22/09/2020

As Silicon Valley’s data-collection capabilities deepened over the past decade, countries have struggled to control the market power these tech giants have over their citizens. While most have focused on antitrust efforts and fines, Germany is going a step fu…

Andreas Mundt, president of Germany’s Federal Cartel Office, in Bonn, Germany on April 17, 2018. Mr. Mundt has led the Bonn-based Bundeskartellamt, Germanys competition watchdog, since 2009.
WOLFGANG RATTAY/X00227
Sitting in a sun-splashed office on the edge of the Rhine River that once belonged to West German presidents, Andreas Mundt leans his elbows on a table and nods to a yellow and blue experimental painting by the artist Maiken Bardeschi. Its called Frei, he says the German word for free. I like that a lot, he says. Competition law is a lot about freedom. Its about choice. And this matters a lot to me.
Mr. Mundt has led the Bonn-based Bundeskartellamt, Germanys competition watchdog, since 2009. Over the past decade, he has grown increasingly frustrated with the amount of power the Big Tech companies have accrued because of their mass collection of user data. Most recently, the Bundeskartellamt head had become especially exasperated with Facebook Inc. Specifically, he wanted to put an end to its practice of combining user data collected from its proprietary platforms Facebook, Instagram and WhatsApp as well as information from third-party websites to build eerily accurate profiles that help advertisers better target users. And he has taken his fight all the way to Germanys highest court.
In Mr. Mundts mind, Facebooks arsenal of digital data sources not just the three largest social-media platforms in the world, but also countless other websites its 2.5 billion users visit that contain tracking codes that share data with Facebook are unmatched and give the company enormous market power. And the granularity of the personal data the platform is able to accrue has the power to influence user behaviour on a mass scale through advertising. Sometimes its as obvious as an ad for a pair of shoes following you around the internet after you browsed for them on Amazon. But such power can also have serious consequences: Russian entities are suspected to have used Facebook ads to help swing the 2016 U.S. election in Donald Trumps favour. The subsequent Cambridge Analytica scandal, in which the company used Facebook users profile data without their permission to target them with political ads, only enhanced mistrust in unchecked data aggregation.
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As Silicon Valleys data-collection capabilities have deepened over the past decade, plenty of jurisdictions have started scrutinizing the role Facebook and other platforms play in the lives of their citizens. But few countries have been as aggressive as Germany not just in calling them out, but in taking action to curb their Big Brother tendencies. While most recent antitrust rulings against data-driven players have focused on financial punishments (including the European Unions 1.5-billion fine against Google last year for anticompetitive behaviour in online search advertising), Mr. Mundt didnt think a mere fine sent a strong enough message. Instead, he wants Facebook to fundamentally change the business model that brings in tens of billions of dollars in ad revenue each year.
A poster promoting an anti-Google cafe is pictured in Berlin’s Kreuzberg district on May 22, 2018.
TOBIAS SCHWARZ/AFP/Getty Images
In February, 2019, the Bundeskartellamt announced it would prohibit the social-media company from combining user data from multiple platforms. The case is now before the Bundesgerichtshof, Germanys top court. If he succeeds, Mr. Mundt hopes it will lead to a fairer social internet, one that would give users more freedom and control over how private companies profit from their personal information.
If we want to deal with the market power of these companies and deal with abuse that might be happening, he says, we have to answer the fundamental question of how to deal with these data issues.
Germanys fight has potentially huge implications not just for Facebook and its Big Data brethren, but for the billions of people who use their platforms every day. And its privacy-first ethos is spreading. Here in Canada, federal Privacy Commissioner Daniel Therrien is fighting for greater powers against data abusers. Canada also just spearheaded a move among global privacy commissions to call for greater collaboration with competition authorities to tackle data protection. Multiple U.S. states are building their own antitrust cases against the Silicon Valley giants, calling out their absolute control over consumers data (even as the companies themselves claim to face plenty of competition). Facebooks home state of California has begun enforcing strict privacy laws of its own; New York is expected to follow suit.
The Umspannwerk building where U.S. tech company Google is to open a Google Campus for startups on April 6, 2018 in Berlin, Germany.
Sean Gallup/Getty Images
Mr. Mundts home country is still at the vanguard, however. Germany is the leading privacy and data-protection country in the world, says Ontarios former privacy commissioner, Ann Cavoukian, who regularly liaised with the countrys privacy authorities during her three terms. Theres nothing comparable to Germany.”
And Mr. Mundt is certainly not alone. Everyone from German Chancellor Angela Merkel (who late last year urged the European Union to wrest back control of citizens personal information and manage it more directly) to grassroots activists to the countrys Berlin-centred startup sector are onside with his crusade.
