Washington Monthly - The FTC's Strong Case Against Facebook Could Have Been Even Stronger

Daniel Hanley, policy analyst for Open Markets Institute, writes in Washington Monthly about two mistakes the FTC made in its antitrust case against Facebook.

After years of inadequate fines, paltry settlements for overtly unfair and deceptive practices, profoundly substandard merger reviews, and numerous instances of broken consumer trust and unwarranted privacy invasions, on Wednesday the Federal Trade Commission finally initiated a blockbuster lawsuit, alongside a separate suit with 48 state attorneys general, against Facebook.

While the FTC has a significant chance of prevailing in its suit, the agency made two decisions that substantially weakened its legal firepower.

Many of the FTC’s factual findings in the complaint overlaps with the landmark 450-page House Antitrust Subcommittee report released in October. The extensive House report and the FTC’s complaint exposed almost a decade of predatory and exclusionary practices by Facebook and established that the company was purposefully monopolizing critical information and internet communications markets.

The FTC’s lawsuit primarily targets Facebook’s preemptive acquisitions of the photo-sharing application Instagram and communications platform WhatsApp. By integrating and copying their features, these acquisitions allowed Facebook to entrench its monopoly power in social networking, deter new entrants, and deprive consumers of alternative services. In addition to seeking penalties such as restricting Facebook’s ability to make acquisitions, the FTC’s lawsuit asks the court to mandate that Facebook divest (i.e., break off) Instagram and WhatsApp from the company and establish them as independent businesses. The FTC rightfully claims that this remedy will extinguish significant aspects of Facebook’s dominant and durable position in social networking.

While the FTC has declined previous opportunities to bring antitrust action against Facebook, its current action is justified. Facebook has consistently used its dominance to neutralize competitive threats. For example, to prevent Vine, a video application, from gaining momentum as a viable competitor against Facebook, in 2013, CEO Mark Zuckerberg personally approved revoking Vine’s access to Facebook’s platform to inhibit the upstart from obtaining Facebook users. Facebook also blacklisted companies from accessing its platform unless they spent more money on Facebook or because Facebook wanted to block a potential competitor from circumventing its monopoly.

Facebook has routinely acquired its competitors to entrench its position and destroy potential competitors. Between 2007 and 2019, it acquired almost 80 companies. The House report revealed that Facebook explicitly acquired Instagram as “insurance” to ensure the success of its other products. Only the corporation’s 2012 purchase of Instagram received any scrutiny from federal agencies, but, after a hasty review, was passed for review by the FTC. An even quicker review of WhatsApp took place in 2014 without any analysis of the anticompetitive effects the acquisition would have on communications applications. Skeptics of the FTC’s lawsuit will point out that the agency should not have another opportunity to review these mergers, a second or third bite at the apple. However, the agency did not conclusively approve Facebook’s acquisitions of Instagram and WhatsApp. The FTC merely chose not to stop them in court, allowing the agency to retain the right to revisit and review them later. Facebook is already arguing that the FTC action against it will have a chilling effect on all mergers. But that’s not the case. FTC data shows that reviewing these types of mergers has been quite common, with the FTC and DOJ challenging 18 previously completed mergers during the Bush Administration.

There are also multiple instances of Facebook deceiving its users about their privacy on the platform, the data it harvests, and how the company or third-parties use that data – much of which was revealed in the now infamous Cambridge Analytica scandal. The FTC has fined Facebook $5 billion for its deceptive privacy practices–an amount representing less than 8 percent of the company’s 2019 revenues.

Read the full article on Washington Monthly here.