Quick Comment on the Dismissal of Antitrust Suits Against Facebook

The effort to rein in Big Tech looks to have taken a defeat, if headlines and the reaction of Mr. Market are to be believed, when District Judge James Boasberg, an Obama appointee, tossed out two anti-trust cases against Facebook yesterday. We’ve embedded his opinion on the FTC filing, which was dismissed without prejudice, at the end of this post. The related case by 46 state attorneys general was dismissed in total. As the Wall Street Journal explained:

The 46 states made arguments similar to those of the FTC, while also alleging that Facebook degraded personal privacy and exploited consumer data because it had no rivals to keep it in check.

Judge Boasberg, in turn, offered similar rejections of the states’ claims as he did to the FTC’s, with one notable exception: He said the states, unlike the federal government, can’t challenge Facebook’s past acquisitions years after the fact.

Now back to the particulars. We’ll crib from Matt Stoller’s write-up, although as we will explain, we differ with him on the reading of a key issue. We encourage you to read his post in full here.

Stoller argues that the 4% rise in Facebook’s value on the decision is deceptive; the ruling comes off as so intuitively wrong as to offend Congresscritters from both parties. Stoller highlights Republican Ken Buck falling in line with Amy Klobuchar:

Warren was pointed:

So Facebook winning this skirmish may have cost them bigly in term of the war…but that war is going to take a while to play out.

One important win for the FTC, despite the apparent overall failure, was that, as the Journal alluded, the FTC can challenge Facebook’s purchases of WhatsApp and Instagram. As Stoller explained:

The dismissal is humiliating for enforcers, and the headlines certainly are good for Facebook…

That said, I’m not sure panic is warranted. I talked to a bunch of smart lawyers, and I’m told that what matters about today’s decision are four things. First, the judge dismissed the way the FTC characterized the market, which sounds bad, but isn’t that big a deal. In his dismissal, moreover, the judge told the FTC how to fix its complaint, which it can do by refiling in 30 days with more market share data. (As antitrust scholar Daniel Crane notes, the FTC will almost certainly refile.) That’s a huge loss for Facebook, since market definition is perhaps the most important legal battlefield and the judge will probably come to accept the government’s framework.

Second, the judge said the FTC’s biggest claim – that Facebook’s acquisition of Instagram and WhatsApp were done to foster monopoly – can go forward. That’s another big loss for Facebook. Third, he tossed the FTC’s allegations of anti-competitive conduct, saying that Facebook as a monopoly is allowed to crush anyone it wants. That’s a loss for the government. And fourth, he also dismissed the state AG cases entirely on the doctrine of ‘laches,’ a bureaucratic limit which will constrain state antitrust action going forward (unless Congress fixes it). Another loss.

Stoller is not happy that the Judge Boasberg ruled that it was perfectly OK for Facebook to stomp on competitors like Vine by denying access to competitors. The justification is that Facebook can earn more money and it will presumably re-invest in better customer services and (gah) innovation. Both economic theory and experience say the reverse happens. Stoller had to concede that this barmy view is completely in line with precedent:

Vine wasn’t the only victim, but it was the most prominent one, since Vine was owned by Facebook’s then-high profile competitor, Twitter. The FTC argued this kind of action was just one of a set of Facebook’s anti-competitive conditions on software developers – like explicit contractual rules that developers not compete with Facebook. These kinds of constraints, the commission said, helped Facebook maintain its monopoly power.

The judge disagreed, not so much on whether the behavior helped facilitate Facebook’s monopoly, but on whether doing so was illegal. Citing a list of Supreme Court and circuit court precedents, the judge said that monopolists have the right to deny access to their services to anyone they choose, even if their goal is to kill competition. Monopolists, he said, are allowed to monopolize. That’s a weird assertion, but it’s backed by Supreme Court precedent (even if Boasberg interpreted case law very narrowly).

Let’s turn to the issue that Stoller regarded as not really a big deal loss, that of the judge saying that the FTC hadn’t pleaded a minimum factual foundation for its case to move forward. Remember the general rule, that a court examines a filing reading its factual allegations in the most favorable light, and then seeing if that maps onto their legal arguments. Here is the judge’s beef:

Although the Court does not agree with all of Facebook’s contentions here, it ultimately concursthat the agency’s Complaint is legally insufficient and must therefore be dismissed. TheFTC has failed to plead enough facts to plausibly establish a necessary element of all of itsSection 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%).” Redacted Compl., ¶64. Such an unsupported assertion might (barely) suffice in a Section 2 case involving a more traditional goods market, in which the Courtcould 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.

On the one hand, Stoller and other tech titan opponents are narrowly correct in saying the judge has very clearly articulated what he want to see, and it should not be hard for the FTC to submit a new filing to remedy this defect.

