Dual Facebook Enforcement Actions Dismissed In District Of Columbia
Antitrust Litigation
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  • Dual Facebook Enforcement Actions Dismissed In District Of Columbia

    On June 28, 2021, Judge James E. Boasberg of the United States District Court for the District of Columbia dismissed dual enforcement actions brought by the Federal Trade Commission (“FTC”) and the attorneys general of 46 states and the District of Columbia (the “state enforcers”) against Facebook, Inc. (“Facebook”).  See FTC v. Facebook, Inc., No. 1:20-cv-03590-JEB (D.D.C. June 28, 2021), ECF 73 (the “FTC Action”); State of New York et al. v. Facebook, Inc., No. 1:20-cv-03589-JEB (D.D.C. June 28, 2021), ECF 137 (the “States’ Action”).

    In December 2020, the FTC and the state enforcers brought parallel actions against Facebook, alleging that Facebook illegally monopolized the alleged market for “Personal Social Networking (‘PSN’) Services” in violation of Section 2 of the Sherman Act.  Both the federal and the state complaints alleged that Facebook engaged in two forms of exclusionary conduct:  (1) purchasing mobile native applications, most importantly Instagram (for $1 billion) and WhatsApp (for $19 billion), thereby preventing companies with serious competitive potential from becoming Facebook rivals; and (2) enforcing policies that prevented competing applications from interconnecting with Facebook through Facebook’s application programming interfaces (“APIs”), including conditioning developer access to these APIs on developers not competing with Facebook.  The enforcers alleged that the acquisitions eliminated the competitive threat posed by popular mobile applications that could have challenged Facebook’s dominance in PSN services and that the alleged restrictions on the use of Facebook APIs dissuaded developers from building new applications, functionalities, or features that would have increased competition with Facebook.  The Court dismissed the FTC’s complaint, giving the FTC thirty days to amend.  The Court dismissed the States’ Action in its entirety with prejudice, finding the States’ Action was brought too late and barred by laches.

    As to the FTC Action, the Court found that the FTC’s complaint did not establish the first element of a violation under Section 2, possession of monopoly power in the relevant market.  First, the Court found the alleged market definition plausible but “undoubtedly light on specific allegations regarding consumer switching preferences” and “idiosyncratically drawn.”  In light of this weakness, the Court found that it “must demand something more robust from Plaintiff’s market share allegations” than the “naked allegation” of a dominant market share “in excess of 60%” of PSN services in the United States.”  The “FTC’s inability to offer any indication of the metric(s) or method(s) it used to calculate Facebook’s market share,” the Court found, “renders its vague ‘60%-plus’ assertion too speculative and conclusory to go forward.”  Merely alleging “that a defendant firm has somewhere over 60% share of an unusual, nonintuitive product market—the confines of which are only somewhat fleshed out and the players within which remain almost entirely unspecified—is not enough” to establish the market power required to establish a Section 2 violation.

    While the failure to plead the essential element of market power alone warranted dismissal of the FTC complaint, the Court went on to provide “guidance” to the parties in the event of an amended complaint.  With regard to the FTC’s refusal to deal and conditional dealing claims, the Court held first that Facebook’s alleged policy of refusing to provide API access to its competitors did not violate Section 2 because the policy amounted to no more than the exercise of its right to choose not to deal with competitors.  Second, to the extent that the complaint alleged specific instances where Facebook revoked (rather than simply withheld) a competitor’s API permissions, thus potentially invoking the Aspen Skiing exception to the right to refuse to deal with competitors, these incidents occurred no later than 2013.  Because Section 13(b) of the FTC Act provides for relief that is prospective, not retrospective, these dated incidents provided no basis for the injunctive relief sought.  Finally, the Court found the FTC had failed to plead facts plausibly establishing its “conditional dealing” theory.

    Turning to the acquisitions of Instagram and WhatsApp, the Court rejected Facebook’s defense that the FTC’s challenge to these acquisitions was barred by laches because they were each consummated more than five years before the complaint was filed.  To the contrary, the Court found that there is no reason to treat a federal enforcer’s challenge to a consummated merger under Section 2 of the Sherman Act differently than a challenge under Section 7 of the Clayton Act for the purposes of laches, and that well-established Section 7 precedent does not bar a federal enforcer’s challenge to a consummated merger.

    The Court’s opinion in the States’ Action largely tracked its opinion in the FTC Action with one major exception.  The Court held that the doctrine of laches—while inapplicable to the federal government in this context—barred the state enforcers’ challenges against Facebook, finding that the state enforcers’ role as parens patriae was akin to that of a private litigant, as to whom a laches defense is available.  The laches period, the Court found, should be no longer than the four-year statute of limitation period for damages claims under the Clayton Act (and may well be shorter depending on the circumstances).  The state enforcers waited over five years before pursuing the action and therefore lost their rights to challenge Facebook’s conduct under both Section 2 of the Sherman Act and Section 7 of the Clayton Act.  Because the other allegations of anticompetitive conduct failed, largely for the reasons explained in the FTC opinion, the Court dismissed the States’ Action with prejudice.

    On the important issue of challenging consummated acquisitions, it is important to note that Judge Boasberg addressed only the issue of whether plaintiffs’ complaints were barred as a matter of law as untimely.  The Court expressly did not address defendant’s other arguments challenging the propriety and practicality of ordering divestures so long after the mergers were consummated and after the resulting investments in and integration of the businesses.  These difficult issues will be addressed, if at all, only if an amended complaint is filed, survives another motion to dismiss, and liability is established, after development of a full factual record.

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