WHY ANTITRUST SUITS AGAINST FACEBOOK FACE HURDLES
Hard to prove social media would be better without mergers; laws precede modern tech
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, DConn., 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 hardto-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.
First, prosecutors must show that Facebook bought rivals like photo-sharing site Instagram and messaging service WhatsApp 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 off without 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.
Winning the cases against Facebook is “going to be a challenge because the standards of proof are formidable,” said Diana Moss, president of the American Antitrust Institute, a left-leaning think tank and competition-law advocacy group.
Facebook, which said regulators were using antitrust laws to “punish” successful businesses,
plans to fight the suits with vigor. In a memo to employees Wednesday, Mark Zuckerberg, the company’s chief executive, said that 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. He asked employees not to openly discuss the cases, “except with our legal team.”
Other antitrust experts said the cases would be smooth sailing. “This is straightforward and an easy case,” said Tim Wu, a professor at Columbia law school who has been part of an effort by academics, public interest groups and Facebook co-founder Chris Hughes that is arguing for regulators to break up Facebook. Wu, a contributor to The New York Times’ opinion pages, said it would be a simple case of showing that Facebook bought Instagram and WhatsApp to maintain their dominance.
How the U.S. government and states pursue their cases against Facebook will be closely watched amid a wave of legal actions intent on limiting the power of the world’s largest tech companies. Google is battling an antitrust suit that the Justice Department in October,
and state attorneys general are expected to soon file separate suits against it. Regulators are also investigating Apple and Amazon.
The penalties that 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.
Decades have passed without a similar action. That is partly because courts are often told by defendants and economists that forcing companies to sell parts of themselves is too heavy-handed,
Kovacic said. “Courts historically have expressed anxiety about doing it,” he said.
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 transactions were 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 post Wednesday.
Newstead signaled that the previous regulatory reviews of the WhatsApp and Instagram deals would be key to Facebook’s defense, calling the acquisitions “settled law” and blasting the regulators for wanting 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, with more 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 of dominance.
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.
Even if the FTC and states prove their cases against Facebook, there remains a question of whether the company can even disentangle WhatsApp and Instagram from its core social networking business.
Zuckerberg for years operated WhatsApp, Instagram and Messenger independently, he announced he would unite their underlying infrastructures last year so that they would work together better. That way, someone could send a private message from his or her Instagram account to a friend using Facebook Messenger, and the two services would communicate seamlessly.
Knitting these systems together is technically complicated, which means they would also be technically complicated to undo. In September, 18 months after the initial announcement that the apps would work together, Facebook unveiled the integration of Instagram and its Messenger services. The company anticipates that it may take even longer to complete the technical work for stitching together WhatsApp with its other apps.
Facebook has not said whether the suits will affect these efforts. Zuckerberg said that in any case, the company intended to plow ahead with its day-to-day business.
“We work hard to build products that people find valuable, and we’ve built a strong business by serving millions of small businesses around the world,” he wrote in the internal memo. “That isn’t changing.”