Facebook case not open-and-shut
The antitrust action against the company faces hurdles from CEO Zuckerberg
SANFRANCISCO— When the Federal Trade Commission and more than 40 states sued Facebook on Wednesday for illegally killing competition and demanded that the company be split apart, lawmakers and public interest groups applauded.
Sen. Richard Blumenthal, D-Conn., said, “Facebook’s reign of unaccountable, abusive practices against consumers, competitors and innovation must end.” Sen. Josh Hawley, R-Mo., called the lawsuits “a necessity” and said Facebook’s acquisitions of nascent rivals “were meant to be anti-competitive, and they should be broken up.”
But lawmakers and consumer advocates did not address a hard-to-deny factor: The cases against Facebook are far from a slam dunk.
Antitrust laws are complex and were put in place before the advent of modern technology. The FTC and state attorneys general now face an uphill battle to prove their allegations, some competition experts said.
Prosecutors must show that Facebook bought rivals like photo-sharing site Instagram and messaging serviceWhatsApp with the express purpose of killing off the competition. Then they must argue a theoretical: Consumers and the social media market would have been better offwithout the mergers.
On top of that, regulators reviewed Facebook’s acquisitions years ago and did not stop them. They will have to explain why they changed their minds now. And any company breakup may face the skepticism of courts, which have been hesitant about undoing mergers because that can sometimes cause more harm to consumers than good, some legal experts said.
Facebook, which said regulators were using antitrust laws to “punish” successful businesses, plans to fight. In a memo to employees Wednesday, Mark Zuckerberg, the company’s chief executive, said he disagreed with the claims in the lawsuits and that the social network planned to carry on.
“Today’s news is one step in a process which could take years to play out in its entirety,” he wrote.
The penalties regulators are seeking in the case against Facebook are especially onerous. They proposed that courts block future mergers and force the company to sell off Instagram and WhatsApp. Ian Conner, the FTC’s head of competition enforcement, said the remedies would help restore competition and “provide a foundation for future competitors to grow and innovate without the threat of being crushed by Facebook.”
But cases challenging consummated mergers are uncommon, as are lawsuits that seek to break up companies, legal experts said. The last major antitrust lawsuit that led to divestitures was against AT&T in 1984, said William Kovacic, a former Republican chairman of the Federal Trade Commission. In that case, AT&T was ordered to sell local telecommunications companies known as Baby Bells.
Kovacic added that even though he thought the case against Facebook had merit, another difficulty for the FTC and the states would be to prove that the world would have been better off if the mergers with Instagram and WhatsApp had not happened. “It’s hard to prove a hypothetical,” he said.
Facebook, however, will be able to show that Instagram and WhatsApp grew substantially after being acquired. The company has said it invested millions of dollars in the apps, helping them amass billions of users and turning them into prime communication channels around the world.
“These transactionswere intended to provide better products for the people who use them, and they unquestionably did,” Jennifer Newstead, Facebook’s general counsel, wrote in a blog postWednesday.
Newstead signaled that the previous regulatory reviews of theWhatsApp and Instagram deals would be key to Facebook’s defense, calling the acquisitions “settled law” and blasting the regulators forwanting a “do over.”
Zuckerberg also indicated in his memo to employees that the government’s definition of competition was too narrow. In its complaint, the FTC said Facebook dominated social networking, withmore than 3 billion people globally using one of its apps every month. In their complaint, the state attorneys general said Facebook’s behavior was born out of a fear of losing that position ofdominance.
But Zuckerberg said Facebook was fighting a far larger ecosystem of competitors that went beyond social networking, including “Google, Twitter, Snapchat, iMessage, TikTok, YouTube and more consumer apps, to many others in advertising.” That is because Facebook and its other apps are used for communication and entertainment, such as streaming video and gaming. Against that broader universe, the company said, competition is healthy.