By: Aurelien Portuese
There is no such thing as a clean war. Casualties and large-scale collateral damage always abound. Similarly, there is no such thing as a clean breakup — consumer harm and collateral damage to innovation can always occur.
In an orchestrated composition following the DOJ’s lawsuit against Google, the Federal Trade Commission (FTC) filed an antitrust lawsuit against Facebook, together with 46 states. After the elite-driven techlash came the judicial techlash. However historic the Google lawsuit might be, the Facebook lawsuit sets another historical stepstone in aggressive antitrust enforcement. Indeed, the Google lawsuit has vaguely requested to “enter structural relief as needed to cure any anticompetitive harm,” thereby only suggesting the possibility, without clearly identifying the relevant assets, of a divesture — in antitrust parlance, a breakup of Google. The Facebook lawsuit is yet of another caliber: here, the FTC names the assets to be divested–Instagram and WhatsApp. The lawsuit seeks to undo these Facebook acquisitions as it suggests carrying out “divesture or reconstruction of illegally acquired businesses and/or divesture of Facebook assets or business lines.” Breaking Facebook into pieces generates several risks for consumers and innovation.
First, breaking up Facebook from Instagram and WhatsApp sanctions competition on the merits and stifles legal certainty. The complaint against Facebook claims that Facebook has not competed on the merits, although the complaint itself is full of evidence otherwise: acting and reacting to numerous competitive threats, Facebook is portrayed in the complaint as a company subject to many competitive forces, which it surpasses either by internal improvements or by external partnerships. Competition on the merits neither means prohibiting companies from developing products similar to competitors in order to respond to competitive threats — that is the very essence of the competitive process — nor does it mean prohibiting companies from offering a partnership with promising, yet unfunded, startups — that is the startup’s choice to either compete or to integrate. The assumption that Facebook has not competed on the merits is baseless. Indeed, in section E of the complaint which allegedly demonstrates that lack of competition on the merits, the FTC discusses Facebook’s 2009 acquisition of FriendFeed, a feed aggregator in merger discussions with Twitter, and Octazen, a Malaysian startup providing contact importing services. None of these two acquisitions, let us suppose are evidence of the absence of competition on the merits, are subject to the breakups suggested by the FTC. Why? For no apparent reason, the FTC discards these two companies and arbitrarily selects Instagram and WhatsApp to suggest Facebook breakups.
Furthermore, breaking up Facebook from Instagram and WhatsApp is a formidable violation of the fundamental principle of legal certainty: after having cleared the mergers with Instagram and WhatsApp, in 2012 and 2014 respectively, the FTC would renege on the legitimate expectations it created. To be sure, “there’s nothing in U.S. merger law that says an agency’s decision not to challenge a proposed deal immunizes that deal from future review,” former FTC Chair William Kovacic told CNN. Nevertheless, the fact that there is nothing in U.S. merger law that prevents ex-post merger control does not necessarily mean that it is implicitly authorized. In an unprecedented move, the FTC frustrates the rule of law by undermining its own previous decisions, thereby spurring legal uncertainties regarding the reliability of the law. The FTC’s self-contradicted decisions deter digital innovation by the insecure regulatory framework it generates.
Second, ex-post merger control echoes ex-ante antitrust rules: it turns antitrust enforcement on its head for the sake of the adoption of a precautionary approach towards digital innovation. Some policy advocates claim that antitrust enforcement is too slow, too ineffective, and hasty, decisions that enable early interventions, even (quite puzzlingly) before issues arise. Antitrust rules should be ex-ante rules: regulation rather than enforcement. Traditionally, merger control has always been ex-ante: regulators check suggested acquisitions before they can eventually materialize. In an immoderate revamp of antitrust rules, some policy advocates can turn ex-post antitrust enforcement into ex-ante antitrust regulations and ex-ante merger control into ex-post merger breakups. It is antitrust on its head. The common logic to these two revolutionary shifts is simple: it is a precautionary approach that values precaution more than innovation, that unduly intervenes before amassed evidence, and that overturns previous decisions when unexpected success arises. In a digital disruption world where innovation and legal certainty are essential to tomorrow’s commercial successes, the precautionary approach both hampers innovation and legal certainty. The Facebook lawsuit epitomizes even further the detrimental logic of precautionary antitrust.
Third, antitrust weapons of mass destruction — also known as breakups — are everything but clean: they are nasty, complicated, prone to side-effects, and predisposed to collateral damages. Neo-Brandeisian Columbia Law Professor Tim Wu has influentially called for “a breakup of Facebook that undid the mergers with Instagram and WhatsApp”. Breakups, according to Wu and other Neo-Brandeisians, are clean and simple. Indeed, he argues that “the simplest way to break the power of Facebook is breaking up Facebook” and that “breakups or structural remedies are, effectively, self-executing, and thereby a much cleaner way of dealing with competition problems”. This fascinating confidence in advocating for simple and clean breakups contrasts with the incommensurably complicated, harmful, intrusive, and destroying aspects of breakups: many small businesses living by Facebook’s digital ecosystem will be harmed, consumers will likely lose since an increase in user base followed the mergers, and there will now be a lack of interoperability, and finally, innovation will be massively chilled as Facebook’s innovative capabilities will diminish and as startups’ desire to innovate and then sell will be left unsatisfied. There is no such a thing as a clean breakup. Just like there is no such thing as a clean war.
In conclusion, the Facebook lawsuit aimed at breaking up an innovative leader of social media arbitrarily favors internal growth over external growth, discretionarily disavows previous regulatory decrees with retroactive effects, and discards consumer preferences in order to impose the regulator’s preferences of a myriad of platforms forced to renege on the sought-after scalability of the platforms.
Amid a presidential transition period, the ranks formed by this regulatory war against Facebook are mixed. Whereas the Google lawsuit launched days before Election Day was backed by the Republican-led states, the advent of a Biden presidency has garnered Democrat-led States’ backing to join forces with the Republican-led states in the Trump-appointed FTC lawsuit against Facebook. This bipartisan war against big tech companies may suggest political consensus. It nevertheless will not be economic cleanness. Collateral damages await.
Aurelien Portuese (@A_Portuese) is director of antitrust and innovation policy at the Information Technology and Innovation Foundation (ITIF). This article first appeared as an Innovation Files post on itif.org.