Introduction
The Federal Trade Commission (FTC) has revised and refiled its complaint against Facebook, once again asserting Facebook throttled competition in the market for “personal social networking services.”1 The revised complaint renews and reinforces allegations that Facebook harmed competition by acquiring some of its most promising rising competitors (especially Instagram and WhatsApp) and by selectively denying interoperability with its platform to other rising competitors. The FTC faced a setback in June 2021 when U.S. District Judge James E. Boasberg dismissed its initial complaint for failing to adequately allege Facebook was dominant in personal social networking, as well as for failing to adequately allege that Facebook’s interoperability violations were “ongoing or likely to recur.”2 The judge gave the FTC leave to refile the complaint and, on August 19, 2021, the FTC filed an amended complaint seeking to address these two deficiencies.3
Narrative Changes
In its amended complaint, the FTC seeks to respond to the district court’s critiques and provide further detail to bolster its allegations. At the outset, the new complaint alleges that Facebook took as its guiding “maxim” that “it is better to buy than compete.” To substantiate this, later in the amended complaint, the FTC adds allegations about five lesser-known acquisitions (Onavo, Octazen, tbh, Glancee, and EyeGroove) that were allegedly aimed more at stifling competition than improving Facebook’s business.
Monopoly Power
The FTC alleges that Facebook has monopoly power. To prove a defendant has a monopoly, the government usually must show the defendant controls at least 60 percent of the relevant market.4 In its original complaint, the FTC asserted just that: “Facebook has maintained a dominant share of the U.S. personal social networking market (in excess of 60%).” This “naked allegation” of monopoly power did not satisfy Judge James E. Boasberg, who faulted the FTC for failing to explain the metrics or methods by which it calculated this figure.
In the amended complaint, the FTC provides allegations about Comscore data that the FTC asserts show Facebook accounts for greater than 60 percent of personal social networking whether measured by monthly active users (MAU), daily active users (DAU), or time in use. The FTC alleges that Facebook and other digital platforms commonly use this data. Further, the FTC alleges that the competition authorities of the United Kingdom, Germany, and Australia have each used these metrics (MAUs, DAUs, and/or time in use) to conclude that Facebook possesses market power.
The amended complaint tries to put Facebook’s size in perspective by creating a foil in Snapchat, which it alleges is the next largest personal social networking company. Although the specific figures are redacted, the FTC alleges “Snapchat’s user base and engagement are only a fraction of the size of those of Facebook [] and Instagram.” Putting Snapchat in the relevant market is new; the original complaint distinguished platforms such as LinkedIn and YouTube but did not state which other platforms—if any—compete with Facebook and Instagram.
In addition to allegations about the Comscore data, the FTC has added allegations about what it asserts is “direct evidence” of Facebook’s monopoly power—that is, Facebook’s ability to raise price or lower product quality.
While historically courts have been more comfortable with indirect evidence of market power, some commentators have called for a shift in focus to direct evidence.5 In its new complaint, the FTC asserts increases in user dissatisfaction with Facebook have not caused Facebook’s users to turn elsewhere. Further, despite this alleged user dissatisfaction, Facebook has remained highly profitable while its largest competitor, Snapchat, has yet to turn a profit at all. Finally, the FTC cites multiple instances of app developers going out of business after losing access to Facebook’s platform as more evidence of its market dominance.
Interoperability
In the original complaint, the FTC accused Facebook of maintaining and enforcing anticompetitive policies for access to its APIs. Until 2018, Facebook had a policy of refusing to let app developers use Facebook APIs to connect with Facebook’s platform if the app developers competed with Facebook’s “core functionality.” The FTC alleged that Facebook violated the antitrust laws when it enforced that policy against two apps—Circle and Vine—in 2013. Both apps shut down soon after. However, in dismissing the FTC’s original complaint, Judge Boasberg held that although these actions “may” have violated the antitrust laws, an injunction was inappropriate because the conduct was long past. Section 13(b) of the FTC Act allows the FTC to seek an injunction in federal court only if it has “reason to believe” that the defendant “is violating, or is about to violate” the antitrust laws.6 Judge Boasberg held the fact the FTC’s examples of enforcement both happened in 2013 was “fatal to the agency’s claim for injunctive relief.”
In its new complaint, the FTC attempts to salvage its interoperability claims by asserting that “[T]o this day, Facebook continues to screen developers and can weaponize API access in ways that cement its dominance.” It does not, however, provide any specifics or more recent examples of Facebook revoking access to its APIs. The amended complaint goes on to speculate that Facebook may reinstitute its allegedly anticompetitive API policies due to “acute competitive pressures” caused by a transition from the mobile internet to the “metaverse.” These new allegations appear unlikely to persuade the district court given its holding, but they could help the FTC preserve the issue for a possible appeal.
Facebook has until October 4, 2021 to answer the amended complaint and it will likely move to dismiss once again. Whether the FTC has mended the defects of the original complaint remains to be seen.
Closing Thoughts
The newly reconfigured FTC is taking an aggressive stance towards digital platforms, and with the filing of this new complaint, the FTC has shown (unsurprisingly) its efforts to rein in Facebook are far from over. This case and other FTC actions and rulemakings7 will be ones for all technology companies to watch in the coming year.
For more information about antitrust litigation involving digital platforms or any related matter, please contact any member of Wilson Sonsini’s antitrust and competition practice.
[1] For background, see Federal Trade Commission and State Attorneys General File Separate Antitrust Complaints Against Facebook, Wilson Sonsini Client Alert, https://www.wsgr.com/en/insights/federal-trade-commission-and-state-attorneys-general-file-separate-antitrust-complaints-against-facebook.html.
[2] FTC v. Facebook, Inc., ___ F. Supp. 3d ___, 2021 LEXIS 119540 (D.D.C., June 28, 2021).
[3] Redacted First Amended Complaint, FTC v. Facebook (Aug. 19, 2021), available at https://www.ftc.gov/system/files/documents/cases/ecf_75-1_ftc_v_facebook_public_redacted_fac.pdf.
[4] See United States v. Aluminum Co. of America, 148 F.2d 416, 424 (2d Cir. 1945).
[5] See, e.g., Louis Kaplow, Why (Ever) Define Markets?, 124 Harv. L. Rev. 437 (2010); Daniel A. Crane, Market Power Without Market Definition, 90 Notre Dame L. Rev. 31 (2014); Jonathan B. Baker, Market Definition: An Analytical Overview, 74 Antitrust L.J. 129, 131 (2007).
[7] See Spotlight on Antitrust: FTC Open Meeting Reflects Changing Tide, Wilson Sonsini Client Alert, https://www.wsgr.com/en/insights/spotlight-on-antitrust-ftc-open-meeting-reflects-changing-tide.html (discussing recent changes to the FTC’s rulemaking procedures).