Maybe we have to restrict business in certain situations to respect the privacy of every person, says Samuli Siren, managing director of Redstone VC in Berlin. Im totally okay when business is limited when it comes to values that are important to us. Ill put it this way: Lets not do business for any price.
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Germanys fierce pro-privacy bent has deep roots.
Its been just three decades since the fall of the Berlin Wall 30 years since the East German domestic spy agency, the Stasi, controlled a web of 90,000 staff and nearly twice as many informants, who tracked citizens to silence dissidents and build paranoia across the country. That, coupled with the Nazi regimes pervasive use of surveillance and record-keeping to track Jews and other targeted groups, has left many German people with a deep suspicion of mass data collection.
In 1970, the West German state of Hesse passed the worlds first data-protection law, prompting other states in the Federal Republic to do the same. National legislation requiring consent when a persons data are processed followed in 1978. A subsequent court ruling that personal data should be constitutionally protected was later built into German law in time for reunification in 1990.
CASH IS KING
IN GERMANY, HARD-TO-TRACK CASH IS STILL
USED IN 80% OF POINT-OF-SALE TRANS-
ACTIONS, REDUCING PAPER TRAILS
CANADA 2018
21%
GERMANY 2017
80%
THE GLOBE AND MAIL,SOURCE:PAYMENTS
CANADA; ECB
CASH IS KING
IN GERMANY, HARD-TO-TRACK CASH IS STILL
USED IN 80% OF POINT-OF-SALE TRANSACTIONS,
REDUCING PAPER TRAILS
CANADA 2018
GERMANY 2017
21%
80%
THE GLOBE AND MAIL,SOURCE:PAYMENTS CANADA; ECB
CASH IS KING
IN GERMANY, HARD-TO-TRACK CASH IS STILL USED IN 80%
OF POINT-OF-SALE TRANSACTIONS, REDUCING PAPER TRAILS
CANADA 2018
GERMANY 2017
80%
21%
THE GLOBE AND MAIL,SOURCE:PAYMENTS CANADA; ECB
That legacy lives on. Germans still cling to cash, and few independent businesses accept credit or debit payments, wary of creating a digital trail. Theres less social-media penetration, too: While 53 per cent of Canadians actively used Facebook each month in 2019, only 32 per cent of Germans did, according to research firm eMarketer.
FEWERFACES BOOKED
GERMANS ARE LESS LIKELY TO USE
FACEBOOK THAN CANADIANS
CANADA
GERMANY
FACEBOOK USERS* (MILLIONS)
(% POPULATION)
18.3
2016
25.8
50.4%
31.6%
18.7
2017
26.5
51.2%
32.4%
19.3
2018
26.1
52.2%
31.9%
19.7
2019
25.9
52.8%
31.6%
19.9
2020
25.8
52.8%
31.5%
*Monthly, active
THE GLOBE AND MAIL, SOURCE: EMARKETER
FEWERFACES BOOKED
GERMANS ARE LESS LIKELY TO USE
FACEBOOK THAN CANADIANS
CANADA
GERMANY
FACEBOOK USERS* (MILLIONS)
(% POPULATION)
18.3
2016
25.8
50.4%
31.6%
18.7
2017
26.5
51.2%
32.4%
19.3
2018
26.1
52.2%
31.9%
19.7
2019
25.9
52.8%
31.6%
19.9
2020
25.8
52.8%
31.5%
*Monthly, active
THE GLOBE AND MAIL, SOURCE: EMARKETER
FEWERFACES BOOKED
GERMANS ARE LESS LIKELY TO USE FACEBOOK THAN CANADIANS
% POPULATION
FACEBOOK USERS* (MILLIONS)
CANADA
GERMANY
18.3
2016
25.8
50.4%
31.6%
18.7
2017
26.5
51.2%
32.4%
19.3
2018
26.1
52.2%
31.9%
19.7
2019
25.9
52.8%
31.6%
19.9
2020
25.8
52.8%
31.5%
THE GLOBE AND MAIL, SOURCE: EMARKETER
*Monthly, active
When the EU began exploring a broad data-use framework for the bloc earlier this decade, not only did Germany take a lead in designing it, but the countrys laws served in part as a blueprint, says Sontje Julia Hilberg, a partner with Deloitte Legal in Berlin who focuses on data-protection law. (It was also premised partly on privacy by design, a concept developed by Ms. Cavoukian in the 1990s that insists technology be built with privacy as a foremost consideration.) That framework became the General Data Protection Regulation, or GDPR, which went into effect in 2018 and applies to any company that does business in the EU.
