FTC Sues Facebook
The Federal Trade Commission (“FTC”) has sued Facebook for anticompetitive conduct under Section 2 of the Sherman Act, which prohibits improper monopolization of a market. In support of this claim, the FTC cites Facebook’s 2012 acquisition of Instagram, its 2014 acquisition of WhatsApp, its API access restrictions, and the way these actions have allegedly harmed Facebook’s competition.
According to the FTC, Facebook’s conduct prevents the emergence of potentially innovative social media, thereby reducing the range of services available to consumers. The FTC also claims that as a result of Facebook’s conduct, advertisers are restricted to targeting fewer social media platforms, which harms their revenue. By way of remedy, the FTC seeks a permanent injunction that would compel Facebook to divest from Instagram and WhatsApp, and to gain regulatory approval prior to engaging in similar transactions in the future, among other requirements.
History and Precedent
Lawmakers have long been concerned with the harms borne by consumers when monopolies dominate an industry and lose their incentive to compete for market share. Three statutes, all passed around the turn of the previous century, serve to prevent this scenario by ensuring fair competition across the economy. The Sherman Antitrust Act of 1890 and the Clayton Antitrust Act of 1914 provide most substantive antitrust law, while the Federal Trade Commission Act of 1914 designates the FTC as the governmental agency responsible for enforcing these laws.
Over the years, the FTC has brought numerous cases under these statutes, including several high-profile decisions which have been widely noted in the press. Back in 2000, for instance, the FTC famously prevailed in its antitrust suit against Microsoft, only to see the decision overturned in a 2001 appeal. Much more recently, in 2020, the FTC successfully sued Visa to prevent its acquisition of Plaid, and the Justice Department sued Google for allegedly maintaining an illegal monopoly. As noted by several legal commentators in popular publications such as Forbes and The New York Times, these suits will undoubtedly feature prominently in the FTC’s current case against Facebook.
A central issue in the current suit will be defining the harm posed by Facebook’s allegedly anticompetitive conduct. According to the FTC, this harm is borne by both consumers and advertisers. Consumers, the FTC claims, are harmed by Facebook’s conduct because competition would propel innovation, improve quality of service, and, vitally, increase consumer choice among services. As for advertisers, the FTC lists the quantity of users to whom these advertisers could market their products, lowered advertising prices, innovation, quality, and choice among the benefits that may be forfeited due to Facebook’s anticompetitive conduct.
Indeed, most of Facebook’s revenue is derived from selling ads and user data to advertisers; in 2019 alone, these sales generated $70 billion in revenue for the social media giant. Yet some have expressed concern about Facebook monetizing users’ personal information in this way. Echoing these concerns, the FTC asserts in its suit that Facebook “exploits a rich set of data about users’ activities, interests, and affiliations.” Such concerns previously came to a head during the Cambridge Analytica scandal of 2019. The FTC settled a privacy investigation into that incident for $5 billion, but since the settlement value represented only 9% of Facebook’s 2018 revenue, lawmakers worried that financial penalties such as these would not sufficiently deter Facebook in the future. In this suit, by contrast, the FTC seeks to enjoin Facebook from some of the very practices responsible for its dominance - arguably, a much more significant threat to the company.
But while consumers and advertisers might possibly benefit if the FTC prevails, others are concerned about the negative consequences that investors and entrepreneurs might face. As noted by Forbes, Microsoft’s stock fell 14% when it lost its first antitrust suit, and did not recover for approximately fifteen years. Moreover, Iain Murray of Fortune points out that many entrepreneurs create startups with the express hope of being bought out by companies like Facebook. As a result, he claims that the current suit will actually suppress, rather than stimulate, entrepreneurial innovation.
Either way, this case will leave long lasting impacts. If the FTC prevails, it may well portend “a new era of antitrust enforcement.” If it loses, however, the precedent created may make it even harder to successfully pursue antitrust claims in the future.
Brent Mobbs is a 1L at Harvard Law School. Alex Maged is a 3L at Harvard Law School.