US antitrust charges are ‘all or nothing’ attempt to dismantle Facebook

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Facebook chief executive Mark Zuckerberg told his staff last October that he would “hit the mat and fight” if the United States tried to smash its empire. Now the wrestling match has started.

On Wednesday, the Federal Trade Commission and a group of 48 U.S. attorneys general hit out on Facebook with his first antitrust charges at home.

Citing dozens of internal emails, the two lawsuits allege that Facebook has defended its social media monopoly for years with a “buy or bury” approach to rivals, such as Instagram and WhatsApp.

If the FTC and state attorneys general can convince the courts that Facebook’s allegedly anti-competitive behavior has damaged the market, the default solution is nothing less than dismantling the company.

“We currently expect that will include the divestiture of Instagram and WhatsApp, ”the FTC said Wednesday.

William Kovacic, former president of the FTC and current professor of law at George Washington University, said, “The FTC is all-in in pursuing the breakup. I think he’s fully engaged.

Joel Mitnick, an antitrust partner at the Cadwalader, Wickersham & Taft law firm, said: “They’re telling the court that anything that isn’t a really dramatic restructuring is not going to cure the anti-competitive effects. here. It’s a kind of all-or-nothing dice roll.

But the high-stakes legal battle will be long, and the case will be difficult to prove. The FTC and state attorneys general have both accused Facebook of criminally violating Section 2 of the Sherman Act, one of the oldest and broadest antitrust laws in the United States, which leaves a wide margin of interpretation in the courts.

Perhaps in recognition of the complex and long struggle ahead, the social media company’s stock price fell less than 2% on Wednesday.

To illustrate Facebook’s allegedly anti-competitive behavior, both cases focus on Facebook’s acquisitions of Instagram in 2012 for $ 1 billion and WhatsApp in 2014 for $ 19 billion, presented by the plaintiffs as an attempt to neutralize the potential threats.

In his deposit, the FTC repeatedly cites as evidence an internal email sent by Mr. Zuckerberg in 2008 in which he said “it’s better to buy than compete.”

In 2012, an email from Mr. Zuckerberg acknowledged that WhatsApp was “rightfully a better product for mobile messaging than even our standalone Messenger app” and that “Unfortunately for us, I don’t think there is any way to directly downplay the benefit of their momentum and rate of growth ”.

After purchasing WhatsApp, emails then showed Facebook employees celebrating the acquisition of “possibly the only company that could have become the next mobile-only FB.”

In another illustration of Facebook’s allegedly anti-competitive behavior, the FTC and state attorneys general accuse them of crushing their rivals by first allowing access to its data and platform, then removing access. to anyone she considered a threat.

The state attorneys general trial listed seven apps, including Vine, Path, and Circle, which Facebook cut from its platform “without legitimate business justification.”

State attorneys, led by Letitia James from New York, also argued that Facebook has hurt its users, even providing free services, by forcing them to give up their privacy more than they could have. do so if there had been more competition.

Estimate column chart (in billions of dollars) showing Facebook ad revenue in the United States

This argument had been made in recent years by several academics, including Lina Khan of Columbia Law School, who helped draft the recent Influence on Antitrust Laws in the Tech Industry report for the House Antitrust Subcommittee. .

Ms Khan tweeted on Wednesday: “The states complaint also reveals a sophisticated understanding of wrongdoing. He notes FB entered market competing for privacy but degrading privacy once it has eliminated rivals obtained a secure monopoly position.

Facebook promised to defend itself “vigorously”. In previous cases challenging Sherman’s Act, courts have recognized that monopolies are not illegal if they arise from superior jurisdiction. “The successful competitor, having been invited to compete, should not be excited when he wins”, ruled the judge in a 1945 case involving Alcoa.

In one Wednesday statementFacebook general counsel Jennifer Newstead noted that the deals for Instagram and WhatsApp had been approved by regulators at the time, and accused the government of wanting “an overhaul.”

She argued that the success of Instagram and WhatsApp should be credited to Facebook. “The Instagram you see today is the Instagram that Facebook built, not the app it acquired.

“When Facebook bought Instagram, it had about 2% of the users it has today, only 13 employees, no income and virtually no infrastructure of its own,” she said, while pointing to the fierce competition with which Facebook is faced by Apple, Google, Twitter, Snap, Amazon, TikTok and Microsoft.

New York State Attorney General Letitia James has argued that Facebook has harmed its users © Peter Foley / Bloomberg

Yet some argue that Facebook has a tough defense. On the one hand, he must prove that he could have succeeded in these areas even without these acquisitions, and at the same time explain why he paid such high fees for both companies.

“This case raises a number of interesting legal questions,” said Doug Melamed, a Stanford law professor and one of the attorneys who filed an antitrust action in 1998 against Microsoft. “It seems at first glance that this is a pretty solid argument, and certainly more important than the US case against Google.”

In pushing for the breakup, the FTC went further than the similar Justice Department case against Google in October, which did not mention any specific remedy it was seeking.

The Facebook action also differs in other ways from that brought against Google. By focusing on Google’s partnership deals with other tech companies, which the DoJ says hurt competition, lawyers have relied heavily on arguments already explored in the case against Microsoft 20 years ago. .

But by focusing on mergers – especially those it previously approved under the Obama administration – the FTC will have to prove a complex case, arguing that Facebook would not have been able to achieve its market power in the photo sharing and messaging without buying Instagram and WhatsApp.

Others argue that a disruption would disrupt Facebook’s services for users and also hurt the competitiveness of the United States more generally.

“Businesses and investors are going to lose faith in regulators if policymakers are to turn the tide of past decisions and call a mulligan this late in the game,” said Robert Atkinson, president of the Foundation for Information Technology and innovation, a non-partisan think tank. .

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However, former FTC chairman Mr Kovacic said the Biden administration would likely feel additional pressure to aggressively pursue the case to rebuild its reputation after Big Tech became so powerful during the Obama era.

“To withdraw from would be such an obvious betrayal of the obvious object of the prosecution. . . that if you are seen to be receding, wobbling at the knees, you lose your institutional legitimacy, ”he said. “The possibility of disruption is real and doable.”

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