Facebook under fire for illegal monopolistic practice, but what chance genuine action by regulators?

Profile picture for user slauchlan By Stuart Lauchlan December 10, 2020
Summary:
The FTC vs Facebook - place your bets!

Facebook
(Pixabay )

In Europe this morning, Facebook, Instagram and Messenger were down. I’m tempted to believe they were having a fit of the vapors over the US Federal Trade Commission  (FTC) finally taking action to tame the Zuckerberg-spawned monster. “We are working to get things back to normal,” was the party line on the outage, but it might well have applied to the mood in the room at Facebook HQ today..

To summarise, the FTC plus Attorneys General from 48 states - the others were busy? - have filed lawsuits accusing Facebook of illegal monopolistic behavior, abusing its market power to squash smaller competitors and looking for restitution that could well include an enforced breakup of Instagram and WhatsApp messaging services. 

According to the FTC charges, Facebook stands accused of "a systematic strategy" to wipe out competition, using the acquisition of Instagram and WhatsApp as weapons:

Mr. Zuckerberg recognized that by acquiring and controlling Instagram, Facebook would not only squelch the direct threat that Instagram posed, but also significantly hinder another firm from using photo-sharing on mobile phones to gain popularity as a provider of personal social networking. Just as with Instagram, WhatsApp presented a powerful threat to Facebook’s personal social networking monopoly, which Facebook targeted for acquisition rather than competition.”

Ian Conner, Director of the FTC’s Bureau of Competition, alleges:

Facebook’s actions to entrench and maintain its monopoly deny consumers the benefits of competition. Our aim is to roll back Facebook’s anti-competitive conduct and restore competition so that innovation and free competition can thrive.

New York Attorney General Letitia James added:

For nearly a decade Facebook has used its dominance and monopoly power to crush smaller rivals and snuff out competition, all at the expense of everyday users.They reduced choices for consumers. They stifled innovation, and they degraded privacy protections for millions of Americans.

Revisionist?

For its part, Facebook is calling the actions “revisionist history”, with Facebook General Counsel Jennifer Newstead saying that the allegations have wider implications for US businesses:

Anti-trust laws exist to protect consumers and promote innovation, not to punish successful businesses. Instagram and WhatsApp became the incredible products they are today because Facebook invested billions of dollars, and years of innovation and expertise, to develop new features and better experiences for the millions who enjoy those products.

The most important fact in this case, which the Commission does not mention in its 53-page complaint, is that it cleared these acquisitions years ago. The government now wants a do-over, sending a chilling warning to American business that no sale is ever final. People and small businesses don’t choose to use Facebook’s free services and advertising because they have to, they use them because our apps and services deliver the most value. We are going to vigorously defend people’s ability to continue making that choice.

She later added:

No American anti-trust enforcer has ever brought a case like this before and for good reason. The FTC and states stood by for years while Facebook invested billions of dollars and millions of hours to make Instagram and WhatsApp into the apps that users enjoy today. This lawsuit risks sowing doubt and uncertainty about the US government’s own merger review process and whether acquiring businesses can actually rely on the outcomes of the legal process.

It’s inevitably going to be a long fight ahead as a glance back to the US government’s actions against Microsoft in the 1990s shows. And not everyone is going to side with the authorities here. The Competitive Enterprise Institute, an “advocate for freedom on a wide range of critical economic and regulatory policy issues”, issued a statement declaring:

Today’s actions by the Federal Trade Commission and state attorneys general against Facebook are the perfect example of political theater dressed up as antitrust law. The FTC suit asserts that Facebook acquired Instagram and What’s App to suppress competition. But when viewed through the lens of the US antitrust law standard of consumer harm, the question becomes, so what? Facebook’s superior resources and expertise took Instagram from a modest and glitchy app to one with a billion users as of 2018.

Facebook took a risky bet on Instagram, whose owners were compensated to the tune of $1 billion. More users than ever use Instagram and presumably enjoy an improved experience. It’s worth noting that the FTC approved this purchase in 2012. Whatever Facebook’s motive was in acquiring Instagram, it’s clear that neither consumers nationally nor residents of the states filing suit have been harmed. The bottom line is that a billion consumers worldwide have benefited from Facebook’s purchase of Instagram and What’s App and it’s clear that the acquisitions did not harm consumers.

Competition was not hurt by the acquisition either. Three of the top five apps in the App Store in recent weeks didn’t exist when Facebook purchased Instagram. Parler, MeWe and TikTok are all proof that Facebook’s social media business faces fierce competition in an innovative sector. The market is working to let consumers pick the winners and losers; both the FTC and state attorneys general should stay out of the way.

Facebook is the second social media giant to be taken to court by US government bodies, following the Justice Department’s action against Google in October, which was supported by 11 states.

My take

Random thoughts at this point:

(A) Good.

(B) About time.

(C) The FTC approved both the Instagram and WhatsApp takeovers which will be used against it - big problem.

(D) The precedent a negative ruling might potentially present - that essentially no acquisition approval is final - will be regarded by many on both sides of the aisle as anti-American and counter entrepreneurialism and the 'American Dream'.

(E) Joe Biden is unlikely to provide any succour to Facebook here, but will he be ready to take on the firm for real?

(F) In general, US politicians will continue to grandstand to the public, while failing to hold Facebooks’s feet to the fire in reality - see Congressional hearings passim.

(G) The US action will encourage further moves outside of the US, particularly in Europe.

(H) This will also result in a lot of pontificating, posturing and pusillanimous behavior.

(I) We’ll still be here arguing about all this at this time next year.

(J) Mark Zuckerberg will still be obscenely rich.

(K) And he’ll still be doing that smirky thing he does.