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Antitrust

FTC and Almost All States Launch Antitrust Suit Against Facebook, Seek Divestment of Instagram and WhatsApp

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Screenshot of New York Attorney General Letitia James on Wednesday

December 9, 2020 — Facebook has used illegal monopoly power and an “unlawful scheme” to stifle competition, degrade personal privacy, and crush rivals, according to two separate antitrust lawsuits filed Wednesday by 46 state attorneys general and the Federal Trade Commission.

In particular, the FTC is seeking a permanent injunction in federal court that could, among other things, require the company to divest assets, including Instagram and WhatsApp, effectively breaking up Facebook as we know it.

It is “critically important that we have the power and jurisdiction including and not limited to divestiture,” said New York Attorney General Letitia James at a press conference announcing the action on Wednesday.

“The two most glaring examples of Facebook’s unlawful scheme are Instagram and WhatsApp,” said James. “For nearly a decade, Facebook has used its dominance and monopoly power to crush smaller rivals and snuff out competition, all at the expense of everyday users.”

The states’ lawsuit against Facebook involves the District of Columbia and every U.S. state except Alabama, Georgia, South Carolina and South Dakota. Alabama has not supported the multistate coalitions focused on antitrust concerns against other tech giants, including search engine company Google. Both Georgia and South Carolina signed on the Justice Department’s separate lawsuit against Google.

Almost every state in this nation has joined this bipartisan lawsuit because Facebook’s efforts to dominate the market were as illegal as they were harmful, James said: “Today’s suit should send a clear message to Facebook and every other company that any efforts to stifle competition, reduce innovation, or cut privacy protections will be met with the full force of our offices.”

Although it is quite rare for a court to actually unwind an acquisition, particularly one that occurred this long ago, James said she is confident she will succeed.  “Look at previous actions that have been taken by the Department of Justice, and our office as well, with respect to Microsoft and AT&T,” said James.

Alleging a systematic strategy to eliminate competition

The FTC said Facebook engaged in a systematic strategy to eliminate its competition, by purchasing smaller up-and-coming rivals, Instagram in 2012 and WhatsApp in 2014. In an effort to maintain its market dominance in social networking, Facebook employs a variety of methods to impede competing services.

“Facebook has employed a buy or bury strategy to impede competing services,” said James. The two most utilized strategies have been to acquire smaller, potential rivals before they could threaten Facebook’s dominance and to suffocate third-party developers that Facebook invited to utilize its platform.

James said these strategies allow Facebook to maintain its monopoly over the social networking market and make billions from advertising.

Since 2004, Facebook has operated as a personal social networking service that facilitates sharing content online without charging users a monetary fee, instead, providing these services in exchange for a user’s time, attention, and personal data.

Facebook then monetizes its business by selling advertising to firms that attach immense value to the user engagement and highly targeted advertising that Facebook can deliver due to the vast trove of data it collects on users, their friends, and their interests.

Some pro-technology groups and organizations were critical of the lawsuit.

“The FTC’s lawsuit reads like a work of creative alternative history. The FTC assumes that these companies would have grown into giants if left alone, but in reality, it has no idea what would have happened,” said Asheesh Agarwal, Deputy General Counsel of TechFreedom.

“By filing this lawsuit, the FTC will discourage companies from investing in start-ups and thereby hinder innovation. Rather than punishing companies for their size and success, antitrust law should focus on actual harm to consumers.”

“CCIA strongly supports antitrust enforcement when consumers are harmed. However, the remedy needs to be tailored to the evidence, and not based on an artificially narrow definition of the market,” said Computer and Communications Industry Association President Matt Schruers. “Unwinding Facebook’s acquisitions of Instagram in 2012 and WhatsApp in 2014 is a drastic remedy that would not only harm consumers but also will have a chilling effect on innovation and the U.S. innovation ecosystem. We look forward to learning more about the facts and regulators’ evidence.”

But others were supportive of the lawsuits.

“These lawsuits mark a huge step towards reining in the power of dominant digital platforms,” said Charlotte Slaiman, director of competition policy at Public Knowledge. “For too long, our country and our world have been unwilling participants in Facebook’s ‘move fast and break things’ experiment. Without competition, users, news organizations, rival apps, and others have been locked into the Facebook network.”

Antitrust

FTC Commissioner Concerned About Antitrust Impact on Already Rising Consumer Prices

Noah Phillips said Tuesday he wants the commission to think about the impact of antitrust rules on rising prices.

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Screenshot of Federal Trade Commissioner Noah Phillips

WASHINGTON, May 17, 2022 – Rising inflation should be a primary concern for the Federal Trade Commission when considering antitrust regulations on Big Tech, said Commissioner Noah Phillips Tuesday.

When considering laws, “the important thing is what impact it has on the consumer,” said Phillips. “We need to continue to guard like a hawk against conduct and against laws that have the effect of raising prices for consumers.”

Current record highs in the inflation rate, which means money is becoming less valuable as products become more expensive, has meant Washington must become sensitive to further price increases that could come out of such antitrust legislation, the commissioner said.

