FTC v Facebook -redux amended complaint filed
FTC alleges Facebook pulled a good ol’ fashion “bait and switch” on API developers, again.
Off the bat I should admit that the FTC amended complaint took way longer than I said it would take. For reference and a decent primer you might find this June 2021 article worth re-reading before we dive into the FTC Amended Complaint
The FTC filed their amended Complaint on August 19, 2021 in Federal District Court. While it’s substantially duplicative of their December 2019 Complaint —which was subsequently dismissed the complaint NOT the case. I don’t understand why so many continued to conflate the obvious difference in case versus complaint. But as my aforementioned June 2021 article1 surmised the District Court dismissed the FTC complaint due to lack of sufficient evidence and opened the door for the FTC to amend their complaint.
I think it might be instructive to do a quick refresher on the FTC, the Authority and recent Supreme Court Rulings.
What statutory authority does the FTC have?
The Federal Trade Commission is vested with powers that allow them, generally speaking, the FTC is chartered to look out for consumers, like you and me.
15 U.S.C. §§ 41-58, as amended
FTC (unofficial legal framework) ftc_act_incorporatingus_safe_web_act.
FTC may “prosecute any inquiry necessary to its duties in any part of the United States,” FTC Act Sec. 3, 15 U.S.C. Sec. 43, and is further authorized “to gather and compile information concerning, and to investigate from time to time the organization, business, conduct, practices, and management of any person, partnership, or corporation engaged in or whose business affects commerce, excepting banks, savings and loan institutions . . . Federal credit unions . . . and common carriers . . .” FTC Act Sec. 6(a), 15 U.S.C. Sec. 46(a)
to both initiate an investigation
specific investigative powers are defined in Sections 6, 9, and 20 of the FTC Act, 15 U.S.C. Secs. 46, 49, and 57b-1, which authorize investigations and various forms of compulsory process. In addition, the premerger notification provisions in Section 7A of the Clayton Act
15 U.S.C. Sec. 18a, prohibit consummation of covered acquisitions until the parties provide the Commission with the requested information.
vested with enforcement authority (we’ll go into further detail concerning the April 2021 SCOTUS ruling) this includes consumer protection and competition
15 U.S.C § 45 - Unfair methods of competition unlawful; prevention by Commission
SCOTUS & FTC April 2021 Ruling
For decades the FTC was allowed to seek and obtain monetary relief (disgorgement) in their enforcement actions. The FTC Act’s language was ambiguous and often District Courts tended to side with the FTC. Until AMG Capital Management.
The question raised; Does Section 13(b) of the FTC Act authorize the FTC to demand monetary relief such as restitution?
To be clear the language in Section 13(b) -for the record is really ambiguous and the ripple effect of SCOTUS’s April 2021 ruling —well its keeping a lot of attorneys and support staff rather busy, irrespective of what side of the fence you are on. To be clear the FTC used a leapfrog technique by skipping Section 5 and going directly to Court under the section 13(b)… 19-508 AMG Capital Management, LLC v. FTC (04/22/2021) - Supreme Court
SCOTUS (unanimously) held;
effectively bypasses the process set forth in Section 5
Section 13(b) of the Federal Trade Commission Act does not authorize the Commission to seek, or a court to award, equitable monetary relief such as restitution or disgorgement. Justice Stephen Breyer authored the unanimous opinion of the Court.
…the Act’s prohibitions on “unfair or deceptive acts or practices” by initiating administrative proceedings under Section 5 of the Act. Section 13(b) of the Act, which Congress added in 1973, authorizes the Commission to obtain “in proper cases” a permanent injunction in federal court against “any person, partnership, or corporation” that the Commission believes “is violating, or is about to violate, any provision of law” that the Commission enforces. In the late 1970s, the Commission began using Section 13(b) to obtain court orders in consumer protection cases without the prior use of the administrative proceedings in Section 5 of the Act, and in the 1990s, it extended that practice to seek monetary awards in antitrust cases. Today, the Commission frequently uses Section 13(b) to seek equitable monetary relief directly in court.
