Antitrust Litigation & Investigations

FTC Gets a Second Shot at Antitrust Case Against Facebook

Facebook says a free service can’t be a monopoly.

“Second time lucky?” That is how U.S. Judge James E. Boasberg began his opinion allowing the Federal Trade Commission’s antitrust suit against Meta Platforms, Inc. (formerly, Facebook) to proceed, saying the government “stumbled out of the starting blocks” but has rectified in its amended complaint against Meta the deficiencies he found in its initial complaint.

In June 2021, Judge Boasberg, who presides in U.S. District Court for the District of Columbia, dismissed the FTC’s first complaint because the Commission had “failed to plausibly allege that Facebook has a monopoly power in the market for Personal Social Networking (PSN) services.” However, the court “left the door ajar” for the FTC to overcome this defect in an amended pleading.

“Eagerly accepting such invitation,” Judge Boasberg said, the FTC filed an amended complaint and Facebook, again, moved to dismiss. The court denied Facebook’s motion on Jan. 11, 2022.

The FTC continues to maintain that Facebook has acquired competitors and potential competitors that it believed posed a threat to its monopoly. The social media giant also implemented internal policies that prevented other apps from interoperating with Facebook, which the company believed to be a competitive threat, according to the FTC.

The judge said the amended complaint contains many more “robust and detailed” facts to fortify the FTC’s theory that Meta possesses monopoly power in the PSN services market which it unlawfully maintained through specific unlawful conduct that created or perpetuated barriers to entry. The judge cited Meta’s purchase of the WhatsApp messaging app and the photo and video sharing platform, Instagram, as some of Meta’s anticompetitive conduct.

The court did not permit the allegation regarding the interoperability policies to move forward, however. The judge said this allegation “founder[s] for the same fundamental reasons as explained before: Facebook abandoned the policies in 2018, and its last alleged enforcement was even further in the past.”

Judge Boasberg stated that although the FTC “may well face a tall task down the road in proving its allegations, the Court believes that it has now cleared the pleading bar and may proceed to discovery.”

The court wrote that the FTC’s allegation of monopolization under Section 2 of the Sherman Act has two necessary elements: the possession of monopoly power in the relevant market and the willful maintenance of that power “as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.” The court found that FTC’s amended complaint sufficiently alleged these elements, rejecting Meta’s argument to the contrary.

Meta had also argued that the FTC’s amended complaint failed because the FTC’s vote to authorize the complaint was invalid. It alleged that FTC Chairperson Lina Khan was biased and should have recused herself. Judge Boasberg held that Khan’s participation in the vote “did not violate ethical rules” and was “properly authorized.” The judge noted that Khan was “acting in a prosecutorial capacity, as opposed to in a judicial role, in connection with the vote.”

Meta filed its answer and defenses to the new complaint on Feb. 25, admitting only the most basic and insignificant allegations set forth in the FTC’s complaint but denying most material allegations. Meta also asserted 22 affirmative defenses, including the contention that “competition and consumers cannot be harmed from alleged monopolization of a market for a product distributed free to all users.” Meta also said the FTC lacks statutory authority to challenge its completed acquisitions and that the Commission waited too long after closing to challenge them. Regardless, the company said it had “procompetitive justifications” for its Instagram, WhatsApp and other deals.

An initial scheduling conference in the case is set for Feb. 28.

Commentary: Meta Unlikely to Prevail on "Free Service" Theory

It is notable that the court accepted the Commission’s allegations that a lack of quality, privacy, or other non-price features of its digital social networking platform could qualify as a type of consumer harm that could support a monopolization case. Based on the court’s opinion, Meta is unlikely to find that the zero price it charges Facebook users provides it with any defense to the Commission’s antitrust lawsuit. It could hardly be otherwise: advertising-driven business models support not only Facebook’s social network, but many other dominant digital platforms. Monopolization is no less a drag on the economy or obstacle to innovation when it occurs in advertising-based businesses than when it occurs in any other for-profit industrial context.

Edited by Tom Hagy for MoginRubin LLP.


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