The One Number That Doomed The FTC’s Antitrust Case Against Facebook

Facebook is a huge company. This is not an opinion. It’s a fact. Facebook has a trillion-dollar market capital and generated $70.7 billion last year. That’s far more than any other social media company. Its balance sheet holds more than $60 billion of cash. Mark Zuckerberg, its founder, is fifth in wealth. He also holds a stake in the company. A half dozen billionaires also draw their fortunes through Facebook.

FTC regulators tried to prove that Facebook was not only a huge company but also a monopoly, but they failed. As a result, a federal judge dismissed Monday’s antitrust case against Facebook. This was the government’s first serious effort to end Facebook’s dominance after years of political rhetoric and congressional testimony.

What happened? FTC based their case on one figure. They argued that Facebook controlled “in excess 60%” of the market in their December court filing. The FTC did not provide any additional details or explanations about how they arrived at this figure. It was all vague. It was also unclear what “personal social networking” is, which the government created to support its argument. This phrase allows the FTC, theoretically, to distinguish between Facebook, professional networks like LinkedIn, and messaging apps like Signal or Telegram. The government’s argument that Facebook hinders competition revolves around the notion of Facebook being placed in a different category. The lack of serious competitors would support this.

F.J. Boasberg (an Obama appointee) admitted that regulators had a harder task of stopping Facebook. Facebook sites are free to use. However, the precise boundaries of what constitutes a personal social network service (i.e., which features of a company’s website or mobile app are included and which are not) are not clear. The judge found that the government’s argument was lacking the necessary details. Boasberg wrote that the FTC’s inability to provide any indication as to which metric or method is used to calculate Facebook market share makes its vague assertion of ‘60%+’ too speculative to be able to proceed.

“Maybe they wanted their powder dry because it wasn’t clear how they would prove market power. They also wanted to see how defendants would respond. Doug Melamed, former head of Department of Justice’s antitrust section, says that this is a generous interpretation. “They were also too lazy; that’s another one. They didn’t realize how small and insubstantial such an allegation was or what 60% is.

This is a surprising setback for FTC in its highly-watched case against Facebook. Former commissioner Joseph J. Simons had reportedly regarded this case as a career highlight. Simons declined to comment on this story. Even if the FTC had provided better explanations for its 60% figure, it would still have been an unexpected cornerstone on which the government could build its case. Although there is no clear legal rule regarding antitrust, it is common for authorities to show that a defendant controls more than 70% of a market. For example, the antitrust case brought by the government against Microsoft was based on the assumption that Microsoft controlled 80% to 15% of the market.

For the moment, however, FTC has withdrawn its complaint. The FTC has 29 days to file a complaint against Facebook. The judge’s decision shows that Facebook lawsuits in court are more difficult than calling Zuckerberg back in Congress to get additional testimony and stocks.

William Kovacic, an ex-chair of the FTC, says, “My intuition is that the FTC can overcome this and get to stage two of litigation.” “But, the judge has said quite emphatically, ‘I will be watching you throughout the process. You won’t get anything easy in my courtroom. This isn’t an anti-government Republican appointee.

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Adam Collins
Adam writes about technology, business and economics. With master's degree in Economics, he's presented six papers in international conferences. As a solivagant in the constant state of fernweh, curiosity is the main weapon in his arsenal.

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