Politico

For Facebook, the breakup threat gets real


Facebook CEO Mark Zuckerberg confided to his employees in a townhall last year that the surging calls to break up the company represented an “existential” threat to the social network.

On Wednesday, that hypothetical threat became real when the federal government and more than 40 states sued Facebook for a litany of antitrust complaints — and specifically asked the courts to make it sell off crown jewels Instagram and WhatsApp.

Here are four big takeaways from the suits:

‘Break up Facebook’ has moved from slogan to reality

Eighteen months ago, Sen. Elizabeth Warren (D-Mass.), then a Democratic presidential candidate, was among the only prominent political voices calling to break up big tech platforms like Facebook. Now nearly all the state attorneys general and the Federal Trade Commission are asking a court to make it happen.

In both of Wednesday’s lawsuits, prosecutors asked that Facebook be forced to sell off its popular photo-sharing app Instagram and messaging service WhatsApp, two former start-ups they allege Facebook bought in an effort to keep them from growing into competitors.

New York Attorney General Tish James said the states drew inspiration for their effort from the Justice Department antitrust suit that broke up AT&T’s old Bell monopoly in 1984, which created a collection of regional “Baby Bells” — as well as its 1998 suit against Microsoft, in which the DOJ initially sought to split the tech giant into three companies.

“We are confident we can succeed,” James said in response to a question about breaking up Facebook. “It’s critically important we have power to seek remedies including but not limited to” a break-up.

The case’s bipartisan support has its limits in Washington

In Congress, both Republican and Democrats praised the antitrust suits and called for Facebook to be split up. But it wasn’t hard to find notes of discord as well.

“In the absence of competition and accountability, Facebook has harmed people’s privacy and allowed disinformation to flourish on its platform, threatening our democracy,” said Rep. David Cicilline, the Rhode Island Democrat who chairs the House Judiciary antitrust panel. “Facebook has broken the law. It must be broken up.”

Rep. Ken Buck of Colorado, a Republican who has backed Ciclline’s efforts to rewrite antitrust laws to better deal with tech platforms, called the suit the beginning of a “reckoning.”

But some other Republicans were less enthusiastic. Sen. Mike Lee (R-Utah), who chairs the Senate Judiciary Committee’s antitrust panel, said while he approved of the suit, he didn’t see it as a major victory, given that the FTC was essentially trying to unwind big Facebook acquisitions that it failed to block during the Obama era.

“I am glad to see that our antitrust enforcers are finally taking the threats posed by Big Tech seriously,” Lee said. “At the same time, the FTC previously cleared both the Instagram and WhatsApp acquisitions, and I hesitate to congratulate it now for trying to clean up its own mess.”

Lee said Facebook’s lack of competition has allowed it to engage in “draconian censorship.”

The states’ lawsuit enjoys broad, almost unanimous bipartisan support with sign-on from 46 states along with Washington, D.C,. and Guam. That contrasts with the Justice Department’s recent case against Google, which only 11 Republican attorneys general and no Democrats joined. (In that case, many states have held off on backing the DOJ’s suit in favor of bringing their own, which may be filed later this month.)

“It’s a telling sign that we have bipartisan support behind the idea that this conduct is really concerning,” said Charlotte Slaiman, competition policy director at Public Knowledge, said of the Facebook actions. “This is a real step forward to take these harms seriously.”

That bipartisanship didn’t extend to the federal agency, where the FTC split 3-2 on the Facebook suit. Republican chair Joe Simons — who is expected to step down from the agency in the next month — sided with the agency’s two Democrats, Commissioners Rohit Chopra and Rebecca Kelly Slaughter, in favor of filing the case. The agency’s two other Republican commissioners, Noah Phillips and Christine Wilson, both voted against suing the company. Neither Phillips nor Wilson put out a statement on their dissent, abiding by FTC practice that commissioners avoid making public remarks that could undermine an agency case in litigation.

Zuckerberg is his own worst witness

Zuckerberg’s e-mails, texts and musings are peppered throughout both the FTC and state complaints. The FTC’s case cites a 2008 e-mail by Zuckerberg as describing his and the company’s overall philosophy: “it’s better to buy than compete.”

The states zoomed in on a few other Zuckerberg zingers. “One thing about startups … is you can often acquire them,” he wrote to a Facebook employee the day the Instagram acquisition was announced.

In other messages, he described the Instagram and WhatsApp acquisitions as helping Facebook to “build a competitive moat” or “neutralize a competitor.”

“Those kinds of documents are very effective in court,” said Public Knowledge’s Slaiman, who worked at the FTC for four years. In other recent antitrust suits — like the states’ unsuccessful challenge to Sprint’s merger with T-Mobile — judges have given a lot of weight to what CEOs say, Slaiman said.

That was certainly true in the Microsoft case, the most recent major antitrust battle against a major U.S. tech firm, where CEO Bill Gates famously appeared in a videotaped deposition that made the judge laugh at his attempts to evade questions.

Data and privacy finally make an appearance in antitrust

A major criticism of the last three decades of antitrust law has been prosecutors’ over-reliance on price as the litmus test for determining whether mergers or conduct violate the antitrust law. The Facebook complaints take that issue head-on. The social network’s “bury or buy” strategy toward competitors didn’t make prices rise — after all its service doesn’t cost users money — but, the plaintiffs say, the lack of competition has led to lower quality and less choice for consumers, particularly in the area of privacy.

The FTC notes that WhatsApp with its end-to-end encryption for text messages had strong appeal to privacy-focused users and distinguished it sharply from Facebook’s own offerings.

Shaoul Sussman, a legal fellow at the advocacy group Institute for Local Self-Reliance, said the Facebook suits’ focus on privacy breaks new ground in antitrust — something newer anti-monopoly advocates, sometimes derisively called “antitrust hipsters,” have pushed the FTC to explore.

“It’s a victory for the ‘antitrust hipsters’ that we are thinking about [consumer welfare] in more than strictly prices,” said Sussman, an associate at Pearl Cohen.

One major question facing the case: Will federal judges buy this new line of thinking?

Cristiano Lima contributed to this report.

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