On December 10, 2020, the Federal Trade Commission (FTC) and several dozen state attorney generals sued Facebook for “illegally maintaining its personal social networking monopoly through … anti-competitive behavior.” The suit seeks to compel Facebook into diverging its social media assets, such as WhatsApp and Instagram, and “[calls] for the company to be broken up, if necessary.”

Background

The suit follows years of concern that the practices of Big Tech Companies such as Facebook have reduced competition, consumer choice, and product quality. Despite a global pandemic and an economic recession, Silicon Valley has continued to profit financially. Big Tech Companies have also come under fire for their perceived encroachment of privacy and freedoms, with Facebook being fined a record $5 billion for privacy concerns and Google under investigation by the federal government for its alleged political censorship.

As a result, Congress, attorney generals, and the FTC have launched numerous inquiries into Big Tech companies such as Alphabet, Apple, Amazon, and, pertinently, Facebook. Most recently, the House Judiciary Antitrust Subcommittee held a hearing in 2020 with the CEOs of numerous Big Tech companies to discuss allegations of monopolistic practices and censorship. These proceedings have resulted in discussions regarding potential sanctions and remedies, which, along with previous federal and state investigations, have resulted in the FTC’s recent antitrust suit against Facebook.

Federal Antitrust Laws

Congress instituted the first antitrust law of the United States, the 1890 Sherman Act, to protect competition and free trade. In 1914, Congress passed the Federal Trade Commission Act and the Clayton Act, which, along with the Sherman Act, form the three critical pillars of federal antitrust laws. 

The Sherman Act outlaws restraints of trade, monopolization, and attempts at monopolization. Notably, the Sherman Act only outlaws “unreasonable” restrictions, and as such, partnerships between individuals or companies may not be illegal under the Sherman Act. The Federal Trade Commission Act established the FTC to monitor and protect fair trade practices. The Clayton Act “addresses specific practices that the Sherman Act does not clearly prohibit.” Section 7 of the Clayton Act prohibits mergers and acquisitions that harm competition and lead to monopolies.

Together, these laws seek to “proscribe unlawful mergers and business practices” to “protect … competition for the benefit of consumers” by promoting low prices, efficiency, and quality products. Violations of federal antitrust laws may result in hefty fines against individuals and companies, compulsory remedial actions such as the divergence of assets, and possible imprisonment.

Precedent

In Cincinnati Packet Co. v. Bay, 200 U. S. 179 (1906), the Supreme Court held that “a contract is not necessarily void under the Sherman Act [if its] interference [to trade] is insignificant and merely incidental and not the dominant purpose.” This means that Facebook’s acquisitions of Instagram and WhatsApp are not inherently illegal under the Sherman Antitrust Act, as they are only illegal if they significantly and intentionally interfere with free trade and commerce. However, such a level is not explicitly detailed, and as such, a key battling point in the FTC’s antitrust case against Facebook will be whether Facebook’s acquisitions constitute such “significant” levels of interference.

A more recent case involves Microsoft and the United States federal government. The case was brought to court by the Justice Department, which alleged that Microsoft software makers “required computer manufacturers to ship Microsoft’s Internet Explorer Web browser on PCs loaded with Windows 95,” which, along with other restrictions placed by Microsoft, constituted a violation of United States antitrust laws. Under Judge Jackson, the United States District Court found that Microsoft “[held] monopoly power in the market for PC operating systems,” and later ordered the breakup of Microsoft into two smaller companies. However, the D.C. Court of Appeals reversed Judge Jackson’s order to break up Microsoft, remanding the case and “[questioning] the partiality of Judge Jackson.” Ultimately, Microsoft and the Justice Department reached a settlement which “imposed restrictions on the company’s business practices … but did not restrict the features it could include with its operating system.”

The Lawsuit

The current suit alleges that Facebook’s position as the world’s primary social network service has allowed it to achieve “monopoly power” with “staggering profits” of more than $18.5 million. The FTC argues that Facebook has unfairly acquired potential competitors and numerous start-ups, most notably Instagram in April 2012 and WhatsApp in February 2014, for $1 billion and $19 billion, respectively. These acquisitions, along with perceived anti-competitive and restrictive conditions imposed by Facebook on third-party software developers, form the backbone of the plaintiffs’ antitrust argument against Facebook.

The FTC, state attorney generals, and other plaintiffs of the antitrust case against Facebook seek several remediations and punishments regarding Facebook’s perceived antitrust violations. First, the plaintiffs seek a permanent injunction that would require Facebook to divest Instagram and WhatsApp, two of their most significant and controversial acquisitions. The plaintiffs also seek to put Facebook under more stringent control and measures by requiring Facebook to “seek prior notice and approval for future mergers and acquisitions.” Facebook itself is also under threat, with the plaintiffs “calling for the company to be broken up [if the court] deems it ‘appropriate.’”

In a document produced by Facebook, based on work from Sidley Austin LLP, Facebook outlined their two main arguments against the FTC’s antitrust proceedings – the FTC’s previous approval of Facebook’s acquisition of Instagram and WhatsApp and the difficulty and privacy concerns of the potential disintegration of Facebook. The purchase of Instagram and WhatsApp, Facebook notes, were examined by the FTC and passed “without … objection.” As such, Facebook believes that reversing would discourage future investors over concerns that the FTC can backtrack at will. Secondly, Facebook argues that the “‘breakup’ of Facebook is … a complete nonstarter” as doing so would force the company to spend billions on maintaining its systems while presenting operational, security, and privacy concerns. Thus, Facebook argues that allowing the FTC to reverse would serve as a dangerous precedent for aspiring investors and businesses and put countless persons’ security and privacy at risk.

However, according to Tim Wu, a Columbia University Professor, Facebook’s arguments are unlikely to carry legal weight. In its approval of Facebook’s acquisition of Instagram and WhatsApp, the FTC had “reserved the right to revisit the deals at a later time.” Thus, the FTC’s antitrust case against Facebook will largely depend on, among other things, the court’s judgment as to whether Facebook’s acquisitions, including WhatsApp and Instagram, pose “unreasonable” restraints to free trade under the Sherman Act and previous precedents.

Future Implications           The FTC’s antitrust proceedings against Facebook represent recent trends of increasing scrutiny of Big Tech Companies. Just as railroad expansion led to the antitrust laws of the 19th and 20th centuries, technology and social media companies represent uncharted territory for society and law. The FTC’s case against Facebook may thus, along with other precedents, lay the foundation for future antitrust laws, suits, and regulations regarding technology, social media, and internet companies.