FTC v Facebook - DDC dismisses FTC’s Complaint

First take a deep breath. This isn’t a sprint -it’s a marathon and I would expect the FTC and/or State Attorneys General to file an appeal

FTC v Facebook December 9, 2020

Complaint for Injunctive and Other Equitable Relief

the gist of the FTC complaint:

The Federal Trade Commission has sued Facebook, alleging that the company is illegally maintaining its personal social networking monopoly through a years-long course of anticompetitive conduct. The complaint alleges that Facebook has engaged in a systematic strategy—including its 2012 acquisition of up-and-coming rival Instagram, its 2014 acquisition of the mobile messaging app WhatsApp, and the imposition of anticompetitive conditions on software developers—to eliminate threats to its monopoly. The Commission vote to authorize staff to file for a permanent injunction and other equitable relief in the U.S. District Court for the District of Columbia was 3-2. Commissioners Noah Joshua Phillips and Christine S. Wilson voted no.

FEDERAL TRADE COMMISSION v. FACEBOOK INC.

DDC Civil Action No. 2020-3590 Doc No. 73 (memorandum opinion) by Judge James E. Boasberg - before we dive into the Court’s ruling - I think it’s smart to take a deep breath. Yes it is disappointing but I would expect the following course of Action:

• the FTC files an amended complaint (see page 2) or a notice of Appeal

• the DOJ’s Anti-Trust division should jump in to the fray

• Congress - yes I have a lot of questions for Congress - on one hand where have they been for the last two decades? You knew that companies like Facebook were inching closer to multiple monopoly yet the law hasn’t changed

Again the three above bullet points are pretty important —but what’s interesting to me is the FTC might (I say that reluctantly) not have the statutory authority

“Although the Court does not agree with all of Facebook’s contentions here, it ultimately concurs that the agency’s Complaint is legally insufficient and must therefore be dismissed…The FTC has failed to plead enough facts to plausibly establish a necessary element of all of its Section 2 claims — namely, that Facebook has monopoly power in the market for Personal Social Networking (PSN) Services.”

This is why it is really important to read The Whole Opinion - the Court isn’t dismissing the case. And still leaves the door open for the FTC (and the States - which filed a separate cause of action)

The Complaint contains nothing on that score save the naked allegation that the company has had and still has a “dominant share of th[at] market (in excess of 60%).”…Such an unsupported assertion might (barely) suffice in a Section 2 case involving a more traditional goods market, in which the Court could reasonably infer that market share was measured by revenue, units sold, or some other typical metric….

In this unusual context, the FTC’s inability to offer any indication of the metric(s) or method(s) it used to calculate Facebook’s market share renders its vague “60%-plus” assertion too speculative and conclusory to go forward. Because this defect could conceivably be overcome by re-pleading, however, the Court will dismiss only the Complaint, not the case, and will do so without prejudice to allow Plaintiff to file an amended Complaint

But in the event the FTC relied upon

es an “amended complaint” —note what the Court stated…

…this Opinion also explains two further conclusions of law. First, even if the FTC had sufficiently pleaded market power, its challenges to Facebook’s policy of refusing interoperability permissions with competing apps fails to state a claim for injunctive relief…

…there is nothing unlawful about having such a policy in general…

Second, the agency is on firmer ground in scrutinizing the acquisitions of Instagram and WhatsApp, as the Court rejects Facebook’s argument that the FTC lacks authority to seek injunctive relief against those purchases. Whether other issues arise in a subsequent phase of litigation is dependent on how the Government wishes to proceed.

Why did the FTC and State AGs wait so long?

Off the bat you are not obligated to agree with me or the Court but intellectually you have to accept that the Court’s rationale is well founded. Partially because Facebook is governed by the twenty year consent decree - but that’s only applicable to Facebook’s data privacy - nothing in the aforementioned consent decree addresses or abridges Facebook’s business model. Meaning that the growth of Mobile Apps, the integration features —if there was a cognizable claim of a monopoly then why didn’t the FTC or the DOJ anti-trust division. Which are chartered with examining horizontal and vertical mergers. Facebook’s years old acquisition of Instagram and WhatsApp - if that fell within the vertical or horizontal merger criterion, then why did the Government wait so long to file an enforcement action. That’s what I surmise is part of the rationale of the Court’s Memorandum/Opinion

June 2020 DOJ & FTC VERTICAL MERGER GUIDELINES

Important “Guidelines supersede the extant portions of the Department of Justice’s 1984 Merger Guidelines, which are now withdrawn and superseded in their entirety. They reflect the ongoing accumulation of experience at the Agencies”

DOJ and FTC JUNE 2020 Guidelines and relevant statutory provisions - the reason I think you should know about the June 2020 guidelines is in the context of the December 2020 FTC lawsuit - I’m genuinely surprised neither the FTC or the Court didn’t reference because there’s a lot of “guidance” in the updated guidelines.

