Facebook loses appeal over Giphy acquisition

Giphy, founded in 2013, allows users to search for and share short videos which resemble gif files. Its integration into social media platforms such as Twitter and Facebook Messenger encourages more purely visual communication in their conversations. In May 2020, Facebook announced its acquisition of Giphy for a reported $400m (£285m).

In June 2020, the Competition and Markets Authority (CMA) announced that it was investigating whether the acquisition could cause a “substantial lessening of competition in any market or markets” in the UK. While the investigation was ongoing, Facebook and Giphy were required through an initial enforcement order to keep their businesses separate, holding back from integrating their IT systems and customer lists and from exchanging sensitive information.

Facebook argued that the order should be changed such that it would only apply to its business relating to the supply and procurement of gifs, arguing that the order was disproportionate as it applied to “hundreds of businesses and more than 50,000 employees worldwide”. Facebook added that it would not prevent the CMA ordering it to sell Giphy if it ruled that the acquisition would compromise competition.

Last year, Facebook challenged the CMA’s refusal to grant its “carve-out requests” at the Competition Appeal Tribunal, which dismissed Facebook’s case in November 2020. Facebook subsequently went to the Court of Appeal to challenge the terms of the enforcement order as “excessively broad” and applied “indiscriminately” to Facebook’s global business.

However, the Court of Appeal this week dismissed Facebook’s appeal and criticised it for failing to engage properly with the CMA.

“The central problem in this case was entirely of Facebook’s own making,” said Sir Geoffrey Vos, sitting alongside Sir Julian Flaux and Lord Justice Phillips. He said that after Facebook made its request to the CMA, it then “sat on its hands” and refused to answer questions from the competition regulator. Sir Geoffrey added in the ruling that Facebook was “entirely the author of its own misfortune” due to this refusal to provide the CMA with information, which would then have dealt with its carve-out requests.

The court said that the Competition Appeal Tribunal was correct to reject Facebook’s complaint that the CMA had no basis for making an initial enforcement order affecting Facebook’s business.

Sir Geoffrey added: “There was, for the same reasons, nothing inappropriate, irrelevant or unlawful about the CMA asking questions that related to Facebook’s business beyond Giphy.”

The court also dismissed Facebook’s argument that the CMA lacked the power to make orders affecting its business beyond ordering divestment of Giphy. Sir Geoffrey said that the CMA has wide-ranging powers to regulate any activity which the merging companies might take in connection with or as a result of the merger that had the potential to affect competition in the market during the investigation.

CMA chief executive Andrea Coscelli welcomed the Court of Appeal’s decision, commenting after the ruling: “Today’s judgment reinforces an important and unequivocal message; initial enforcement orders are key to the CMA’s ability to protect UK consumers while carrying out its merger reviews. Both the Court of Appeal and Competition Appeal Tribunal have now endorsed our approach and our handling of this issue.

“Our investigation into Facebook’s merger with Giphy is ongoing and we look forward to working with the companies further as we progress the inquiry.”