The US government may be one step closer to breaking up Meta

Mark Zuckerberg has a fascination with ancient Rome, but last week a court decision threatened the future of another empire: his own.

Judge James Boasberg said the US competition watchdog can pursue the break up of Meta – the owner of Facebook, Instagram and WhatsApp – paving the way for a lcostly and lengthy legal battle. Boasberg had dismissed the Federal Trade Commission’s first attempt in June, but this time he was swayed by a revised FTC complaint under its new chair, Lina Khan.

As the judge stressed in his 48-page decision, it is “anyone’s guess” whether the FTC will win its case against a $920bn (£675bn) business that can afford very decent lawyers. Boasberg, a Washington-based district judge who hears cases under federal law, has simply ruled that the FTC has a “plausible claim” under the Sherman Act, which prevents monopolistic companies from ripping off consumers.

Even so, Boasberg has given the FTC’s case a boost. He is allowing the claim to proceed even though Meta operates in what competition experts call a zero-price market. As billions of people around the world know, Meta’s services are free – how can consumers in the US be harmed economically by a service they don’t pay for?

The FTC argues that by acquiring Instagram and WhatsApp, Meta stifled competition and ended up giving a poor deal to consumers in the market for “personal social networking” services. It argues that the acquisition of these companies was anticompetitive because it led to poorer service – for instance lower levels of service quality in privacy and data protection – and less choice for consumers. On the latter, the FTC cites the fact that Meta (then Facebook Inc) shut down an app designed to compete with Instagram once it had bought the photo sharing service in 2012. The complaint also alleges that Meta benefits from barriers to entry in the social networking market such as high switching costs, ie the difficulty of moving to a new social network and taking all your photos and associated data with you.

Meta their match

Rebecca Allensworth, professor of law at Vanderbilt University in the US, says the decision is “a really bad sign” for Meta. “I think the judge sounded very approving of all the arguments made by the FTC. At the same time, it’s the beginning of the beginning [of the case].”

Allensworth added that it was a “big win” for the FTC that Boasberg accepted a more subjective definition of competition in the social media market, instead of expecting the watchdog to crunch through economic data. The FTC has also peppered its complaint with quotes from Meta executives, which Boasberg picks up on. For instance, Boasberg refers to statements made by Zuckerberg about Meta’s structural advantages in the market. He also refers to an email in which the Meta founder states that it is “better to buy than compete.” Boasberg’s decision carries a Zuckerberg quote stating that he saw messaging as a threat and would pay $1bn for WhatsApp “if he could get them” (he ultimately paid $19bn for the business in 2014).

The complaint states that Meta’s share of the personal social networking services market has not dropped below 70% in the US since 2016 and is now as high as 80% on smartphones. “Facebook [Inc]’s market share comfortably exceeds the levels that courts ordinarily find sufficient to establish monopoly power,” wrote Boasberg. However, nothing has been proven yet. Whether Meta is indeed a monopoly, and commits anticompetitive harm from this position will be settled at the end of the formal legal contest that is about to unfold.

Kind of a big deal

The next stage for the FTC is a process known as discovery, where it seeks evidence from Meta to back up its case. The burden of proof in this lawsuit is on the FTC, which means it must seek documents from the company it is accusing of anti-competitive behaviour in order to prove that its accusations are correct. This stage – where the FTC makes document requests and Meta no doubt challenges them – could take some time.

After the discovery process, the FTC might seek a summary judgment in its favour – as Meta may, too – but it is possible in such a weighty, complex case that the judge will send it for a full-blown trial. And even if the FTC wins at any of these stages, Meta will have recourse to an appeals process. As a result, any FTC-led breakup process could take years.

Allensworth acknowledges that Boasberg’s ruling is a “big deal” and says Meta is certainly a break-up candidate because it has units that can be hived off, but there is a long way to go. “I hate to make a prediction about whether or not a break-up will or won’t happen. Obviously, having your suit not dismissed is a necessary – but not sufficient – step in the direction of being broken up. But to say ‘they need to be shaking in their boots about being broken up at this point’ is definitely more than we can really say about the suit right now.”

The wrath of Khan

Meta responded to the decision by pointing out that Boasberg had rejected one element of the complaint. Boasberg said the FTC could not press allegations that Facebook blocked competing apps from accessing its platform as a way to maintain its dominance, saying the policies had been abandoned in 2018. Meta added: “We’re confident the evidence will reveal the fundamental weakness of the claims. Our investments in Instagram and WhatsApp transformed them into what they are today. They have been good for competition, and good for the people and businesses that choose to use our products.”

Barry Lynn, executive director of the Washington-based Open Markets Institute, which researches the impact of monopolies and how to strengthen competition policy, says a break-up will weaken Mark Zuckerberg’s empire. “The power of the corporation vis-a-vis the government, vis-a-vis advertisers and vis-a-vis users becomes much less because you have broken it into three parts.

The final few pages of the Boasberg decision deal with Meta’s attempts to have Khan, the chair of the FTC, withdrawn from the case for various reasons which include her having advised a Congress committee – before she was appointed to the FTC – that Meta had broken the Sherman Act.

Boasberg dismissed this, saying that Khan’s role in the case is more prosecutor than judge and that people in that position are allowed to show some zeal in enforcing the law. Khan used to work for Lynn at the OMI, as its legal director. Asked if Khan has the determination to win the case, Lynn says: “absolutely.”

The wider TechScape

While we’re on the subject of tech regulation, Tuesday’s blockbuster $68.7bn takeover of Activision Blizzard by Microsoft will attract the attention of the FTC and justice department. On the same day that the Bill Gates-founded company agreed to buy the games maker behind the Call of Duty and Warcraft franchises, the FTC’s Khan and Jonathan Kanter, head of antitrust at the department, announced a review of merger guidelines – with tech among their areas of concern. Kanter said: “We need to understand why so many industries have too few competitors.” For instance, regulators will want to know if Microsoft will use the deal to favour its Xbox console platform over Sony’s PlayStation. There will be tough questions. For more on the deal, look out for next week’s edition of Pushing Buttons, our newsletter from video games editor Keza MacDonald. You can sign up here.

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