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FTC vs. Facebook – The Beginning of the End of Facebook's Dominance?

Author: Giri Aravind

The author is a student at the National University of Advanced Legal Studies, Kochi


On December 9th, the Federal Trade Commission (FTC), as well as dozens of states in the US, sued Facebook alleging that the company was involved in anti-competitive conduct by illegally maintaining its social network monopoly. The suit focuses on two major aspects – anticompetitive acquisitions and anticompetitive platform conduct. The federal regulator is seeking a permanent injunction in the federal court that could potentially break up Facebook. The statement by the FTC’s Bureau of Competition Director had stated that the actions of the company deny consumers the benefits of competition and the suit aimed to roll back Facebook's anticompetitive conduct and so that innovation and free competition can thrive.

To get a better idea of how Facebook established its presence and continues to dominate the industry, one must look at how the company stops an emerging competitor in this sector. Facebook usually resort to one of the three methods – buy the competitor, or deny access to its data, or copy and apply. The former simply involves spending billions to purchase any company that might be a threat to their dominance. The acquisition of Instagram in 2012 for $1 billion, and WhatsApp in 2014 for $19 billion are two instances in the past decade. Although investors were quite sceptical about the latter as it was a mere messenger app that provided no ads and costs less than a dollar a year, Facebook had effectively neutralized the prospect that these companies might enter the personal social networking market and threaten the share held by Facebook.

When buying a company doesn’t work, Facebook simply denies access to users’ data on third-party software application. When users sign up on a new website, Facebook often gives the option of following their Facebook friends — a feature enabled through Facebook’s application program interface or API. However, Facebook has made key APIs available to third-party apps only on the condition that they refrain from providing the same core functions that Facebook offers. When Twitter launched Vine in 2013, Facebook locked out their social API functions, reportedly at the direction of Mark Zuckerberg himself. And when buying out a company or denying access to user data doesn’t work, Facebook simply copies and applies new features into their existing social networking applications. In 2013, when Snapchat turned down a $3 billion offer from Facebook, the latter introduced a host of new features including face filters and stories on Instagram, turning them into a potential Snapchat-killer. This was also seen when Instagram started allowing users to upload short videos that eventually led to the end of Vine.

However, the suit against Facebook isn’t going to the final move the FTC or the Department of Justice (DOJ) are making against the big tech giants. Since 2019, Amazon, Apple, Google, and Facebook have been the target of various governmental authorities who are investigating whether these four companies have used their size and wealth to quash competition and expand their dominance. Amazon has been accused of favouring its own products by taking advantage of data it collects from sellers to develop its offerings. Apple has been alleged to have exploited its control over the app store by excluding rivals and charging app developers high fees, while Google’s monopoly over the online search and marketing industry has been questioned. Although these investigations had only led to Congressional hearings and committee reports, the suit against Facebook marks the beginning of a major action taken by FTC against the Big Tech in recent years.

Previously, The United States v. Microsoft Corporation, 253 F.3d 34 (D.C. Cir. 2001), was the most prominent case against a major tech company. Microsoft was sued by the DOJ and a coalition of 20 state attorney generals for violating federal antitrust law. Microsoft was the most dominant software firm in the 1990s, but they hadn’t initially ventured to the internet browser market, where Netscape held the major share. But in 1995, Microsoft released their own free browser, the Internet Explorer, and the next year they bundled it with the Windows 95 operating system. Within a year, they gained a 10% market share and there were allegations that Microsoft had made it increasingly hard for users to use other web browsers. Microsoft lost the case against the government and the court ordered a breakup of Microsoft as its remedy. But Microsoft appealed and by June 2001, a federal appeals court decided to reverse the order. And by November, Microsoft and DOJ reached a settlement.

Interestingly in 2014, Novell, another American software company lost its antitrust case against Microsoft when the US Supreme Court declined to hear an appeal by the company. Novell had originally filed the case in 2004 on the grounds that Microsoft had deliberately withheld Windows technical information in order to thwart its competitors in the applications market. This was brought out to light vide a 1994 memo from Bill Gates, who directed that the company should withhold namespace extension APIs in their operating system from its competitors in order to gain a market advantage for Microsoft Word. However, the Court held that a monopolist company had no duty to cooperate with its competitors, and Microsoft’s act did not constitute antitrust behaviour. Thus, the two cases involving Microsoft are really in great tension with each other as the US v. Microsoft had taken a contrasting view that a firm with market power does have a duty to deal fairly and non-competitively with those who used their platform. The decision in the suit against Facebook would depend on which of the two cases the ruling judges give credence to.

The sheer volume of users and the untapped market potential have made South Asia a favourite marketplace for most of the Big Tech companies. This region, especially India, has seen a surge in usage of in smartphone use and Internet access and a growing population of users coming online in the last decade. However, Facebook dominance’s in the Indian marketplace by stifling competition is indeed concerning. In 2014, Bangalore-based startup Little Eye Labs was acquired by Facebook in a deal that was in the range of $10 million to $15 million. Last year, Facebook had also heavily invested in rising Indian startups like the social commerce platform, Meesho, and EdTech platforms like Unacademy and Byju's. Facebook has also set their foot in the telecom sector by a $5.7 billion investment that saw them acquire a 9.99% stake in the Reliance Jio Platform. Thus, the past few years have seen the Big Tech companies (especially Facebook) killing all kinds of competition in the country by either simply acquiring them or copying their technology.

The Competition Commission of India (CCI) has usually taken a liberal approach while dealing with the Big Tech, but recent years have seen a growth in investigating transactions in the tech space. In 2018, CCI fined Google $21 million for abusing its dominance in the web browsing market to make significant inroads into ancillary products and services. Amazon had also faced antitrust probes in the country when the All India Online Vendors Association (AIOVA), reached out to the CCI alleging that Amazon used sellers’ data to design its own private labels and their preferential treatment to certain sellers adversely affects new and small sellers. Although no major action has been taken against these companies and the fines are merely a slap on the wrist, the current suit in the US could result in a change of approach taken by the regulators. Many of the duties and powers granted to the CCI, especially with respect to the antitrust division, have been modelled on the antitrust regime in the United States and the American jurisprudence plays a vital role in the country. With the American regulatory sights set on Big Tech, the suit against Facebook could lead to a major overhaul of how these companies operate in nearly every possible arena.

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Jun 24, 2022

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