FTC Revival of Facebook Case Hinges on Bolstering Monopoly Claim

June 30, 2021, 6:00 AM

To revive their landmark lawsuit against Facebook Inc., U.S. antitrust enforcers will need to present stronger evidence to support their argument that the world’s biggest social network is a monopoly.

With nearly 180 million monthly users in the U.S., according to eMarketer estimates, and a suite of products that are among the most widely used online, Facebook’s influence and reach may appear beyond question to most.

That wasn’t enough for U.S. District Judge James Boasberg in Washington, who on Monday dismissed the Federal Trade Commission’s complaint accusing Facebook of abusing its dominance.

It was an embarrassing setback for the agency, but not a fatal blow: the judge gave the FTC an opportunity to fix the errors and refile within 30 days. Legal experts say it’s a surmountable hurdle.

“There’s good reason to believe it has significant market power,” Herb Hovenkamp, an antitrust law professor at the University of Pennsylvania, said about Facebook. “This is a case, I think, that once expert testimony comes in, the case for power gets better. You just have to be able to draft the complaint right in order to get your foot in the door.”

The case, filed in December under the outgoing Trump administration, marked an escalation in regulatory pressure on Facebook and dominant technology companies that’s expected to continue under President Joe Biden as the power of internet platforms has become a rare issue that’s raised concerns from Democrats and Republicans.

Earlier: Facebook Wins Dismissal of U.S., States’ Monopoly Lawsuits

The Facebook lawsuit centered on the 2012 acquisition of Instagram and the 2014 takeover of WhatsApp, both of which the FTC initially allowed.

The FTC said that Facebook made the deals because it saw both companies as threats to its business. Rather than compete with its own products, Facebook followed Chief Executive Officer Mark Zuckerberg’s mantra: “It is better to buy than compete,” according to the complaint.

Facebook has criticized the case, saying the government wanted a “do over” after the FTC let the acquisitions move forward.

The ruling presents Lina Khan, the new FTC chair, with her first legal challenge and underscores the hurdles U.S. antitrust enforcers face in bringing cases that attack conduct by dominant companies.

Supporters of more aggressive enforcement say the courts have created excessive barriers to winning cases that accuse companies of violating monopoly laws and that Congress has to pass new legislation.

The Judiciary Committee last week advanced a handful of bipartisan bills aimed at the biggest U.S. tech companies, though their path to law is uncertain.

For more: Tech’s Nightmare Bills Get Support and Blowback: Key Takeaways

In his decision, Boasberg faulted the FTC for failing to explain what metrics went into its assertion that Facebook has in excess of 60% of the market that it calls “personal social networking services.” The judge also criticized the agency for not identifying some of the companies that make up the rest of the market.

“The FTC’s complaint says almost nothing concrete on the key question of how much power Facebook actually had, and still has, in a properly defined antitrust product market,” the judge wrote. “It is almost as if the agency expects the court to simply nod to the conventional wisdom that Facebook is a monopolist.”

If the FTC can rewrite the complaint to address the shortcomings identified by Boasberg, the case, which seeks to break up Facebook by splitting off Instagram and WhatsApp, is back on track.

“What the FTC needs to do is come up with a much more specific methodology on what market Facebook is actually in,” said Daniel Hanley, an analyst at Open Markets Institute, an an anti-monopoly organization in Washington. “There’s a million ways to cut this, and the agency has a mountain of evidence to draw from to draw the appropriate market.”

The advantage for the FTC is that the usage data based on various measures is readily available, said Hovenkamp.

“These are relatively easy data to come by,” he said. “I think it’s easier to measure market share in a market like Facebook than it is, say, the market for eggs, sand or coal or something like that, because then you really do have to track down individual transactions and sales.”

Still, measuring Facebook’s market dominance in a way that will stand up in court is a challenge, in part because the company self-reports all metrics and there is no central data set to compare equivalent services.

Twitter Inc., for instance, reports daily active users on each quarterly earnings report. Video-streaming app TikTok, which is owned by Chinese parent Bytedance Ltd., only shares a monthly active user metric for the U.S., which isn’t regularly updated.

Pew Research Center found that Facebook is used by 69% of American adults, a much higher penetration rate than Twitter or TikTok, but many of those Facebook users likely have accounts on competing services as well.

Facebook’s expansion into new features has also raised the question of which products it should be compared with. Facebook’s U.S. penetration is actually smaller than Google’s YouTube, which is used by 81% of U.S. adults, Pew found. Facebook offers many of the same features as YouTube, but the Google-owned video site isn’t often considered “social networking,” confusing efforts to compare the two. In Apple Inc.’s App Store rankings, Facebook is categorized as “social networking,” but YouTube is labeled as “photo and video.” Meanwhile, TikTok is nestled under the “entertainment” category, and Twitter self-identifies as “news.”

Facebook also doesn’t disclose the size, either by revenue or by users, of WhatsApp and Instagram, the properties the FTC says give the company its monopoly power.

Boasberg made it clear that he won’t accept just any data to establish Facebook’s market share. Facebook’s share of advertising revenue isn’t a relevant metric, he said. He added that the number of daily or monthly users probably won’t work either, pointing to the issue of people who use multiple services and how often they visit each one and how long.

He also raised doubts about using time spent on Facebook properties, because some activities don’t fit into the FTC’s definition of the market.

The variety of metrics makes the FTC’s task challenging, said Sam Bowman, director of competition policy at the International Center for Law and Economics, a competition policy group that has criticized the FTC’s Facebook case.

“Is it user time that we’re looking at? Is it collection of user data that we’re looking at? Is it the amount of ads you’re showing, is it the amount of time users spend looking at ads? It’s really some combination of things that is your ‘payment,’” Bowman said.

--With assistance from Claire Hao.

To contact the reporters on this story:
David McLaughlin in Washington at dmclaughlin9@bloomberg.net;
Siri Bulusu in Arlington at sbulusu1@bloomberg.net;
Kurt Wagner in San Francisco at kwagner71@bloomberg.net

To contact the editors responsible for this story:
Sara Forden at sforden@bloomberg.net;
Roger Yu at ryu70@bloomberg.net;
Sarah Frier at sfrier1@bloomberg.net

© 2021 Bloomberg L.P. All rights reserved. Used with permission.

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