Court Tosses Both FTC And States' Antitrust Cases Against Facebook; You Gotta Have More Than 'Big Facebook Bad'

from the ouch dept

As you'll almost certainly recall, last December the FTC filed an antitrust case against Facebook. That happened the same day 46 states (and DC and Guam) also sued Facebook for antitrust violations in a separate case. Also it was right after the DOJ went after Google on antitrust grounds.

On Monday a judge ruled on both the cases against Facebook -- and dismissed them both. In both cases, the Court highlights the very problems we noted in our initial writeup about these cases. They seem to assume that "obviously" Facebook is a monopoly and "obviously" it's doing anti-competitive bad stuff. But... the problem with insisting that it's all "obvious" is that you have to actually show that in your complaint. And that didn't happen in either of these cases.

The court, fairly easily, dismissed the FTC's case, though left it open for the FTC to amend the case and try again (which it will almost certainly do). The judge highlighted the exact same problem I raised in my post about the key weakness in the case: it fails to show evidence that Facebook has a monopoly.

Although the Court does not agree with all of Facebook’s contentions here, it ultimately concurs that the agency’s Complaint is legally insufficient and must therefore be dismissed. The FTC has failed to plead enough facts to plausibly establish a necessary element of all of its Section 2 claims — namely, that Facebook has monopoly power in the market for Personal Social Networking (PSN) Services. The Complaint contains nothing on that score save the naked allegation that the company has had and still has a “dominant share of th[at] market (in excess of 60%).” ... Such an unsupported assertion might (barely) suffice in a Section 2 case involving a more traditional goods market, in which the Court could reasonably infer that market share was measured by revenue, units sold, or some other typical metric. But this case involves no ordinary or intuitive market. Rather, PSN services are free to use, and the exact metes and bounds of what even constitutes a PSN service — i.e., which features of a company’s mobile app or website are included in that definition and which are excluded — are hardly crystal clear. In this unusual context, the FTC’s inability to offer any indication of the metric(s) or method(s) it used to calculate Facebook’s market share renders its vague “60%-plus” assertion too speculative and conclusory to go forward. Because this defect could conceivably be overcome by re-pleading, however, the Court will dismiss only the Complaint, not the case, and will do so without prejudice to allow Plaintiff to file an amended Complaint.

In our original post about the case we noted the FTC can't just say "it's obvious this is a monopoly" without anything to back it up, but that's what it tried to do, and that's what the court can't allow. Also, the court seems skeptical that even if the FTC could prove monopoly power that the rest of the case would hold up:

First, even if the FTC had sufficiently pleaded market power, its challenge to Facebook’s policy of refusing interoperability permissions with competing apps fails to state a claim for injunctive relief. As explained herein (and in the Court’s separate Opinion in the States’ case), there is nothing unlawful about having such a policy in general. While it is possible that Facebook’s implementation of that policy as to certain specific competitor apps may have violated Section 2, such finding would not change the outcome here: all such revocations of access occurred in 2013, seven years before this suit was filed, and the FTC lacks statutory authority to seek an injunction “based on [such] long-past conduct.” FTC v. Shire ViroPharma, Inc., 917 F.3d 147, 156 (3d Cir. 2019). Regardless of whether the FTC can amend its Complaint to plausibly allege market power and advance this litigation, then, the conduct it has alleged regarding Facebook’s interoperability policies cannot form the basis for Section 2 liability. Second, the agency is on firmer ground in scrutinizing the acquisitions of Instagram and WhatsApp, as the Court rejects Facebook’s argument that the FTC lacks authority to seek injunctive relief against those purchases. Whether other issues arise in a subsequent phase of litigation is dependent on how the Government wishes to proceed.

The details of the ruling really show (as we had suggested earlier) that it appears that the government really tried to rush all these cases, and did so with weak arguments just to get a case started, without thinking that just because you say something is true you can't get a court to buy it without support:

Although the Court, as just explained, finds the contours of the asserted product market plausible, the Complaint is undoubtedly light on specific factual allegations regarding consumer-switching preferences. Given that thin showing, and the fact that the PSN-services product market is somewhat “idiosyncratically drawn” to begin with, the Court must demand something more robust from Plaintiff’s market-share allegations. As it happens, however, those allegations are even more tentative: the FTC alleges only that Facebook has “maintained a dominant share of the U.S. personal social networking market (in excess of 60%)” since 2011, ... and that “no other social network of comparable scale exists in the United States.”... That is it. These allegations — which do not even provide an estimated actual figure or range for Facebook’s market share at any point over the past ten years — ultimately fall short of plausibly establishing that Facebook holds market power. Given that finding, the court need not address the issue of whether the FTC has sufficiently alleged entry barriers.

The question now is what will the FTC do in response. It could try to come back with another attempt with a better market definition -- even though the court seems somewhat skeptical that it could do so successfully. The other option, which some are speculating about, is that the FTC could try again using a totally different legal theory, basically arguing unfair competition, rather than abuse of market power. Of course, as former FTC Commissioner Joshua Wright has detailed, taking this latter approach could lead the courts to significantly limiting the FTC's authority -- meaning it could backfire spectacularly.

As for the States' case against Facebook, it fails for even dumber reasons. When the case was first filed, we noted how it tells a narrative that left out a ton of important context. The case focuses on Facebook's purchases of both WhatsApp and Instagram, and tries to argue that after sucking a bunch of companies in to use Facebook's platform, it then cut back on the API access to functionalities to keep competitors out. That, of course, leaves out the context of reasons why Facebook changed its approach to the API and how it had to deal with situations like Cambridge Analytica's abuse of the API to suck out a ton of data.

But the real problem with the States' case? They brought it way too late. If they had a problem with the purchase of Instagram and WhatsApp, they maybe should have brought the case years ago:

First, the States’ Section 2 and Section 7 attacks on Facebook’s acquisitions are barred by the doctrine of laches, which precludes relief for those who sleep on their rights. Although Defendant purchased Instagram in 2012 and WhatsApp in 2014, Plaintiffs’ suit — which seeks, in the main, to have Facebook divest one or both companies — was not filed until December 2020. The Court is aware of no case, and Plaintiffs provide none, where such a long delay in seeking such a consequential remedy has been countenanced in a case brought by a plaintiff other than the federal government, against which laches does not apply and to which the federal antitrust laws grant unique authority as sovereign law enforcer. If laches is to mean anything, it must apply on these facts, even in a suit brought by states.

As for the API changes? Well, again the court notes there's nothing actually against the law in changing your API policies -- and even if the changes were done for anti-competitive reasons, those changes also happened way, way too long ago:

Second, the States’ Section 2 challenge to Facebook’s policy of preventing interoperability with competing apps fails to state a claim under current antitrust law, as there is nothing unlawful about having such a policy. While it is possible that Facebook’s implementation of that policy as to certain specific competitor apps may have violated Section 2, the Court does not reach that question because all such revocations of access occurred over five years before the filing of the Complaint. Such long-past violations cannot furnish a basis for the injunctive relief that Plaintiffs seek here.

Basically, the problem with the States' case is that they're too damn late.

Many people have taken it for granted that Facebook is clearly violating antitrust law, but the lawyers bringing these cases against the company can't take that for granted, or assume that it's obvious. They have to prove it to a court, and, as these two rulings show, they failed to do so in either case.

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Filed Under: antitrust, competition, ftc, market power, states
Companies: facebook