Facebook has done it again, dodging another regulatory bullet this week after a U.S. district court threw out the Federal Trade Commission’s antitrust case against the tech colossus. But Facebook is not out of the woods, according to a number of analysts and lawmakers.
“The ruling was a surprise to The Street, but we view it as a long ‘Game of Thrones’ battle between Facebook, Amazon, Apple and Alphabet vs. the Beltway over the coming years,” Wedbush analyst Dan Ives told TheWrap. “This is a very complex issue and the surprise ruling adds even more complexity to this antitrust hot-button issue on both sides.”
A federal judge on Monday ripped apart the core argument by the FTC (and 48 state attorneys general): that Facebook held a monopoly over the U.S. social media market. The FTC, when it first filed its lawsuit in late 2020, claimed Facebook was not only a monopoly, but that it maintained that position primarily through its acquisitions of Instagram and WhatsApp — two deals the FTC approved in 2012 and 2014, respectively. Judge James E. Boasberg, in his ruling, said the government’s argument was based on “vague” metrics that didn’t back up its assertion Facebook controlled “60%-plus” of the social media market.
“Whatever it may mean to the public, ‘monopoly power’ is a term of art under federal law with a precise economic meaning: the power to profitably raise prices or exclude competition in a properly defined market,” the court filing said. “To merely allege that a defendant firm has somewhere over 60% share of an unusual, nonintuitive product market — the confines of which are only somewhat fleshed out and the players within which remain almost entirely unspecified — is not enough. The FTC has therefore fallen short of its pleading burden.”
This wasn’t the first time Facebook has escaped a major regulatory fight largely unscathed. Only two years ago, Facebook reached a record-setting $5 billion settlement with the FTC over its handling of data privacy issues. Despite the hefty price, Facebook won because it didn’t have to change any core business practices. Facebook’s stock price has jumped 73% since the settlement, and its annual revenue increased from $70.7 billion in 2019 to $86 billion last year.
On Monday, the judge said the FTC could amend its claim and try again in a month, but at least initially, the decision looked to be a gut punch to regulators aiming to rein in Big Tech. But that may not be the case. Instead, it appears to have emboldened them, with lawmakers now sounding hellbent on finding a way to curb Facebook’s power. (As well as that of Apple, Amazon, Microsoft and Alphabet, Google’s parent company, which together make up the five trillion-dollar tech giants.)
“The FTC should do everything it can to pursue its case against Facebook,” Sen. Amy Klobuchar (D-Minnesota) said on Tuesday. “But the ruling shows why our antitrust laws need to be updated after years of bad precedent. We can’t meet the challenges of the modern digital economy with pared down agencies & limited legal tools.”
And remember, this is a bipartisan issue at this point. Republicans, who have accused Facebook and Google of throttling conservative views, are clamoring for changes, too. (Some 65% of Republicans hold a negative view of Big Tech now, up from 37% just two years ago, according to Gallup.)
The court’s decision to dismiss the FTC’s case “shows that antitrust reform is urgently needed,” Rep. Ken Buck (R-Colorado) said on Monday. “Congress needs to provide additional tools and resources to our antitrust enforcers to go after Big Tech companies engaging in anticompetitive conduct.”
GOP Sen. Josh Hawley of Missouri — one of the loudest tech critics in Washington, D.C. — added that the court acknowledged Facebook’s “massive market power,” but that it essentially “shrugged its shoulders.”
Now, with the finger-wagging and soundbites out of the way, the hard part begins. If lawmakers want to break up Facebook, they’ll need to revamp existing antitrust rules; finding a way to better define what a social media monopoly is — and how they are illegally maintained — will be critical.
As antitrust scholar John Lopatka told TheWrap previously, the government not only has to show that a company has a monopoly, but that it has maintained that monopoly via anticompetitive practices. The FTC argued Facebook’s acquisitions of Instagram and WhatsApp helped it squeeze smaller competitors out of the picture, but Boasberg said the commission failed to provide enough evidence to back up that claim.
At the same time, the FTC will have to do a better job of framing its case against Facebook if it decides to amend its filing. And the commission may want to start with how it defines Facebook’s market dominance; the FTC argued Facebook controlled 60% of the relevant market, but Lopatka said the magic number judges tend to look for in these cases is 70% market share or more. The FTC, Lopatka said, will also need to do a better job defining the market Facebook operates in, considering its lawsuit failed to mention major competitors like Twitter and Snapchat.
This may sound like a mess, and it probably is. But the FTC could be up to the challenge, after Big Tech critic Lina Khan was recently appointed chair of the commission.
Khan first made a name for herself while in law school back in 2017, when she penned a well-circulated takedown of Amazon. Khan argued it wasn’t enough to look at the “consumer welfare standard,” where regulators use prices to determine if a company is engaged in antitrust activity, when evaluating Big Tech; Khan said a company can still abuse its power, even if it leads to lower prices for customers, because of the way it hampers competitors.
That line of thinking could now be deployed against Facebook, if Khan and the FTC decide to amend their case. It’s a thought process that will also resonate with many in Silicon Valley, including those who used to work for the social network.
“I believe that Facebook has been, and will be for the foreseeable future, engaged in monopolistic practices,” one former Facebook employee, who left the company last year over moral objections to some of its practices, told TheWrap. “With the acquisition of companies like Instagram and WhatsApp, Facebook has positioned itself to dominate the social media market and continue to squeeze our smaller social media companies.”
And from a macro standpoint, Khan joining the FTC signals that the Biden Administration — alongside a growing chorus of Republican and Democrat lawmakers — is serious about taking on Big Tech. Khan’s youth and familiarity with the topic is already a step in that direction, compared to the usual migraine-inducing questions Facebook CEO Mark Zuckerberg typically fields when he testifies before Congress. Facebook certainly won this round, but the Khan-led FTC, coupled with a hoard of critical lawmakers from both sides of the aisle, will likely pick another major antitrust fight soon enough.
Antoinette Siu previously worked at Facebook contractor Milestone Technologies.
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