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US FTC’s second attempt to break up Facebook allowed to proceed, here’s why

Amended to include more details, the FTC lawsuit was found to sufficiently outline Facebook’s alleged monopoly.

A US judge on January 11 allowed the Federal Trade Commission (FTC) to proceed with its antitrust lawsuit against Meta (formerly Facebook). FTC first filed a lawsuit against Facebook in December 2020, but that was dismissed last June as the Commission had not adequately backed up its claim that Facebook had a monopoly. The FTC then filed an amended complaint in August 2021.

In his memorandum opinion released yesterday, District of Columbia Judge James Boasberg accepted the amended complaint and wrote:

“Second time lucky? The Federal Trade Commission’s first antitrust suit against Facebook, Inc. stumbled out of the starting blocks, as this Court dismissed the Complaint […] The FTC has [now] filed an Amended Complaint containing significant additions and revisions aimed at addressing the shortcomings identified in the Court’s prior Opinion.”

Boasberg, however, added that FTC may “well face a tall task down the road in proving its allegations.”

What does the FTC lawsuit seek?

The lawsuit argues that Facebook has long had a monopoly in the market for Personal Social Networking (PSN) services and it has unlawfully maintained this monopoly by:

  1. Acquiring competitors: Acquiring competitors and potential competitors like Instagram and WhatsApp that posed a threat to Facebook’s monopoly
  2. Preventing interoperability: Enforcing policies that prevent interoperability between Facebook and other apps that were viewed as nascent threats.

Read: FTC Sues To Break Up Facebook Again, With More Data To Back Monopoly Argument

The lawsuit seeks Facebook’s divestment in Instagram and WhatsApp; the former is how the company was able to stay relevant after social media went mobile, and the latter is arguably the largest messaging app in the world. Breaking up these key assets would have significant ramifications for Facebook worldwide, and other tech companies may be forced to undo or halt acquisitions of potential rivals.

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Why was the amended complaint accepted?

Facebook in October 2021 sought to get the amended lawsuit dismissed arguing once again that FTC had not provided facts plausibly establishing monopoly power or exclusionary conduct, and that the new FTC Chair Lina Khan was biased and should have recused herself from voting to file the amended complaint.

But Judge Boasberg dismissed Facebook’s motion noting that “the facts alleged this time […] are far more robust and detailed than before, particularly in regard to the contours of Defendant’s alleged monopoly.” Boasberg provided the following reasons for accepting the amended complaint:

  1. Enough facts to show monopoly power: “The FTC has now alleged enough facts to plausibly establish that Facebook exercises monopoly power in the market for PSN services,” Boasberg wrote. In the first complaint, FTC had alleged that Facebook had more than 60 percent market share in the relevant market since 2011, but the court concluded that such “bare allegations […] fall short of plausibly establishing that Facebook holds market power.” The amended complaint, however, offers more detailed metrics to support its claims such as Facebook’s market share of daily average users (DAUs), monthly average users (MAUs), and its share of users’ average time spent on PSN services. FTC also made a strong case that these metrics are used by Facebook and its competitors to assess market power.
  2. Barriers to entry adequately alleged: FTC has adequately alleged that Facebook’s dominant market share is protected by barriers to entry into that market, Boasberg said. The Court did not take up this subject in the first attempt because the market-share allegations fell short, but upon examining it this time, the Court accepted FTC’s allegation that Facebook’s dominant position is durable because of network effects and high-switching costs.
  3. Anticompetitive conduct sufficiently shown: “The agency has also explained that Facebook not only possesses monopoly power, but that it has wilfully maintained that power through anticompetitive conduct — specifically, the acquisitions of Instagram and WhatsApp,” Boasberg stated.
    • Instagram acquisition: FTC alleged that Facebook tried to compete with Instagram by building its own mobile photo-sharing features but then decided to buy Instagram once the app’s popularity soared and threatened Facebook’s position.
    • WhatsApp acquisition: FTC further alleged that once the Instagram threat was neutralised, Facebook turned towards WhatsApp, which it feared has the ability to enter the PSN market by adding additional features and functionalities. While Facebook tried building its own products to compete with WhatsApp in the messaging market, it ultimately decided to buy WhatsApp to neutralise a significant competitive threat to its personal social networking monopoly, FTC alleged. The Court noted that these two facts “sufficiently allege that Facebook acquired Instagram and WhatsApp in order to neutralize actual and likely future competitors.”
    • Consumer harm: The Court noted that although FTC could not show how this conduct harms consumers from a price perspective because all three services are offered for free, it has nevertheless accepted the alleged anticompetitive conduct since FTC has identified a host of other harms to the competitive process and to consumers such as a decrease in service quality, lack of innovation, decreased privacy and data protection.
    • Is FTC hypocritical? Facebook had alleged that FTC had cleared both acquisitions as required by the Hart-Scott-Rodino (HSR) Act and that “it is hypocritical for the agency to now claim that the acquisitions run afoul.” FTC counter-argued that HSR clearance does not mean approval and it is merely an established reporting requirement for acquisitions. The Court sided with FTC on this issue noting that the clearance came with an explicit statement that “this action is not to be construed as a determination that a violation may not have occurred, just as the pendency of an investigation should not be construed as a determination that a violation has occurred. The Commission reserves the right to take such further action as the public interest may require.”
  4. No bias in Chair Lina Khan’s role: Facebook’s allegation that Chair Lina Khan must have recused herself from the issue because of her past work that alleged Facebook a monopoly was not accepted by Boasberg. “The Court believes that such contention misses its target, as Khan was acting in a prosecutorial capacity, as opposed to in a judicial role, in connection with the vote,” Boasberg noted.” Boasberg also said that Chair Khan’s vote did not come from personal animosity against Facebook or financial conflict of interest and was merely based on her belief in the validity of the allegations.”

“Although Khan has worked extensively on matters relating to antitrust and technology, including expressing views about Facebook’s market dominance, nothing the company presents suggests that her views on these matters stemmed from impermissible factors. Indeed, she was presumably chosen to lead the FTC in no small part because of her published views. The Court thus concludes that Khan’s participating in the FTC’s vote did not violate ethical rules.” – Judge Boasberg

Allegations around interoperability policies not accepted: The court, however, did not allow the allegations surrounding Facebook’s interoperability policies to move forward as “they flounder for the same fundamental reasons as explained before,” which is Facebook abandoned the policies in 2018 and the last time such restrictive conduct was carried out was in 2016, Boasberg said.

Facebook’s response to the decision

In a statement to The Verge, a Meta spokesperson said:

“Today’s decision narrows the scope of the FTC’s case by rejecting claims about our platform policies. It also acknowledges that the agency faces a ‘tall task’ proving its case regarding two acquisitions it cleared years ago. We’re confident the evidence will reveal the fundamental weakness of the claims. Our investments in Instagram and WhatsApp transformed them into what they are today. They have been good for competition, and good for the people and businesses that choose to use our products.”

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