Facebook Hit by New U.S. Antitrust Case as FTC Seeks Do-Over

(Bloomberg) -- U.S. antitrust officials refiled their monopoly lawsuit against Facebook Inc., seeking to salvage the landmark case that a judge threw out in June.

The Federal Trade Commission on Thursday filed the new complaint in federal court in Washington, alleging that Facebook violated antitrust laws by buying Instagram and WhatsApp in order to eliminate them as competitors. The FTC is asking the court to unwind the acquisitions, as in the previous complaint.

“After failing to compete with new innovators, Facebook illegally bought or buried them when their popularity became an existential threat,” Holly Vedova, the acting director of the agency’s competition bureau, said in a statement. “This conduct is no less anticompetitive than if Facebook had bribed emerging app competitors not to compete.”

The agency is trying to revive the case after U.S. District Judge James Boasberg in June dismissed it, saying the agency failed to provide enough detail to support its claim that Facebook has a monopoly in the social-media market. Boasberg had given the FTC 30 days to fix the error and refile, and the commission won an extension until Aug. 19.

The FTC said the new complaint provides details to bolster the agency’s claim that Facebook has dominant market shares in the U.S. personal social-networking market and has the power to exclude competition. The FTC’s original complaint numbered 53 pages, while the new one is 80.

“It is unfortunate that despite the court’s dismissal of the complaint and conclusion that it lacked the basis for a claim, the FTC has chosen to continue this meritless lawsuit,” Facebook said in a statement. “Our acquisitions of Instagram and WhatsApp were reviewed and cleared many years ago, and our platform policies were lawful.”

Facebook shares slipped less than 1% at 2:46 p.m. in New York, trading at $354.49. The stock has climbed about 30% this year.

The Facebook case, first filed in December, presents an early test for FTC Chair Lina Khan, who was named head of the agency in June by President Joe Biden. Khan is a leading advocate for taking a more forceful antitrust stance against companies and is already taking steps to bolster the agency’s authority.

Facebook sought to bar Khan from participating in the case, arguing that her academic writing about the company and her work on the House antitrust panel, which investigated Facebook and other tech platforms, showed she is biased.

The FTC said in its statement that the agency’s general counsel reviewed Facebook’s recusal petition and dismissed it. The FTC voted 3-2 to file the amended complaint, with Khan joining the agency’s two other Democrats in favor of the case, which the Republican commissioners voted against.

“As the case will be prosecuted before a federal judge, the appropriate constitutional due process protections will be provided to the company,” the FTC said.

The lawsuit is part of a broad effort by lawmakers and competition enforcers to rein in the power of the biggest U.S. tech companies. Besides the Facebook case, the Justice Department and state attorneys general across the country have multiple lawsuits pending against Google, while Democrats and Republicans on Capitol Hill are pushing forward with a raft of bills that would impose new restrictions on how the companies do business.

Democratic Senator Amy Klobuchar of Minnesota, who chairs the Senate antitrust panel, cheered the new complaint.

“Facebook’s long history of anticompetitive behavior is no secret,” said Klobuchar in a statement. “The company’s acquisitions of Instagram and WhatsApp have made the digital landscape less competitive, ultimately harming consumers.”

What Bloomberg Intelligence says

“This is more likely to lead to remedies like opening up its APIs or allowing data portability for users outside its family of apps, rather than a breakup. We think this is unlikely to hurt top-line growth in the near-to-medium term given Facebook’s first-party advantage.” 
-- Mandeep Singh, BI senior technology industry analyst

Click here to read the research

Supporters of the Facebook lawsuit said Boasberg’s decision illustrated the legal barriers the government faces in bringing monopoly cases. Advocates for reform say court decisions over decades have effectively allowed dominant companies to engage in anticompetitive tactics and that Congress must give enforcers new authority.

Boasberg not only threw out the FTC’s case. He also dismissed a parallel case by state attorneys general led by New York, without giving them an opportunity to try again. The judge said the states waited too long to challenge Facebook’s acquisitions. Facebook bought Instagram in 2012 and WhatsApp in 2014. The legal doctrine that applied to the states doesn’t apply to the FTC. The states have filed an appeal seeking to reverse the judge’s decision.

The new FTC complaint provides details about Facebook’s active users and time spent on the platform based on Comscore Inc. data. The FTC said Facebook’s share of time spent by users of social network apps in the U.S. has exceeded 80% since 2012 and that its share of daily active users has exceeded 70% since 2016. Much of the new data presented by the FTC is is redacted in the complaint, however. 

As evidence of Facebook’s power over the market, the FTC pointed to profit margins that it said have “significantly exceeded” the average for companies in the S&P 500 Index since 2013. And despite degrading the quality of its product, including by “misusing or mishandling user data,” the company hasn’t suffered a significant loss of users, the FTC said. As the sixth-largest public company in the world based on stock market value in U.S. dollars, investors believe the company’s monopoly power is durable, the FTC said.

In addition to targeting the Instagram and WhatsApp deals, the FTC accused Facebook of engaging in anticompetitive conduct by only allowing third-party apps to connect to its platform on condition that they don’t compete against Facebook. The FTC argued that the policy was intended to extinguish competitive threats. 

In his June decision, Boasberg had dismissed that part of the case, saying that under existing antitrust law established by the courts, companies don’t have an obligation to do business with other firms and can “refuse to deal” even to prevent a rival from competing.

“A monopolist has no duty to deal with its competitors, and a refusal to do so is generally lawful,” Boasberg wrote. “The FTC, therefore, cannot get anywhere by reframing Facebook’s adoption of a policy of refusing to deal with all competitors as the execution of an unlawful scheme of monopoly maintenance.”

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