Europeans who love posting to Facebook and Instagram could soon be left out in the cold.
Mark Zuckerberg’s Meta warned it may have to pull the plug on its popular social media programs, no matter the cost.
Data privacy issues with the European Union are compounding headaches for the company, which has been the subject of one governance scandal after the other. Last week, Meta suffered the largest one-day wipeout in market cap of any U.S. listed stock in history, following a grim outlook marred by competition from ByteDance’s TikTok and $10 billion in Apple-related ad targeting headwinds.
In a 10-K annual filing with the U.S. Securities and Exchange Commission, the company warned investors that failure of the U.S. and EU to reach a new agreement on data transfers could result in Meta deciding to shut down its core operations in the region. That would “materially and adversely” affect its financial performance, it said.
In July 2020, the EU’s top court struck down the existing data transfer arrangement between the U.S. and EU, known as the Privacy Shield, on the grounds that the EU could not be certain its data would be safe from U.S. government surveillance once housed in data centers on American soil. Since then, Meta and other large U.S. technology companies have tended to rely on a different legal mechanism, called “standard contractual clauses” (or SCCs for short), to move EU user data to the U.S.
“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,” Meta said.
Europe accounts for a relatively small base of Facebook users, roughly 15% of its 2.91 billion monthly active users. Yet its importance to Meta’s income statement is disproportionately high, with roughly a quarter of group’s revenue stemming from the region in the three months through December.
The bulk of the problems relate to data privacy activist Max Schrems’ second successful landmark data privacy lawsuit. The Austrian brought a successful 2020 challenge to the Privacy Shield, and a previous suit in 2015 led to an earlier legal framework for data transfers between the EU and the U.S., known as Safe Harbor, being struck down. Separately, Schrems has been active in bringing legal challenges designed to hold private companies to account for violating the EU’s sweeping data privacy regulation, GDPR.
The ruling by the European Court of Justice, based in Luxembourg, delivered a severe blow to the operations of over 5,000 European and American companies, who use the EU-U.S. Privacy Shield as the legal basis for transatlantic data transfers.
Significantly higher costs to comply
The U.S. government and the EU Commission have been trying to arrive at a mutually acceptable solution in the two years since, with U.S. Commerce Secretary Gina Raimondo expressing confidence recently that a deal could yet be struck.
Citing the comments from Meta, Schrems tweeted on Sunday that it was “amazing how they don’t seem to work on durable solutions.”
Pressure over Facebook’s rapacious data harvesting has mounted over the years, prompting repeated numerous campaigns for people to delete the platform from their app library.
First, there was the scandal surrounding voter targeting by Cambridge Analytica, then revelations brought to light by whistleblower Frances Haugen that Facebook and Instagram inflicted psychological harm on youth, and finally its role fostering the conspiracy theorists behind the COVID “plandemic”, QAnon and Trump’s Stop the Steal movements and connecting them with fresh acolytes.
The EU Parliament hosted Haugen at a crucial juncture, as Europe has been seeking a means to rein in Big Tech platform providers like Meta via its upcoming Digital Services Act.
“Our compliance costs may significantly increase as a result of the Digital Services Act proposed in the European Union, which is expected to take effect in 2023,” Meta warned.
Shares in Meta were trading 4.2% lower at $227 on Monday, substantially lower than the $323 stock price it had just prior to its Q4 earnings report last week.
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