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

Facebook is giant. That’s not opinion, that’s fact: The company sports a trillion-dollar market cap and collected $70.7 billion in revenue last year, far more than its nearest competitor within social media. Meanwhile, over $60 billion in cash sits on its balance sheet. Its founder Mark Zuckerberg is the fifth-richest person in the world thanks to his stake in the business, and another half dozen or so billionaires draw their fortunes from Facebook too. 

But when FTC regulators set out to prove something similar—that Facebook is not only a giant but a giant monopoly—they swung and missed. And a federal judge on Monday dismissed their much-watched antitrust case against Facebook, seen as the government’s first real effort to curb Facebook’s dominance after several years of increasing political rhetoric against the company and rounds of Congressional testimony probing into Facebook.

What happened? The FTC hinged their case around one figure. In their original 53-page court filing made back in December, they estimated Facebook owned “in excess of 60%” of a market they defined as “personal social networking.” The FTC didn’t offer any further details about how it arrived at the 60% figure nor what it represented: Users, revenue—something else? It was all unclear. Likewise, what exactly constitutes “personal social networking,” a term the government coined for its argument. The phrase, theoretically, allows the FTC to draw a distinction between Facebook and professional networks, like LinkedIn, and messaging apps, like Telegram or Signal. Putting Facebook into a separate bucket where there aren’t many other competitors would—again, theoretically—bolster the government’s case, which revolves around the idea that Facebook hampers competition. The lack of many serious rivals would seem like strong proof of that.

In attempting to combat Facebook, Federal Judge James E. Boasberg, an Obama appointee, admitted regulators faced a tougher task than if they were pursuing a more traditional business. Sites like Facebook “are free to use, and the exact metes and bounds of what even constitutes a [personal social network] service — i.e., which features of a company’s mobile app or website are included in that definition and which are excluded — are hardly crystal clear,” Boasberg writes. But the government’s argument lacked necessary detail, the judge concluded. “The FTC’s inability to offer any indication of the metric(s) or method(s) it used to calculate Facebook’s market share renders its vague ‘60%-plus’ assertion too speculative and conclusory to go forward,” Boasberg writes.  

“Maybe they wanted to keep their powder dry because they weren’t quite certain how they were going to go about proving market power and wanted to get a look at how the defendants would respond. That’s the generous interpretation,” says Doug Melamed, the former head of the Department of Justice’s antitrust division. “Another one, of course, is that they were too sloppy. And they never thought about how insubstantial and really inadequate allegation like that is without saying what the 60% is about.”

The dismissal is a surprise setback for the FTC in its much-watched case against Facebook, which former commissioner Joseph J. Simons reportedly had viewed as a career highlight. (Simons declined to comment for this story.) But even if the FTC had better explained its 60% figure, it still would’ve been a surprise cornerstone for the government to build its case on. While there’s no firm legal rule, but generally antitrust cases proceed when authorities can show a defendant control more like 70% and above of a market. During the government’s antitrust case against Microsoft, for instance, regulators had estimated Microsoft dominated 80% to 85% of the market. 

The FTC has struck out only for the time being. Regulators have 29 days to refile the complaint against Facebook. But the judge’s decision is a clear indication that pursuing action against Facebook in court will be harder—more difficult than calling Zuckerberg back to Congress for another day in the stocks and additional testimony.

“My intuition is, the FTC can survive this and get to the next stage of litigation,” says William Kovacic, a former FTC chairman. “But the judge has, fairly emphatically, said, ‘I’m going to be watching you all the way. And believe me, nothing you get in my courtroom is gonna come easy.’ And this isn’t a government-hating, Republican appointee.”

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