The Court concluded that the Commission’s practice effectively bypasses the process set forth in Section 5 and was not the intent of the Congress that enacted Section 13(b). The provision does not explicitly authorize the Commission to obtain court-ordered monetary relief, and such relief is foreclosed by the structure and history of the Act.
Congress’ response to SCOTUS H.R. 2668
On July 20, 2021 —Energy and Commerce Chairman Frank Pallone, Jr. (D-NJ) delivered these remarks on the House Floor today during consideration of H.R. 2668, the Consumer Protection and Recovery Act:
This legislation is essential to protect consumers and honest businesses across the country. It restores a critical tool of the Federal Trade Commission (FTC) to go to court to get victimized consumers their money back and make lawbreakers return their illegal profits. The tool is section 13(b) of the Federal Trade Commission Act.
Congress must act now because in April the Supreme Court ruled that 13(b) did not allow the FTC to seek restitution for consumers. Instead, the Court ruled that the FTC could only seek injunctions to stop bad actors from violating the law. In the case before the Court, a criminal payday lender was found to have defrauded consumers of $1.3 billion, but that money could not legally be returned to the victims.
Passed/agreed to in House: On passage Passed by the Yeas and Nays: 221 - 205 Roll no. 214
Facebook & FTC 20 year consent decree
This is important, therefore please pay attention. I’ll do my best to translate the legalese —compartmentalization of the various “issues” the FTC is vested to either investigate and/of enforce. This means that there is a 100% chance that the parties can and do have simultaneous enforcement actions and investigations concurrently. As previously noted the FTC has many tentacles. However when it comes to Social Media Companies, the FTC tends to primarily focus on (in no particular order)
Consumer Data Privacy
COPPA enforcement
prevent business practices that are anticompetitive or deceptive or unfair to consumers
Those that use to follow me on Twitter —remember those hella long and detailed threads I created walking through the 20+ year consent decree — Because after a protracted investigations and negotiation - in 2011, Facebook settled FTC charges that it deceived consumers by failing to keep its privacy promises. Under the 2011 terms of the FTC’s order against Facebook. The Court ordered Facebook that it must obtain the consumers’ affirmative consent before making changes that override their privacy settings, among other requirements. This is main FTC landing page for;
Facebook, Inc., In the Matter of
FTC Imposes $5 Billion Penalty and Sweeping New Privacy Restrictions on Facebook
FTC Chairman’s Statement Regarding the Court’s Approval of the Facebook Settlement
FTC Sues Cambridge Analytica, Settles with Former CEO and App Developer
with respect to the FTC v Facebook concerning user data privacy -it should be noted that on April 28, 2020 Facebook agreed the terms and conditions articulated on the July 24 2019 Court Order. I have to double check but if the FTC used 13(b) then the gates of jurisprudence hell have opened up —although in reading SCOTUS April 2021 it doesn’t have a retroactive provision. But then again that’s way over my intellectual pay grade.
Facebook-Instagram v FTC Redux
First you should know the FTC Commissioners (5) were split, meaning the Commissioned voted 3 to 2 for filing an amended complaint.
Dissenting Statement of Commissioner Christine S. Wilson —and no Commissioner Wilson’s Dissent isn’t unexpected. Because she articulated almost verbatim what many in my industry have stated. The FTC gave Facebook the “green-light” on both the acquisition of Instagram and WhatsApp 2…so either way you read the FTC’s Amended Complaint —it still doesn’t answer the jurisprudence quagmire the FTC self-inflicted
…I write here to provide a brief description of one policy concern, given its relevance to other concerning developments at the Federal Trade Commission. Specifically, the primary allegations in the amended complaint relate to Facebook’s acquisitions of Instagram and WhatsApp, transactions that the FTC previously evaluated pursuant to the Hart-Scott-Rodino premerger notification process and permitted to proceed.
