HL 143 – Why the District Court Dissed the States’ and Feds’ Facebook Cases

July 13, 2021

Home | Blog | HL 143 – Why the District Court Dissed the States’ and Feds’ Facebook Cases

United States District Judge James Boasberg covered 120 pages explaining why he completely threw out an antitrust case by 46 states against Facebook and capsized the Federal Trade Commission’s companion case, while tossing it a flimsy life jacket.  But on page one of each dismissal Boasberg prominently referenced the governments’ blockbuster antitrust cases against Microsoft two decades earlier in the same courthouse.  Those first paragraph allusions to Microsoft made it clear “crystal” that he was going to throw both cases out and play heads and tails you lose with precedent and doctrine for the remaining 119 pages.  And that’s what he did.

Judge James Boasberg

That states’ and FTC’s virtually identical cases charged Facebook with unlawfully maintaining a monopoly of “Personal Social Networking Services” a so-called “PSN” market, and doing that in two ways.  First, Facebook was charged with granting or denying access to the social network in a manner that damaged and destroyed Facebook’s PSN competitors and prevented apps from themselves developing into competitors.  The states and feds also alleged that Facebook’s 2012 purchase of Instagram and 2014 acquisition of WhatsApp prevented those services from becoming effective competitors in the PSN market.  Hello!

On the claims that Facebook denied access to apps if they linked or pointed to Facebook’s competitors or threatened to compete themselves, Judge Boasberg said so what.  He cited precedent holding that even a monopoly has no duty to do business with anyone, including potential competitors.  His back of the hand to many asserted and actual exceptions to this general “no duty to deal” rule read and felt like judicial Three-card Monte.

On the Instagram and WhatsApp acquisitions Boasberg, with thinly veiled sarcasm, in effect wondered where were you trustbusters in 2012 and 2014?  These were big acquisitions reported to the FTC well before the deals closed, in Hart-Scott-Rodino pre-merger antitrust filings.  With competitive warning lights and sirens flashing and blaring, the FTC voted 5-0 to allow the billion-dollar Instagram deal to close and did nothing as the $19 billion WhatsApp purchase was consummated.  And while that was happening the states, whose own antitrust merger guidelines clearly called for challenges to both mergers, did nothing.[1]  Not a single state mounted a formal investigation let alone a lawsuit.

Bill Gates & Mark Zuckerberg

Judge Boasberg told the states too late invoking in legalese something called laches.  And to the feds, who as successors to the King, laches do not apply, Boasberg nevertheless berated them, dismissed their complaint and lectured how they might try again using a different antitrust theory.  These spankings and lectures filled the aforementioned 119 pages, but as noted, it really was all over in pages and paragraphs 1.

The judge simply didn’t believe that Personal Social Network Services is a real and durable product market nor one from which Facebook can leverage power to harm competition in other markets.  That is why Boasberg preemptively and dismissively opened his opinions with reference to the early millennium Microsoft cases, with their unrealized predictions of durable dominance in Microsoft’s homeship of personal computer operating systems and of competitive harm in many other markets through Microsoft’s predicted ability to leverage its dominance.

The Microsoft lawsuits and predictions were accompanied with demands to break it up.  Sound familiar?  It should to HL readers and particularly consumers of HL 78, 89 and 141 posted on 6/23/2021, five days before the Boasberg blowouts.  And the routed government plaintiffs, are they understanding what just happened and why?  We shall see.  But if the states most recent filings are any indication – 36 states this time against Google – the early answer seems to be “not really.”

Paul Simon

And as we’ve noted the Biden administration’s antitrust point person, FTC Chair, Lina Khan, seems focused on the four big platforms, Facebook, Google, Amazon and Apple and on amending antitrust law to go after them.  Timely enforcement of the existing Clayton Act Section 7, by the feds or states relative to Facebook’s acquisitions of Instagram and WhatsApp might have eliminated the need for the two recently dismissed cases.  Khan has never litigated a Section 7 action nor for that matter, any other antitrust case.

Next up during and about this predicted renaissance of American Antitrust will be HL 144 “There Must be 72 Ways to Foster Competition.”

[1]   The Horizontal Merger Guidelines adopted by every one of the 50 states and D.C. that sued Facebook state in Section 4: “MERGERS INVOLVING THE LEADING OR A NEW INNOVATIVE FIRM IN A MARKET.”  The merger of a dominant firm with a smaller firm in the market may create or increase the market power of the dominant firm. . . Similarly, the merger of a new, innovative firm with an existing significant competitor in the market may substantially reduce competition. . .  Therefore, an action to challenge a merger will also be likely if the proposed merger involves either a leading firm with a market share of at least 35 percent and a firm with a market share of one percent or more, or a firm with a market share of 20 percent or more and a new innovative firm in a market with moderate to high concentration or very high concentration.”

The Instagram and WhatsApp purchases by dominant Facebook check all those State Merger Guidelines boxes – we know cause we wrote them.

1 Comment

  1. Ethan Litwin

    The other “heads I win; tails you lose” situation occurs during the HSR process. As prior agency officials (now antitrust defense attorneys) have opined, the FTC and DOJ should not interfere in dynamic markets ex ante. At best, this view merely reflects the practical difficulties involved in winning a Section 7 case under the best of circumstances, let alone in fast developing nascent markets (such as the social network markets back in 2010). Indeed, at the time, the popular view was, in short, “look what happened to MySpace”, i.e., the idea that competition is for the monopoly position and the minute the monopolist gets lazy, boom, it is replaced.

    In any event, this decision lays bare the folly of not enforcing the antitrust laws ex ante. By the time you have enough evidence to show, ex post, that the monopolist will not be displaced, you run into arguments that you have waited too long to bring the case.

    The FTC should appeal this ruling. Facebook’s acquisitions are continuing violations that are neither barred by the statute of limitations nor any other equitable doctrine. And if it is upheld, that decision should be front and center in each and every Section 7 case filed in the future, since the agencies no longer have the luxury of waiting to see how things play out.


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