How Facebook could escape the FTC’s antitrust lawsuit

Technology

I.
In December, the Federal Trade Commission voted 3-2 to sue Facebook for illegally maintaining a monopoly in social networking. The lawsuit, which was accompanied by a separate suit joined by 49 US attorneys general, alleges that Facebook used acquisitions and software restrictions on developers to prevent competitors from succeeding.

The government’s case appeared shaky from the start, I wrote at the time. Its allegation that Facebook owns a monopoly in advertising-supported social networking felt overly narrow and blinkered; the case does not even mention the existence of TikTok. And its suggestion that Facebook should have done more to share data with third-party developers seemingly runs counter to the FTC’s own privacy enforcement actions — in 2019 the agency fined Facebook $5 billion for sharing too much data with developers.

At the same time, the case contains numerous incriminating emails suggesting that Facebook executives acted knowingly to reduce competition by making acquisitions including Instagram and WhatsApp. And the states’ suit in particular articulated a compelling theory of harm: that Facebook’s privacy policies worsened as competition decreased, making life worse for the average consumer. This is important because recent antitrust law has focused on cases that have caused prices to rise for consumers; companies like Facebook (and Google and Amazon) have escaped scrutiny until now in large part because they offer their services for free.

It’s against that backdrop that I read Facebook’s response to the government, which it filed in court on Wednesday. Here’s Brent Kendall in The Wall Street Journal:

Facebook on Wednesday asked a federal judge to dismiss antitrust lawsuits by the Federal Trade Commission and state attorneys general, arguing that government enforcers have no valid basis for alleging the social media giant is suppressing competition.

The FTC “utterly ignores the reality of the dynamic, intensely competitive high-tech industry in which Facebook operates,” the company said in seeking to dismiss the commission’s case. In a second motion, Facebook argued the states’ case “does not and cannot assert that their citizens paid higher prices, that output was reduced, or that any objective measure of quality declined as a result of Facebook’s challenged actions.”

A motion like this is, on one hand, totally expected — if you’re Facebook, why not try to get this case thrown out as soon as possible — and, on the other hand, unlikely to succeed. No matter how wobbly the government’s case against Facebook appears from Silicon Valley, it is the product of years of investigation. I imagine a judge would be inclined to at least let the government make its case at trial, but we’ll see.

At the same time, Google — which is facing a similar set of US antitrust lawsuits — declined to filed such a motion when presented with the opportunity last year. So why does Facebook think its Hail Mary has a better chance of success?

The company laid out its arguments in a blog post yesterday. As expected, it complains about the government’s tortured efforts to define a market small enough for Facebook to credibly monopolize. It complains that the government cannot specify what exclusionary things it did in the wake of purchasing Instagram or WhatsApp, or restricting access to its data, that actually broke the law. And it raises various questions of standing and timing that I won’t try to assess here.

In response, the government dismissed these arguments, though not in any great level of detail.

“Facebook is wrong on the law and wrong on our complaint,” New York Attorney General Letitia James, who is leading the states’ case, told The Verge. “We are confident in our case, which is why almost every state in this nation has joined our bipartisan lawsuit to end Facebook’s illegal conduct. We will continue to stand up for the millions of consumers and many small businesses that have been harmed by Facebook’s unlawful behavior.”

II.
Is there a better case to be made against Facebook than the antitrust complaints that actually got filed?

I wondered that while rereading this great 2018 David Streitfeld profile of Lina Khan, who President Biden will reportedly nominate to the FTC. Khan helped inspire the current antitrust moment with a widely read paper, “Amazon’s Antitrust Paradox,” which moved the discussion of competition issues away from a decades-long focus on price increases.

“We’re finally beginning to examine how antitrust laws, which were rooted in deep suspicion of concentrated private power, now often promote it,” Khan told Streitfeld.

This has been a necessary and productive reversal. As more of our lives move online, we can’t help but notice all the ways in which our activities are enabled and monitored by a small handful of West Coast companies.

Facebook owns three of the most popular apps in the world; is a primary news source for billions; hosts a significant portion of global political speech; runs a large marketplace for physical goods; is building a significant consumer hardware division; and developed a cryptocurrency (now operated by a consortium) intended to power a worldwide payments network.

It is a quasi-state operating in parallel with all the other nations where it exists.

Laws that were truly rooted in a suspicion of concentrated power, I think, might have intervened earlier in this state of affairs. Regulators could have expressed more skepticism about acquisitions; crafted a national privacy law; or written standards for data portability. They could have required Facebook to offer nondiscriminatory access to parts of its infrastructure, as if it were a public utility.

None of which would have required rethinking antitrust laws that may not be suited to the purpose that regulators are now pursuing.

Perhaps existing laws will turn out to be well-suited for that purpose after all. Perhaps the newly Democratic Congress will write some new ones, as they have long been promising to do.

Or perhaps, given that the consumer internet is now the most competitive it has been in the past half-decade or so, it won’t much matter either way.

I don’t think Facebook’s motion to dismiss is likely to end the government’s ambitions to rein in the company. But it does highlight the steep challenge facing the FTC in the short term. A badly written lawsuit could still succeed at trial — but first it has to make it there.