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Facebook Haunted by Privacy Issues as FTC Ups Antitrust Case (1)

Aug. 20, 2021, 5:14 PMUpdated: Aug. 20, 2021, 5:53 PM

The 2018 Cambridge Analytica data scandal and other specific examples of Facebook Inc.'s market power put the FTC’s once-tossed case against the social media giant on firmer ground, attorneys say.

The Federal Trade Commission, which filed an amended complaint Thursday, doubled down on its allegations that Facebook committed antitrust violations when it acquired WhatsApp and Instagram.

Increased advertising prices and a decadelong list of privacy violations are proof that Facebook is so settled in its top spot among social media companies that it can harm its users without losing them, the agency said.

The FTC’s addition of extra detail and specific examples is meant to plug the holes that caused Judge James Boasberg of the U.S. District Court for the District of Columbia to dismiss the agency’s original complaint in June.

“The FTC has filled in whatever gaps the judge thought were there and demonstrated that there are substantial facts that Facebook has market power,” said attorney David A. Balto, who previously served in the FTC and the Justice Department’s Antitrust Division.

The move has antitrust attorneys watching the case closely, as the FTC’s success or failure has implications for private litigation in both the antitrust and privacy arenas.

“When the FTC or DOJ does anything, there’s going to be a lot of practitioners like me who are going to be looking to see if they are laying groundwork for what is almost certainty going to be a lot of private litigation that follows,” said K. Craig Wildfang, an antitrust attorney with Robins Kaplan LLP.

Filling Gaps

Boasberg said the FTC didn’t provide enough facts in its original complaint to prove that Facebook violated antitrust law. Without that evidence, there’s no way to tell what metrics or methods the agency used to determine the company’s dominance in the market, the judge said.

At the same time, Boasberg recognized that the nature of Facebook’s business—it’s free for users—makes it difficult to define the market which is being monopolized.

“It’s still a very unusual market because you can’t use traditional measures of market shares, so it’s hard to be confident that a judge will find the allegations convincing,” said Lucy Clippinger, an antitrust attorney with Baker & Miller PLLC.

The FTC’s complaint is an “effort to rewrite antitrust laws and upend settled expectations of merger review,” Facebook said in a statement emailed to Bloomberg Law. “There was no valid claim that Facebook was a monopolist—and that has not changed,” the company said.

The agency is hoping the Cambridge Analytica scandal will make its case.

In 2018, news broke that Facebook had sold information from tens of millions of users to Cambridge Analytica LLC, which used the data to profile voters and target ads toward them in the 2016 election. At the time, the FTC accused Facebook of making deceptive representations to its users about how it shares and protects their data.

Yet Facebook didn’t lose a significant number of active users, an indicator of its market power, the FTC said in its renewed complaint against Facebook.

The agency also mentioned that Facebook agreed in 2019 to pay a $5 billion penalty to settle the FTC charges that the company violated a 2012 order regarding its data privacy practices by “deceiving users about their ability to control the privacy of their personal information.”

“The FTC’s theory is that one would expect that if it didn’t have market power, people would shift to competitors,” said Benjamin Sirota, an antitrust lawyer with Kobre & Kim LLP who previously worked in the DOJ’s Antitrust Division. “The FTC is depicting the degradation in privacy as confirmation essentially that Facebook has market power,” he said.

Digital Advertising

Facebook’s sale of surveillance-based advertising that exploits its “deep trove of data” has antitrust implications in addition to privacy concerns, the FTC said.

With only Facebook to turn to for that data, advertisers lose out on the lower prices and increased quality and innovation that come with additional competition, the agency said.

Last year, Facebook generated revenues of more than $85 billion and profits of more than $29 billion from its advertisements, according to the complaint.

“Traditionally, if a dominant firm is able to raise prices or reduce quality to anticompetitive levels, without any countervailing reason for the higher prices and diminished quality, and without offsetting losses in volume,” that’s evidence of market power, said Barbara Sicalides of Troutman Pepper LLP.

Pending Litigation

The additional detail provided by the FTC is a boon for private litigants, as the government’s evidence is expected to bolster both antitrust and privacy lawsuits against Facebook, attorneys said.

“You could see some privacy lawsuits already out there try to make use of this case and reference the government’s statements about privacy,” Sirota said.

Existing class actions in California and Pennsylvania allege that Facebook harmed users by concealing the way it harvested and sold their data.

“You could see plaintiffs try to leverage connections between their case and the FTC’s complaint to show the government is alleging there are privacy problems that have a competitive dimension,” Sirota said.

Digital advertisers also could see an advantage from the FTC’s new evidence. In a series of lawsuits, they allege that Facebook conspired with Alphabet Inc.'s Google to rig advertising prices.

“The FTC did a decent job explaining why some of the other online networks can’t compete at the same level as Facebook—and they focused on Snap Chat as the only other viable competitor in what is a narrow market,” said Zarema A. Jaramillo of Lowenstein Sandler LLP.

“I think if they survive the motion to dismiss, that will give the advertisers more leverage in those lawsuits,” she said.

(Story updated with a statement from Facebook.)

To contact the reporter on this story: Siri Bulusu in Washington at sbulusu@bloombergindustry.com

To contact the editor responsible for this story: Laura D. Francis at lfrancis@bloomberglaw.com; Michael Ferullo at mferullo@bloomberglaw.com

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