FTC considers going after Facebook

Federal Trade Commission Considers Going After Facebook

Media outlets have reported recently that the Federal Trade Commission is considering bringing action to stop Facebook from integrating its subsidiaries, Instagram and WhatsApp into its Facebook platform. This controversy comes in the wake of years of federal scrutiny of Facebook over its dominance in social networking, failure to prevent the dissemination of fake news and breaches of its users’ data privacy.

Both Instagram and WhatsApp started as Facebook competitors; Instagram as its own social media platform and WhatsApp as an alternative to Facebook’s “Messenger” service. Facebook purchased Instagram in 2012 for $1 billion and WhatsApp in 2014 for a whopping $19 billion. Early in 2019, Facebook began the process of integrating both platforms into Facebook.

The Sherman Antitrust Act makes “monopolization” illegal. Having a monopoly means having control over an industry by virtue of dominant position in the market. The classic example of a monopoly in the last century was AT&T’s control over the telephone industry until it was broken up by the federal government in 1982.

It’s not illegal to have a monopoly, which can occur merely because one company does the best job in an industry. The crime of monopolization means using the dominant market position to unfairly disadvantage competitors.

One common example is “tying” a dominant product to a less dominant product to advantage the latter in commerce. For example, in 1998, the Department of Justice sued Microsoft for tying Windows to Microsoft’s web browser, Internet Explorer. Microsoft integrated the browser into Windows so that removing it was made it very difficult. It also designed Windows to hinder the use of competing browsers. Eventually, the case settled with Microsoft agreeing to share its programming interfaces with third party browsers.

Turning back to Facebook, the Federal Trade Commission may consider this an illegal tying arrangement. Facebook, it could be argued, is using its dominant position as a social media platform to harm competitors of WhatsApp, such as Skype and Kik and competitors of Instagram, such as Pintrest and Snapchat.

The thinking goes that people who use Facebook anyway will be much more likely to use the Facebook-owned alternatives if they are interwoven with the Facebook platform that they are already using anyway. This, of course, is a classic tying arrangement.

If it so chooses, the Federal Trade Commission could start by issuing a temporary injunction to block efforts to tie the Facebook platform to two subsidiaries. It would then have to follow it up by filing suit in federal court against Facebook for antitrust violations. A settlement at any time is possible, as government antitrust actions are typically settled before they go to court.

If the action does end up in court, the extent to which Facebook has power over the social network market and the extent to which building in Instagram and WhatsApp would be considered an unfair trade practice would be the key questions. Either way, this could be a fascinating antitrust battle that would have a significant impact on the social media landscape.