The FTC’s Antitrust Case Against Facebook Stakes Out New Ground

(Bloomberg Businessweek) -- The U.S. Federal Trade Commission jolted the market on Dec. 9 with filings that seek to force Facebook Inc. to sell Instagram and WhatsApp. The FTC is trying to achieve something that hasn’t happened in four decades: the breakup of one of America’s biggest companies. The last giant U.S. company to be dismantled was AT&T in 1984.

What makes the case all the more surprising is that it’s the FTC, often criticized for lax enforcement, and not the U.S. Department of Justice pushing for the breakup. “The Facebook case is a really big deal,” says Sam Weinstein, who teaches at the Cardozo School of Law at Yeshiva University. “If we imagine the government winning and breaking up Facebook, that’s a milestone.”

The federal government and states across the country have sued both Facebook and Alphabet Inc.’s Google in recent weeks for abusing their dominant positions in social media and internet search. Together, the cases represent a watershed moment in U.S. antitrust enforcement and an escalation of regulatory pressure on the technology sector, which also includes a push to pare back a prized liability shield, Section 230 of the Communications Decency Act.

But while the Google case stays comfortably within legal precedent, the Facebook case represents a startling offensive.

The FTC is staking out new territory in seeking to unwind Facebook’s purchases of Instagram and WhatsApp—deals that the agency reviewed and approved in 2012 and 2014, respectively. It’s pursuing a unique line of attack. Rather than targeting the Instagram and WhatsApp deals individually as illegal under traditional merger law, the agency argues that they are part of a broader strategy by Facebook to monopolize social media. It alleges that Facebook acquired rivals to lessen competition and destroyed the upstarts it couldn’t buy by limiting access to Facebook tools and distribution.

The DOJ’s Google suit, by contrast, adheres to the legal framework of the U.S. monopoly case against Microsoft Corp. from 1998. The agency has asked only for “structural relief as needed,” though it can still present a more specific request to the court.

The Google complaint focuses on its exclusive deals to package its search engines into phones and browsers. Similarly, the 1998 Microsoft lawsuit charged that the software giant’s agreements with manufacturers to install its Internet Explorer browser on its operating system violated antitrust laws.

“The DOJ case is literally a clone of U.S. v. Microsoft and should be somewhat of a slam-dunk,” says Sally Hubbard, director of enforcement strategy at the Open Markets Institute, which pushes for more aggressive antitrust laws and enforcement.

The government won the Microsoft case at trial, and the judge ordered a breakup of the company. After Microsoft appealed, the court said the company had acted illegally, but reversed the decision to break it up. The case was ultimately settled, with Microsoft agreeing to conditions intended to encourage development of competing software products.

The FTC’s ambitious strategy could meet difficulties, experts say. The agency will need to convince a judge that breaking up Facebook is the necessary remedy. Judges have been reluctant to go that far.

The Republican chairman of the FTC, Joe Simons, told Bloomberg in an interview last year that prying apart consummated deals can get “very messy.” That could be especially true with Facebook, which has worked to integrate Instagram and WhatsApp, using the same servers, networks, and advertising for all three.

Simons joined the FTC’s two Democratic commissioners, who in the past have urged more dramatic action than he was willing to endorse, in voting to bring the case. The other two Republican commissioners balked. Facebook says it faces robust competition and competes fairly, and has argued that revisiting acquisitions after so long could chill future deals.

Neil Chilson, a former FTC chief technologist who is now a senior research fellow at the libertarian-minded Charles Koch Institute, says the FTC may have overreached. “It’s relatively untried,” he says of the strategy against Facebook.

The FTC is coordinating closely with attorneys general who represent 46 states, Guam, and the District of Columbia. That group has also advanced an innovative theory that Facebook degraded users’ privacy because it faces no competition. It’s more common for enforcers to focus on increased prices and decreased output. There are few examples in the U.S. of using privacy as a measure in competition cases. Both the FTC and the states also say Facebook has increased prices for advertisers.

The differences between the cases are likely to evolve. More states are expected to sue Google as soon as this week and move to join the 11 states that are already part of the federal case, Bloomberg has reported.

Together, the two cases could redraw the rules that Silicon Valley has been operating under since the Microsoft case, says Weinstein, the Cardozo professor. “Whatever comes out of these cases,” he says, “is going to set the course of antitrust law for the next 20 years.” —With David McLaughlin
 
Read next: Facebook Sees WhatsApp As Its Future, Antitrust Suit or Not

©2020 Bloomberg L.P.