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GDPR grants EU citizens some of the worlds most extensive rights regarding data collection. People must be informed whenever their personal information is being collected by a website and give their express consent. (That stipulation has had ramifications for web users there and even worldwide, with a wave of consent requests about cookies popping up on virtually every site.) GDPR also gives Europeans extensive control over how their data are used. That includes the right to decide whether those data are processed in the first place and to ask for it to be erased.
Companies that violate the regulations some of which Facebook lobbied against, according to a Guardian report can be fined up to 4 per cent of their global revenue. France fined Google 50-million ($72-million) in January, 2019, for providing users with an insufficient consent policy and for not giving them enough control over their data. This past November, Germany fined the real estate firm Deutsche Wohnen 14.5-million over insufficient data-retention procedures.
Protesters make noise and hold a banner that reads: ‘Stop the Google Campus, Self-determination Instead of Domination’ outside the Umspannwerk building where U.S. tech company Google is to open a Google Campus for startups on April 6, 2018 in Berlin, Germany.
Sean Gallup/Getty Images
Privacy regulation isnt the only front on which Europe is restricting data collection. The EUs competition commission has served Google with billions of euros in fines because of concerns over the dominant position of its parent company, Alphabet Inc., in the search, app and ad-sales markets. More recently, the EU commission has been looking into the dominance of Facebooks classified-ads division.
Although the fines have so far been minor (with annual revenue of US$137-billion in 2018, the EU levy was barely a slap on the wrist for Alphabet), the new regulations have brought the importance of data privacy into the public conversation and forced companies of all kinds to consider the value of data protection, Deloittes Ms. Hilberg says. People are now more aware it, she says, adding that its values are spreading beyond the EU: Its become a political instrument to make clear that data privacy should be a worldwide concern.
Mr. Mundt has been obsessed with how the internet shifts market forces since he arrived at the Bundeskartellamt more than a decade ago. After first fighting resale price-fixing of products sold online, midway through the decade, he shifted focus to the accumulation of data, assigning an internal task force to examine its role in competition. By 2017, the agency had pushed legislators to update Germanys competition act to factor in access to data when determining a companys dominance. After all, the biggest digital giants Facebook, Google, Amazon built empires by learning all they could about their users. Even when consumers dont directly pay to use Big Techs services, the Bundeskartellamt argued that data collection created a multisided market in which data creates power.
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If we assume that these are really powerful companies, then we have to deal with the question of: Is the gathering of the data done in an appropriate manner? Mr. Mundt asks. For us, this is of special importance, because we are one of the rare countries where this a parameter that is mentioned in the law.
The Bundeskartellamts case argues that the California companys user terms and conditions, which allow Facebook to aggregate data from its multitude of apps and third-party datasets, are anticompetitive. Because there is no alternative social network with Facebooks reach, the German agency says, users who want to take part have no choice to agree to its terms. Mr. Mundt believes this could also contravene GDPR, given its strict rules around data collection and consent.
WORLDPRIVACYLEGISLATION
CANADA
The Liberal government keeps discussing moving Canada
toward a GDPR-like privacy regime, including updating the
decades-old PersonalInformation Protection and Electronic
Documents Act. But InnovationMinister Navdeep Bains
told The Globe this month that he expects delays in
delivering legislation because of his partys minority in
Parliament. The federal privacy commissioner, meanwhile,
has long been asking for extended, European-style
powers.
EUROPEAN UNION
CALIFORNIA
GDPR grants EU citizens
some of the worlds most
extensive rights regarding
data collection, including
consent requirements when
data is collected, the ability
to decide whether their data
is processed, and to ask for
it to be erased.
The United States is home
to a hodgepodge of state
privacy legislation, but
the California Consumer
Privacy Act just came
into effect in the home
state of Silicon Valley. It
is comparable to GDPR
in spirit, but still contains
differences. For example,
CCPA limits Californians
ability to request information
that has been collected about
them to only the past 12 months,
as opposed to more
extended access in the EU.
GERMANY
The worlds first data-protection law was passed in
Germany in 1970, and GDPR is partially modelled on
earlier German regulations. In November, it fined the
real estate firm Deutsche Wohnen 14.5-million over
insufficient data-retention procedures.
BERLIN
BONN
FRANKFURT
MUNICH
THE GLOBE AND MAIL
WORLDPRIVACYLEGISLATION
CANADA
The Liberal government keeps discussing moving Canada
toward a GDPR-like privacy regime, including updating the
decades-old PersonalInformation Protection and Electronic
Documents Act. But InnovationMinister Navdeep Bains
told The Globe this month that he expects delays in
delivering legislation because of his partys minority in
Parliament. The federal privacy commissioner, meanwhile,
has long been asking for extended, European-style powers.
