U.S. Revives Facebook Suit, Adding Details to Back Claim of a Monopoly

After a judge slammed the F.T.C.’s original lawsuit, regulators returned with a more detailed case accusing the platform of being a monopoly.,

Advertisement

Continue reading the main story

Supported by

Continue reading the main story

WASHINGTON — The Federal Trade Commission took new aim at Facebook on Thursday, beefing up its accusations that the company was a monopoly that illegally crushed competition, in an attempt to overcome the skepticism of a federal judge who threw out the agency’s original case two months ago.

The suit submitted Thursday contains the same overall arguments as the original, saying that Facebook’s acquisitions of Instagram and WhatsApp were made to create a “moat” around its monopoly in social networking and arguing that the social network should be broken up. But the updated suit is nearly twice as long and includes more facts and analysis that the agency says better support the government’s allegations.

“Facebook lacked the business acumen and technical talent to survive the transition to mobile,” Holly Vedova, the acting director of the bureau of competition at the agency, said in a statement. “After failing to compete with new innovators, Facebook illegally bought or buried them when their popularity became an existential threat.”

Facebook responded: “There was no valid claim that Facebook was a monopolist — and that has not changed. Our acquisitions of Instagram and WhatsApp were reviewed and cleared many years ago, and our platform policies were lawful.”

The agency had to refile the case after the judge overseeing it said in June that the government had not provided enough evidence that Facebook was a monopoly in social networking. The judge’s decision, and a similar one he made in a case against the company brought by more than 40 states, dealt a stunning blow to regulators’ attempts to rein in Big Tech.

His decision presented the first major test for Lina Khan, the F.T.C. chair, who was only days into her role at the time. Ms. Khan represents a wave of new thinking about the industry among administration officials and many lawmakers, arguing that the government needs to take far more aggressive action to stem the power of technology giants like Facebook, Google, Amazon and Apple. President Biden has appointed multiple regulators with similar aims and lawmakers proposed updates to antitrust laws to target the power of technology companies.

The criticisms of the first version of the Facebook case levied by the judge, James E. Boasberg of the District Court of the District of Columbia, showed the steep challenges regulators face. Although the companies dominate the markets they are in — social media, in the case of Facebook — the courts often look at whether prices are rising as an indication of monopolization. Facebook’s most popular services are free.

“No one who hears the title of the 2010 film ‘The Social Network’ wonders which company it is about,” Judge Boasberg wrote. “Yet, whatever it may mean to the public, ‘monopoly power’ is a term of art under federal law with a precise economic meaning.” He instructed the F.T.C. to back up claims that Facebook controlled 60 percent of the market for “personal social networking” and that it blocked competition.

Image

Lina Khan, the F.T.C. chair.Credit…Pool photo by Graeme Jennings

Ms. Khan then faced a choice on how to handle Judge Boasberg’s decision. One option was to drop the case entirely, while another was to expand it with even broader accusations. Instead, she took more of a middle ground, resubmitting the suit with greater detail and a more sweeping narrative of the company and what the agency says is a pattern of anticompetitive behavior since Mark Zuckerberg co-founded it at Harvard in 2004.

The revised suit was approved by the commission in a 3-2 vote, with the three Democrats on the commission voting in favor of it and the two Republican members dissenting.

In the new complaint, the F.T.C. provides more details to support the government’s claims that Facebook holds a monopoly in social networking. But the public version of the suit had many of the statistics redacted because the numbers are proprietary.

The agency said that Facebook — the company’s biggest service, known inside the company as Facebook Blue — and Instagram were the leading social networks in the U.S., far ahead of its next biggest competitor, Snapchat.

The agency refuted Facebook’s claims that it has many competitors in social networking, instant messaging and entertainment. The agency argued that Facebook’s products were for “personal social networking,” distinguishing them from specialized social networks like the professional network LinkedIn or the neighborhood site NextDoor. The F.T.C. added that Facebook’s products also were different from messaging services like Signal and iMessage because users don’t typically use those services to send notes to big groups, nor do they use those services to find contacts.

And the agency said Facebook differed from Twitter, YouTube and TikTok because content on those sites were typically created for the public and not directed at specific individuals in a social network.

“Facebook has today, and has maintained since 2011, a dominant share of the relevant market for U.S. personal social networking services, as measured using multiple metrics: time spent, daily active users, and monthly active users,” the agency said in its complaint.

The F.T.C.’s core argument is that Facebook tried to maintain a monopoly over social networking through its acquisitions of Instagram in 2012 and WhatsApp in 2014. Slow to develop its app for mobile phones, the company sought to “buy or bury innovators threatening to out-compete Facebook in the new mobile environment,” the agency said in its complaint.

The lawsuit also says that, beginning in 2010, the company stifled competitors like Circle, a social network, and Vine, a short-video platform, by adding new limits for how outside developers whose products connected to Facebook could work with other social networks.

“Facebook beat competitors not by improving its own product but instead by imposing anticompetitive restrictions on developers,” according to the lawsuit.

Facebook has criticized the arguments as revisionist history, noting that the F.T.C. reviewed the mergers with Instagram and WhatsApp and didn’t block the deals.

“The F.T.C.’s claims are an effort to rewrite antitrust laws and upend settled expectations of merger review, declaring to the business community that no sale is ever final,” Facebook said on Thursday.

The company has until Oct. 4 to respond to the new complaint or to file for Mr. Boasberg to dismiss the case. Last month, it filed a petition for Ms. Khan to recuse herself from the agency’s case, saying her work on a House investigation into platform monopolies showed a bias against the company. The F.T.C. on Thursday said that it had dismissed that petition, saying that Facebook would receive “the appropriate constitutional due process protections” because the case would be tried before a federal judge.

Bill Kovacic, a former chairman of the F.T.C., said the agency did enough to “live to fight another day.”

“The judge said ‘show your work,’ and it appears they did enough to satisfy that request,” he said.

But he warned the case would face a long and steep challenge. The F.T.C. has won fewer than 20 of its monopoly cases in the appeals court since the agency started more than 100 years ago, he said.

“Facebook will fight this ferociously,” Mr. Kovacic added.

Leave a Reply