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Behind Washington’s 180 on Facebook: A rethink of monopoly power

Almost a decade ago, the Federal Trade Commission raised no objections as Facebook spent billions of dollars to swoop up the trendy photo-sharing app Instagram and the messaging service WhatsApp.
Now the same agency is demanding that Facebook sell both off companies, calling the earlier deals a prime example of the social network’s “buy or bury” strategy for crushing competition.

What happened in between is a shift in attitudes by antitrust regulators on what constitutes a dangerous monopoly — a development that poses risks not just to Facebook but to other dominant companies across industries including tech, pharmaceuticals and finance.

This week’s antitrust suits against Facebook by the FTC and dozens of state attorneys general came a month after the Justice Department went to court to block Visa from buying a financial data startup called Plaid — on the grounds that, much like Facebook, the credit card giant is trying to neutralize a rising competitor by buying it. The FTC has also challenged two other recent proposed deals, one involving pharmaceuticals and the other DNA-sequencing technology, that it alleged were intended to cut off competition that didn’t yet exist.

That “legal revolution,” as one antitrust expert called it, has yet to be tested in court. But people following the issue say the Facebook suits could pave the way for more of these kinds of challenges.

“The legal and political environment around antitrust in Big Tech is super different now” from 2012, said John Newman, who spent three years as an antitrust prosecutor at the Justice Department. Back then, “people were out there making the claim that when a market is free there can’t be harm to consumers and antitrust doesn’t apply.”

“It’s just a complete 180,” said Newman, now an antitrust professor at the University of Miami School of Law.


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First though, the FTC and states will have to convince a federal judge that Instagram and WhatsApp would have been as successful as they are today even if Facebook had never bought them, said Kristen Limarzi, who spent 11 years as a DOJ antitrust lawyer. Facebook is already disputing that argument.

“The FTC’s case has to be built on more than just regret,” said Limarzi, who joined the law firm Gibson Dunn last year. “The merger has to be evaluated based on the facts in 2012 when it happened.”
Even some lawmakers who support the FTC’s Facebook suit expressed bemusement about the agency’s 180-degree shift in its thinking toward the WhatsApp and Instagram deals.

“I am glad to see that our antitrust enforcers are finally taking the threats posed by Big Tech seriously,” Sen. Mike Lee (R-Utah) said in a statement Wednesday about what he called the FTC’s “belated” lawsuit. He added, “At the same time, the FTC previously cleared both the Instagram and WhatsApp acquisitions, and I hesitate to congratulate it now for trying to clean up its own mess.”
The commission has shown signs earlier this year that it is taking a new look at tech industry transactions that it had originally deemed too small to warrant its scrutiny. In February, the FTC announced that it had issued investigative subpoenas to Facebook, Amazon, Apple, Microsoft and Google’s parent Alphabet, demanding information on 10 years’ worth of mergers, as part of a study into acquisitions of startups.
It’s still unclear how much President-elect Joe Biden’s administration will embrace the changing zeitgeist. The FTC’s two Democrats, Commissioners Rohit Chopra and Rebecca Kelly Slaughter, both voted for the Facebook suit this week along with the agency’s Republican chair, Joseph Simons, while the other two Republican commissioners voted against it. Simons is expected to step down in the next month, leaving the FTC with a 2-2 partisan split.

 

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