The FTC’s Fight to Police Big Tech: FTC v. Facebook, Inc.

By: Iris Lin

Edited By: John Perales Jr. and Dheven Unni

On December 9, 2020, the Federal Trade Commission (FTC) sued Facebook for illegal monopolization. According to the FTC, Facebook has been engaging in anticompetitive conduct for years. Such conduct includes the 2012 acquisition of Instagram, the 2014 acquisition of WhatsApp, and the intimidation of competitors. The FTC claims that Facebook’s conduct stifles competition, harms consumers by leaving them with few choices for social networking, and deprives advertisers of the benefits gained from competition. The FTC is seeking a permanent injunction in federal court that could “require divestitures of assets, including Instagram and WhatsApp; prohibit Facebook from imposing anticompetitive conditions on software developers; and require Facebook to seek prior notice and approval for future mergers and acquisitions” [1]. This lawsuit is particularly notable because the FTC is changing its position on deals they approved at the time. When Facebook acquired Instagram and later WhatsApp, the FTC cleared both deals. This new lawsuit, however, sends “a warning to American business that no sale is ever final” [2].

Facebook was formed by Mark Zuckerberg and three other Harvard students in February 2004. It quickly became popular and rose from a small website exclusive to Harvard students to a worldwide platform in 2006. Throughout its lifetime, Facebook has faced multiple legal challenges. Six days after “The Facebook” went live, Zuckerberg and the founders of Facebook faced accusations by Cameron and Tyler Winklevoss and Divya Narendra that they had stolen the idea for the website. Next, Eduardo Saverin, chief financial officer and business manager for Facebook, filed a lawsuit against Facebook after being cut out by Zuckerberg in 2005 [3]. Facebook has also faced multiple privacy allegations, including the 2016 scandal where Facebook was accused of allowing fake Russian accounts to buy ads and spread fake news [4]. Most recently, in 2018, a Facebook hack affected 50 million users. This lawsuit, however, is monumental because by breaking up Facebook it could significantly reduce its power and dominance over the social networking industry.

In the beginning, Zuckerberg was seen as a superstar, a success story. He was a normal college student who created a platform that still defines the way we interact online. Due to these scandals and the increasing power of Facebook, however, this superstar reputation has started to shift more towards one of a villain. Sally Hubbard, director of enforcement strategy for the Open Markets Institute describes how “as companies get to become long-standing, durable monopolies, they start to treat people badly—they start to treat their consumers badly, they start to treat their employees badly, they start to treat other businesses badly. Because that’s what monopolies do” [5]. The FTC has exploited this perception in their lawsuit. It has portrayed Zuckerberg as a villain who seeks to eliminate all competitors and control every aspect of his company. 

Regardless of the outcome of the lawsuit, the negative public portrayal could be harmful to Facebook by impeding its relationship with current and future customers. The FTC has used dramatic language such as “the wrath of Mark” to portray Zuckerberg’s aggression in the technology sector. This language, coupled with damaging emails from Zuckerberg where he states the desire to eliminate competition, could persuade the public to loathe Zuckerberg and Facebook.

The case against Facebook is similar to a 2001 case, United States v. Microsoft Corporation, 253 F.3d 34, as both cases involved monopolies and were built on top officials’ explanations of their own conduct as opposed to just testimonies from workers. The government found memos from executives making predatory statements about eliminating competition, and Microsoft lost the case [6]. Microsoft was found to be liable for monopolization. Although relying on internal emails worked in the case of Microsoft, this strategy is often risky. At times judges have argued that antitrust law is interested in the economic effects of a business’s conduct, not the motives of its executives. Thus, emails from CEOs may work better at influencing the public than at making an economic argument in court. This “intent evidence,” however, can be key in convincing judges when other types of evidence may not be enough to make an antitrust case . In this particular case, Vanderbilt University Professor of Law, Rebecca Allensworth, explains how Zuckerberg’s emails are explicit in describing the desire to quash competition: “The court will find that relevant—and possibly damning” [7].

In response to the lawsuit, Facebook has focused on the legal aspects of the case. Facebook’s general counsel, Jennifer Newstead, issued a statement saying, “People and small businesses don’t choose to use Facebook’s free services and advertising because they have to, they use them because our apps and services deliver the most value”[8]. Facebook has been facing pushback from Washington for years now and has been already preparing for this major lawsuit. Facebook has integrated its apps on a technical level, possibly to frustrate a potential breakup. It has also increased its hiring of lawyers with antitrust litigation experience. Facebook has tried to set a narrative that it welcomes regulation but “that cracking down too hard could risk giving other countries like China a competitive edge in the fast-moving technology sector” [9].

