By Paresh Dave
(Reuters) – A U.S. lawsuit that could lead to the break-up of Facebook Inc’s social media empire may be hindered by the government’s role in the company’s monopoly building, and a recent dearth of similar cases, legal experts said.
In twin lawsuits on Wednesday, the Federal Trade Commission and 48 U.S. states and territories alleged Facebook’s purchases of media-sharing apps Instagram in 2012 and WhatsApp in 2014 were part of an illegal pattern to maintain its monopoly in social networking, leaving consumers with few alternatives to apps from the Silicon Valley giant.
But the FTC reviewed the two deals at the time, especially scrutinizing the Instagram deal, and did not try to block them. Facebook has already used that fact to call the lawsuits “revisionist history” and will continue to make that a part of its defense, a person familiar with the company’s thinking said.
Many of the company emails and other evidence the FTC revealed in its complaint on Wednesday – which show Facebook was motivated to eliminate costly competition – could have been accessed back then under its investigative powers.
The source described the FTC’s attempted redo now as unprecedented and noted that rivals including TikTok, Snapchat and Twitter have continued to grow over the last eight years.
Legal scholars or attorneys not involved in the case said the FTC’s inaction nearly eight years ago is problematic, but not insurmountable.
“They were wrong not to challenge it at first but that’s water under the dam,” said Spencer Waller, director of the Institute for Consumer Antitrust Studies at Loyola University Chicago. “Now, they can say, ‘We’ve seen what happened and conclude it has’” substantially lessened competition.
In fact, companies have been sued long after deals were completed. The Justice Department in 1964 succeeded in forcing chemical giant du Pont to sell a stake in automaker General Motors in a case brought about 30 years after the investment.
The FTC seems to understand the optics on the situation, said Joel Mitnick, an antitrust attorney at Cadwalader, Wickersham & Taft. While the states allege each of the two Facebook acquisitions separately violated the U.S. law banning unfair mergers, the FTC sued only under a separate law that broadly bars schemes that allow companies to unfairly hold onto power.
“The (FTC) clearly doesn’t want the judge to be focusing on whether they blew it at the time of acquisitions,” Mitnick said. “The FTC would have to say to the court, ‘We just didn’t understand at the time that these mergers would create companies that would increase in size and consumers wouldn’t go to other sites.” The FTC declined to comment on its legal strategy.
Even if the FTC prevails on whether Facebook violated the law, a break-up would be far from certain.
The statute upon which the FTC is bringing its case last triggered a major divestiture in 2000 when a federal judge ordered Microsoft to separate its operating systems and apps businesses. But an appeals court later reversed that order, a decision that likely benefits Facebook, Mitnick said.
The FTC may counter with a Supreme Court decision from 1966 holding that a conglomerate developing plumbing supplies and burglar systems had to dissolve the series of tie-ups that led to its market power.
The FTC’s work will be more difficult because “the government has not pursued a divestiture like this in quite a while,” said Rory Van Loo, associate law professor at Boston University. But there may be no better remedy in this case, and “those large divestitures of decades and even a century ago are still good law,” he said.
(Reporting by Paresh Dave in Oakland, California; Additional reporting by Nandita Bose in Washington; Editing by Lisa Shumaker)
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