I believe it is bad policy to undermine the integrity of the premerger notification process established by Congress and the repose that it provides to merging parties that have faithfully complied with its requirements
FTC Amended Complaint -August 19, 2021
In theory the FTC’s argument seems reasonable— but I genuinely suspect that the Court will view their Amended Complaint lacking both in materiality and cessation of time - it’s been nearly a DECADE since the FTC closed their Facebook-Instagram Investigation 3
Facebook’s dominant position provides it with staggering profits. Facebook monetizes its personal social networking monopoly principally by selling surveillance-based advertising. Facebook collects data on users both on its platform and across the internet and exploits this deep trove of data about users’ activities, interests, and affiliations to sell behavioral advertisements. Last year alone, Facebook generated revenues of more than $85 billion and profits of more than $29 billion.
…no less anticompetitive than if Facebook had bribed emerging app competitors…
This conduct is no less anticompetitive than if Facebook had bribed emerging app competitors not to compete. The antitrust laws were enacted to prevent precisely this type of illegal activity by monopolists. Facebook’s actions have suppressed innovation and product quality improvements. And they have degraded the social network experience, subjecting users to lower levels of privacy and data protections and more intrusive ads. The FTC’s action today seeks to put an end to this illegal activity and restore competition for the benefit of Americans and honest businesses alike.”
Unable to maintain its monopoly by fairly competing, the company’s executives addressed the existential threat by buying up new innovators that were succeeding where Facebook failed. The company supplemented this anticompetitive spending spree with an opened-first-closed-later scheme that helped cement its monopoly by further thwarting nascent rivals.
…By interfering with the emergence and growth of personal social networking rivals, Facebook also suppresses meaningful competition for the sale of advertising. Many personal social networking providers monetize their platforms through the sale of advertising; thus, more competition in personal social networking is also likely to mean more competition in the provision of advertising. By monopolizing personal social networking, Facebook thereby also deprives advertisers of the benefits of competition, such as lower advertising prices and increased choice, quality, and innovation related to advertising
…Facebook’s unlawful course of conduct to maintain its monopoly continues today and must be enjoined. Facebook continues to hold and operate the assets it acquired unlawfully and continues to keep them positioned to provide a protective “moat” around its personal social networking monopoly.
Having read the original FTC complaint —the June 2021 Order/Memorandum and now the August 19, 2021 Amended Complaint. And understanding the infirmities articulated by the Court. Coupled with the deep skepticism expressed by the Court, the Amended complaint doesn’t exactly ameliorate the previous deficiencies.
If the FTC had heeded what the Court stated concerning the “better ground” vís-a-vís Instagram and WhatsApp then perhaps the criticism wouldn’t be so harsh. Again the tallest hurdle for the FTC;
…at each juncture in Facebook’s acquisition of Instagram and WhatsApp the FTC approved the very same mergers of what they are now arguing are unlawful and a monopoly…
As previously noted in my June 2021 article -the Court was very specific FTC filing an “amended complaint” —note what was stated in the June 2021 Memorandum/Opinion
…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…
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.
The latter part of the Court’s June 2021 Memorandum-Opinion, while some might think it’s merely a throw away word Salad of subterfuge —it’s not. In fact the Court was, quite literally telling the FTC; focus on the Instagram & WhatsApp mergers, find some documentation that proves Instagram and/or Facebook wantonly mislead the FTC or its Commissioners
So I tend to think the FTC’s Amended Complaint, might be an exercise in futility. Conversely I actually think it’s a necessary exercise. For now we’ll have to wait on Facebook’s response and the court.. Classic Hurry up and wait…Filey
It’s weird that I’m quoting myself but I’m mindful that the June 2021 article was extraordinarily heavy on legalese and somewhat complex both in terms of the legal framework and materiality of various “mergers” —specifically the differences between a vertical & horizontal merger…
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
Facebook, Inc. / Instagram, Inc —DATE: August 22, 2012
FTC File Number :21 0121
RELATED RELEASE: FTC Closes Its Investigation Into Facebook's Proposed Acquisition of Instagram Photo Sharing Program