Even if the FTC were to win the suit, the potential impact on consumers is unclear. The FTC complaint asks for Facebook to be forced to sell off WhatsApp and Instagram, but Facebook’s technical integration makes it challenging for new companies to easily adopt its separate apps [10]. Further, even if a breakup is feasible, it may not be ideal because it may not address the problem of competitive harm. If the FTC shows that the issue with the Instagram and WhatsApp deals was an impairment to consumer privacy, a breakup would be unlikely to protect this privacy.

As companies grow and aim to acquire more competitors, fears about one company becoming too powerful become significantly more relevant. The FTC is therefore working to prevent these companies, such as Facebook, from monopolizing their particular industries. The FTC claims that competition will be harmed if Facebook acquires or merges with other companies, which will negatively impact consumers and advertisers. Antitrust cases can be difficult to resolve, however, as the case must be evaluated on economic concerns and company intent. Regardless, the federal court’s will have a strong hand in shaping future consumer interaction with Facebook and will set the stage for a new era of technology centered antitrust cases.

NOTES:

1. “FTC Sues Facebook for Illegal Monopolization.” Federal Trade Commission, December 9, 2020, https://www.ftc.gov/news-events/press-releases/2020/12/ftc-sues-facebook-illegal-monopolization

2. Brian Fung, “Facebook must be broken up, the US government says in a groundbreaking lawsuit.” CNN,10 December 2020, https://www.cnn.com/2020/12/09/tech/facebook-antitrust-lawsuit-ftc-attorney-generals/index.html 

3. Sabrina Barr, “When Did Facebook Start? The Story Behind A Company That Took Over The World.” The Independent, 23 August 2018, https://www.independent.co.uk/life-style/gadgets-and-tech/facebook-when-started-how-mark-zuckerberg-history-harvard-eduardo-saverin-a8505151.html 

4. Christopher McFadden, “A Brief History of Facebook, Its Major Milestones.” Interesting Engineering, 7 July 2020, https://interestingengineering.com/history-of-facebook

5. Craig Timberg and Drew Harwell, “Government’s antitrust case against Facebook seeks a villain in Mark Zuckerberg.” Washington Post, 10 December 2020, https://www.washingtonpost.com/technology/2020/12/10/facebook-lawsuits-zuckerberg-villain/

6. Rebecca Haw Allensworth,  “As regulators close in, Zuck’s long email trail poses an existential threat to Facebook.” Quartz, 23 December 2020, https://qz.com/1949679/why-the-ftcs-anti-facebook-lawsuit-stands-a-chance/ 

7. Allensworth, “As regulators close in.”

8. Fung, “Facebook must be broken up.”

9. Fung, “Facebook must be broken up.”

10. Allensworth, “As regulators close in.”

BIBLIOGRAPHY:

Allensworth, Rebecca Haw, “As regulators close in, Zuck’s long email trail poses an existential threat to Facebook.” Quartz. 23 December 2020. https://qz.com/1949679/why-the-ftcs-anti-facebook-lawsuit-stands-a-chance/ 

Barr, Sabrina. “When Did Facebook Start? The Story Behind A Company That Took Over The World.” The Independent. 23 August 2018. https://www.independent.co.uk/life-style/gadgets-and-tech/facebook-when-started-how-mark-zuckerberg-history-harvard-eduardo-saverin-a8505151.html 

Craig Timberg and Drew Harwell. “Government’s antitrust case against Facebook seeks a villain in Mark Zuckerberg.” Washington Post. 10 December 2020. https://www.washingtonpost.com/technology/2020/12/10/facebook-lawsuits-zuckerberg-villain/

“FTC Sues Facebook for Illegal Monopolization.” Federal Trade Commission. December 9, 2020. https://www.ftc.gov/news-events/press-releases/2020/12/ftc-sues-facebook-illegal-monopolization

Fung, Brian. “Facebook must be broken up, the US government says in a groundbreaking lawsuit.” CNN. 10 December 2020, https://www.cnn.com/2020/12/09/tech/facebook-antitrust-lawsuit-ftc-attorney-generals/index.html 

McFadden, Christopher. “A Brief History of Facebook, Its Major Milestones.” Interesting Engineering. 7 July 2020, https://interestingengineering.com/history-of-facebook