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Facebook – 1, Competition Law – 0

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In May, we were confidently reporting on how Facebook, among other tech giants, were being taken to court around the world for Competition law breaches such as abusing their dominant position. We ended our conversation asking whether regulators are truly reacting quickly enough when it came to these breaches. It is now clear that for what seemed like a very hopeful claim, it was unfortunately too late.

Antitrust lawsuits against Facebook dismissed

Not even Facebook was expecting such an outcome. The company was ready to fight. It probably had an army of competition lawyers ready to tackle claims from both the US Federal Trade Commission (‘FTC’) and from 46 US states, accusing the company of abusing its monopolistic position in the market, as well as anticompetitive behaviour when it came to the acquisitions of Facebook in 2012 and Instagram in 2014.

The FTC and the state prosecutors asked the court in Washington to consider splitting up Facebook, Instagram and Whatsapp into separate companies, a drastic measure that would not only take a long time, but would also cost millions, and would require another army of lawyers. However, for now, such measures are not necessary.

Ruling against the antitrust officials at the end of June, Judge James Boasberg held that FTC’s claim was “legally insufficient”, failing to prove Facebook’s dominant position in the social networking market. This means that the FTC has simply presented Facebook as being a monopolist, without actually explaining the scientific rationale behind reaching this conclusion.

It is the author’s opinion that establishing a dominant position in the relevant market is a matter of fact that could easily be readdressed and proven on appeal, yet it is nonetheless an essential matter. In the interests of competition law, a trial cannot go ahead without factual, economical evidence of precisely how a market share calculation was produced.

When it comes to the collective claims brought by the 46 states, Judge Boasberg again dismissed these, on the basis that the alleged breaches were dated too long ago. The judge emphasised that the officials need not have waited six to eight years to file a claim without a “reasonable justification”. It therefore seems that we do have an answer on whether competition authorities were too late to act, and in this case it was ‘yes’.

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Why is this lawsuit important?

Firstly, the importance of this lawsuit can be recognised by the effects of the decision. Facebook’s share price increased over 4% immediately after the communication of the decision, bringing the company at a $1tn market capitalisation for the first time. That’s right, one trillion, meaning a thousand billion. 12 zeroes! This signifies an important win for the company, allowing it to be among the few companies recognised to have a market capitalisation in the trillions.

Secondly, while Facebook, Instagram and Whatsapp are not in direct competition, there are clear anticompetitive concerns present. Messenger, owned by Facebook, is a rival of Whatsapp, and the recent scandal with users’ data has proven significant in the US antitrust claims.

While Facebook is claiming that it cannot abuse its market power as customers are not charged any money, it is important to note that the new currency of the digital era we are living in is personal information. Facebook uses data from its two billion Whatsapp users to improve their customer targeting, but sceptics argue that users’ data is also serving for other purposes such as monitoring the population or intruding on people’s privacy.

In India, for example, where Whatsapp is very popular, phone service providers offer very cheap plans that include Whatsapp-only data, meaning users can only access data to use Whatsapp. This automatically means that Whatsapp is accessible to a large population easily and will be the preferred method of communication. The data of all such users can be stored by Whatsapp and shared with Facebook, its parent company. Refusal to accept such terms and conditions leads to Whatsapp not functioning anymore, making this condition mandatory for using Whatsapp.

On a larger scale, this lawsuit would mark an important step in redefining the competitive scrutiny of big tech (and most notably of GAFAM) in the new digital era.

Can a breakup ever actually take place?

Thinking about the constant development of Facebook since 2004, Instagram since its acquisition in 2012, and Whatsapp since its acquisition in 2014, it is clear that a lot of money, time and algorithms have been invested in making the apps what they are today. It could then be argued that the companies are intrinsically too interconnected at their roots to be able to have a clean separation. It would take even more money, time, and algorithms, to reverse Facebook’s progress over the last decade.

Facebook also claims that the FTC had approved both the acquisition of Instagram and Whatsapp at the time, meaning they were lawful. It would be rather unfair to disapprove them now in hindsight only because of how much they have grown. There is a fine line between regulating anticompetitive behaviour and punishing a successful business.

We should keep in mind nonetheless that an appeal is possible, and it is expected that the FTC intends indeed to appeal, adding perhaps some clear measurements of market share in order to satisfy federal law.

In the meantime, Facebook is still facing pressures from EU regulators, and it is the author’s opinion that this will continue both in the EU and the US until a breakthrough is reached. Breaking up Facebook is not an easy process, but it is an essential one in the interest of justice. If claims continue to fail in the coming years, this will then mean that the law is not up to date anymore, and so the only solution would be revolutionising competition law and adapting it to the fast-moving digital era.

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