Why can the UK's Competition and Markets Authority tell Facebook to sell Giphy?

Question

The UK's Competition and Markets Authority (CMA) tells Facebook owner to sell GIF library Giphy.

But since Facebook (now Meta) is an American company, what authority does the UK have to tell Facebook to sell Giphy?

Answer 1

My understanding is such: It doesn't matter where the company is incorporated (e.g. incorporated in the US = "American company"). It matters where the company does business.

Companies must comply with the law in ALL countries that they do business in. Facebook does business in the UK, so they must comply with UK regulations, including those by the CMA, just like any other UK company.

So, what can Facebook do?

1. Comply
2. Appeal
3. Ignore and face legal penalties (fines, suspension of ability to do business in the UK, seizure of UK assets, etc.)
4. Stop doing business in the UK (e.g. see Google News leaving Spain over their news aggregation law).

Answer 2

But since Facebook (now Meta) is an American company, what authority does the UK have to tell Facebook to sell Giphy?

The only authority the CMA needs is UK law. Every country is free to pass any law it pleases. If the UK wants to pass a law that authorizes the CMA to force Meta to sell Giphy, they can do so.

The more interesting question is: what can they do to enforce this?

And the answer is: practically nothing, unless the US government agrees to enforce it on the UK's behalf.

However, that only applies IFF your assumption is correct:

Facebook (now Meta) is an American company

But this assumption is not correct. Facebook has a UK subsidiary whose head offices are in a pretty expensive part of London City. The UK authorities could seize those offices and other assets the company might have, fine the company, and maybe even fine and/or incarcerate its managers.

Answer 3

There are two issues for any international business:

1. What jurisdictions govern its operations?
2. To what extent can those laws be enforced?

Like many businesses, Facebook has a European subsidiary (and in this case a UK one as well), to manage its EU/UK activities. Importantly, at any time it could decide to (1) Close those and cease operations in those regions, or (2) Close those and continue operations in those regions, managing them from elsewhere.

So your answers:

What jurisdictions govern its operations?

In the broadest sense, its operations are under the laws of any country that says its laws apply. Literally.

For example, some countries have decided that some of its criminal laws will apply worldwide, wherever the crime occurs. War crimes are one example, child.sexual abuse is another common one. At any time, any country could pass a law that says that selling yellow plastic ducks in Denmark is against the law for any company wherever it's situated. But nobody would really care. But technically, they could pass such a law.

So technically, any law anywhere that any country passes, could be applicable. But mostly that's not a real world problem.

The more usual situation is that anything a company does, is governed by two sets of laws - the laws of wherever the company exists and manages that activity from (or repatriates its profits to), and the laws of wherever the activity takes place. So for example, Amazon or Facebook sales in the UK (or Ohio) could be governed by all of (say):

• UK (or Ohio) law, because that's where the activity - those sales - take place
• Perhaps Luxemburg or Irish (or, say, Delaware) law, because that's where those sales are managed and operated from, regionally, via a regional sales/operations office.
• Perhaps Netherlands or Spanish (or, say, Kentucky) law, because that's where the orders are fulfilled from and where the distribution centre is based.
• California state, and federal US, law, because that's where these companies are based and run from.

To what extent can those laws be enforced?

Generally, the rule is that a country can't enforce its own laws outside its own borders. At least, not without cooperation from the country where it wants to enforce them.

So for example in criminal law, the UK police, or LA PD or a Federal body, can take someone to court or fine them, and can take enforcement action...... if they happen to be in the US. If they happen to be, say, Chinese military hackers or Russian military officers leaving Novichok poison in the UK, they can't formally do a thing, unless China or Russia agree to let them do it and provide a formal means for cooperation, such as an extradition treaty, or agree to allow them to pursue the case in a Russian or Chinese court, or agrees to act on their behalf in those countries.

In the same way, the UK government has an easy way to enforce UK law on say, Facebooks UK based company and its managers, because its based in the UK.

It can also enforce pretty much the same law on Facebook's EU based company and its managers, anywhere else in the EU, because it has an agreement with the EU that each will allow the other to take on such cases in their territory.

But to enforce UK law on Facebook in the US, or its officers in the US, it can't do a thing, unless some kind of US-UK agreement allows it to, or some provision of US law allows it to enforce UK ruling in a US court.

Which means that.....

Coming right back to the start:

• The UK can take enforcement action in a UK court or via UK ruling, against Facebooks companies responsible for sales activities and operations of all kinds, and their managers, if they are actually in the UK (for staff) or are legally UK companies.
• It can do the same if they are anywhere in the EU, or a country that the UK has a suitable agreement with, that allows enforcement one way or another of companies and people in that country.
• But it can't enforce its rulings outside those places, so if the staff go back to the US, or work in say Russia or China, the UK couldn't necessarily enforce those rulings because US, Russian and Chinese law may not provide an automatic way to do so.

So the UK can order Facebook to take some action, but if Facebooks UK operations are managed from somewhere the UK doesn't have enforcement rights with, then the UK simply can't enforce those rulings by order of a court.

UK courts don't have worldwide enforcement ability,. They can only say it will be enforced within areas an enforcement right exists, and US courts won't necessarily give that right to the UK government, to enforce via a US court against a US company.

But that's not quite the end of it......

Because Facebook wants to be seen as "good". Because it could be locked out of the profitable UK market. Because if it defies UK law, perhaps that will skew the outcome if the EU or some other body later takes a case. Because it wants Facebook senior staff to be able to holiday or visit any place in the EU without being arrested by an EU wide warrant, or denied entry to the entire region (or just UK). Because outright defiance and continuing to trade in the UK when its been lawfully told to stop, or comply with UK law, will long-term be more trouble than its worth - suppose it wants to tender some day for a UK government cloud, communications or VR platform, or an EU proposal, what will its reputation for following local law be, and what effect will that have?

So often, even if "hard tools" don't work, "soft tools" still do.