COMPETITION LAW OBSERVER

A blog by Centre for Competition law & Policy, NLU Jodhpur

FTC v. FACEBOOK: A DEMAND FOR DIGITAL TRANSPOSITION

Ishita Goel

INTRODUCTION

What took off as a diverting recreation has now become an elementary source of communication for people of all ages. While the social media market was favourably competitive in the beginning, the market has subsequently inclined towards Facebook. The United States [“US”] government has characterised the social media giant as a monopoly. Consequently, in December 2020, the Federal Trade Commission [“FTC”] along with 46 states sued Facebook, alleging it of liquidating its competition.  

The FTC has filed twin antitrust lawsuits against Facebook for anticompetitive conduct under Section 2 of the Sherman Act, which declares “monopolization, attempted monopolization or conspiracy to monopolize” a market as unlawful.

FTC v. FACEBOOK SAGA

FTC contended that Facebook inhibits the advent of potential competition, thus lowering the scope of alternatives accessible to consumers and as a consequence, advertisers are constrained to target fewer social media platforms, which impairs their income. Additionally, the organisation alleged that Facebook primarily attempted to improve its own attributes, but eventually preferred acquiring its competition.

Facebook, on the other hand,  has claimed that both the acquisitions brought about improved products for the consumers — an implied indication of the “consumer harm” paradigm. Facebook also challenged the retroactive nature of the split. Both acquisitions are more than five years old and were approved by regulatory agencies at the time. Furthermore, Mr. Zuckerberg claims that Facebook is battling a much larger network of competitors, comprising of “Google, Twitter, Snapchat, iMessage, TikTok, YouTube, and more consumer apps.”

The lawsuit has hit a blockade as a federal judge has dismissed the complaint by stating that the FTC has not provided much evidence for the case. The second lawsuit regarding the Instagram and WhatsApp acquisition has been straightaway dismissed, on the basis that the attorneys have waited too long to take the issue of the matter.

The case against Facebook can still pull through as the FTC has been granted a further period of 30 days to file an amended complaint against Facebook. 

SOCIAL MEDIA MARKET AND ANTI-TRUST LAWS

Antitrust laws are the anchor of capitalism in the US. The Sherman Act, the Federal Trade Commission Act, and the Clayton Act are employed to safeguard fair competition in the market. Section 1 of the Sherman Act and Section 7 of the Clayton Act prohibit mergers and acquisitions where the contract is in restraint of trade or would considerably reduce competition, respectively.

The US toyed with the complete prohibition of monopolies in the 1960s and 1970s which was mainly centred around the structure-conduct-performance [“SCP”] model. SCP suggests that concentrated markets are more likely to give rise to anticompetitive conduct, which consequently leads to incompetence. If correct, the theory advocates that an obstinate market power poses antitrust trouble, irrespective of how it was attained.

Social media platforms form a market for antitrust rationales. Usually, outlining a product market is the foremost stage in an antitrust assessment. Facebook is clearly a social networking site and the present issue of concern from an antitrust outlook is its monopolistic hold in the social media industry. Anti-competitive conduct induced by Facebook instigates harm, for the involved consumers do not have the option to turn to another product.

RESTRUCTURING CONSUMER HARM THEORY 

These lawsuits encounter a matter that has long tracked the drive for antitrust enforcement against tech platforms: Establishing that people are being harmed by a product that’s accessible for free? In order to prove the monopolistic capacities in the social media domain, we need a new standard of test, one that focuses less on consumer harm and more on the crooked enticements constructed by a company the size of Facebook.

But, even when monopolies, like Google, Facebook, and Amazon, seem to interest consumers by tendering free or low-cost products, they can still be severely damaging. Antitrust cases have classically concentrated on establishing consumer harm with respect to prices. This uncovers that the existing structure in Antitrust cases and its parallel with “consumer welfare” is normally calculated through short-term impacts on price and product. Thus, the harm posed by Facebook’s dominance to the social media market is not discernible through the price and harm theory. In the internet era, power is neither derived from production, nor from distribution, but from controlling consumption and Facebook owns it all in the social media market.

MONOPOLISTIC POSITION OF FACEBOOK

Facebook could be typically classified as a natural monopoly. A natural monopoly, in Facebook’s case, could be denoted by its suitable user interface, a business model that maximizes profit by means of exploiting users’ personal data, and the subsequent unilateral manipulation of users’ private media involvement.

Facebook possesses a dominant share in numerous subsectors of the internet industry. FTC advocates that companies having more than a 50% hold of the market could constitute a monopoly.

Facebook’s site (along with Instagram) reckons 75% of the user time devoted to social media. No other company in the past decade could manage to seize more than 5% of the social media market.

Facebook has unlawfully preserved and has enlarged its command in the social media domain by spying on its consumers as well as competitors. In some ways, Facebook is similar to Microsoft. Microsoft dominated the market not due to its product superiority but by leveraging the prospect presented by the IBM PC. Similarly, Facebook has succeeded not because of its own product features but by reducing the network of its competitors by introducing their key features to its own platform. And, much like Microsoft vis-à-vis Apple, Facebook copied well. Microsoft, evidently, was found to be a monopoly, and it is wrong to not consider the same about Facebook. The company’s plan is to defeat every competitor.

