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:
— Rep. Ken Buck (@RepKenBuck) June 28, 2021
Warren was pointed:
Anybody on the internet knows that Facebook has monopoly power. They control 85% of social network traffic, bulldoze competition, and undermine our democracy. We need stronger antitrust laws to #BreakUpBigTech and finally unwind mergers like Facebook, WhatsApp, and Instagram. https://t.co/Ldxb7zMj47
— Elizabeth Warren (@SenWarren) June 28, 2021
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