How the FTC could get another chance to take on Facebook this week

Facebook Chief Executive Officer and founder, Mark Zuckerberg, leaving the Merrion Hotel in Dublin after meeting with Irish politicians to discuss regulation of social media, transparrency in political advertising and the safety of young people and vulnerable adults. On Tuesday, April 2, 2019, in Dublin, Ireland.Artur Widak | NurPhoto | Getty ImagesThe Federal Trade Commission has a second chance to prove to a federal judge that Facebook has illegally maintained a monopoly.By Thursday, the agency must file an amended complaint if it wishes to continue pursuing its claims against Facebook in federal court.That’s because a judge threw out the FTC’s initial complaint, saying it didn’t do enough to show that Facebook illegally maintains monopoly power to warrant moving the case forward. But, he left the FTC an opportunity to make a stronger case in a new filing.The FTC has a couple of options on how to proceed besides choosing to file an amended complaint. It could decide to drop the matter altogether. Or it could bring the case before its internal administrative law judge instead.The former seems unlikely given the scale of this case for the agency and its newly confirmed Chair Lina Khan, who has been critical of digital platforms and has pushed for greater enforcement of antitrust laws.The latter is made more complicated by the fact that Facebook has called for Khan’s recusal from its case based on her past criticism. Khan hasn’t responded to the request, but assuming she wants to participate in the case, that would likely be easier to do if her participation involves voting on whether to file a complaint in federal court, rather than act as an adjudicator under the FTC’s internal process.Here’s what the FTC needs to address in its amended complaint if it hopes to continue its fight with Facebook in federal court.Narrow the market definitionOne of the main things U.S. District Judge James Boasberg took issue with in the FTC’s initial complaint was its market definition. It’s a common area of dispute in antitrust cases, since the agency must prove a business has monopoly power in a particular market. While there’s not necessarily a percentage of the market a monopoly needs to hold to be considered such, it’s often well over half.The FTC claimed Facebook holds monopoly power in the personal social networking, or PSN, category. That definition excluded platforms used mainly for streaming video, like Google’s YouTube, and interest-based platforms like Microsoft’s LinkedIn or the fitness social network Strava, which some may see as worthy competitors to Facebook. The FTC claimed Facebook’s share of that market is more than 60%.Boasberg took issue with the lack of clarity at how the FTC arrived at the more than 60% figure, saying it was “too speculative and conclusory to go forward.”He questioned which competitors made up the other roughly 30% to 40% of the PSN market, given the FTC’s claim that Facebook owns more than 60% of it. He asked in the filing why the FTC was unwilling to claim Facebook owned even more of the market if it was unable to name other competitors in that space that weren’t either defunct or too small.”Such an unsupported assertion might (barely) suffice in a Section 2 case involving a more traditional goods market, in which the Court could reasonably infer that market share was measured by revenue, units sold, or some other typical metric,” Boasberg said of the more than 60% market share claim, referring to Section 2 of the Sherman Antitrust Act. “But this case involves no ordinary or intuitive market. Rather, PSN services are free to use, and the exact metes and bounds of what even constitutes a PSN service — i.e., which features of a company’s mobile app or website are included in that definition and which are excluded — are hardly crystal clear.”But, he wrote, “this defect could conceivably be overcome by re-pleading.””While there are certainly bones that one could pick with the FTC’s market-definition allegations, the Court does not find them fatally devoid of meat,” he wrote.Change or nix the interoperability argumentBoasberg said that even if the market definition were fixed, the FTC’s claim that Facebook’s use of its interoperability permissions helped it maintain monopoly power would not stand up to scrutiny.The FTC argued that Facebook limited rivals with its core service from accessing features of its platform through its application programming interface, or API, in order to prevent them from growing into true threats.The judge wrote that even if the way Facebook used the policy did violate Section 2 of the Sherman Act by maintaining an illegal monopoly, the FTC lacks statutory authority to seek an injunction because the alleged violation occurred seven years before the suit was filed. Boasberg cited a prior court opinion that said Section 13(b) of the FTC Act, which grants the FTC its power, “does not permit the FTC to bring a claim based on long-past conduct without some evidence that the defendant ‘is’ committing or ‘is about to” commit another violation.'”On top of that, Boasberg said that past court precedent makes it “clear off the bat” that Facebook did not have a duty to deal when it came to sharing aspects of its platform with competitors. To fix its argument, Boasberg said the FTC would have to prove Facebook had a scheme where it enforced its platform access policy against a rival it had previously dealt with while continuing to deal with others. It would also have to show that Facebook did this at a short-term loss to its own profit with no other clear business rationale besides driving out a rival.Based on Boasberg’s assessment, the FTC would likely have to either nix this section from its argument or prove to the court that Facebook is currently or soon to commit another violation of the sort, and that it meets the criteria he laid out.Boasberg wrote that the FTC “is on firmer ground in scrutinizing the acquisitions of Instagram and WhatsApp, as the Court rejects Facebook’s argument that the FTC lacks authority to seek injunctive relief against those purchases.” One of the key antitrust criticisms against Facebook is that it acquired Instagram and WhatsApp in order to snuff out potential social networking rivals.The court concluded that this aspect of the case “either does not amount to exclusionary conduct violating Section 2 of the Sherman Act or, to the extent that it might, cannot be the basis for an injunction under Section 13(b) of the FTC Act.”Question of recusalOne additional question the FTC has to face is whether Khan should recuse herself from the case. If she does not, some antitrust experts say she could make a statement explaining her decision.Some court precedent would support the idea that Khan can participate in voting to bring the case in federal court, even if she has made past critical statements of the industry. A court could view the question of whether Khan had already made up her mind on Facebook’s liability as less pressing if she’s voting to bring a claim in court as opposed to acting as a judge in the FTC’s own internal proceedings.Khan indicated at her confirmation hearing in the Senate that she did not believe she had any financial conflicts that would require her recusal under ethics laws.If Khan were to recuse herself from the Facebook case, the agency could end up deadlocked on a decision to refile the complaint, since the two Republican commissioners voted against bringing the initial suit.Subscribe to CNBC on YouTube.WATCH: Instagram’s Mosseri talks new features and antitrust concerns


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