The effort to crack down on the power of Facebook, and Big Tech in general, suffered a loss on Monday when U.S. District Judge James Boasberg dismissed the Federal Trade Commission’s antitrust complaint against the social network. (He also tossed a multistate suit led by New York against Facebook, mainly on the grounds that they waited too long to pursue their claims.) Boasberg ruled that the FTC’s claims failed on factual and legal grounds. Although his ruling allows the FTC to refile its suit, the decision was immediately seen as significantly hampering the agency’s chances of unwinding Facebook’s acquisitions of Instagram and WhatsApp and changing its business practices. But this isn’t the deathblow it looks like. The FTC still has ample authority to pursue its lawsuit and attack Facebook’s monopolistic conduct. Indeed, the dismissal gives the FTC an opportunity to reframe and broaden its case against Facebook.
In its December 2020 lawsuit, the FTC alleged that Facebook improperly maintained its monopoly in personal social networking services. The FTC complaint focused on two sets of practices. First, Facebook protected its monopoly by acquiring emerging rivals Instagram and WhatsApp in 2012 and 2014, respectively. These services were growing rapidly on mobile devices, which is where Facebook was vulnerable to challenge at the time. Second, Facebook restricted access to application programming interfaces (APIs) that allow apps and service to be interoperable with Facebook’s platform. Specifically, Facebook declined to share APIs with apps and services that competed with Facebook’s “core functionality” or supported rival social networks.
Boasberg granted Facebook’s motion to dismiss on Monday, citing multiple deficiencies in the FTC’s complaint. Two aspects of his order deserve special attention. First, the judge ruled that the FTC did not present enough factual allegations to show that Facebook has monopoly power in the personal social networking services market, which is necessary for the FTC’s monopolization suit to succeed. The judge wrote that the FTC’s failure to explain how it computed Facebook’s “60%-plus” market share made its complaint “too speculative and conclusory to go forward.” Second, the judge ruled that Facebook has a general right not to share APIs with other firms, including competitors, and held that Facebook’s refusal to share APIs is illegal only if the FTC satisfies a restrictive three-part test. According to Boasberg, the FTC had to show that Facebook terminated a “preexisting and presumably profitable course of dealing between the monopolist and the rival,” already offered APIs to other similarly situated firms, and showed “a willingness to forsake short-term profits to achieve an anti-competitive end.”
The judge’s decision is problematic. First, determining market share is fact-intensive. It is typically not something resolved on the pleadings. Parties are given the opportunity to further develop and refine market shares through judicial discovery. So Boasberg’s decision to dismiss was premature and wrong at the early stage of the litigation when he should have assumed that facts alleged in the complaint are true. Second, the judge applied an extremely restrictive interpretation of refusal-to-deal law: When does a monopolist have to do business with its rivals? He said almost never, ruling that Facebook’s API sharing policy and practices are legal by relying on pro-monopoly decisions from other lower courts and ignoring or reading older Supreme Court precedents narrowly.
Despite the loss on Monday, the FTC has viable paths forward in its case against Facebook. Boasberg only dismissed the FTC’s complaint, not its case, and allowed the commission to file an amended complaint within 30 days.
The FTC, however, has another compelling option. It could file an administrative complaint and litigate the case in house at the FTC, instead of in federal court.
Why does the forum matter? In his decision, Boasberg purported to apply current legal standards under the Sherman Antitrust Act. His legal reasoning was, at least in part, rooted in case law and judicial hostility to monopolization lawsuits. The Supreme Court has narrowed the substantive anti-monopoly provisions of the Sherman Act in recent times.
If the FTC initiates administrative litigation, it can avoid this body of monopoly-friendly case law and rely on the wider substantive scope of the Federal Trade Commission Act’s prohibition on “unfair methods of competition.” Congress established the FTC in 1914 to address and transcend judicial limitations on the Sherman Act, and so the commission has broader statutory authority in front of its administrative law judge. The Supreme Court stated that, in interpreting unfair methods of competition, the FTC can function as a “court of equity” and challenge conduct that not only “violate[s] the Sherman Act and the other antitrust laws, but also practices that the Commission determines are against public policy for other reasons.” As Boasberg noted, the FTC has more extensive remedial power to prevent Facebook’s unfair practices going forward if it chooses administrative litigation instead of proceeding in federal court.
The FTC has changed significantly since the inauguration of President Biden. The commission that filed the suit in December featured a Republican majority. Today, it has a Democratic majority under newly installed Chair Lina Khan. It has already signaled a shift in policy. Importantly, on Thursday, the FTC is poised to restore its full unfair methods of competition authority and withdraw a 2015 policy statement that narrowly defined this power.
With three like-minded Democrats on the five-member Commission, the FTC has a chance to refine and broaden the lawsuit against Facebook and use it to announce new restrictions on monopolists. It should address the factual deficiencies identified in Boasberg’s order by explaining how it computed the “60%+” market share it presented in its complaint and continue its effort to undo Facebook’s acquisitions of Instagram and WhatsApp. But the FTC could go further and articulate a more expansive theory under the FTC Act. Under antitrust law, monopolists are subject to special rules that do not apply to nonmonopolists. Applying this principle, the FTC could hold that Facebook and other dominant firms engage in an unfair method of competition when they refuse to deal with rivals, for instance by not sharing APIs, as a means of maintaining their dominance or extending it into new markets.
The FTC could also target the surveillance advertising of Facebook (and countless others) through the new administrative lawsuit. Boasberg noted that “although Facebook’s data-collection and -use practices have been subject to increasing scrutiny, they are not the subject of this action.” In a dissent from a 2019 FTC settlement with Facebook over the Cambridge Analytica scandal, Commissioner Rohit Chopra wrote that Facebook’s basic business model is built on large-scale and ongoing privacy invasions—targeting advertising based on tracking our activities online and increasingly offline too. The FTC could also use this case as a vehicle for curtailing the surveillance-advertising model of Facebook, Google, and many other digital firms.
Monday’s dismissal of its complaint against Facebook is an opportunity for the FTC. The judge may have even done the FTC a favor. Instead of refiling a surgical antitrust suit against Facebook, the FTC could use its broad statutory power to announce rules of fair competition for monopolists and rein in the surveillance advertising that has come to define everyday life.
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June 30, 2021 at 11:19PM
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