Protecting competition

Outcome of Facebook suits will have a wide impact

The US Federal Trade Commission (FTC) and 46 states have simultaneously filed antitrust suits against social media giant, Facebook. The two suits are likely to be clubbed. This follows a similar antitrust suit filed in October against Google on similar grounds of abusing market dominance to stifle competition. The FTC says: “Facebook’s actions to entrench and maintain its monopoly deny consumers the benefits of competition. Our aim is to roll back Facebook’s anti-competitive conduct and restore competition, so that innovation and free competition can thrive.” The FTC brief refers to a series of acquisitions of rivals by Facebook, most notably Instagram and WhatsApp. After the takeovers, Facebook initiated integration of those two apps with the main network. In addition, the suits allege Facebook imposed uncompetitive conditions on independent software developers.

The suits call for a spin-off of Instagram, which Facebook bought for $1 billion in 2012, and of WhatsApp, which it bought for $19 billion in 2014. It calls for stringent scrutiny of any future acquisitions by Facebook. It also asks Facebook not to set uncompetitive conditions in future, when it works with independent software developers. It alleges that Facebook has forced independent developers to agree not to develop competing functionalities and not to connect to rival social networks.  Facebook has close to 2.7 billion users and made profits of $18.5 billion on 2019 revenues of $70 billion. It is likely to fight this case to the very end, which means the matter could be in court for many years. Facebook’s legal counsel has accused the FTC of “revisionist history” and pointed out that the FTC passed the WhatsApp and Instagram deals at the time. However, this is no legal bar to re-scrutinising these decisions. At the least, Facebook’s legal concerns will hinder its ability to make acquisitions, or to roll out new services until a settlement, one way or another. For example, Facebook’s plans to turn WhatsApp into a global payment app could be impacted, which would affect its plans for India in conjunction with Jio Platforms. There will also surely be technical issues if it has to roll back the integration of Instagram and WhatsApp, even if it is not forced to spin off.

This is a bipartisan pincer move, with Democrat-ruled states and Republican-ruled states on board. So there is little chance of political relief from any US administration. Facebook will have to produce emails and documentation dating back many years to prove it was not indulging in uncompetitive behaviour. One key legal argument in this context will revolve around possible harm to users. After all, Facebook is free, so direct monetary damage is hard to prove. But legal theorists have cited the fact that Facebook data has been weaponised, most notably in the Cambridge Analytica scandal of 2016, which influenced the Brexit Referendum and the 2016 US Presidential elections. The FTC and the states can try to build a case around evidence indicating Facebook became careless about protecting privacy, or even attempted to monetise data in ways that negatively impacted users’ privacy, as its dominance grew. The consequences of a potential break-up of the giant social network is hard to estimate. But it would definitely open the door to competition, and help independent developers to build bigger markets for themselves. It may also mean better privacy norms across the industry.