Georgetown Law
Technology Review

In December 2020, the Federal Trade Commission (“FTC”), in conjunction with attorneys general from 46 states, the District of Columbia, and Guam, announced an antitrust suit against social media giant Facebook alleging illegal monopolization under Section 2 of the Sherman Antitrust Act. The FTC seeks a permanent injunction of anticompetitive conduct and possible divestiture of Instagram and WhatsApp. The FTCs alleges  Facebook’s acquisition of these two platforms were explicit efforts to eliminate potential competitors while simultaneously growing Facebook to a level unattainable by future competitors.

The FTC, however, gave its stamp of approval to the $1 billion acquisition of Instagram in 2012 and the $19 billion acquisition of WhatsApp in 2014. At the time, the FTC warned Facebook that WhatsApp must honor privacy commitments made to its users. In response to questions concerning the approvals of these acquisitions, the FTC stated that the acquisitions were part of a “multi-year course of conduct” and that approval under the premerger Hart-Scott-Rodino notification process does not preclude future FTC action. Post-merger conduct can provide the FTC with evidence of anticompetitive behavior that would constitute an antitrust violation.

Defining the Market

To prevail on a claim of illegal monopolization under Section 2 of the Sherman Act, a plaintiff must first show that a company either has obtained or is attempting to obtain “monopoly power” through its anti-competitive conduct. A firm’s ability to wield monopoly power is often indicated by a substantial market share in the relevant market. While circuit courts dispute the exact market share percentage that is adequate to infer market power, they tend to agree that a firm must possess a “dominant” market share above fifty percent. The Second Circuit’s decision in United States v. Aluminum Co. of America suggested that a market share in the mid-sixty percent range might still be inadequate to infer market power.

Relevant market analysis is the first stage of antitrust litigation.; Before determining whether Facebook either illegally acquired or illegally attempted to obtain monopoly power, the FTC needs to define Facebook’s market, and—which of Facebook’s competitors, or potential competitors, fall under the analysis. The challenge for the FTC will be finding a market definition that is “just right,” rather than too broad or too narrow.

Companies like Facebook complicate the market share analysis due to the “network effect”—that is, a network’s value is proportional to its user base. A social network is useful specifically because it has a large market share. The FTC acknowledges this value, but also views the network effect as a barrier competitors face when attempting to enter the market, further cementing Facebook’s alleged monopoly power.

In its relevant market analysis, the FTC’s complaint differentiates “personal social networking services” like Facebook from “specialized social networking services” like LinkedIn. The complaint also notes that personal social networking is distinct from “mobile messaging services” like WhatsApp, but states that Facebook’s acquisition of WhatsApp helped Facebook eliminate a competitive threat to Facebook’s “personal social networking monopoly.” The complaint cites a series of emails between Facebook data scientists and senior management which express concerns about WhatsApp’s expansion and ability to expand “into more full-fledged social networking.” Emails filed by the FTC show Facebook’s Director of Product Management described WhatsApp as “the biggest threat to [Facebook’s] product that I’ve ever seen.”

The FTC views these mobile messaging services primarily as competitors to Facebook Messenger that threatened the larger Facebook social networking platform. Cross-elasticity of supply—the ease with which outside suppliers or manufacturers in similar markets can pivot to fill demand in the relevant market—is an important antitrust consideration in determining market power. The FTC’s view of competitors’ ability to enter the market is unclear at the complaint stage. On the one hand, the FTC alleges that Facebook’s conduct is anticompetitive because it saw a threat in WhatsApp and other messaging services’ potential to enter the social networking market. On the other hand, the complaint explicitly distinguishes mobile messaging services from personal social networking services.

Moving Forward

How a market is defined changes the resulting perspective of a firm’s monopoly power. The FTC’s efforts to define “personal social networking service” so as to exclude LinkedIn, for instance, would remove a possible competitor from the calculus and thus increase Facebook’s market share—possibly bringing it above the aforementioned threshold. In its response, Facebook will likely challenge the FTC’s relevant market definition. The most apparent starting point is the FTC’s categorization of “personal social networking services” and its opinion of whether other companies—LinkedIn, Twitter, Parler—are either current or potential competitors to Facebook.