• Section 7 of the Clayton Act, 15 U.S.C. §18

• Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1–2 and

• Section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45.

Section 7 of the Clayton Act prohibits any merger or acquisition if, “in any line of commerce or in any activity affecting commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.” This provision applies to vertical mergers, as Congress made plain in the 1950 amendments to the Clayton Act.

I am genuinely not in the habit of defending Facebook - I personally think they are a monopoly and should be forced to divest - but the real issue is why did the FTC and DOJ allow Facebook to buy Instagram and WhatsApp?
Largely the DOJ & FTC merger 1984 guidelines afford both agencies a strong predicate to closely examine the market impact - the 2020 superseding guidelines simply expound on the 1984 metrics…

Because as the Court’s ruling indicates - the acquisition occurred in late 2012 after both companies addressed the “concerns” identified by the FTC.

The Instagram Acquisition…

After about eighteen months of watching Instagram’s rise, Zuckerberg and his team eventually shifted from trying (and failing) to compete to instead trying to buy. Aiming to both neutralize Instagram as a competitor and “integrate” the “mechanics” of its popular photo￾sharing features with Facebook Blue in order to forestall the growth of future Instagrams…Zuckerberg offered to purchase the company for $1 billion in April 2012…Instagram’s founders agreed.

The WhatsApp Acquisition

Facebook executives saw WhatsApp as the most potent threat among mobile-messaging services…Launched in 2009, it had approximately 450 million active users worldwide five years later and was growing exponentially thanks to its superior product…

that tactic found success in February 2014, when the two companies agreed on a purchase price of $19 billion. Id. The transaction was also subject to Hart-Scott-Rodino Act pre-merger review, see 18 U.S.C. § 18b, but the FTC, once again, did not block it.

Look all I am saying is the Court followed the legal framework. You (and I) might disagree with the Court’s ruling. Conversely intellectually I completely understand why the Court ruled the way it did. Because the law isn’t partisan, the law is the law.

And for once and for all can we dispense with: Clinton, Bush, Obama, Trump appointed Judges. That’s a really weak predicate to “examine” how a court rules. Spoiler Alert: those who continue with these predictable partisan cheap shots at Federal Judges - understand those who do this are intellectually stunted midgets. It is annoying to constantly read the newly found foremost judicial opinion (given some didn’t even have a PACER account until recently) —yet they pontificate as if they have a JD and traffic in the aforementioned feigned (and almost always specious) predicate to attack how a Court ruled. It’s dumb and it’s intellectually lazy.

On the interoperability of Facebook, Instagram and/or WhatsApp API - what the State AGs and the FTC asked the Court to do was/is completely out of bounds and as the Court astutely said;

…there is nothing unlawful about having such a policy in general…

There is no such law that requires the “interoperability” - now one plausible argument could have been if the FCC jumped into the fray and provided facts that the API interoperability impeded, chilled or otherwise adversely impacted the “Emergency Broadcast System” or other Emergency Alerts - then it is plausible a concrete and particularized injury might be a viable argument— but I can tell you that would still be a huge stretch

Again I can not find any federal law that mandates the interoperability for a social media company and their API —as previously mentioned yes there are some laws with respect to emergency alert system but that’s completely independent and not exactly applicable to this cases. Again I opined that sure you could make a logical argument under the existing legal framework but it would be a stretch. Here the Court details how Facebook’s API is operable and offers interoperability for “content” via a third party…

Finally a Judge who uses the accurate meaning of coda (yes in my industry words like coda have multiple means - it’s a known acronym, it can be applicable to a dance, or ending of a musical arrangement) but in legalese typically the invocation of coda means “serves as concluding in part” - the Court noted;

There is an important coda to this story, however: Facebook “removed its ‘core functionality’ restrictions” in December 2018.

And for the umpteenth time - the Court did not dismiss the case, the Court dismissed the FTC’s Complaint. This is an important distinction, which apparently is lost on a lot of folks. See page 16, first paragraph, last sentence

The FTC Case was not DISMISSED

(Apologies for yelling)

Facebook has now moved to dismiss both actions…While the cases could be consolidated, the Court believes that clarity will be enhanced by resolving the two Motions to Dismiss in separate, contemporaneously issued Opinions. As explained in its separate Opinion, it will grant the Motion to Dismiss the States’ entire case.

