Facebook has challenged the FTC’s antitrust proceedings with a standard playbook that calls into question the agency’s expansive approach to defining monopolies. But the old arguments “We are not a monopoly because we never raised prices” and “How can it be anti-competitive if we never allow competition” could soon be challenged by a new doctrine and new government.
In a document filed today, which you can read at the end of this post, Facebook sets out its case with a tone of damaged pathos:
With one voice, in an environment of relentless criticism of Facebook on matters unrelated to antitrust concerns, the agency decided to take action against Facebook, which is ignoring its own prior decisions, precedent, and the limits of its legal powers.
Yes, Facebook is the victim here, and don’t forget. (Incidentally, like the FCC, the FTC is designed to split 3-2 according to party lines, so “one-vote leeway” is what you see for many important measures.)
But after the required weeping comes the reluctant explanation that the FTC is ignorant of its own business. The lawsuit against Facebook, the company argues, should be impaled by the judge as it fails in three directions.
First, the FTC does not claim to “have a plausible relevant market”. To have a monopoly, you have to have a market through which you can exercise that monopoly. And the FTC, Facebook argues, has not done so, only claiming a nebulous market for “personal social networks” and “no court has ever ruled that such a free market for goods for antitrust purposes exists,” and the FTC ignores the ” relentless competition “advertising market that actually makes money for the company.
Ultimately, the FTC’s efforts to structure a crab exploitation market for a free service in which it can claim a large share of Facebook are artificial and incoherent.
Not only does this imply that the FTC didn’t define the social media market (and Facebook doesn’t itself), but that such a market may not even exist because social media is free and the money is made by someone else Market. This is a variation on a standard big tech argument that amounts to “since we do not fall under any of the existing categories, we are virtually unregulated”. After all, you cannot regulate a social media company through its advertising practices, or vice versa (although they are in some ways intertwined, in other companies they are different).
Like many before, Facebook is trying to squeeze between the cracks in the regulatory framework.
This continues with the second argument, according to which the FTC “cannot prove that Facebook raised prices or cut production because the agency recognizes that Facebook’s products are offered free of charge and in unlimited quantities”.
The argument is literal that, by definition, it is not possible for the supplier to have a monopoly if the product is free for the consumer. If the FTC argues that Facebook controls 60 percent of the social media market (which of course doesn’t exist anyway), what does that even mean? 60 percent of zero dollars or 100 percent or 20 percent is still zero.
The third argument is that the behaviors that the FTC highlights – buying emerging competitors for huge sums of money and nipping others in the bud by restricting their own platform and data – are not only perfectly legal, but that the agency has no right to do so to question them who had previously given their blessings and currently had no specific illegal activity to point out.
Of course, the FTC is constantly reviewing mergers and acquisitions, and there are precedents to unravel long afterward when, for example, new information emerges that was not available during the review process.
“Facebook acquired a small photo-sharing service in 2012, Instagram … after this takeover was unanimously reviewed and approved 5-0 by the FTC,” argues the company. Apart from the absurd characterization of the billion dollar purchase as “small”, leaks and disclosures of internal discussions, which were timely with the acquisition, put it in a completely new light. Far less secure then than it is now, Facebook was terrified and concerned that Instagram might be eating its lunch, and it was better to buy than compete.
The FTC addresses this and many other points that Facebook addresses in an FAQ that was published at the time of the original submission.
Well, some of these arguments may have struck you as a little strange. Why should it matter when one market has money from consumers that are being exchanged when some other place is exchanging value that depends, for example, on those users’ commitment to the service? And how can a company’s grievances in relation to a free privacy intrusive product (and which has received huge fines for it) be assessed based on its actions in an adjacent market such as advertising?
The simple truth is that antitrust law has been in the rut for decades and is weighed down by a doctrine that says markets are defined by the price of a product and whether a company can arbitrarily increase it. A steel maker absorbing its competitors by undercutting them and later raising prices when that is the only option is a simple example and the way antitrust laws were created to combat.
If that seems unnecessarily simple, it is more complicated in practice and effective in many circumstances – but the past 30 years have shown that it is not enough to address the more complex multi-business domains like Microsoft, Google, and Facebook (quite to mention TechCrunch parent company Verizon, which is an entirely different matter).
The rise of Amazon is one of the prime examples of the failure of antitrust doctrine and resulted in a breakthrough paper called the Amazon Antitrust Paradox that denounced these outdated ideas and showed how network effects led to more subtle but no less effective anticompetitive practices. Establishing voices called it naive and exaggerated, and progressive voices praised it as the next wave of cartel philosophy.
It seems that the latter camp may triumph as the author of this controversial paper, Lina Khan, has just been nominated for the vacant position of 5th Commissioner at the FTC.
Whether or not she has been confirmed (she will undoubtedly face stiff opposition as she is clearly against the status quo as an outsider), her nomination confirms her view as important. With Khan and her allies in charge at the FTC and elsewhere, the decade-long assumptions Facebook relied on to pro forma reject the FTC lawsuit may be challenged.
This may not play a role in the present lawsuit, which is likely not subject to the rules mentioned due to its rather retroactive nature, but the gloves will be removed for the next round – and make no mistake, there will be a next round.
Federal Trade Commission v Facebook Inc Dcdce-20-03590 0056.1 by TechCrunch on Scribd