Facebook has ruled the world of social networking since its very inception. Initially, it was appreciated for its ability to provide a platform for networking as it brought something very new to the horizon. However, recently, attention has turned to the dominant nature of Facebook – encroaching upon the privacy of its users by its algorithm, storage of data, advertisement frauds, propagating hateful conspiracy theories. The company maintained its position for 16 years by eliminating all its competitors. The major concerns against Facebook are over its ability to blacklist and bury emerging social networking websites that it perceives as a potential threat. Hence, the Antitrust Lawsuit filed in the Federal Court of US against Facebook by the Federal Trade Commission (‘FTC’) along with 48 US States on the 9th of December marks a significant step and poses one of the biggest legal challenges in the history of Facebook.[1]
Facebook’s strategy of eliminating competition by crushing smaller rivals is not in consonance with competition law. The lawsuit alleges Facebook to be an unlawful monopoly and seeks to compel Facebook to resell two of its biggest acquisitions- $1 billion deals to buy Instagram in 2012 and the $19 billion purchase of WhatsApp in 2014. [2] Additionally, the lawsuit attempts to prevent Facebook from causing any hindrances to new software developers and to regulate its future acquisitions. The suit has been filed under the Sherman Act of 1890 and Clayton Act of 1914, which gives the power to take action against such illicit trade practices.
The Sherman Act declares contracts in restraint of trade and commerce to be illegal and also outlaws monopolies while the Clayton Act expands the scope of antitrust law to anti-competitive behaviour. This anti-competitive behaviour includes tactics used to unethically boost a company into a dominant market position or uphold a company’s dominant position and suppress its competitors.[3] Under these Acts, unlawful monopoly is defined as when a business maintains its position in the market by adopting practices that restrict competition, ultimately harming the consumers. While these practices may harm competitors, American Antitrust law requires proof of ultimate harm to consumers. The harm caused to competitors must be passed on to consumers in the form of increase in prices, restricted output or diminished quality.
Now, the question before the Federal Court is to determine whether Facebook has acquired an illegal monopoly in the market? As per United States v. Grinnell Corp [4], to show that Section 2 of the Sherman Act is violated, plaintiffs must prove that “(1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.”
Possession of Monopoly Power
To prove violation of Section 2 of the Sherman Act, the primary question is to define a relevant product market. A suitable definition of a product market here would be one that encompasses all consumer groups of the platform.[5] Facebook is used to connect with others, making it a non-transactional platform. It is also used by advertisers to grab the attention of the users. Thus, for defining a product market, the substitutes of these services available to the consumers must be taken into consideration. Instagram displays a similar platform to connect with other users by interacting with their pictures, messaging them and for advertisers to connect with users. Since Facebook owns Instagram, there is no other substitute available for consumers and the product market is dominated by one singular company. While Facebook offers more services than WhatsApp, the former has more users for messaging and offers an easier reach and better features. As WhatsApp is also under Facebook, it cannot be considered as a substitute. This only leaves YouTube with a user base as large as Facebook, but YouTube offers completely different services from Facebook.
While Facebook may argue that it is not a monopoly since there are other competing social networking apps such as Twitter, Snapchat and Telegram, the services provided by these apps are different. Further, the user base on other platforms is significantly lesser and consumers tend to restrict their social media usage to limited platforms.[6] While they might use other apps, other platforms don’t gain enough traction to come under the purview of the product market. Since other platforms cannot be considered as valid competitors, Facebook ends up operating as a monopoly.
Willful Acquisition or Maintenance of Monopoly Power
The next point to be considered is whether Facebook has willfully and deliberately tried to maintain a monopoly in the market. In the evolution of Facebook, it has repeatedly copied or purchased social media apps which have posed a threat. In 2010, Facebook copied the ‘check in’ feature from the startup called Foursquare. In 2013, Facebook had tried to buy Snapchat when it began gaining global popularity. Five years later in 2018, we saw Facebook replicate the idea of stories that was always a feature in Snapchat. What we have witnessed over the years is that Facebook uses a ‘buy or bury’ strategy to eliminate competition. In 2014, the deal was made to purchase WhatsApp for which the company ended up paying $21.8 billion, which formed one tenth of the company’s share. The sole reason Facebook did this was because the company felt threatened by WhatsApp’s user growth.[7] Another instance of the company’s anti-competitive conduct was evidenced in not granting Application Programming Interfaces (APIs) to emerging startups, thus restricting the reach of its users. This behaviour hinders growth of other startup companies and restricts competition.[8] Antitrust laws were designed to prevent precisely this kind of behaviour. These instances are a testament to the fact that Facebook has deliberately and willingly attempted to rule the market as a monopoly, which is outrightly anti-competitive in nature. Hence, it has been made quite clear that Facebook is an unlawful monopoly.
