The Facebook antitrust investigation explained

When both the Republican and Democrat parties agree that you've gone too far, then you have, in fact, gone too far. That's the case with Facebook. The social media giant has had a volatile 2020, and now it faces not one but two lawsuits.  

Authorities have accused Facebook of breaking antitrust laws and monopolizing social networks. The possible consequences of these lawsuits are enormous, as they might change social media for good.  

But Facebook is confident that they have done no wrong. Are they? In this Forensics episode, we'll explain where both sides stand and what could happen in the future.  

How did we get to this? 

You might already know how Facebook came to be and, if you haven't, I recommend you check out our video on it. This video also explains some of the past controversies surrounding Zuckerberg and his company. 

Because, in short, by 2012, Facebook dominated the world of social media. It had a billion users, and half of them logged into the network daily. 

Around this time, Facebook made the first of two major business moves. In 2012, it purchased Instagram for $1BN. From the outside looking in, it was a move that made sense because Instagram was booming and, now, Facebook could expand its portfolio.  

Then, in 2014, it purchased WhatsApp for $19BN. The amount alone was enough to shock many, and with good reason. With these acquisitions, Facebook now had the four most downloaded apps of the decade.  

Zuckerberg now had a disruptor in Instagram, efficient messaging service in WhatsApp, its own Facebook Messenger, and Facebook, the world's biggest social network. By the way, those apps had a billion users each. And people were concerned. 

Simply put, Facebook was too powerful. Almost immediately, the mergers raised red flags all over the world. In the UK, the Competitions and Markets Authority warned that the UK had to implement stricter rules on giants like Facebook and Google. 

And, in the US, the story wasn't different. The Federal Trade Commission, or FTC, insisted that Facebook and other giants, like Google, had too much power. So, they went to work on investigating the companies. 

For 18 months, the FTC dug deep into Facebook's operations. And, then, they attacked.  

The lawsuits begin 

On December 9th, 2020, both the FTC and several states sued Facebook. The reason was simple: it was too powerful. But there's much more than that.  

The FTC firmly believes that Facebook has illegally maintained its monopoly through anticompetitive behavior. For the FTC, buying Instagram and WhatsApp was just part of the problem. Facebook also cornered developers with restrictive conditions.  

Many developers worked with Facebook to connect their apps with its billions of subscribers, but at a cost. Developers couldn't create software that competed with Facebook, nor could their programs connect with other social networks.  

All of these actions, according to the FTC, gave Facebook unprecedented profit. In 2019 alone, the company had more than $70 billion in revenue and earnings of $18,5 billion. That's right: billion. 

Now, why are there two lawsuits and not one? Well, they're basically twin lawsuits, from the FTC and from state authorities. Besides the FTC and the District of Columbia, 46 states and territories, including, out of all places, Guam, are involved. 

But, up until this point, we've heard a lot from the authorities. What does Facebook have to say in all of this? Well, their reply has gone down two main paths. 

First, Facebook says the FTC approved these acquisitions back in the day, which is true. So, Facebook claims, why change their minds now? It's a good point. 

Their second argument is that people choose to use Facebook; they're not forced to. Jennifer Newstead, Facebook's VP, sent out a statement that read: "People and small businesses don't choose to use Facebook's free services and advertising because they have to, they use them because our apps and services deliver the most value. We are going to vigorously defend people's ability to continue making that choice."

She insists that, if this lawsuit goes forth, the Government is sending a chilling warning that no sale is ever final. 

Again, true? Well, not quite. And here's where things get complicated. 

The back and forth and compromising evidence

First of all, let's dissect Facebook's appeal that the FTC approved the Instagram and WhatsApp deals. Yes, they did. But there's a caveat.  

"There's nothing in US merger law that says an agency's decision not to challenge a proposed deal immunizes that deal from future reviews," William Kovacic told CNN. And, he knows his stuff. He was a former chairman of the FTC. 

So, it seems that the FTC has the upper hand there. Then, there's Facebook's attitude altogether. 

For many, Facebook is just too powerful. Its buy or bury attitude is overwhelming. According to BBC, Letitia James, New York's Attorney General, has said that: 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.

