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Tuesday, May 28, 2024

The Antitrust Case Against Facebook Draws Blood

On Tuesday, federal judge James E. Boasberg ruled that the Federal Trade Commission’s effort to break up Facebook could move forward. The case itself is far from decided. But by blessing the FTC’s theory that a monopoly can harm consumers even when its product is free, the judge has signaled that Facebook—and other tech platforms—are not invincible.

It’s a big turnaround from last summer. In June, Boasberg, a judge on the United States District Court for the District of Columbia, granted Facebook’s motion to dismiss the case. (The company has since rebranded itself as Meta Platforms, but Facebook remains the named defendant.) The problem, he held, was that the FTC—which is seeking to reverse Facebook’s acquisitions of Instagram and WhatsApp—hadn’t provided any evidence that the company was a monopoly. But in that same ruling, Boasberg gave a clear blueprint for how to revive the case. All the government had to do was provide evidence that Facebook has a dominant share of the social networking market.

Two months later, the agency filed a new complaint stuffed with data points from Comscore, an analytics firm that Facebook itself uses, suggesting that the company dominates the market under a variety of metrics: daily active users, monthly active users, and user time spent. The new evidence seems to have impressed Boasberg. “In short,” he writes in the latest ruling, “the FTC has done its homework this time around.”

The market-share data doesn’t quite settle matters on its own. The FTC, Boasberg notes, also has to show that Facebook’s alleged monopoly has been bad for consumers. This is where the ruling gets interesting. From the beginning, the movement to wield antitrust law against companies like Facebook and Google has faced a major obstacle: How do you show that consumers are harmed by companies whose core offerings are free? (Or, in Amazon’s case, famously cheap?) Antitrust law is technically not about prices, but since the late 1970s, judges have tended to interpret it as if it were. The standard way to argue against a corporate merger is to show that it will lead to higher prices. (See, for example, the beef industry.)

In recent years, legal thinkers, including FTC chair Lina Khan, have been developing another way to think about the harms of tech monopolies: When there’s no competition, companies will be free to do things that users don’t like, and will feel less pressure to improve their products. The scholar Dina Srinivasan, for example, has argued that Facebook lowered its user privacy standards once it defeated early rivals like MySpace. The FTC included that theory in its brief, plus several others. Facebook’s dominance, it argued, has also allowed the company to pack users’ feeds with more ads. And, the FTC noted, Facebook killed its own in-house photo-sharing app once it purchased Instagram, suggesting that consumers would have more choices if the two companies had remained rivals.

Until now, it has been an open question whether these non-price theories will succeed in court. Which is why it’s a big deal that Boasberg seems to have accepted them. “In short,” he wrote, “the FTC alleges that even though Facebook’s acquisitions of Instagram and WhatsApp did not lead to higher prices, they did lead to poorer services and less choice for consumers.”

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That’s a pretty dry sentence, but it could turn out to be a milestone.

“It is a really prominent, important, and uncommon endorsement of that non-price market idea,” said Rebecca Allensworth, a professor at Vanderbilt Law School. “I think it’s pretty devastating for Facebook.”

Note that Boasberg refers to what the FTC “alleges.” The agency will still have to prove its case at trial in Boasberg’s court. Whether it can do so, the judge noted, “is anyone’s guess,” and may come down to which side hires more convincing expert witnesses. Facebook will argue that its acquisitions have benefited consumers. “Our investments in Instagram and WhatsApp transformed them into what they are today,” the company said in a statement. “They have been good for competition, and good for the people and businesses that choose to use our products.”

The important point for now is that a judge on one of the most important federal courts in the country has put his stamp of approval at least on the theory of non-price harm. If other courts follow suit, the impact won’t be limited to Facebook. The underlying logic about lack of competition for free or cheap services could apply to Google search, Amazon retail, or Apple’s App Store—all of which are in the midst of defending themselves from various antitrust suits—or some yet-to-be-sued dominant platform.

“The court was not tripped up by the fact that Facebook’s offering is ‘free,’” said Paul Swanson, an antitrust attorney in Denver. “That’s an important principle for antitrust enforcement against Big Tech.”

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