Harms Consumers
The Cambridge Analytica scandal in 2018 exposed Facebook to be selling personal data of millions of users, which aided the Trump campaign in political targeting.[9] Facebook follows the ‘nudge theory’ to exploit its users since its ‘default’ settings allow it to collect additional user data or grant greater access to third parties. This not only establishes its dominance over its competitors but also harms the consumer since most people do not change their ‘default’ settings and are unaware of their private data being stolen.[10]
Facebook has accumulated economic power and cultural dominance that portrays an imminent danger to democracy, self-determination, and the diversity of the economy.[11] However, while the harms caused by Facebook are very real and detrimental to consumers, they cannot be construed as the same under Antitrust law. When assessing consumer welfare from an antitrust perspective, factors such as price, quality, and quantity and possible opportunities for innovation have to be taken into consideration. Facebook’s behavior is undoubtedly anti-competitive but it might not be enough to let the case by FTC prevail. The company’s probability of proving that the benefits that it ends up offering as a multi-faceted free of cost platform to billions of consumers is greater.
Further, Facebook should not be compelled to resell its acquisitions. Instagram owes its success to Facebook given that it expanded Instagram’s user database in the beginning when the company only had a team of 13 employees. The acquisition deal only made Instagram capable of the position it has today. Even the acquisition deal with WhatsApp was built on the common vision of the companies to bring more connectivity and utility to the world by delivering essential internet services in an efficient and affordable manner. Earlier, WhatsApp used to charge its users $1 after a year of usage. The authors believe that the company was able to undo this because of the resources provided by Facebook. The combination has helped accelerate growth and user engagement across both companies. Moreover, Facebook lets these companies function as independent bodies and does not interfere with their brand. The company has fostered an environment to let these companies expand on their own accord while benefiting from Facebook’s expertise, resources and scale.
Conclusion
The lawsuit asks for undoing the acquisitions with these two giants but the authors propose that it is too late to do that since Facebook has already invested a lot in these two apps. Though Facebook’s practices violate competition laws, asking Facebook to resell the apps at this stage would not be in the principle of justice. Additionally, FTC had approved these transactions then and undoing them now would set a dangerous precedent that ‘no sale is ever final’. Therefore, the authors believe that the Government at this stage should merely regulate and take recourse for its future acquisitions and mergers and restrain its future anti-competitive practices so that it doesn’t act as a bully, choking off an emerging upstarts chance at success.
This article has been authored by Aditi Sannidhi and Rishika Jain, second year students of National Law Institute University, Bhopal.
[1] Federal Trade Commission, FTC Sues Facebook For Illegal Monopolization, December 9, 2020, available https://www.ftc.gov/news-events/press-releases/2020/12/ftc-sues-facebook-illegal-monopolization [Last visited on 15 December 2020].
[2] The Guardian, Facebook lawsuits: the biggest tech battle yet, and one that is long overdue, December 10, 2020, available https://www.theguardian.com/technology/2020/dec/10/facebook-lawsuits-the-biggest-tech-battle-yet-and-one-that-is-long-overdue [Last visited on 15 December 2020].
[3] The Bridge, Adam Theirer and Jennifer Huddleston, Facebook and Antitrust, Part 1: What Is the Relevant Market,June 7, 2019, available https://www.mercatus.org/bridge/commentary/facebook-and-antitrust-part-1-what-relevant-market [Last visited on 15 December, 2020].
[4] United States v. Grinnell Corp., 384 U.S. 563 (1997).
[5] the organisation for economic co-operation and development (oecd), Rethinking Antitrust Tools for Multi-Sided Platforms, 8, (6 April 2018), available at www.oecd.org/competition/rethinking-antitrust-tools-for-multi-sided-platforms.htm (Last visited on 9th December 2020).
[6] The Section 2 Case Against Facebook, Digital Platform Theories of Harm Paper Series:3, Yale University, Thurman Arnold Project (May 2020).
[7] NY times, Farhad Manjoo, Why Facebook Keeps Beating Every Rival: It’s the Network, of Course, 19 April, 2017, available https://www.nytimes.com/2017/04/19/technology/facebook-snapchat-instagram-innovation.html [Last visited on 17 December, 2020].
[8] Reveal chat Holdco LLC v. Facebook, Inc., Case No. 3:20-cv-363.
[9] CNBC, Sam Meredith, Here’s everything you need to know about the Cambridge Analytica scandal, 23 March, 2018, available https://www.cnbc.com/2018/03/21/facebook-cambridge-analytica-scandal-everything-you-need-to-know.html [Last visited on 17 December, 2020].
[10] Supra 7.
[11] Time Magazine, Roger Mcnamee, The Facebook Antitrust Case Is A Vital First Step. But More Needs to Happen, 11 December, 2020 available https://time.com/5920453/facebook-antitrust-case/ [Last visited on 16 December, 2020].
Comments