to protect the remaining competitors in these markets.
AFCA filed an appeal – decision not yet final
The Cartel Court’s decision to approve the merger subject to conditions is not yet final. On 3 March 2022, the AFCA and the Federal Cartel Prosecutor filed an appeal with the Supreme Court of Justice sitting as the Supreme Cartel Court.
The Supreme Cartel Court now needs to examine a number of legal questions in relation to the merger investigation conducted by the Cartel Court:
- Procedural shortcoming
- Review of the full effect of the conditions, both with regard to excluding any possibility for Meta to circumvent the conditions and with regard to serious concerns relating to the facts ascertained in this connection by the Cartel Court
- Review of the Cartel Court’s decision with regard to whether developments without the merger had been sufficiently taken into account and consequently with regard to the question of which comparison scenario should be used in investigating the case
- Review of the Cartel Court’s decision with regard to whether sufficient account had been taken of the change in the market structure of GIF libraries.
UK investigation also not yet completed
Following an in-depth investigation, the UK’s Competition and Markets Authority (CMA) concluded on 1 December 2021 that the merger would cause a significant reduction in competition.
The CMA therefore directed Meta to sell Giphy, thereby in effect prohibiting the merger. Meta is bringing an appeal against the decision.