FTC Not Backing Down in Facebook Antitrust Lawsuit
In December 2020, the Trump Federal Trade Commission filed an antitrust complaint (Case No. 1:20-cv-03590, D.D.C.) against Facebook which came
[f]ollowing a lengthy investigation in cooperation with a coalition of attorneys general of 46 states, the District of Columbia, and Guam, the complaint alleges that Facebook has engaged in a systematic strategy—including its 2012 acquisition of up-and-coming rival Instagram, its 2014 acquisition of the mobile messaging app WhatsApp, and the imposition of anticompetitive conditions on software developers—to eliminate threats to its monopoly. This course of conduct harms competition, leaves consumers with few choices for personal social networking, and deprives advertisers of the benefits of competition.
FTC Press Release (Dec. 9, 2020)
In June, Judge James Boasberg dismissed the Complaint with leave to amend finding that the FTC
failed to plead enough facts to plausibly establish a necessary element of all of its Section 2 claims — namely, that Facebook has monopoly power in the market for Personal Social Networking (PSN) Services. The Complaint contains nothing on that score save the naked allegation that the company has had and still has a “dominant share of th[at] market (in excess of 60%).
Opinion (June 28, 2021) at 2.
Since filing the original complaint, the FTC now has a new Chair in Lina Khan, who has been a thought leader in reshaping antitrust debate as it applied to BigTech companies such as Facebook and Amazon. Facebook has even petitioned to have Khan recuse herself in this case since her prior statements indicate that she has “prejudged Facebook”. The FTC dismissed Facebook’s suggestion and filed an amended complaint.
(See Why Facebook Is Suddenly Afraid of the F.T.C., The New Yorker (Aug. 23, 2021).)
The Amended Complaint alleges that in the 2010s, the emergence of smartphones and the mobile internet “fundamentally disrupted the digital economy by allowing people to connect on the go” creating opportunities for innovating, upstart companies to challenge Facebook and other tech giants. The Complaint alleges that after failing at developing innovative mobile features, Facebook responded by:
- buying up the new mobile innovators, including its rival Instagram in 2012 and mobile messaging app WhatsApp in 2014, who had succeeded where Facebook had failed; and
- engaging in an illegal “buy or bury” scheme that involved reversing its open space policy for third party developers and forcing them to agree to conditions that prevented successful apps from emerging as competitive threats to Facebook.
As to monopoly power, the amended complaint alleges that:
- Facebook had dominant market shares in the U.S. personal social networking market;
- Facebook has the power to control prices or exclude competition as it has significantly reduce the quality of its offering to users without losing a significant number of users or a meaningful amount of user engagement; and exclude competition by driving actual or potential competitors out of business.
- Facebook’s dominant position is also protected by significant barriers to entry, including high switching costs since over time, users of a personal social network build more connections and develop a history of posts and shared experiences, which they cannot easily transfer to another personal social networking provider.
Facebook’s response is that the FTC still has no valid claim, particularly since the FTC approved both the Whats App and Instagram acquisitions when they occurred.