Three things the press keeps getting wrong about the Facebook antitrust case
This stuff is complicated which is why it is important to get it right.
BY TIM WU & SCOTT HEMPHILL
Law is complex and antitrust law is even more so. Nonetheless, the business and the tech press keeps making the following repeated errors in their coverage of the Facebook antitrust case:
1. Reporting that the Instagram and WhatsApp mergers were approved in 2012/2014 and discussing such “approvals” as if they are legally binding precedent
In 2012 and 2014, the FTC declined to take action against the acquisitions of Instagram and WhatsApp. As a legal matter — which matters, since we are speaking of a legal action — declining to take action has no binding effect on future enforcement actions. That is a well established principle not just in antitrust, but any area of law enforcement. Indeed, we applaud criminal prosecutors when they revisit cold cases with new evidence.
This is an important rule, because non-action might become action in the face of new evidence, and indeed that is what the FTC has in this case. In 2012, the durability of Facebook’s monopoly was unclear, and it was widely thought that Google+ would emerge as a major competitor to Facebook. But here in 2020 we know that the monopoly was durable, and that Google+ was not significant. Beyond that, more emails have come out, more third party testimony, and more evidence of a general, serial campaign to eliminate competitive threats, large and small. And the anticompetitive effects — less privacy, more ads, and so on — are now matters of fact rather than prediction.
It might be said that the FTC ought feel bound by its earlier non-action as a matter of institutional integrity, or something like that. Even if that were true, that’s very different than suggesting that the FTC’s non-action somehow serves as precedent, or even a reversal of “a decision to approve.”
And finally, even if the FTC should feel bound, nothing it did can be binding on the states, which are a separate authority unto themselves.
2. Reporting that the Government has a duty to prove that Instagram or WhatsApp, absent the merger, would have become a significant competitor
Too many journalists have been falling for this assertion — and reporting it as the established legal standard — when it actually is a controversial theory and misreading of precedent that comes out of a paper funded by Facebook and published in a corporate-funded journal. (The New York Times is guilty of repeating this today.)
The theory is, roughly, that the Government needs to prove the hypothetical case that Instagram (say) would have prospered and become a significant competitor without Facebook’s acquisition, so that Facebook effectively eliminated a real competitor.
But Microsoft, the authoritative case in this area, says nearly the opposite — it says that the Government does not need to prove a hypothetical:
To require that § 2 liability turn on a plaintiff’s ability or inability to reconstruct the hypothetical marketplace absent a defendant’s anticompetitive conduct would only encourage monopolists to take more and earlier anticompetitive action. . . .
[T]he underlying proof problem is . . . [that] neither plaintiffs nor the court can confidently reconstruct a product’s hypothetical technological development in a world absent the defendant’s exclusionary conduct. To some degree, “the defendant is made to suffer the uncertain consequences of its own undesirable conduct.” 3 Areeda & Hovenkamp, Antitrust Law p 651c, at 78.
The court went out of its way to reject a “would have prospered” test, because it set too high a bar. The actual inquiry into what would have happened, the court said, was “edentulous” — toothless. Here is what the case says is the standard:
Given this rather edentulous test for causation, the question in this case is not whether Java or Navigator would actually have developed into viable platform substitutes, but (1) whether as a general matter the exclusion of nascent threats is the type of conduct that is reasonably capable of contributing significantly to a defendant’s continued monopoly power and (2) whether Java and Navigator reasonably constituted nascent threats at the time Microsoft engaged in the anticompetitive conduct at issue.
Much more on this in a paper we co-authored.
3. “No deal is safe”
Too many reporters have repeated the assertion that no deal is safe if the government challenges these deals. But that’s a little like saying that arresting a bank robber means no one who withdraws money is safe any longer.
There are enormous differences between the Instagram and WhatsApp acquisitions and the thousands of other deals in tech or elsewhere. These were acquisitions that were:
(1) by a monopolist;
(2) of its direct competitors or nascent competitors;
(3) with abundant evidence of anticompetitive intent.
That’s not, at the risk of stating the obvious, every deal.
Scott Hemphill is a professor of Law at NYU School of Law, where he teaches antitrust.
Tim Wu is a professor at Columbia law school, and also teaches antitrust.