Getting Blocked IRL: Facebook & Instagram Facing European Stiff-arms

By: Christopher Imad Mdeway, Class of 2022

Facebook and its subsidiaries, recently rebranded as Meta Platforms, Inc., have been backed into a corner between data privacy rights and international trade agreements. Specifically, Facebook and Instagram articulated, in Meta’s annual, 134-page, 10-K report to the U.S. Securities and Exchange Commission, that the social media sites are considering a shutdown of their services in Europe if they are prohibited from transferring user data back to the US.[i] They argue that being able to transfer data is critical and that, if they are “unable to transfer data between and among countries and regions in which [they] operate, or if [they] are restricted from sharing data among [their] products and services, it could affect [their] ability to provide [their] services, the manner in which [they] provide [their] services or [their] ability to target ads, which could adversely affect [their] financial results.”[ii]

They provide examples, such as Privacy Shield, a transfer framework relied on by Meta to pull data from European users to the US, which was found by the Court of Justice of the European Union (“CJEU”) to be illegal to operate.[iii] Privacy Shield was deemed by the CJEU to not adequately protect European citizens’ privacy.[iv] Axel Voss, a German lawyer and politician of the Christian Democratic Union of Germany, took to Twitter to explain that “[he has] always called for an alternative to the EU US privacy shield to find a balanced agreement on data exchange . . . [however], META cannot just blackmail the EU into giving up its data protection standards, leaving the EU would be their loss.”[v] French Finance Minister, Bruno Le Maire, concurred, stating that “life would be very good without Facebook and that we would live very well without Facebook.” [vi]

Ultimately, Meta claims that “if a new transatlantic data transfer framework is not adopted and we are unable to continue to rely on SCCs or rely upon other alternative means of data transfers from Europe to the United States, we will likely be unable to offer a number of our most significant products and services, including Facebook and Instagram, in Europe, which would materially and adversely affect our business, financial condition, and results of operations.”[vii]

Economic Decisions for Meta

On February 3, 2022, Meta took the biggest financial loss in a year and the worst one-day drop ever of $230 billion, roughly 26.4 percent of its market value.[viii] If Meta were to pull out of the European market, the company would face monthly active user losses of around 15 percent, making up almost a third of Meta’s revenue, likely a lethal blow to future performance for the company.[ix] Meta needs to decide whether they are willing to compromise with European lawmakers, as they have done in the past, and take a momentary pay cut as a result, or face immediate repercussions. Meta knows they will eventually be replaced by a policy-compliant competitor, as almost every software is, so it truly is in the company’s financial interest to negotiate and settle as soon as possible.

[i] Meta Platforms, Inc., Annual Report (Form 10-K) (Feb. 2, 2022), https://d18rn0p25nwr6d.cloudfront.net/CIK-0001326801/14039b47-2e2f-4054-9dc5-71bcc7cf01ce.pdf. [ii] Id. at 9. [iii] Id. [iv] Data Protection Commissioner v. Facebook Ireland Ltd, Maximillian Schrems [2020] C-311/18 (H. Ct.) (Ir.), https://curia.europa.eu/juris/document/document.jsf;jsessionid=27EC1361007BD363F54C7C7DF2A4C2E1?text=&docid=230683&pageIndex=0&doclang=en&mode=req&dir=&occ=first&part=1&cid=8691492. [v] Gitanjali Poonia, Facebook and Instagram May Shut Down in Europe. Here's Why, Deseret News, Feb. 8, 2022, https://www.deseret.com/2022/2/8/22924065/facebook-and-instagram-may-shut-down-in-europe-data-transfer-privacy-shield. [vi] Id. [vii] Id. [viii] Coral Murphy Marcos, Meta Plunges and Sets Off Wall Street's Worst Drop in Nearly a Year, N.Y. Times (Feb. 3, 2022), https://www.nytimes.com/2022/02/03/business/stock-market-today.html. [ix] Meta Platforms, Inc., Annual Report (Form 10-K) (Feb. 2, 2022), https://d18rn0p25nwr6d.cloudfront.net/CIK-0001326801/14039b47-2e2f-4054-9dc5-71bcc7cf01ce.pdf. [x] Dado Ruvic, Illustration of Facebook logo in 3D in front of the EU flag, in EU Watchdog Rejects Call to Ban Facebook From Processing WhatsApp User Data, Reuters, Jul. 15, 2021, https://www.reuters.com/technology/eu-watchdog-rejects-call-ban-facebook-processing-whatsapp-user-data-2021-07-15/.