US judge throws out state and federal cases against Facebook

The states accused Facebook of buying up nascent competitors like Instagram and WhatsApp to cement its monopoly over social networking. PHOTO: REUTERS

WASHINGTON (NYTIMES) - In a stunning setback to regulators' efforts to break up Facebook, a federal judge on Monday (June 28) threw out antitrust lawsuits brought against the company by the Federal Trade Commission and more than 40 states.

The judge eviscerated one of the federal government's core arguments, that Facebook holds a monopoly over social networking, saying prosecutors had failed to provide enough facts to back up that claim.

And he said the states had waited too long to bring their case, which centres on deals made in 2012 and 2014.

The judge said the FTC could try again within 30 days with more detail, but he suggested that the agency faced steep challenges.

The rulings were a major blow to attempts to rein in Big Tech. In Congress, legislators pointed to the decisions as proof that century-old antitrust laws needed updating for the internet sector.

"This really stings," said William E. Kovacich, a former chairman of the Federal Trade Commission.

"This is a reminder to those who have wanted a dramatic, sweeping litigation campaign to take on Big Tech that there's nothing easy about it, because the courts have a different view of the antitrust system."

Representatives for the FTC and Letitia James, the New York attorney-general, who led the states' case, said they were reviewing the judge's decision and considering their legal options.

Christopher Sgro, a spokesperson for Facebook, said: "We are pleased that today's decisions recognise the defects in the government complaints filed against Facebook. We compete fairly every day to earn people's time and attention and will continue to deliver great products for the people and businesses that use our services."

The news pushed Facebook's stock up 4.2 per cent, and the company passed US$1 trillion (S$1.3 trillion) in market capitalisation for the first time. It is one of only half a dozen companies to reach such a valuation.

Congress, President Joe Biden and many states have made weakening the grip of Amazon, Apple, Facebook and Google a high priority.

Biden has installed critics of the technology giants in key regulatory roles, including Lina Khan as chair of the FTC, and he is expected to issue broad mandates this week for federal agencies to address corporate concentration across the economy.

Khan's first major task as chair will be to rewrite the Facebook lawsuit to address the judge's criticisms.

Courts have narrowed interpretations of antitrust laws over the years, making government cases difficult to win.

Last week, the House Judiciary Committee advanced six Bills that would overhaul antitrust laws, with the goal of loosening the influence that the big companies have over wide swaths of the economy.

"Today's development in the FTC's case against Facebook shows that antitrust reform is urgently needed," said Republican Representative Ken Buck of Colorado, a co-sponsor of the antitrust Bills.

"Congress needs to provide additional tools and resources to our antitrust enforcers to go after Big Tech companies engaging in anti-competitive conduct." Republican Senator Josh Hawley of Montana, a critic of Big Tech, said on Twitter that the court had acknowledged Facebook's "massive market power but essentially shrugged its shoulders."

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The lawsuits by the states and the Federal Trade Commission argued that Facebook's acquisitions of Instagram for US$1 billion in 2012 and WhatsApp for US$19 billion two years later squashed competition in social networking.

The regulators argued that Facebook should break off the two apps and that new restrictions should apply to the company on future deals. Those are some of the most severe penalties that regulators can demand.

The FTC was split on its decision to pursue the lawsuit. Its chairman at the time, Joseph J. Simons, a Republican appointed by President Donald Trump, and the two Democratic commissioners voted in favour of the suit.

The two remaining Republican commissioners voted against it.

The state suit was signed by attorneys-general from 46 states and the District of Columbia and Guam. Alabama, Georgia, South Carolina and South Dakota did not join the case.

Facebook asked the court to dismiss both suits in March. The company argued that it is continually challenged with competition, including from new rivals such as TikTok.

It also argued that the regulators failed to prove how the services, which are free, harm consumers.

The judge's dismissal, so early in the process, of both suits stunned regulators and Facebook executives.

The judge, James E. Boasberg for the US District Court for the District of Columbia, wondered why the states had waited so long to try to unwind Facebook's deals of Instagram and WhatsApp mergers.

Regulators had not tried to block them when they happened. He also rejected allegations that Facebook squashed rival apps by blocking their ability to easily interact with the social media platform.

"Ultimately, this antitrust action is premised on public, high-profile conduct, nearly all of which occurred over six years ago," he wrote, "before the launch of the Apple Watch or Alexa or Periscope, when Kevin Durant still played for the Oklahoma City Thunder and when Ebola was the virus dominating headlines."

Boasberg, who was appointed to his post by President Barack Obama, said the FTC did not sufficiently prove that Facebook was a monopoly.

He said the agency's definition for social media was too vague, and in a reference to an interpretation of antitrust law prevalent in courts that is anchored in consumer prices, he noted that the product was free.

"It is almost as if the agency expects the court to simply nod to the conventional wisdom that Facebook is a monopolist," he wrote.

"After all, no one who hears the title of the 2010 film The Social Network wonders which company it is about." But, he said, "'monopoly power' is a term of art under federal law with a precise economic meaning."

Democratic Senator Richard Blumenthal of Connecticut, a member of the Senate Judiciary Committee, noted how internet companies defy conventional market definitions.

"The court rejected the FTC's case because it wasn't clear under our current antitrust laws that Facebook has a monopoly in online networking - a flabbergasting assertion given Facebook's firm grip over consumers, their data and the social media market," Blumenthal said.

The decision was a disappointment for the growing cohort of activists who have pushed regulators to move to break up the biggest tech companies.

Sarah Miller, the executive director of the antitrust think tank the American Economic Liberties Project, said she hoped that the states would appeal the dismissal and that the FTC would file its case again. But she said the judge's ruling underscored the need for Congress to update the laws that police market concentration.

"The courts are going to need, ideally, some congressional guidance here, given that they have some outsized role in determining the outcomes of antitrust cases," she said.

"Sometimes losses can be good because it can just reinforce that necessity, and we're hoping that this will serve to do that."

Lawmakers in Congress are trying to overhaul antitrust with an eye toward the digital economy. But there is no guarantee that the two parties will be able to agree on the specifics.

In Europe, courts have also provided companies a cushion against crackdown efforts by authorities.

Last year, a European Union court struck down efforts by the bloc's antitrust regulator to force Apple to pay 13 billion euros (S$20 billion) in unpaid taxes. In May, Amazon scored a victory against a similar order to repay 250 million euros in taxes.

In Germany, an effort by antitrust regulators to crack down on Facebook's data-collection practices have been stalled in courts.

And Google has used court appeals to delay the enforcement of three judgements from the EU regulators that it violated antitrust laws, which would result in billions of dollars in fines.

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