In 2012, Twitter launched Vine, a video-hosting service that allowed its users to create and share six-second clips. However, Facebook decided to obstruct Vine’s access to users’ Facebook friends list, thereby stemming the video app’s opportunity to expand its reach.  

Snapchat presented a different challenge. Snapchat’s stories and transitory texting choices made it an appealing substitute for Facebook and Instagram. Furthermore, unlike Vine, Snapchat didn’t affiliate with Facebook’s network. Thus, there was no way to impair the company or wind it up. So, Facebook plainly replicated it. And Facebook’s adaptation of Snapchat’s stories and disappearing messages turned out to be extremely popular, consequentially, harming Snapchat.

More recently, Facebook made its fifth-largest acquisition. The company acquired Giphy, a database and search engine for the brief looping videos, well-known as GIFs. Giphy offers similar services to several rival companies including Apple Inc.’s iMessage, Twitter, TikTok, Signal, amongst others. Giphy has the status of the performance of those companies, which is just the sort of foresight Facebook cherishes most and has previously strived for.

Thus, it is easy to say that prospective rival companies cannot take on Facebook. Financiers apprehend that if a business develops some hold in the market, Facebook will simply either replicate its novelties, shut it down or just acquire it. Therefore, even with comprehensive economic development, the growing importance of high-tech start-ups, and an outburst of venture capital, no prominent company in the social media market has been set up since 2011.

Lately, Facebook acquired WhatsApp, ran into trouble with the Competition Commission of India [“CCI”]. The Indian antitrust body alleged that WhatsApp breached local competition laws in the facade of policy updates. As per the update, a business could provide third-party service providers such as Facebook, access to its messaging network to send, store, read, manage, or otherwise process them for the business. CCI alleged that Facebook has an opportunity to provide such services to businesses with a stipulation to use the data collected by them. 

Application Programming Interfaces [“APIs”], on the other hand, are the portals for a computer system or a digital platform that outline the way through which an individual system network with other systems and platforms. Open-source APIs allow network forces to enter the counterpart companies’ system by offering them admittance to Facebook’s user data and social graph, which establishes reliance on Facebook. At first, Facebook eagerly seeks the help of these businesses in making its own platform more engaging and appealing —but then again, Facebook is aware of the potential competition and intends to steer clear of it. When Facebook’s platform is updated, the company damages the performance of those companies, as Facebook can easily regulate the level of competition it confronts.

Furthermore, due to the growing scrutiny of the way it deals with content moderation, Facebook has openly asked policymakers around the globe to regulate the content on its news feed. But when Australia decided to regulate, Facebook’s resolution was to unilaterally withdraw news content for the country as it opposed the regulation. Facebook’s demeanour, in this case, demonstrates that the company is mainly interested in regulations that it can construct for itself. 

Also, the fall in Facebook’s privacy safeguards plays a vital part in the FTC’s case. The antitrust scholar, Dina Srinivasan in “The Antitrust Case Against Facebook”,  claimed that Facebook’s dominance in the social media market has imposed very explicit damage on its consumers: a decline in privacy settings. Facebook differentiated itself on its privacy safeguards. But, in 2007, it deployed Beacon, a product that traced user activity even when they were offline. Encountering severe criticism, the company terminated Beacon within the same year. At present, its “pixel” traces users, similar to how Beacon did. Facebook provides its product for free, but that doesn’t indicate that consumers haven’t been paying a price.

CONCLUSION

Today, we locate ourselves in a situation where the social media market is dominated by a single company—Facebook. America’s Antitrust laws do not forbid the ownership of a legal monopoly, presuming that the monopolist acquired market dominance from innovation or the merits of its own product or services. But, based on the contentions presented above, there is a cause to deem that Facebook has entered into a monopolistic market situation by using unlawful means.

After several years of waiting, the American government is trying to regulate the tech giants and democratize their economy. Unfortunately, the Federal Court’s decision seems to exhibit that they have waited too long and that now, a monopoly, such as Facebook is to all intents and purposes, beyond the law. It is the ignorance of the State, that has made Facebook an untouchable giant. It is a company that finances millions of dollars in lobbying, and that gathers hundreds of acquirements, back-to-back. The consequence for many start-ups to update and introduce something different is basically the possibility of getting acquired by Facebook.

The company’s record is brimming with confidence-inducing assurances, insincere announcements, deceitful pretexts, and expedient omissions.  The Court must take note of what, on prima-facie grounds, seems to be a conduct that has unfairly cut competition. This case is a test of how American antitrust law will manage the coming decade’s tech giants. If FTC manages to win, then this case will mark a milestone for the antitrust execution in the US and remodel the manner in which these tech giants regard acquisitions.

Ishita Goel is a second year student at Vivekananda Institute of Professional Studies.

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