On December 9, 2020, the Federal Trade Commission (“FTC”) sued Facebook for illegal monopolization, a violation of federal antitrust law. In a parallel lawsuit, New York Attorney General Letitia James, leading a bipartisan coalition of 48 attorney generals from around the nation, also sued Facebook to stop its anticompetitive conduct. The overarching argument is that Facebook has “abused its dominance in the digital marketplace.”
In a press conference on Wednesday, Attorney General James stated, “For nearly a decade, Facebook has used its dominance and monopoly power to crush smaller rivals and snuff out competition, all at the expense of everyday users. Today, we are taking action to stand up for the millions of consumers and many small businesses that have been harmed by Facebook’s illegal behavior. . . . Today’s suit should send a clear message to Facebook and every other company that any efforts to stifle competition, reduce innovation, or cut privacy protections will be met with the full force of our offices.”
Before we get into the specifics of the lawsuit, what is antitrust law? Generally, it “prohibits conduct by a single firm that unreasonably restrains competition by creating or maintaining monopoly power.” There are three federal antitrust laws: (1) The Sherman Antitrust Act, (2) The Clayton Act, and (3) The Federal Trade Commission Act. The lawsuit between the FTC and Facebook arises from an alleged violation of the Federal Trade Commission Act (“FTC Act”). The FTC Act “prohibits unfair methods of competition in interstate commerce.” The relevant part of this act, FTC Act § 5(a), is shown below.
In the current federal lawsuit, the FTC alleges that through anticompetitive conduct, Facebook “has monopoly power in a market for personal social networking services.” The alleged anticompetitive conduct includes the 2012 acquisition of Instagram, the 2014 acquisition of WhatsApp, and the “imposition of anticompetitive conditions on software developers.” As stated in the Complaint, the FTC is seeking “a permanent injunction and other equitable relief against [Facebook], to undo and prevent its anticompetitive conduct and unfair methods of competition in or affecting commerce in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a).” This means that if the FTC wins, Facebook will have to split up from Instagram and WhatsApp.
To determine whether illegal monopolization has occurred, courts consider three things: (1) market power, (2) exclusionary conduct, and (3) business justification. First, courts must determine whether the firm has monopoly power in any market. To do so, it looks at the products sold by the firm and whether there are any alternative products available to consumers. Second, to determine exclusionary conduct, courts look for improper conduct the firm may have engaged in to get to the leading position. Last, courts determine whether the firm had a “legitimate business justification for behaving in a way that prevent[ed] other firms from succeeding in the marketplace.”
As of now, Facebook’s strongest argument is the fact that the FTC approved both the Instagram and WhatsApp mergers. Although that does not mean the FTC cannot change its mind, it does beg the question of, “what has changed?” Furthermore, even if the court finds that Facebook has monopolized a market, it also has to find that the monopoly has caused harm. Facebook will likely argue that people cannot be harmed by a product that is offered for free.
This is not the first time Facebook has been sued, and it will likely not be the last. However, this time, Facebook is facing the power of the federal government and 48 state governments. Although it is unclear what the outcome of this lawsuit will be, we can be pretty certain that if Facebook loses, users of the social media platforms should expect some big changes.