Out-Law News 2 min. read

UK competition court halts class action claim against Meta

The UK’s Competition Appeal Tribunal (CAT) has paused the progress of a class action against Facebook’s parent company, Meta, amid concerns over the validity of the methodology used to calculate potential damages.

In a judgment (46 pages / 504KB PDF) handed down on 20 February 2023, the CAT declined to grant a collective proceedings order (CPO) to Dr Liza Lovdahl Gormsen, who launched a standalone opt-out collective damages claim against the company last year for Meta’s alleged abuse of dominance in breach of competition law. Gormsen, who is the prospective class representative for the action, is seeking damages of approximately £2.3 billion plus interest on behalf of approximately 45 million UK consumers.

Gormsen alleges that Meta abused its dominance by imposing complex and far-reaching terms of business on Facebook users, giving rise to three separate infringements. According to Gormsen, the company placed an “unfair data requirement” on Facebook users to provide personal data before giving them access to the social network’s services. Gormsen also raised an “unfair price” claim against Meta, alleging that users were not paid for the company’s access to, or use of, their valuable personal data despite Meta monetising that data to sell targeted advertising. In addition, she claims that the terms and conditions covering how users’ personal data is used and shared by Meta are complex, misleading, and imposed on a ‘take it or leave it’ basis – and represent “unfair trading conditions”.

But the CAT criticised the methodology proposed by Gormsen’s economic expert for calculating potential damages said to arise from the alleged competition law breaches. It found that the methodology did not cover each of the three alleged abuses, where each required a separate counterfactual analysis to form the basis for a damages assessment. In the CAT’s view, the proposed methodology dealt solely, and inadequately, with Gormsen’s unfair pricing claim. Handing down the court’s judgment, Sir Marcus Smith criticised the lack of clarity about the “nexus” between the alleged legal breach, how the counterfactual is framed, and the method of quantifying the resulting loss. He also noted the proposed methodology had changed significantly in response to criticism by Meta’s own economic expert.

The court said the usual test for determining unfair pricing under competition law would need adjustment when applied to digital platform services to account for “special factors”. Firstly, no monetary price exists for users - their personal data is ‘bartered’ for access to Meta’s services. Secondly, the court said that, because the market is two-sided – with Facebook’s services provided to users in exchange for their personal data, which then facilitates the targeted digital advertising services provided to businesses – any assessment must consider interaction between both markets, and whether Meta is dominant in each.

The CAT also expressed doubt over how Gormsen’s unfair data requirement and unfair trading conditions claims, as currently pleaded, could be articulated as abuses of a dominant position in breach of competition law. Sir Marcus Smith said it was difficult to see how the counterfactuals for these two claims could be linked with the proposed methodology for assessing damages. He went on to question how – as suggested by Gormsen - Meta’s alleged excessive profits could relate to loss allegedly suffered by users under the unfair data requirement claim. The judgment also noted that it would be “extraordinarily difficult” to establish the other unfair trading conditions claim as an abuse of dominance. Sir Marcus Smith suggested that the claim would be more suitable for a consumer protection law claim, which the CAT does not have jurisdiction over.

The court stopped short of rejecting Gormsen’s application altogether, instead granting six months to improve the proposed methodology so that the CAT can be satisfied that the claim has a suitable “blueprint to trial”. The decision marks the first time since the landmark Merricks ruling that the CAT has almost refused to certify a CPO application in a consumer-focused competition mass action. If Gormsen does not provide a satisfactory revised methodology within the six-month timeframe, the CAT will dismiss the claim. Gormsen can make a reasoned application to extend the timeframe, but Meta could contest this. Gormsen could also seek to appeal the CAT ruling or, alternatively, abandon the claim altogether.

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