Pixel Envy

Written by Nick Heer.

Counterpoints to the FTC’s Facebook Redux Suit

Earlier this week, the FTC took a second crack at accusing Facebook of criminal anticompetitive behaviour:

“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.”

The FTC filed the amended complaint today in the U.S. District Court for the District of Columbia, following the court’s June 28 ruling on the FTC’s initial complaint. The amended complaint includes additional data and evidence to support the FTC’s contention that Facebook is a monopolist that abused its excessive market power to eliminate threats to its dominance.

I am looking forward to seeing what comes out of this case; I hope for an outcome that reduces Facebook’s overwhelming market power. But, as a non-lawyer, I find it illuminating to look at the counterarguments.

Mike Masnick, Techdirt:

That said, there is more evidence in this complaint that Facebook deliberately sought to undermine competition at a variety of different points. And if the FTC can convince the court that (1) the market definition it has is correct, and (2) that Facebook has monopolistic power in that market, perhaps it can move the case forward. But, again, the complaint focuses heavily on the Instagram and WhatsApp acquisitions, both of which happened many years ago — at a time when Facebook was nowhere near as big or powerful as it is today. And, importantly, there aren’t really examples of them doing the same thing recently. Indeed, we keep seeing new entrants showing up in the social media market — including Snap, TikTok, and Clubhouse. Those all undermine the argument that Facebook can stop competitors.

Of the three competitive companies here, Snap is the most successful. I would be surprised if Clubhouse is enduring rather than fleeting.

Meanwhile, the FTC defines the product category that Facebook’s brands occupy in a way that excludes TikTok, and I think there is a reasonable argument for that. TikTok is not really designed for following close sets of friends and family members in the same way that Facebook and WhatsApp are, but which Instagram is increasingly not.

The FTC seems to be arguing that acquiring Instagram and WhatsApp reduced competition in the social networking space they have defined, and that they cemented Facebook’s position. But Masnick points out a couple of internal inconsistencies in the FTC’s reasoning.

Eric Seufert, Mobile Dev Memo:

I don’t have a law degree, so I feel unqualified to assess the legal merits of the FTC’s market definition.

But what I can capably assess is the FTC’s arguments around Facebook’s control of advertising prices on its platform. Multiple times throughout the complaint, the FTC declares that Facebook’s monopoly control over the market for personal social networking resulted in unnaturally high “advertising prices.” This is simply incorrect, and it reveals a lack of understanding of the digital advertising ecosystem and how advertising inventory is priced.

This seems like a pretty significant error for making the case that Facebook’s market position is an economic concern. But if the FTC’s complaint is mostly about how Facebook has used its size and power to disadvantage competitors, I wonder if it matters. Regardless, it is worrying that the FTC seems to not fully understand the arguments it is making.