Phillips did not comment on how such movies would mean higher prices, but that signals, such as theHouse Judiciary Committee’s antitrust report two years ago, that reign in Big Tech companies and bring back enforcement of laws could mean higher prices. He raised concerns that recent policies are prohibiting competition rather than facilitating it.

This follows recent concerns that the American Innovation and Choice Online Act, currently awaiting Senate floor consideration, will inhibit America’s global competitiveness by weakening major American companies, thus impairing the American economy. That legislation would prohibit platform owners from giving preference to their products against third-party products.

This act is one of many currently under consideration at Congress, including Ending Platform Monopolies Act and Platform Competition and Opportunity Act.

Small businesses have worried that by enacting some legislation targeting Big Tech, they would be impacted because they rely on such platforms for success.

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Antitrust

Critics and Supporters Trade Views on American Innovation and Choice Online Act

American Innovation and Choice Online Act is intended to protect fair competition among businesses, but panelists differed on its impact.

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Photo of Amy Klobuchar from August 2019 by Gage Skidmore used with permission

WASHINGTON, May 10, 2022 – Experts differed on the effect that antitrust legislation targeting big tech companies allegedly engaging in discriminatory behavior would have on small businesses.

Small businesses “want Congress not to do anything that will screw up or weaken the services that they rely on for their business,” said Michael Petricone, senior vice present of the Consumer Technology Association, at a Protocol Live event on Thursday.

Petricone said that antitrust bill would encourage tech companies to relocate to other countries, harming the American economy. He said small businesses would be affected the most.

Instead, Petricone called for  a “smarter immigration policy” to allow foreign innovators access to American tech market, as well as the defeat of the antitrust legislation.

But other said that small businesses suffer from predatory behavior by big tech companies. “Companies can’t get their foot in the door when there is already self-preferencing,” said Awesta Sarkash, representative for Small Business Majority, an advocacy organization, adding that 80% of small businesses say they want antitrust laws to protect them.

Self-preferencing on online platforms is detrimental to the success of small businesses who rely on social media advertising for business, she said. The new antitrust proposals would ensure an level playing field and promote fair competition, she said.

The American Innovation and Choice Online Act would prohibit certain online platforms from unfairly preferencing products, limiting another business’ ability to operate on a platform, or discriminating against competing products and services.

The bill sponsored by Sen. Amy Klobuchar, D-Minn, was introduced to the Senate on May 2 and is awaiting Senate floor consideration.

The debate follows concerns raised by both democrats and republicans about America’s global competitiveness as the bill would weaken major American companies.

If passed, the bill will follow the European Union’s Digital Services Act which similarly sets accountability standards for online platforms, preventing potentially harmful content and behavior.

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Antitrust

Watchdogs Cannot Allow Another T-Mobile/Sprint Merger Under New Consolidation Guidelines, Event Hears

A Yale economics professor called on the FTC and DoJ to make it easier for them to pursue harmful mergers.

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Screenshot of Yale economics professor Fiona Scott Morton

WASHINGTON, May 10, 2022 – A professor of economics said at an Information Technology and Innovation Foundation event late last month that the Justice Department and the Federal Trade Commission, during its recently announced review of mergers, should ‘plug those holes’ that previously allowed T-Mobile to acquire Sprint.

“I would say that one thing that we have accumulated a great deal of evidence on is that we are missing problematic mergers – that we are not [stopping] mergers that turn out to be harmful,” said Fiona Scott Morton, the Theodore Nierenberg Professor of Economics at Yale University School of Management, at the April 28 event, referring to the FTC’s failure to stop the Sprint/T Mobile merger and accused it of not appropriately protecting consumers.

“We are under enforcing as a general matter and we should therefore use this review of the merger guidelines to plug those holes,” she said, adding, “Are we catching nascent competitors that are going to prove to be important competitors in the future? It turns out we are not doing that,” she said.

She also responded to critics asserting that the FTC simply needs more money to effectively enforce their guidelines.

“Here is where I am going to play fiscal conservative,” she said. “How about we change the rules to make it easier for the government to bring these cases and then we do not need to spend $2 billion more, we could spend half a billion dollars more because there would be a significant deterrent effect and the government would have less work to do.”

Merger guidelines will give industry more certainty

In January, the FTC under Chair Lina Khan and the Justice Department’s antitrust division launched a public inquiry into modernizing merger guidelines established under previous leadership, on which Khan said was an attempt to “accurately reflect modern market realities and equip us to forcefully enforce the law against unlawful deals.” Public comments were due on April 21.

Howard Shelanski, a partner at law firm Davis Polk, said at the ITIF event that FTC guidelines serve several purposes.

“One thing is certainly, just to let parties considering mergers to have an idea of what kind of scrutiny they are in for at the agencies,” he said.

He explained that the guidelines serve to inform stakeholders at which levels of industry concentration presumptions of harm will be triggered and what theories of harm the FTC will pursue.

“I think [guidelines] also let parties know how agencies will consider different kinds of defenses that [will] likely be raised,” Shelanski added. “So, the guidelines certainly serve a public purpose, but they also signal to courts about what lies behind the [FTC’s] thinking when it chooses to investigate and ultimately challenge a merger.”

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