Tech Titans Play Monopoly

Last week, a federal judge dismissed the Federal Trade Commission’s monopoly lawsuit against Facebook, concluding that the agency hadn’t made a sufficiently clear case that the social media giant controlled the market in a monopolistic way. At the same time, Amazon has demanded that FTC Chair Lina Khan recuse herself from any antitrust investigation into the company, given that much of Khan’s academic writing was highly critical of the retail giant. These are obviously big news events, but, as very often happens with legal matters, the reporting on the subject makes it almost impossible to identify what’s meaningful about the stories — and there’s plenty that’s meaningful about them. So let’s break it down into its parts, because the AMGAF-FTC drama isn’t going anywhere, and neither are the consequences for everyone else.

Let’s Oversimplify

Let’s start with the basics.  Although the word is thrown around quite a bit, a monopoly is actually a very specific thing under the law, namely, a company so powerful that it dominates an entire market sector and is effectively the only seller of a good or service.  Importantly, to qualify as a monopoly, you don’t have to literally be the only seller in the market, you need to take actions “in restraint of trade” to give you a dominating position and control the market through your actions.  The idea is that monopolies discourage innovation, product improvement, customer well-being, and market health because, without competition, there’s no need to build a better mousetrap.

The Mouse Trap board game: 45 minutes of setup for six seconds of Rube Goldberg disappointment.
No one has ever actually played this game, ever.

A complication here, among many, is that it’s extremely rare to find a company that’s actually a monopoly in the archetypical sense. Even the biggest trusts at the turn of the twentieth century like US Steel, US Sugar never truly controlled the entire market, they just had disproportionate control over it. What’s more important were the tactics these companies used to exert that control: secret agreements, crushing smaller competitors, bribing Congress, staging coups, etc. It’s the unlawful activity to restrain competition and trade that gives the Sherman Antitrust Act its power. Even if you’re only a major player in a space (and not a true monopoly) the government can still order your dissolution if you try to create a true monopoly.

Why is that relevant for the likes of Amazon or Facebook? You can hardly argue that there’s no competition, although both companies have a documented approach to dealing with competitors. You can buy directly from a seller, you can buy through other e-tailers, you can even buy directly from Google. In other words, you have options. It’s the same for Twitter. You can get your memes from Facebook, sure, but you can see them on Twitter, TikTok, Glitch, etc. etc. Oh and let’s not forget that you aren’t paying for Facebook or Amazon (unless we’re talking about Prime, and the FTC isn’t). That’s why the federal judge dismissed the FTC’s case: there were no plausible allegations that Facebook is a monopoly, and you need more than public opinion to get past a motion to dismiss.

Thank you for attending my Extremely Online™ antitrust seminar.

The Beginning of the End (of the Beginning)

The way the articles about the FTC v. Facebook dismissal come across, you’d be forgiven for thinking that Facebook had won, but they haven’t, not yet anyway. A motion to dismiss is, more or less, the very first thing that can happen in a lawsuit after filing the complaint. Claims routinely get booted, revised, and resubmitted in an Amended Complaint that might fare better. Take this case as a good example: the District Judge explained at length how the FTC could have done a better job pleading its case, what defects in the Complaint needed addressing, and the kind of detail that would make an Amended Complaint better. Again, this isn’t surprising, and courts at the state and federal level give this kind of guidance all the time.

In other words, FTC is almost certain to amend the Complaint (if the lawyers are like me, they’ll literally copy and paste the Judge’s recommendations into the new sections) and we’ll be off to the races again. What this signifies is that the antitrust fight with Facebook is entering the end of the first phase, where issues are sussed out and the FTC decides if it has enough to really pursue the case. My bet is that it does, and that we’re just a few weeks away from seeing their new arguments.

At a somewhat earlier stage, Amazon’s arguments that Lina Khan should recuse herself from the agency’s investigation is also revelatory. Khan — a brilliant academic and writer — has leveled plenty of cricitism at Amazon, including a law review article that forms the basis for many of the arguments that, wouldn’t you know it, FTC is now making against Amazon and Facebook. At least she won’t need a lengthy briefing memo.

Two Spiderman GIF - Two Spiderman Pointing - Discover ...
I’m gonna go ahead and double down on the classic memes today thanks.

Again, the request that Khan step aside from the investigation isn’t all that noteworthy in itself — it’s what it says about Amazon’s thinking that really matters. Clearly, if Amazon is concerned enough to make a public demand about recusal before there’s even a lawsuit, they’re gearing up for a very contentious fight. Given the robust posture FTC has taken (and, notably, the relative quiet from DOJ Antitrust division so far), they’re probably not wrong.

What do these twin legal actions/investigations mean for everyone else? It’s hard to say. The Microsoft antitrust saga dominated the better part of a decade, and it was a relatively simpler application of traditional competition law (that is, an actual product that consumers bought). Here, the Facebook case is nothing if not novel, particularly in that no one pays for Facebook, at least not in dollars. And Amazon is more likely to be sued for a theory closer to monopsony (control over purchasing, rather than selling, in a given market), which would be something novel at that scale as well. It’s almost a guarantee that we’ll see years of uncertainty and wrangling and arguments over the definition of anticompetitive power, and you can bet that the fight will spill over into electoral politics.

The bigger upshot is (probably) at least one breakup — my guess would be that Facebook either divests WhatsApp or Instagram, although likely not both. Amazon likely gets hit for anticompetitive practices and is fined, but dismantling the company would be a much harder case to make. No matter what, we’re watching the early stages of a very long fight and, like every fight involving monopoly, it’s not going to be pretty.

Angry Monopoly GIF by NewQuest - Find & Share on GIPHY
That’s honestly about as good an end to the game as you can hope for.

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