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Digitalisation and competition: AFCA examines non notification of Facebook’s takeover of GIPHY

The Austrian Federal Competition Authority (AFCA) is investigating whether the merger of Facebook and GIPHY should have been notified in Austria.

Background information

The US-based company Facebook offers social media and communication services for end users via its website of the same name and smartphone apps, as well as online advertising services. The online platform Instagram has been part of the Facebook Group since 2012, and the messenger service WhatsApp since 2014. Facebook’s services are free of charge for non-commercial users. The Group makes money by selling (personalised) advertising space.

The US company GIPHY is a digital platform offering a library and search engine for GIFs, stickers and other animated content. GIFs are graphic file formats, which can be used to create animations and short videos. They are primarily used for visual communication. GIFs cannot be sent or received via GIPHY apps or its website, but exclusively via third-party providers such as, for example, Signal, WhatsApp or Facebook Messenger.

Facebook took over GIPHY in May 2020. It did not notify the AFCA of the merger.

Exceeded transaction thresholds trigger notification requirement

In 2018, a threshold based on transaction value was added to the existing thresholds for merger control in Austria (and also in Germany). Previously, mergers only had to be notified in both countries if the companies involved achieved certain minimum levels of turnover.

According to the new threshold, mergers must now also be notified if their significance in terms of economic value or competition is reflected in a high transaction value (in Germany more than EUR 400 million, in Austria more than EUR 200 million). Additionally, according to the wording in the Act, the target company must be “active to a large extent on the domestic market”.

In company acquisitions, a high purchase price is usually indicative of an innovative business idea and strong competitive market potential. The transaction threshold is intended to close a gap in the merger control system. It should ensure that mergers in the digital economy where the target company generates little or no turnover are also covered by the system of control.

AFCA investigations

In June 2020, the AFCA contacted Facebook with reference to the transaction threshold applicable in Austria. Subsequently, the AFCA submitted several requests for information and internal documents to Facebook. Facebook provided extensive documentation and a waiver of confidentiality to allow the exchange of information with other authorities. AFCA’s examination centred around the question of whether GIPHY operates within the country, which is a prerequisite for the transaction threshold to apply (cf. § 9 para. 4 subpara. 4 of the Federal Cartel Act - KartG). The crucial factor in relation to GIPHY’s potential domestic activity is whether its services are used in Austria.

In March 2021, the AFCA submitted its Statement of Objections to Facebook. A Statement of Objections is a formal step in AFCA investigations informing the parties concerned in writing of the objections raised against them. Further talks are currently ongoing in this regard.

Cooperation with RTR

The AFCA and the Telecommunications and Postal Services Division of the Austrian Regulatory Authority for Broadcasting and Telecommunications (RTR) collaborate in the area of monitoring digital platforms. The objective of competition monitoring is to capture all digital communication platforms and platforms that have a large impact on the use of the internet, and to assess those from a competition perspective. The AFCA and RTR are therefore also in close contact regarding the examination of the alleged illegal merger of Facebook and GIPHY. In this context, and at the AFCA’s request, the RTR provided an opinion on the economic significance of the indirect use of GIPHY.

Cooperation with other competition regulators

The AFCA is also cooperating with other competition authorities, particularly the UK’s Competition and Markets Authority (CMA). On 25 March 2021, the CMA announced on its website that Facebook’s completed acquisition of GIPHY raised competition concerns. Further details are available at: CMA information

Fines

After completion of the investigations, court proceedings before the Cartel Court may follow upon the AFCA’s request. The Cartel Court may impose fines of up to 10% of a company’s total turnover recorded in the preceding business year if that company is found to have breached the standstill obligation. The amount of the fine depends on the gravity, execution and duration of the breach, as well as the degree of responsibility.