‘Second Time Lucky?’ District Court Greenlights FTC’s Case Against Facebook at Dismissal Phase

The Federal Trade Commission (FTC)’s lawsuit against social media giant Facebook will proceed, according to an opinion released on Wednesday. The opinion opened with the above quote and concluded that the agency addressed issues raised in Judge James E. Boasberg’s June dismissal order. The court said that though the FTC has met its burden at this stage, whether it can prove its claims going forward remains to be seen.

The FTC’s suit was filed in December 2020, and accused Facebook of monopolizing the personal social networking (PSN) services market. The agency asked the court to unwind acquisitions the FTC previously approved, including the purchases of WhatsApp and Instagram. The agency’s first bite at the apple fell flat and Facebook prevailed in its bid to dismiss. Judge Boasberg found that though the FTC alleged a relevant market, it failed to show that Facebook had monopoly power in the PSN market, among other things.

This week’s opinion said that the agency’s amended complaint made significant additions and revisions while maintaining its central antitrust theory. “Facebook nonetheless moves to dismiss once again, contending that the FTC’s latest effort is akin to rearranging the deck chairs on the Titanic,” Judge Boasberg opined.

The order identified three major ways in which the complaint had changed, edging it over the line from possible to plausible.

First, the FTC put forward facts sufficient to establish that Facebook exercises monopoly power in the market for PSN services, the court said, deeming the issue “what has thus far been the FTC’s Achilles’ heel.” Judge Boasberg found it significant that the FTC added statistics about the social media platform’s daily and monthly average user counts, as well as its share of users’ average time spent on PSN services.

Judge Boasberg determined that the metrics were common sense, industry-verified indicators of market share. Accepting the allegations as true, the court wrote that “Facebook’s market share comfortably exceeds the levels that courts ordinarily find sufficient to establish monopoly power.”

The opinion also concluded that the FTC’s allegations that Facebook erected and maintained barriers to entry were plausible at the dismissal stage. The twin combination of direct network effects and high switching costs were sufficient to show that the company used them to protect its dominant market share, the court said.

Importantly, the court also found that the FTC pleaded that Facebook not only possesses monopoly power, but that it willfully maintained that power through anticompetitive conduct, in particular through the acquisitions of Instagram and WhatsApp. The opinion pointed to quotes from Facebook executives, such as an internal email from CEO Mark Zuckerberg in 2008 stating that “it is better to buy than compete,” to accept the theory that Facebook acquired Instagram and WhatsApp to neutralize actual and probable future competitors. 

However, Judge Boasberg declined to accept the FTC’s allegations regarding Facebook’s so-called interoperability policies that prevented Facebook’s interoperability with other apps that the company viewed as threats. “[T]hey founder for the same fundamental reasons as explained before: Facebook abandoned the policies in 2018, and its last alleged enforcement was even further in the past,” the opinion said.

Finally, the court disposed of Facebook’s contention that FTC Chair Lina Khan’s publicly stated views of Facebook’s antitrust liability required her recusal from the vote authorizing the amended complaint. “The Court believes that such contention misses its target, as Khan was acting in a prosecutorial capacity, as opposed to in a judicial role, in connection with the vote,” Judge Boasberg wrote.

The FTC is represented by its own counsel and Facebook by Kellogg, Hansen, Todd, Figel & Frederick P.L.L.C.