The company formerly known as Facebook has filed a form with the SEC indicating it’s considering yanking Instagram and Facebook out of Europe due to a recent European Union court ruling that affects the way US companies can handle European users’ data. The ruling would prevent Meta, located in the United States, from accessing information about its European users from anywhere in the US. This would effectively prevent the company from doing any kind of customized ad targeting. According to Meta, if it can’t do ad targeting, it might as well just take its ball and go home.
This whole kerfuffle began in 2011. A Facebook user in Austria named Maximillian Schrems asked for the data Facebook had collected on him, which took up an eye-popping 1,222 pages. As he was examining it he realized there were portions of data he had selected to keep private, and some he thought he had deleted. Since Facebook was and still is located in Ireland for tax purposes, he filed a complaint with the Irish data protection commissioner. In the case, Schrems effectively challenged the transfer of his data from the European Union to the United States by Facebook.
In the middle of all this, the European Union passed a law known as the General Data Protection Regulation (GDPR), which took effect in 2018 and establishes strict guidelines on transferring data outside the EU. The law states that data can’t be transferred outside of the EU to the US unless the recipient country can prove that users’ data will be safeguarded, and not accessible by intelligence agencies and other entities. As a workaround the US Department of Commerce worked with the European Union to develop a program called Privacy Shield, but in July 2020, the Court of Justice of the EU ruled the Privacy Shield invalid.
A Facebook diagram of how it measures “store visits” and all the data points that lead up to it. (Image: Facebook)
The EU court declared the US law does not provide an adequate guarantee of user privacy. Additionally, there’s no mechanism for users in Europe to seek redress from the US government over a violation. The US law was therefore found not in compliance with the GDPR, though Meta is continuing to challenge this ruling. In the 10-K form that Meta submitted to the SEC it directly addresses this situation, writing that it (Meta) is subject to laws that govern data transfer and was relying on the previously accepted Privacy Shield guidelines.
Meta writes:
“If a new transatlantic data transfer framework is not adopted, and we are unable to continue to rely on SCCs (Standard Contractual Clauses) 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.” This could be mere saber rattling by Meta, however, as the US and EU are reportedly currently working on revising the Privacy Shield arrangement to satisfy all parties involved.
As ItWire notes in its coverage of the decision, known as Schrems II, the decision impacts every US company, not just Facebook/Meta. There are concerns that the strict approach Europe is taking could alienate the EU from the world’s largest tech companies and vice versa, preventing EU business from using American cloud services from Amazon, Microsoft, and Google.
In a statement shared with CityAM by Nick Clegg, Meta’s VP of Global Affairs and Communications, he paints a picture of small businesses being impacted too, not just giant US companies. “In the worst case scenario, this could mean that a small tech start up in Germany would no longer be able to use a US-based cloud provider. A Spanish product development company could no longer be able to run an operation across multiple time zones,” he said in a statement.
Clegg added: “While policymakers are working towards a sustainable, long-term solution, we urge regulators to adopt a proportionate and pragmatic approach to minimise disruption to the many thousands of businesses who, like Facebook, have been relying on these mechanisms in good faith to transfer data in a safe and secure way.”
Whether Meta / Facebook would actually follow through on its threat to pull out of these markets is an open question. While there’s no doubt that privacy-friendly advertising changes are costing the company billions, preemptively abandoning Europe would not necessarily look good to investors, either. It also would do nothing for the company’s total number of users. Facebook reported a decline in its active users for the first time ever last week and was harshly punished for it as investors tanked the stock.
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