Undaunted by a federal court’s initial dismissal of an antitrust complaint against Facebook, the Federal Trade Commission amended their complaint on August 19, 2021, alleging the ecommerce giant used an illegal “buy-or-bury” scheme to crush the competition to maintain its market dominance. The initial complaint was filed by the FTC and 48 states and territories in December 2020. Led by the FTC, the plaintiffs alleged Facebook violated Section 2 of the Sherman Act by acquiring competitors, Instagram and WhatsApp and adopted policies that effectively prevented competing apps from working with the Facebook social media platform.
Preliminary dismissal of antitrust case
In late June 2021, the U.S. District Court of the District of Columbia dismissed the antitrust complaint, stating that the FTC had not provided sufficient evidence to support their case.
“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,” wrote Judge Boasberg. “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 (PNS) Services.”
At that time, the federal court said the PSN “market” is hard to define and measure, and the FTC did not offer any metric or method to calculate the percentage market share Facebook holds of PSN.
“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,” the judge wrote.
FTC amends complaint
In the amended complaint, the FTC alleges that Facebook was not able to innovate sufficiently to minimize the success of its competition, so Facebook lured app developers to their platform, so the tech giant could learn from them. Once the company determined they couldn’t beat them, they bought them instead.
“Facebook lacked the business acumen and technical talent to survive the transition to mobile. After failing to compete with new innovators, Facebook illegally bought or buried them when their popularity became an existential threat,” said Holly Vedova, FTC Bureau of Competition Acting Director. “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.”
According to the FTC’s announcement, their amended complaint strongly supports their allegations that Facebook used its monopoly power to pull a bait-and-switch on Facebook Platform. The social media company touted itself as an open platform for third-party software developers. After they got in the door, however, Facebook alleged did a bait-and-switch, forcing developers to agree to terms and conditions that prevented successful apps from competing against Facebook.
The FTC also explained that switching social media platforms can create “significant barriers” such as high switching costs. For example, if an individual, company or brand has a long history of posts and user engagement, leaving the platform to go elsewhere has to the potential to lose some of that history or audience. Addressing the judge’s concerns, the FTC also noted other barriers to entry to the market and to show that Facebook has developed a dominance as a “personal social networking provider.”
The FTC vote 3 to 2 to file the amended petition. One of the dissenting votes came from Commissioner Christine S. Wilson who issued a statement against filing an amended petition.
“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,” wrote Commissioner Wilson.
Antitrust matters are incredibly complex, and we don’t presume to know or understand all of the intricacies involved. Nor will we try to guess how this will play out. We do, however, believe that the outcome of this antitrust case will undoubtedly have repercussions for similar mergers and related cases. The U.S. and several other international governments have their eyes on the likes of Facebook, Amazon, Google and Apple and how their market dominance impacts competitors and consumers. This case is likely to be a long, drawn out, costly battle and the FTC and Facebook will use all of their respective resources to emerge victorious. We’ll be watching.