The attorneys general of 46 states, plus DC, filed a federal antitrust suit against Facebook yesterday. The same day, the Federal Trade Commission announced a separate suit alleging anti-competitive practices. I think these suits will be hard to prove, and any remedies won’t fix the bigger problems with Facebook’s abuse of data and damage to public discourse.
The lawsuit by the states is bracing reading, including a detailed history of how Facebook behaved. Here are some excerpts:
For almost a decade, Facebook has had monopoly power in the personal social networking market in the United States. As set forth in detail below, Facebook illegally maintains that monopoly power by deploying a buy-or-bury strategy that thwarts competition and harms both users and advertisers.
Because Facebook users have nowhere else to go for this important service, the company is able to make decisions about how and whether to display content on the platform and can use the personal information it collects from users solely to further its business interests, free from competitive constraints, even where those choices conflict with the interests and preferences of Facebook users.
This policy change thwarted particular competitive threats and more broadly, it told developers in no uncertain terms that valuable access to Facebook’s APIs was conditioned on their staying away from Facebook’s turf in personal social networking services, thus chilling, deterring, and suppressing competition.
Facebook has a substantial competitive advantage with respect to data, because of its ability to align Facebook user identity across the family of apps it has acquired (Instagram, WhatsApp, and others) and with users’ off-Facebook data. The volume, velocity (freshness), and variety of Facebook’s user data give it an unprecedented, virtually 360-degree view of the user and her contacts, interests, preferences, and activities, which allows Facebook to personalize content to its users that other platforms are not able to provide.
[Instagram cofounder Kevin] Systrom (summed up the futility of trying to fend off Facebook once it had entered “destroy mode” by saying: “bottom line I don’t think we’ll ever escape the wrath of mark . . . it just depends how long we avoid it . . . .” Because Instagram relied in significant part on Facebook for exposure and distribution, invoking Zuckerberg’s “wrath” would have negative consequences for the company.
Can they prove misconduct?
It will be difficult. As I understand it, the entities suing Facebook must prove that at the time it had a monopoly, it acted to restrain competition and maintain that monopoly.
For example, I recall when Facebook bought Instagram for $1 billion in 2012. The $1 billion price was shocking. Instagram was two years old and had 13 employees and no revenue. The attorneys general will have to make the case that (1) Facebook was a monopoly at the time and (2) Instagram was a threat to that monopoly. But in 2012, according to Pew, Facebook had about 55% of US adults, while LinkedIn had 18%, Twitter had 15%, and Instagram had about 10%. While Facebook is clearly a monopoly now, was it at the time it bought Instagram?
Abuse of data is a serious charge. So is intimidation of others in the market. So is the (clearly true) claim that Facebook opened up its APIs to attract developers and startups to its ecosystem, then closed them off again to reduce the power of those developers and startups. But are any of these charges enough to prove action clearly in violation of antitrust rules?
Even if the attorneys general can make that case, it will take at least three years. All along, Facebook will be pursuing a combination of strategies: offering various (probably toothless and difficult to enforce) self-policing actions even as it makes motions and appeals to throw out data and make the suits difficult. If this is resolved within three years with anything other than a slap on the wrist, I’ll be shocked.
The remedies that the states are seeking won’t fix the biggest problems Facebook causes
According to page 74 of the lawsuit, here’s what the states want:
1. That Facebook be adjudged to have violated Section 2 of the Sherman Act, 15 U.S.C. § 2;
2. That Facebook be enjoined and restrained from continuing to engage in any anticompetitive conduct and from adopting in the future any practice, plan, program, or device having a similar purpose or effect to the anticompetitive actions set forth above;
3. That Facebook be enjoined and restrained from making further acquisitions valued at or in excess of $10 million without advance notification to Plaintiff States;
4. That Facebook be enjoined and restrained from making further acquisitions without such disclosures to Plaintiff States as would be required to the federal government under the Hart-Scott-Rodino Act for transactions falling within the scope of such Act;
5. That Facebook’s acquisition of Instagram be adjudged to be in violation of Section 7 of the Clayton Act, 15 U.S.C. § 18;
6. That Facebook’s acquisition of WhatsApp be adjudged to be in violation of Section 7 of the Clayton Act, 15 U.S.C. § 18;
7. That each Plaintiff State be awarded its costs, including reasonable attorneys’ fees pursuant to 15 U.S.C. § 15(c); and
8. That the Court order such other and further equitable relief as this Court may deem appropriate to restore competitive conditions and lost competition and to prevent future violations, including divestiture or reconstruction of illegally acquired businesses and/or divestiture of Facebook assets or business lines.
Other than cash penalties, which Facebook can easily absorb, the key here is what restrictions the court will place on Facebook, and whether it will order the separation of Instagram and WhatsApp.
Assume, for the sake of argument, that the government forces Facebook to divest itself of Instagram and WhatsApp. If that happens, there will indeed be more competition. That might affect advertising rates. It won’t save consumers any money, since Facebook is already free.
Will it cause Facebook, Instagram, and WhatsApp to treat customers’ data any better? Unlikely. I don’t think people recognize a problem or care about that.
Will it cause these sites to work harder to keep illegal and unpleasant content — for example, revenge porn, spammers, and fake news — off the site? I doubt it. Better enforcement requires hiring people, and people cost money and gum up the algorithm.
Will it cause these sites to stop showing extreme content that further divides America? I don’t think so. That’s not included in the lawsuit. It’s not even an objective. Showing conservative content to conservatives and liberal content to liberals generates interaction, and interaction generates stickiness and more time on site. Each of the separate sites will still push people to the extremes and away from others who disagree with them.
Wrong violation, wrong regulation
I’m not against what the FTC and the attorneys general are trying to do here. But I don’t think it goes far enough.
The biggest problems caused by Facebook are communication problems. Facebook’s product, along with Instagram and WhatsApp, exploits Section 230 of the Communications Decency act, which provides a shield from liability for what others post there. That shield allows them to get away with almost whatever they want.
The problem with the Facebook monopoly is not just that is anticompetitive, it is that is amoral. Lies and extreme content proliferate as the company hides behind Section 230 and the First Amendment.
The First Amendment is not absolute. Section 230 was granted by legislation, and legislators can weaken it or take it way. The communication enabled by Facebook under these protections harms the nation. This is not just an FTC problem. Because it concerns communication, it is an FCC (Federal Communications Commission) problem.
Under Biden, I’d like to see the FCC take action against Facebook and the power it wields in spreading extreme and false content. If it doesn’t do so and leaves things to the FTC, Facebook might face a ruling that breaks it up into pieces. But it will continue to be a force for evil in American discourse.