Antitrust Lawsuits Threaten to “Break Up” Facebook
On December 9, 2020, the Federal Trade Commision (FTC) as well as a coalition of 48 states’ attorney generals, filed parallel antitrust lawsuits against Facebook. These lawsuits allege that Facebook has maliciously used its extensive assets to absorb or destroy companies that pose threats to their dominance in the marketplace. In the words of the lawsuit: “Facebook illegally maintains [its] monopoly power by deploying a buy-or-bury strategy that thwarts competition and harms both users and advertisers.” The lawsuits primarily focus on Facebook’s mammoth acquisitions of Instagram and Whatsapp, which they claim are key examples of the company’s harmful undertakings.
Aside from the allegations regarding Facebook's methods of preventing competition in the social media sector, the lawsuits also focus on issues of averting innovation and user privacy. They claim that a great deal of the data which informed Facebook's decisions to acquire other tech companies came from user activity, acquired without consent. Furthermore, the lawsuits argue that the anticompetitive activities of Facebook have deprived consumers of potential innovation. They assert that if Facebook had not absorbed their rival companies, the competition between them could have led to new features and benefits for consumers (including increased privacy).
The central goal of these lawsuits is to force Facebook to divest its assets through a permanent injunction from a federal court. In an official statement, the director of the FTC’s Bureau of Competition stated that “[their] aim is to roll back Facebook's anticompetitive conduct and restore competition so that innovation and free competition can thrive.” If they were to achieve this, Facebook would likely be compelled to part with holdings such as Instagram and Whatsapp, leaving the company with a significantly smaller share of the social media market.
Lawsuits such as these have been anticipated for quite some time. About fourteen months ago, New York Attorney General Letitia James publicized her office's investigation effort into possible anticompetitive operations at Facebook. Additionally, the FTC began a similar investigation into the same matter in June 2019. Facebook has known something of the sort was coming well in advance, and the company began gathering a legal team with antitrust experience to start crafting a strategic response to these lawsuits.
Facebook's Defense Consists of Four Key Elements
First, the company insists that it is inequitable that the FTC can contest the acquisitions of Instagram and Whatsapp after previously confirming them eight and six years ago respectively. In an official statement, Jeniffer Newstead, VP and General Counsel at Facebook, protested that “the most important fact in this case, which the commission does not mention in its 53 page complaint, is that it cleared these acquisitions years ago.” Still, the FTC is prepared to argue that “there's nothing in US merger law that says an agency's decision not to challenge a proposed deal immunizes that deal from future review.”
Second, Facebook argues that their social media market share does not constitute a monopoly. In the aforementioned statement, Newstead further claimed that “people and small businesses don't choose to use Facebook’s free services and advertising because they have to, they use them because they deliver the most value.”
Third, Facebook maintains that although they support regulation, harsh litigation and court rulings against the company could allow rival companies in other countries to usurp the United States’ technological dominance. Facebook is prepared to compel the court to side with them, as they wouldn't want countries like China to “steal” the United States’ market share in the global technology sector.
Lastly, Facebook has been preparing for this “battle” by making it increasingly difficult for its services to be separated on a technical level. The engineers at Facebook have been working on integrating distinct services such as Instagram, Whatsapp, and Facebook itself, so it becomes virtually impossible to divide them. If Facebook succeeds in doing so, the company may be able to persuade the courts that breaking it up is simply not feasible.
Whatever the outcome of the lawsuit will be, we aren't likely to find out for quite a while. Similar antitrusts lawsuits in the past have taken several years to be resolved. Still, the results of this lawsuit could be exceptionally impactful. If Facebook is forced to give up some of its assets or lose some of its power, the social media and technology landscape could change radically.