Facebook loses appeal over watchdog’s investigation into Giphy takeover

Facebook has lost an appeal over an investigation by UK regulators into its acquisition of gif-sharing platform Giphy.

The social network announced a 400 million US dollar (£285 million) deal to buy Giphy in May last year.

The Competition and Markets Authority (CMA) said last June that it was looking into whether the takeover could cause a “substantial lessening of competition in any market or markets in the United Kingdom”.

The watchdog ordered Facebook and Giphy to keep their businesses separate, not to integrate their IT systems or customers lists, and not to exchange sensitive information during the course of the investigation.

Facebook asked the CMA to vary that order so it only applied to the tech giant’s business “insofar as it related to the supply or procurement of gifs”.

The tech giant claimed that the initial enforcement order (IEO) was disproportionate as it applied “across hundreds of businesses and more than 50,000 employees worldwide”.

It also said that it would not prevent the CMA ordering the company to sell Giphy, if the regulator decided that was necessary to preserve competition in the market.

Last year, Facebook challenged the CMA’s refusal to grant its “carve-out requests” at the Competition Appeal Tribunal, which dismissed the firm’s case in November.

Facebook went to the Court of Appeal last month to again challenge the terms of the IEO, arguing that they were “excessively broad” and applied “indiscriminately to Facebook’s entire global business”.

But the Court of Appeal dismissed Facebook’s appeal in a ruling on Thursday, which criticised the firm for failing to “properly engage with the CMA”.

Sir Geoffrey Vos, sitting with Sir Julian Flaux and Lord Justice Phillips, said: “The central problem in this case was entirely of Facebook’s own making.”

The judge said Facebook made requests to vary the terms of the IEO “and then sat on its hands, refusing to answer the CMA’s questions”.

Facebook was “entirely the author of its own misfortune” because of its failure to provide information to the CMA, which would then have “dealt with its carve-out requests properly”, Sir Geoffrey said in the ruling.

The court said that the Competition Appeal Tribunal “was right to reject Facebook’s complaint that the CMA had no basis for making an initial enforcement order that affected Facebook’s own 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 of Appeal also dismissed Facebook’s argument that the CMA had “no power to make orders affecting the acquirer’s business, beyond ordering divestiture of the target corporation”.

Sir Geoffrey ruled that the CMA has wide powers to “regulate any activity which the merging parties might take in connection with or as a result of the merger that had the potential to affect the competitive structure of the market during the CMA’s investigation”.

CMA chief executive Andrea Coscelli welcomed the Court of Appeal’s decision, saying 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.”