FTC fires back at Facebook, calling it an illegal ‘personal social networking’ monopoly

The Federal Trade Commission (FTC) on Wednesday fired back at Facebook’s (FB) bid to dismiss the regulator’s lawsuit seeking to break up the social media giant, as Big Tech continues to face scrutiny from the government.

“The court should deny Facebook’s motion,” the commission said in a document filed late Wednesday, arguing that “Facebook holds monopoly power over personal social networking (‘PSN’) services in the U.S., and is violating the antitrust laws by maintaining its monopoly through means other than competition on the merits.”

In March, Facebook argued in its motion to dismiss that the FTC’s lawsuit was legally defective because it failed to identify a relevant market in which the company purportedly holds a monopoly. According to Facebook, because its services are free of charge, no PSN market exists for the purpose of substantiating an antitrust claim.

Facebook also said the agency neglected to credibly allege that it had acquired monopoly power over a market, and failed to make reasonable allegations that the company had engaged in unlawful exclusionary conduct. Facebook said the FTC also had no authority to sue over actions it had already approved: Facebook’s acquisition of messaging service WhatsApp in 2014 for $19 billion, and its acquisition of photo-sharing site Instagram in 2012 for $1 billion.

The FTC’s lawsuit is seeking to force Facebook to break off WhatsApp and Instagram. The social media giant also faces a lawsuit from dozens of attorneys general claiming it’s violating antitrust law by buying up competitors and depriving consumers of alternatives that would better protect their privacy

‘Surprising’ if case resolved at early stage

The controversial stance over whether an antitrust case can go forward where neither product nor service prices are at issue is expected to frustrate the case against Facebook and Big Tech antitrust actions, including those pending against Google (GOOG, GOOGL).

“No court has ever held that such a free goods market exists for antitrust purposes, and the FTC does not allege that one exists here,” Facebook’s motion said.

Facebook CEO Mark Zuckerberg listens to a question about his company's policies on extremists and hate speech on the Facebook platform from Rep. Jamie Raskin (D-MD) as he testifies remotely via videoconference during a U.S. House Judiciary Subcommittee on Antitrust, Commercial and Administrative Law hearing on

Facebook CEO Mark Zuckerberg testifies remotely on Capitol Hill, in Washington, U.S., July 29, 2020. U.S. House Judiciary Committee via REUTERS

Still, experts say that it’s a long shot for Facebook to get the case dismissed at this stage.

“Overall…it would be surprising to see such a high-profile case resolved at this early motion to dismiss stage,” Temple University’s Beasley School of Law assistant professor Erika M. Douglas told Yahoo Finance in March. Douglas has performed work for Facebook in the past but has never been an employee of the company.

The FTC says relevant market does exist

Free or not, the FTC argues in its filing that courts have condemned monopolists for resorting to anticompetitive practices similar to the actions of Facebook, and that a relevant market does in fact exist because PSN services in the U.S. are not “reasonably interchangeable” with other services.

“Facebook’s dominant market position in PSN services is protected by formidable barriers to entry,” the FTC said, explaining that new entrants face challenges to displace an established PSN service in which users’ friends and family already participate, especially due to users’ switching costs — sacrificing the time and effort they invested to develop a history and connections on the service.

NYU School of Law professor Eleanor Fox told Yahoo Finance in March that she doesn’t expect the court at a preliminary stage to require the FTC to show that consumers paid higher prices or made less use of alternate social media platforms due to its acquisitions.

“I do not think they have to, and I do not think the court will take on the question at this point in the litigation, but this is where the legal controversy lies and where jurists may have different views, with more conservative judges putting higher burdens on the plaintiffs,” Fox said.

According to Douglas, the most interesting question, if the case proceeds, will be whether Facebook had any antitrust duty to deal, or provide access to Facebook’s platform, to rivals. According to the FTC, between 2011 and 2018, Facebook made its platform available to developers only on the condition that their apps neither competed with Facebook, nor promoted its competitors.

“Facebook punished apps that violated these conditions by terminating their access to the Find Friends API and other APIs,” the commission said. “Facebook’s terminations were directed against promising competitive threats, including PSN apps, apps with some social functionality, and mobile messaging services.”

Alexis Keenan is a legal reporter for Yahoo Finance and former litigation attorney. Follow Alexis Keenan on Twitter @alexiskweed.

Daniel Howley @DanielHowley also contributed to this report.