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Potential Facebook Antitrust Suit Highlights FTC Forum Tradeoffs

Oct. 29, 2020, 3:15 PM

The Federal Trade Commission’s impending decision on whether to sue Facebook Inc. for antitrust violations also carries the equally important consideration of where to do so.

Unlike its Justice Department counterpart, the FTC’s Bureau of Competition has the choice of bringing the case via its in-house administrative court or to file a complaint in federal district court.

The option potentially gives the commission a leg up against Facebook that the DOJ doesn’t have in its monopolization case against Alphabet Inc.'s Google, which is proceeding in federal district court in Washington, D.C.

For the FTC, getting a case heard in its administrative court would be “preferable,” said Timothy Cornell, the head of Clifford Chance LLP’s antitrust practice. The “FTC is far more comfortable in that venue,” he said.

Going the administrative route gives the FTC numerous advantages: more control over the process and the remedy, and access to confidential information from third parties.

But an administrative tribunal has its drawbacks. The FTC wouldn’t be able to partner with the state attorneys general who are also investigating the social media giant. The commission also can’t pursue any monetary remedies such as disgorgement.

No Monetary Penalties

The FTC has been investigating Facebook for more than a year on whether the company violated antitrust laws by acquiring Instagram and WhatsApp to eliminate emerging competitive threats.

Agency staff support the Facebook case, but the final decision on whether to sue is up to the FTC’s five commissioners. A vote is expected soon, and a suit could be filed in the coming weeks.

The FTC has chosen its in-house court when seeking to undo mergers. In April, the commission filed an administrative complaint to reverse Altria Group Inc.'s $12.8 billion deal to buy Juul Labs Inc.

That works when the remedy doesn’t involve money.

But the FTC would have to take the case to a federal court if it seeks disgorgement of Facebook’s profits. Section 13(b) of the Federal Trade Commission Act gives the commission the right to seek monetary relief only through a district court.

Even so, the FTC’s powers to seize wrongdoers’ ill-gotten gains are up in the air, as the U.S. Supreme Court will hear two cases questioning the agency’s disgorgement authority.

With those cases pending, the FTC may lean against pursuing a monetary penalty against Facebook.

The administrative route also would foreclose the FTC’s ability to partner with any state attorneys general in the case. Such partnerships would provide the commission with additional investigative and financial support.

Partnering with state AGs is common in high-profile antitrust cases. Attorneys general from 11 states signed on to the DOJ’s monopolization case against Google, while 20 states and the District of Columbia joined the DOJ’s 1998 case against Microsoft Corp.

“The Commission has no authority to rule on matters of state law or to provide order relief in favor of a state, so it is not practical for a state to join as a plaintiff in our administrative process,” said FTC spokeswoman Betsy Lordan.

Protective Orders

But choosing the administrative court has distinct advantages.

Trials in the FTC’s in-house forum are conducted under a different set of rules from a federal district court. In particular, confidential information submitted by third parties in the case would be filed under a protective order, preventing other attorneys, such as Facebook’s legal team, from seeing certain sensitive filings.

The FTC may be able to get more evidence and cooperation from third parties “because of the protection afforded under those rules compared to federal court, which is a little more uncertain and is often up to a judge to determine,” said Alexis Gilman, an antitrust partner at Crowell & Moring LLP.

The in-house court also gives the commission more influence in spelling out what kind of fix—say, a selloff of Instagram—it wants in the case. The FTC can only recommend remedies to a federal district court, with the outcome at the judge’s discretion.

“The other key difference,” Gilman said, “is that the administrative process gives the commissioners the opportunity to shape the opinion and to shape the remedy.”

At the conclusion of trial, defendants can appeal an administrative law judge’s opinion, but that appeal would be heard by the commissioners who first brought the case. At the conclusion of an appeal, FTC commissioners will then issue a final decision.

The commissioners can also issue a final decision that can override the administrative law judge’s initial decision on the FTC’s case, something they can’t do with a federal district court ruling.

Right to Appeal

Facebook would have the right to appeal an adverse decision from the commissioners to a federal appeals court.

That right “gives defendants the opportunity to look for the circuit where the case law is the most favorable to them,” Gilman said.

But it also draws out the case even longer, said Sam Weinstein, a professor at Cardozo Law School who previously served as a DOJ antitrust attorney.

“It’s unclear if that’s to anyone’s advantage,” he said.

To contact the reporter on this story: Victoria Graham in Washington at vgraham@bloomberglaw.com

To contact the editors responsible for this story: Laura D. Francis at lfrancis@bloomberglaw.com; Roger Yu at ryu@bloomberglaw.com

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