Saving Facebook Case Falls to Tech Foe Khan in First Test at FTC

Just two weeks into her tenure as chair of the U.S. Federal Trade Commission, Lina Khan has been handed her first crisis: how to rescue the agency’s near-dead monopoly lawsuit against Facebook Inc. and keep antitrust enforcement against the biggest technology companies on track.

On Monday, a federal judge in Washington dismissed the FTC’s landmark antitrust complaint against Facebook and a parallel complaint by a coalition of states, both of which sought to break up the company.

Judge James Boasberg said the FTC failed to sufficiently detail its claim that the company has monopoly power in the social media market. He gave the agency an opening to revive the complaint by fixing it and refiling in 30 days.

LISTEN: Bloomberg Intelligence analyst Matthew Bloxham discusses the Facebook decision with Amy Morris on Bloomberg Radio.

Getting the case back on track rests with the 32-year-old Khan, who rose to prominence in the antitrust world by advocating for more forceful competition enforcement against tech companies. The FTC said it was reviewing its options.

“There are plenty of facts out there to prove that Facebook has a dominant share of that market,” said Alex Petros, a lawyer at the tech policy organization Public Knowledge in Washington. “This is a bar they should be able to overcome.”

WATCH: Facebook Inc. won a court ruling dismissing two monopoly lawsuits. Tom Giles reports.

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Yet the decision also underscores the hurdles U.S. antitrust enforcers face in bringing cases that challenge conduct by dominant companies. Supporters of more aggressive enforcement say the courts have created nearly insurmountable barriers to winning cases that accuse companies of violating monopoly laws and that Congress has to pass new legislation.

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

“It’s not hard to look at these cases and come away with the sense that antitrust law, as it stands, is not capable of handling the problems posed by dominant technology companies,” said Blake Reid, a professor at the University of Colorado Law School.

Lawmakers on Capitol Hill are mounting a multi-pronged effort to reform the laws and give competition watchdogs at the FTC and the Justice Department new authority. Last week, the House Judiciary Committee advanced a package of bills aimed at the biggest tech platforms, including Facebook.

Lina Khan

Photographer: Graeme Jennings/Washington Examiner/Bloomberg

The proposals would force the companies to exit certain business, impose restrictions on how they treat other firms that depend on their platforms, and make it harder to win approval for mergers. One would also increase filing fees to raise revenue for the antitrust agencies.

“We cannot rely on our courts to keep our markets competitive, open, and fair,” said Senator Amy Klobuchar, a Minnesota Democrat, after the Facebook decision. She has introduced her own antitrust reform proposals and has called for additional funding for the FTC and the Justice Department’s antitrust division. “We urgently need to rejuvenate our antitrust laws to meet the challenges of the modern digital economy,” she said.

Democrats Jerrold Nadler of New York, who is the chairman of the House Judiciary Committee, and Antitrust Subcommittee Chairman David Cicilline, of Rhode Island, who led the House effort to reform the power of technology giants, echoed Klobuchar’s remarks.

QuickTake: Did Big Tech Get Too Big? U.S. Crackdown Seeks Answer

The Facebook lawsuits were filed in December in an exiting salvo by the Trump administration as part of a widening crackdown on America’s tech giants. The cases followed a Justice Department complaint against Alphabet Inc. for allegedly monopolizing internet search, and the findings of a House investigation that accused technology companies of abusing their dominance.

The Facebook lawsuits centered on the 2012 acquisition of Instagram and the 2014 takeover of WhatsApp. Officials say 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 FTC complaint.

In his decision, Boasberg said the FTC failed to support its claim that Facebook has in excess of 60% of the social media market, calling it “too speculative and conclusory to go forward.”

“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,” he said. “It is almost as if the agency expects the court to simply nod to the conventional wisdom that Facebook is a monopolist.”

‘Rallying Cry for Congress’

Boasberg also said that under existing law, one of the FTC’s claims against Facebook -- that it prevented apps that it saw as competitors from connecting to its platform -- can’t be the basis for a monopoly case.

“A monopolist has no duty to deal with its competitors, and a refusal to do so is generally lawful even if it is motivated,” the judge wrote, “by a desire ‘to limit entry’ by new firms or impede the growth of existing ones.”

That existing case law makes antitrust reform by Congress all the more urgent, said Jesse Lehrich, the co-founder of Accountable Tech, an advocacy group that supports tougher antitrust laws for tech companies.

“The FTC should do everything in their power to salvage this case, but it’s just a rallying cry for Congress to get legislating,” he said.

--With assistance from Anna Edgerton and Mark Bergen.

To contact the reporter on this story:
David McLaughlin in Washington at dmclaughlin9@bloomberg.net

To contact the editors responsible for this story:
Sara Forden at sforden@bloomberg.net

John Harney

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