Meta, the company formerly known as Facebook, may soon have to sell off Instagram and WhatsApp—two of its largest revenue generators.
That’s because the Federal Trade Commission, led by President Biden appointee Lina Khan, has been given the green light by a federal judge to take the tech giant to court over various alleged antitrust violations. The agency first challenged Meta, which was then known as Facebook, last year, but the order was thrown out of court for a lack of detail.
This time, the FTC’s amended complaint had enough facts to “plausibly establish” that Meta had a monopoly in social networking, U.S. District Judge James E. Boasberg ruled on Tuesday. As opposed to last time, when the FTC did not provide data to prove that “no other social network of comparable scale exists in the United States,” Boasberg wrote, this time the FTC effectively used data from ComScore, a media measurement and analytics company, to show that Meta’s daily share of active users had exceeded 70% of all personal social networking apps since 2016.
“In short, the FTC has done its homework this time around,” Boasberg wrote. “Second time lucky?” he added, in the colorful ruling.
The decision signals a sea change for Silicon Valley as both Republicans and Democrats have soured on tech titans like Apple, Amazon, Google, and Facebook (known collectively as the Big Four)—all large enough to dominate their respective markets and quickly gobble up smaller competitors. Khan has signaled that she thinks Amazon and Google are too powerful and could bring similar suits against them if her challenge to Meta is successful.
Amazon has already tried to make the case that Khan should recuse herself from any FTC enforcement decisions involving the company—including the FTC review of its $8.45 billion acquisition of movie studio MGM—because of her previous statements that the company should be broken up.
Still, Meta said Tuesday’s ruling was ultimately good for them. “Today’s decision narrows the scope of the FTC’s case by rejecting claims about our platform policies,” said Chris Sgro, a policy spokesperson for Meta, in a statement to Fortune. Sgro was referring to a decision by the judge to drop certain allegations brought by the FTC that Facebook shut competitors out from accessing available data. The company changed its policy to allow that data access in 2018.
“We’re confident the evidence will reveal the fundamental weakness of the claims. Our investments in Instagram and WhatsApp transformed them into what they are today. They have been good for competition, and good for the people and businesses that choose to use our products,” said Sgro.
The judge seemed to agree that the FTC won’t have it easy. “Although the agency may well face a tall task down the road in proving its allegations, the court believes that it has now cleared the pleading bar and may proceed to discovery,” Boasberg wrote.
It was, after all, the FTC that signed off on Facebook’s acquisitions in the first place.
In 2012, the FTC approved Facebook’s $1 billion acquisition of Instagram, a company with 13 employees at the time. Two years later, in 2014, the agency allowed the social media giant to purchase messaging app WhatsApp for $19 billion.
Now the FTC is arguing that Facebook systematically bought up its contemporaries to eliminate all competition and create a monopoly. The company’s dominance, argues the FTC, has led to a lack of tech and business innovation, a lack of choice for consumers, and a decrease in privacy protections.
Many see Boasberg’s Tuesday ruling as a huge win for Khan, the youngest and arguably most progressive head of the FTC in the agency’s 106-year history, who hopes to end nearly half a century of relaxed policy toward horizontal mergers that led to the proliferation of tech behemoths with trillion-dollar market caps. Through her career, Khan has forged a strong reputation in the antitrust community as a fierce critic of Big Tech’s increasing market dominance and as a defender of America’s anti-monopoly laws.
In its defense, Meta claimed that because of her history, Khan is biased against the company and not an impartial player. However, Boasberg dismissed this in his decision.
“Although Khan has undoubtedly expressed views about Facebook’s monopoly power, these views do not suggest the type of ‘ax to grind’ based on personal animosity or financial conflict of interest that has disqualified prosecutors in the past,” wrote Boasberg.
He also noted that Khan was tapped to run the FTC “in no small part because of her published views.” Kahn first made waves as a 28-year-old law school student at Yale University in 2017, when she wrote a groundbreaking 98-page article about Amazon’s anticompetitive behavior for the Yale Law Journal.
Still, Khan has a big fight ahead of her, and the ensuing court battles will likely drag out for years. The U.S. court systems traditionally take a narrow view of monopoly cases: Since the Reagan administration, antitrust cases have been decided by one guiding principle: Is the company engaging in predatory pricing? Using that narrow definition rules out both Instagram and WhatsApp, which are free for users.
In her previous writing, Khan claimed that pegging antitrust to consumer welfare doesn’t fully capture the way market power works in the current economy. Price and output are no longer fair measurements of competition. Instead, she said, antitrust principles should focus on policing “forms of vertical integration that firms can use for anticompetitive ends.”
Simply put: Conflicts of interest must be limited.
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