U.S. District Court For The District Of Columbia Allows FTC’s Second Attempt At Monopolization Claims Against Facebook To Go Forward
01/19/2022On January 11, 2022, Judge James E. Boasberg of the U.S. District Court for the District of Columbia denied Facebook, Inc.’s motion to dismiss the Federal Trade Commission (“FTC”) amended complaint alleging that Facebook Inc. monopolized the alleged market for personal social networking (“PSN”) services in violation of Section 2 of the Sherman Act, finding that, in contrast to its original complaint, the FTC’s amended complaint adequately alleged facts to support its proposed market definition and that defendant possessed monopoly power in that market.
In June 2021, the Court dismissed the FTC’s original complaint against Facebook for failure to plausibly allege that defendant possessed monopoly power in the FTC’s defined market for personal networking services. The FTC responded by filing an amended complaint with the same definitions of PSN services market, that is, “online services that enable and are used by people to maintain personal relationships and share experiences with friends, family, and other personal connections in a shared social space,” but with considerably more factual detail supporting its contention of monopoly power, including alleging specific market shares and barriers to entry. These additional factual allegations, the Court found, were sufficient to establish monopoly power at the pleading stage. Specifically, the amended complaint detailed a number of quantitative metrics relevant to market share, including Facebook’s share of daily and monthly users, as well as share data based on users’ average time spent on PSN services, metrics that Facebook itself uses to analyze its own performance. Under all three metrics, defendant possessed 65% or more of the alleged PSN market. The Court rejected defendant’s argument that these metrics were unreliable and inadequate as premature at the motion to dismiss stage. The Court also found that the FTC had adequately pled barriers to entry, most notably in the form of network effects, because the value to users of a social networking platform increases as more users adopt the platform. Taken together, these allegations were sufficient to establish the element of durable monopoly power at the pleading stage.
The Court then turned to the element of anticompetitive conduct. The FTC’s amended complaint alleged two categories of anticompetitive conduct: (1) acquiring potential competitors, such as Instagram and WhatsApp, and (2) implementing policies that prevented the interoperability between Facebook and applications that defendant allegedly viewed as potential “threats” to its alleged monopoly position. With regard to the acquisitions, the Court found that the FTC had plausibly alleged, including by citing a number of internal emails from company executives, that defendant made the challenged acquisitions “in order to neutralize actual and likely future competitors,” and that the acquisitions harmed the competitive process and consumers, by reducing competition in innovation, service quality, privacy and data protection, and reducing consumer choices, including with regard to advertising preferences. In upholding the claims based on the acquisitions, the Court rejected Facebook’s argument that the FTC’s claim must fail because the FTC concluded its Hart-Scott-Rodino Act (HSR) investigations of the Instagram and WhatsApp acquisitions without taking any action, citing the Act’s express reservation of the right to bring post-HSR review challenges.
The Court then addressed the FTC’s allegations as to defendant’s allegedly anticompetitive interoperability policies and related contracts. As the Court held in dismissing this claim in the FTC’s original complaint, relief under section 13(b) of the FTC Act is available only when an “actual Section 2 violation is ongoing or about to occur.” But defendant had abandoned the challenged interoperability policies in 2018 and had not enforced them since 2013. Thus, the Court concluded that the “temporal gap” between this alleged anticompetitive conduct and the filing of the lawsuit was “fatal” to this claim. The Court did not, however, dismiss the count containing these allegations because this count also included allegations relating to the acquisitions and it would improper to dismiss just part of a claim.
Finally, the Court rejected defendant’s claim that the FTC vote authorizing the amended complaint was invalid due to new FTC Chair Lina Khan’s potential conflict of interest based on her work investigating defendant as counsel for the House of Representatives Judiciary Committee’s Subcommittee on Antitrust, Commercial, and Administrative Law and her many pre-appointment public statements concerning defendant’s alleged monopoly power. The Court found that there was no problematic conflict in the present action because defendant could not demonstrate that the Chair was motivated by personal animus or financial self-interest, and that her role in voting to authorize the amended complaint was analogous to a prosecutorial function, as opposed to a judicial function in which she would be adjudicating the merits.
In addition to the important substantive discussion of the underlying issues, the opinion is notable in that the Court took pains at several points in the opinion to emphasize that the issue of whether the FTC could prove its allegations was an open one, stating for example that the FTC may have a “tall task down the road in in proving its allegations” and that whether the FTC will be able to prove its case is “anyone’s guess.” It may be that with the current public interest in antitrust issues relating to certain technology firms, the Court wished to make clear to lay readers not familiar with the standards for a motion to dismiss that the resolution of these claims is still very much in the future.