By contrast, the Court here will dismiss only the Complaint, not the case, leaving the agency the chance to replead if it believes it can successfully remedy the infirmities described below.

…will dismiss only the Complaint… not the case…

so for now I renew my previous assessment - the FTC can file an amended complaint but they must ameliorate the various infirmities or file a notice of appeal. Simply put the FTC waited nearly 10 and 8 years, respectively to file

---

Should you be inclined — I’m not going to try and search the Internet archive to see if my previous hours of research was some how archived. Because it had become an absolute exercise in futility

What is Congress doing about the social media monopolies?

On June 14, this article explained some proactive (arguably some are merely reactive) proposed legislation

“This decision underscores the dire need to modernize our antitrust laws to address anticompetitive mergers and abusive conduct in the digital economy. As the FTC and 48 State Attorneys General have alleged, Facebook is a monopolist, and it has abused its monopoly power to buy or bury its competitive threats. Last week, the Committee voted in favor of an historic package of bipartisan legislation to address this problem and create a stronger online economy. In the weeks ahead, we will work to advance this legislation to restore choice, innovation, and opportunity for American businesses and consumers.”  -Chairs Nadler and Cicilline said in a statement several hours after the Court’s Ruling

Other notable & successful FTC Enforcement Actions

November 2011 - The FTC alleged that Facebook violated its privacy promises to consumers and subsequently violated a 2012 Commission order. Between the Cambridge Analytica FUBAR and the evidence suggested that Facebook (repeatedly) violated the terms and conditions of their 20 year consent decree. Also it’s so weird I distinctly remember a certain PITA account circa 2017 obsessively tweeting about aforementioned consent decree. Can’t remember if it was a microphone or a habanero spicy -I guess there’s no point in whining about things I can’t change but I said what I said because I had the receipts to back up what I was saying.

FTC MATTER/FILE NUMBER: 092 3184  182 3109  C-4365 

CIVIL ACTION NUMBER: 19-cv-2184

November 2011 -Data Privacy 20 year Consent Decree

• Agreement Containing Consent Order , Complaint , Exhibit A-Exhibit S, and Analysis of Proposed Consent Order To Aid Public Comment

• December 5, 2011 - Federal Register Notice: Facebook, Inc.; Analysis of Proposed Consent Order to Aid Public Comment; Proposed Consent Agreement

July 24, 2019 -Facebook Agrees to pay $5Billion in penalties- they violated the consent decree.

More than 185 million people in the United States and Canada use Facebook on a daily basis. Facebook monetizes user information through targeted advertising, which generated most of the company’s $55.8 billion in revenues in 2018. To encourage users to share information on its platform, Facebook promises users they can control the privacy of their information through Facebook’s privacy settings.

Following a yearlong investigation by the FTC, the Department of Justice will file a complaint on behalf of the Commission alleging that Facebook repeatedly used deceptive disclosures and settings to undermine users’ privacy preferences in violation of its 2012 FTC order. These tactics allowed the company to share users’ personal information with third-party apps that were downloaded by the user’s Facebook “friends.” The FTC alleges that many users were unaware that Facebook was sharing such information, and therefore did not take the steps needed to opt-out of sharing.

In addition, the FTC alleges that Facebook took inadequate steps to deal with apps that it knew were violating its platform policies.

• Complaint for Civil Penalties, Injunction, and Other Relief

• Stipulated Order for Civil Penalty, Monetary Judgment and Injunctive Relief

• Plaintiffs’ Consent Motion for Entry of the Stipulated Order for Civil Penalty, Monetary Judgment, and Injunctive Relief (139 KB)

PUBLIC STATEMENT: Statement of Chairman Joe Simons and Commissioners Noah Joshua Phillips and Christine S. Wilson Regarding the Matter of Facebook, Inc.

PUBLIC STATEMENT: Dissenting Statement of Commissioner Rohit Chopra Regarding the Matter of Facebook, Inc.

PUBLIC STATEMENT: Dissenting Statement of Commissioner Rebecca Kelly Slaughter Regarding the Matter of FTC vs. Facebook

PRESS RELEASE: FTC Imposes $5 Billion Penalty and Sweeping New Privacy Restrictions on Facebook

FTC Sues Cambridge Analytica, Settles with Former CEO and App Developer