CALIFORNIA
EUROPEAN UNION
The United States is home
to a hodgepodge of state
privacy legislation, but
the California Consumer
Privacy Act just came
into effect in the home
state of Silicon Valley. It
is comparable to GDPR
in spirit, but still contains
differences. For example,
CCPA limits Californians
ability to request information
that has been collected about
them to only the past 12 months,
as opposed to more
extended access in the EU.
GDPR grants EU citizens
some of the worlds most
extensive rights regarding
data collection, including
consent requirements when
data is collected, the ability
to decide whether their data
is processed, and to ask for
it to be erased.
GERMANY
The worlds first data-protection law was passed in
Germany in 1970, and GDPR is partially modelled on
earlier German regulations. In November, it fined the
real estate firm Deutsche Wohnen 14.5-million over
insufficient data-retention procedures.
BERLIN
BONN
FRANKFURT
MUNICH
THE GLOBE AND MAIL
WORLDPRIVACYLEGISLATION
CANADA
EUROPEAN UNION
GDPR grants EU citizens some of
the worlds most extensive rights
regarding data collection, including
consent requirements when data is
collected, the ability to decide
whether their data is processed,
and to ask for it to be erased.
The Liberal government keeps discussing moving Canada toward a
GDPR-like privacy regime, including updating the decades-old Personal
Information Protection and Electronic Documents Act. But Innovation
Minister Navdeep Bains told The Globe this month that he expects
delays in delivering legislation because of his partys minority in
Parliament. The federal privacy commissioner, meanwhile, has long
been asking for extended, European-style powers.
CALIFORNIA
The United States is home
to a hodgepodge of state
privacy legislation, but
the California Consumer
Privacy Act just came
into effect in the home
state of Silicon Valley. It
is comparable to GDPR
in spirit, but still contains
differences. For example,
CCPA limits Californians
ability to request information
that has been collected about
them to only the past 12 months,
as opposed to more
extended access in the EU.
BERLIN
GERMANY
BONN
The worlds first data-protection law was
passed in Germany in 1970, and GDPR is
partially modelled on earlier German
regulations. In November, it fined the real
estate firm Deutsche Wohnen 14.5-million
over insufficient data-retention procedures.
FRANKFURT
MUNICH
THE GLOBE AND MAIL
If there were two social networks in terms of quality and network effects one with privacy and one without I have no doubt the consumer would choose the one with privacy, he says.
In August, Facebook successfully appealed the Bundeskartellamts case in a regional court, prompting the competition office to take the matter straight to Germanys highest court, from whom the parties now await a final decision.
Facebook declined to comment on the case, but said in a statement: The Bundeskartellamt underestimates the fierce competition we face in Germany and the choices people have, misinterprets our compliance with GDPR and undermines the mechanisms European law provides for ensuring consistent data protection standards across the EU. In short: Facebook believes consumers have plenty of choice and warns that an EU country taking a standalone position on data runs against the spirit of GDPR.
The regional court also disagreed with Mr. Mundts argument that consumers have little choice but to agree with Facebooks terms and data aggregation. Hamburg competition lawyer Stefan Horn, who has studied the decision, says the court found reasonable flaws in the Bundeskartellamts argument. I would guess people agree with Facebooks terms and conditions simply because they dont care, and it does not have any negative impact on their economic freedom, Mr. Horn said.
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But freedom is the word Mr. Mundt has hitched both his career and his Supreme Court appeal to. Even if he loses, he hopes to at least clarify the role competition law can play in making Big Tech fairer for consumers. It cannot be, he says, that all the laws we have worldwide for the protection of competition are not applicable vis-à-vis these companies.
Like Mr. Mundt, Germanys tech sector has been finding new ways to deal with data collection. Although the startup and investment community in Berlin sometimes jokingly referred to as Silicon Allee was the second-biggest in the EU last year by venture dollars deployed, behind London, it hasnt exactly flourished this century. Both capital and public awareness still tends to focus on more traditional manufacturers such as Siemens and Bosch, along with its robust auto sector, which includes Volkswagen and Daimler.
German investors are wary of venture-capital investing, and funds sometimes have an easier time attracting U.S. capital than domestic. Until a few years ago, many of the countrys digital stars merely mimicked successes from other markets, often backed by prominent Berlin venture firm Rocket Internet SE.