However, having the FTC make its argument more specific is merely the cost of admission, as in getting its day in court. The market definition is sure to be a highly contested issue and the agency will need to think carefully which formulation has the best odds of surviving assault by Facebook’s expert witnesses.

I spent considerable portions of my former life doing valuations, including of early stage tech companies and of business facing merger reviews. In many fields of enterprise, how broadly you define who is a competitor is not obvious. For instance, I regularly ran into inventors and engineers who saw their competitors as enterprises using similar technology, when current and prospective lower tech were also potential substitutes. In fact, the FTC vagueness was likely the result of recognizing how thorny this issue could be and hoping not to have to narrow their argument until they’d gotten into discovery.

One additional issue, speaking of discovery: oftentimes, a plaintiff can lose a case but win in a larger context by exposing bad facts in discovery, as in doing damage to their business or reputation. That fear often leads to settlements before or early in discovery.

Here, Facebook is so heavy handed and shameless that it can’t be embarrassed. And it’s hard to think that any bad facts, short of corporate espionage (think on the order of illegal wiretapping) could further enrage Congressmembers. So Facebook is immune to the normal range of bad revelations.

So this case isn’t going away, but this will be a hard-fought, lengthy battle. Let’s hope the Feds can rise to the occasion.

00 FTC v. Facebook Dismissal
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    1. JE

      I think that was baked into the “Obama appointee” remark, but I’d love to hear more.

  1. Watt4Bob

    Why can’t FB’s business be understood to rest on the exchange of the value of personal information for service, making clear the claim that it’s services are free, is a fallacy?

    1. Tom Pfotzer

      Great question.

      I think this is worth a good look, as it is applicable to a number of other dominant players, incl. Goodle. The “apparently free” business model needs to be directly attacked.

      Imagine the optics of “this is what consumers are surrendering in order to use [your favorite villain’s] product”.

      Let’s take a look under the covers.

  2. Oh

    We have three “independent” branches of government all of which are corrupt. Well meaning government employees are shot down on anything meaningful they try to do for the people.

    Methinks that Ken Buck and Amy Klobuchar are just attention grabbers hust like Biden; nothing will come from this.

  3. Pate

    As I am sure most NC readers know, the paramount role of scotus- described by Charles A Beard as the “final bulwark” in the framer’s status-quo-preserving, barrier-to-power edifice – is to protect property interests. The court can lean left re cultural issues (gay marriage legal) but always to the right re economic issues (Affordable Care Act legal because it enhances the private insurance industry’s monopoly on healthcare). The only exception to this historical template happened when FDR threatened to “pack the court” (“the switch in time that saved nine”). Business as usual imho.

    1. JBird4049

      And the Framers of the Constitution preferred status quo was not corruption and monopoly. They were also very afraid of what the United States is becoming which is a corrupt oligarchy ruling over the people using a very large armed force and the possibility of dictatorship. A dictatorship is increasingly likely in the modern country.

      The British Empire of the that time was a political cesspool with a small extremely wealthy elite ruling over a very large underclass; that is one of the reason why they had fought a war.

      As with much of the system set up by the Founders and the Framers, in the past 70 years, there has been much effort by all sides, not just the Conservatives, to pervert it.

  4. Nikkikat

    The US colonies were also run by a small group of wealthy elites. Everybody else was starving, poor and either a white slave that could never pay off their debtors prison bill or a captured African forced into slavery. The founders and framers were protecting their own wealth nothing more.

  5. Alan Kusinitz

    While the law allows “look backs” to break up monopolies and while a few such lookbacks have been successful (e.g., particularly in the healthcare industry), in general such look backs will not succeed to any meaningful extent. The “antitrust paradox” is that the standards for reviewing mergers and acquisitions–all mergers not just high tech mergers–do not capture monopolies in their incipiency, nor are the current standards meant to do so. They were designed during the Reagan era and despite tinkering, they have not been fundamentally changed in 40 years. Facebook, Google, Microsoft, Apple, Adobe, have completed many hundreds of mergers and acqusitions, as have the participants in most of our industries. Unless and until the FTC and the DOJ get serious about revising their standards for reviewing mergers before the mergers are consummated, we will continue to have an economy run by monopolies and oligarchies. A final point is that market definition is important. Facebook is not in the PSN market. They are in the advertising market, as is Google.

    1. Sue inSoCal

      That’s my take on it also. A fine explanation you have that this will not solely apply to tech! Occurred to me as well.

      But laches?? Iirc, a remedies prof from long ago said “if in doubt, argue laches, but good luck!” So, we should have gone after Facebook’s continuous expansion of their monopoly with our toothless antitrust laws. A bit of pretzel logic. Hmmm.

  6. Glen

    Law makers can make law, but they are Tweeting instead.

    Maybe they can discuss this outrage on FaceBook too.

    That’ll fix it!

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