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Breaking up Facebook is easier said than done

May 10 2019 12:26
David McLaughlin and Ben Brody, Bloomberg

Facebook critics who want the social-media giant broken up gained an unexpected ally in one of the company’s co-founders - but antitrust enforcers face long odds in taking that approach to rein in its dominance.

Chris Hughes, who founded Facebook with Mark Zuckerberg when they were students at Harvard University, argued in a column Thursday that the best way to curb the company’s power is by breaking it up, an approach that’s been floated by policy advocates and lawmakers, including US presidential candidate Elizabeth Warren.

That authority rests with antitrust officials at the Federal Trade Commission and the Justice Department, who would have proved their case to a federal judge. That’s a process that could take years, including appeals, and potentially go the Supreme Court. Winning that fight would face steep challenges and could be all but impossible given legal precedents that have significantly curbed the power of antitrust enforcers to go after monopolies, according to experts.

Better Off

To challenge Facebook’s acquisitions of Instagram and WhatsApp, authorities would have to find evidence that consumers would be better off if Facebook is separated from those companies, rather than just speculate, said Herb Hovenkamp, an antitrust scholar at the University of Pennsylvania.

“We can say if Ford divests Lincoln then two will compete with each other and we’ll have a more competitive market," Hovenkamp said. "You’ve got to come in with some evidence that that’s going to happen. The simple fact that you can verbalise that possibility is not going to be enough to win an antitrust case,” Hovenkamp said.

Hughes’s column, which was published by the New York Times, adds to the chorus of criticism directed toward big tech firms like Facebook, Alphabet’s Google and Amazon. Lawmakers, economists and lawyers are calling for tougher scrutiny of the companies after years of a mostly hands-off approach. The column, in which he argued Facebook is a monopoly that never should have been allowed to buy Instagram and WhatsApp, gave a boost to that view.

"Chris Hughes makes a definitive case for breaking up Facebook," said Sarah Miller, the co-chair of Washington-based group Freedom From Facebook, which has advocated for unwinding the Instagram and WhatsApp mergers. "His essay should put to rest any argument that this is a fringe or radical position to hold, and ups the pressure on the FTC immensely."

Pressure Building

With pressure building on antitrust enforcers to act, FTC Chairman Joe Simons earlier this year formed a technology task force to look at whether tech firms are thwarting competition and to reexamine previous mergers in the industry. The move raised expectations that the agency would go back to look at the Instagram and WhatsApp acquisitions, which the commission approved.

“Why have a tech task force if you’re not going to look at this?" said Michael Kades, the director of markets and competition policy at the Washington Center for Equitable Growth.

There are two approaches for examining Facebook, according to lawyers. Antitrust enforcers could investigate whether Facebook is using its dominance to thwart competition. This would be the approach authorities took when they took on Microsoft in the 1990s. If they persuade a judge to rule Facebook is an illegal monopoly, it could lead to a breakup of the company. While the Microsoft case could be a template, a federal appeals court in Washington reversed a lower-court ruling that ordered a breakup of the software company. That precedent creates a major hurdle for a Facebook breakup, according to lawyers.

Revisit Deals

The second approach would be to revisit the Instagram and WhatsApp deals themselves and bring a lawsuit challenging them on the ground that they were anti-competitive even though the FTC approved them at the time. The agency would need to show that Facebook, by buying Instagram and WhatsApp, eliminated competitors to the social media platform.

Facebook would counter that the companies only flourished because of the resources they gained from being part of the social-media company.

"The fact is that breakups are very hard and very complicated and you don’t just go in and snap your fingers and do them," said Harold Feld, a lawyer with Washington-based policy group Public Knowledge, who has called for a new agency to regulate digital platforms. And even if the effort were ultimately successful, the digital economy tends toward consolidation, he said. "Facebook will still have its two billion subscribers the next day," he said.

Legal Precedent

There is precedent for unwinding a merger that wasn’t determined to be anti-competitive at first but then over time came to hurt competition, said Hovenkamp at the University of Pennsylvania. But the longer that time period, the harder it is to prove a deal is harmful, he said.

"Rank speculation that this company would have been a much stronger or more viable or more powerful competitor, all those things are possible," Hovenkamp said. "But for every small startup that becomes the next Google there are a hundred other startsups that failed so you never really know what the story would have been if these firms had been left separate.”

Despite the challenges to winning in court, the FTC shouldn’t shy away from the fight if it thinks the Instagram and WhatsApp acquisitions are problems, said Kades from the Washington Center for Equitable Growth. The agency once kept losing challenges to hospital mergers, but retooled its strategy and found a way to win and block those deals.

“These issues are too big for the commission to walk away from," he said.

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