But the countrys stringent data-collection regulations might actually be the key to boosting its startup sector. A new generation of digital firms is using Germanys GDPR-backed, privacy-first mentality to its advantage. Short-term, it appears like a disadvantage, says Christian Nagel, managing partner at Earlybird Venture Capital in Berlin. But as more jurisdictions become privacy-minded, he says, I think its a matter of time before it comes to every country.
Xain AG short for the Expandable Artificial Intelligence Network is building its entire business around maximum privacy. Machine-learning algorithms are key tools of todays AI technology, capable of studying large pools of data to help find patterns and develop innovations. To do this, data usually need to be centralized and, under GDPR, sufficiently stripped of identifying information before it can be analyzed. Bringing data to the algorithms is costly and time-consuming, and can result in whole datasets being cast away because they arent properly anonymized. Xains algorithms work on data at the source with a sophistication typically reserved for AI powerhouses such as Google. Leif-Nissen Lundbæk, Xains chief executive, calls the startup a GDPR-compliant layer for machine learning.
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In his office a few blocks from Berlins Brandenburg Gate, he explains the technology through a familiar German lens: cars. Training autonomous vehicles requires studying an extraordinary amount of data about the environment around a car and the human decisions that guide it. But these kinds of data can expose a persons home, their workplace, their neighbours and passersby, which means it all has to be de-identified. The problem is that all this data is vastly privacy-sensitive, because we can learn everything about you from you driving around, Mr. Lundbæk says, adding that Xain has signed partnerships with both Porsche and Daimler (he declined to provide any details).
Xain has also developed an accounting assistant called ANDY that automates invoice processes while keeping data private. And the company hopes to integrate with all kinds of data-collecting technologies. As Xain product manager Lea Danschel puts it, We could be the privacy backbone of every AI application.
Another AI powerhouse Google is a looming presence in Berlin. The companys local headquarters are here, and in 2016, it proposed building a startup hub in Kreuzberg, a bastion for artists, new immigrants, punks and anarchists just east of Berlins core. The proposed development, which would include workspaces, services and mentorship opportunities for local startups, was slated to occupy an abandoned electrical substation. But a local association called GloReiche quickly came out against the plan.
But the movement soon morphed from focusing on the gentrification of one of Berlins beloved affordable enclaves to a continuing protest of the power of Big Tech.
Smoking a hand-rolled cigarette last fall as he stood in front of the substation, GloReiche activist Stefan Klein proudly described the numerous demonstrations and sit-ins Kreuzbergs eclectic residents have held to protest the campus. In October, 2018, the protesters got their wish: Google stepped back from the proposed redevelopment and said it would offer the substation to two social-focused organizations. The company declined to comment on the move, but it said in a statement that after numerous discussions with initiatives and neighbours, it had decided to cover rent and other costs for the organizations for five years.
Those two words five years make Mr. Klein uneasy. Google has a long-term lease on the space. He worries the company could march back in later, jack up rents, and begin to buy up Berlin-based talent and startups to populate its campus.
One activist, from a prominent faction of the anti-Google campaign composed of self-described nerds, spoke to The Globe and Mail about what the group sees as the companys outsized power over the internet. (Their identity is being kept confidential because of potential professional retribution.) The activist said the group hopes to one day dismantle and decentralize that power, which Google accrued by amassing data about its users for nearly two decades across search, e-mail, mobile devices and more, fuelling one of the worlds most successful advertising programs.
The activist admitted it would be naïve to believe that stopping the Kreuzberg campus will solve the problems presented by powerful tech giants such as Google. But if nothing else, the protests have made those problems more obvious to everyone around them. Similar groups worldwide now turn to Berlins activists to discuss tactics including Torontos #BlockSidewalk campaigners, who are hoping to cancel a smart community designed by Google affiliate Sidewalk Labs.
Its not just activists who are starting to adopt Germanys approach to Big Tech. In November, Amnesty International issued a report arguing that Google and Facebooks data-collection terms constitute a Faustian bargain. In order to enjoy the vast swaths of the internet to which they provide access, users must sign away their privacy right, creating a system predicated on human-rights abuse.
In the United States, antitrust action against Big Tech players has ramped up in the months since the Bundeskartellamt took aim at Facebook, with dozens of states using competition law as grounds to keep better tabs on it and Google. California, home to so many juggernaut tech platforms, has passed a new Consumer Privacy Act with many parallels to GDPR. It came into force in January, and a California Department of Justice study estimates compliance will cost businesses US$55-billion.
Everybody was scared when [GDPR] came up, because they thought, Oh, we cant exchange data anymore,’ Berlin venture capitalist Christian Nagel says. Long-term, I think it will be an advantage, because I think its a matter of time before it comes to every country. Because the nature of people is to want security. They want data protection. They want to be in charge.”