Adding fuel to the fire, the FTC has produced several emails coming from Zuckerberg himself and other members in leadership positions that show evidence of the company's relentless pursuit to eliminate all competition. 

But, there's more to them than that. Zuckerberg knew they were lagging, especially against Instagram. According to Business Insider, the CEO recognized that Facebook would be left behind if they didn't stop Instagram. 

In one email, Zuckerberg told his CFO that buying Instagram gave Facebook time to react.  

"Within that time, if we incorporate the social mechanics they (Instagram) were using, those new products won't get much traction since we'll already have their mechanics deployed at scale."

It didn't end with Instagram. The emails show that Zuckerberg knew what the next significant threat was: WhatsApp. Now, WhatsApp isn't precisely in the emails, obviously. Instead, the controversial CEO recognized that messaging apps could become a springboard for more mobile and efficient social networks, aka, a threat.

And not just any threat. Zuckerberg said: This might be the biggest threat we've ever faced as a company. Big words. So, what's the solution? Buy them, of course. 

But, according to Bloomberg, it wasn't just mergers. Zuckerberg was ruthless in using Facebook's power as intimidation. When asked about the merger, former Instagram CEO Kevin Systrom said: Bottom line, I don't think we'll ever escape the wrath of Mark. It just depends on how long we avoid it.

That very Mark has said that it's all fair game. In an internal memo to his staff, he said: 

"Our acquisitions of Instagram and WhatsApp have dramatically improved those services and helped them reach many more people. We compete hard, and we compete fairly. I'm proud of that."

And, we haven't even gotten into the legal details. 

Words of warning  

Yes, all the evidence is there: Zuckerberg's emails, relentless, aggressive attitude towards competitors, and the company's ludicrous profit. It seems the FTC has a solid case. But some experts said that it's anything but smooth sailing.  

According to the legal magazine Arizona Law Review, business communications in antitrust lawsuits are common and valid. But it has its positives and negatives.  

These communications can provide valuable data for economic and business analysis. They also paint a general picture of the company that's under scrutiny, like Facebook.  

But, the use of business communications can also be inappropriate. Antitrust regulators might put too much weight on the language in these business communications, leaning too much on subjective perceptions when the practice of antitrust law should always remain rooted in economic analysis. 

A CEO's perspective might not be a clear reflection of reality. What happens if the subjective language is taken out of context? It's a valid question to consider.  

So, is it the case with Facebook and Zuckerberg's emails? Not quite. Law expert Rebecca Haw Allensworth told the magazine The Conversation that the emails are straightforward.  

"Unfortunately for Facebook, Zuckerberg's emails are explicit and detailed in describing his desire to avoid competing with Instagram and WhatsApp. The court will find that relevant – and possibly damning." She writes. 

So, let's talk about those "damning" outcomes. What could happen to Facebook? 

Possible implications

To answer this question, let's go back to what the FTC feels should happen.  

"The FTC is seeking a permanent injunction in federal court that could, among other things: require divestitures of assets, including Instagram and WhatsApp; prohibit Facebook from imposing anticompetitive conditions on software developers; and require Facebook to seek prior notice and approval for future mergers and acquisitions."

Letting go of two of the most downloaded apps globally means, basically, breaking up the giant that is Facebook right now. And it might seem extreme, but this is one of the rare instances in history when both Republicans and Democrats agree: Zuckerberg's brainchild is just too big. Too mighty. 

But it won't happen overnight. These legal processes are slow, time-consuming battles.  Also, lawsuits of this magnitude are rare. In fact, this is the first anti-monopoly lawsuit against a tech company in decades. Can you remember who the last one was? Of course, Microsoft.  

Microsoft eventually settled, and, in the eyes of many experts, this settlement gave way for Google and other tech companies to open up.  

That lawsuit in 1998 not only gave companies, like Facebook and Google, the chance to become giants. But, it became the poison to slow down giants before becoming too powerful, in a weird and vicious cycle. 

So, if Facebook has to break up, what does this mean for connecting through social media? Is there another giant looming in the background? Let us know what you think could happen.