As the FTC's trial to break up Meta wrapped, Meta made its last stand with expert economist Dennis Carlton. The FTC rebutted by recalling Scott Hemphill. Who came out on top? And will the FTC prevail?
Applause for this analysis. Really spectacular. This whole series of articles.
Multi-homing is bullshit. My friends use Facebook and Instagram. It is mostly young people using Snapchat. If Facebook and Instagram are down I cant go to Snapchat as a substitute. I strongly disagreed that multi-homing is common or as simple as the defense proclaimed. Multi-homing bothered me because I felt Judge Boasberg doesnt know if its real or not cause he doesnt use social media. If Meta's apps are down people may go to Youtube and Tiktok but they are not doing the PSN social friend/family communication that happens in Meta's apps. Carlton's argument is all trickery and makes no logical sense. Snap is in the PSN market because it does PSN functions. Youtube and Tiktok do not. When Meta's apps are down I go do something else because Meta has a monopoly on my social and I cant go anywhere else. Youtube and Tiktok are something else. They are not doing PSN. Again, hope Judge Boasberg (or one of his clerks) picks these things up.
Meta controls the sharing between friends/family. They control how many friends/family members see your posts and it pisses everyone off. Thats a clear sign of how strong their monopoly is. They severely limit how many of your friends/family see your posts and instead push reels in your face. Because they have a monopoly people have no choice but to stick around and put up with Meta's using us to compete with Tiktok. Yes that is what is happening. How will Judge Boasberg realize this?
I disagree that Instagram grew faster after Facebook bought it. Instagram was a rocketship. It was at 40m when Facebook bought it and almost 80m when the deal closed. Silly to think Facebook influenced this is any way that mattered. Facebook had nothing to do with Snapchat and it had no problem growing to 500m users. Instagram did not need Facebook. Facebook missed mobile and would be nowhere if it had not bought Instagram. Mark was desperate. He came to mobile with a crappy not-working HTML5 website and not an app. He was toast and we all knew it. Then he bought Instagram to save his tail. It pisses me off to see Meta pretend they helped Instagram rather than saving themselves with this buyout. It just not true.
All of this complex law analysis ultimately rely on the facts and what I worry about for the FTC is whether they knew and argued the facts well enough. I know they left out many things. I think they did a decent job. Lets hope its enough to right this wrong. Facebook never should have been allowed to buy Instagram.
ps. another thing that was never mentioned at trial was how Facebook passed the FTC in the first place. how did they convince the FTC to allow the buyout? the reason is because they pretended Instagram was a feeder app of stylized photos into Facebook when really it was already a 40,000,000 user strong social network competitor. Facebook pretended Instagram was a vertical purchase when it was really a horizontal competitor with 80,000,000 networked users at deal closing. Instagram didnt need Facebook. They could have raised as many billions as they wanted. Instagram owned social on mobile while Facebook was stuck on pc playing around with HTML5. Hope they dont let Facebook re-write the true history.
pss: Instagram founder Systrom went along with all of this because he wanted to be bought out by Facebook. Facebook was the king with the money; they were the first to go public. Systrom wanted to solidify money in his pocket. He told all sorts of fibs to get around the FTC. Only later when Zuck took over Instagram did Systrom get upset because Mark really did want to keep Facebook the king and Instagram under Facebook. Ironically (or perhaps expectedly for some of us) the mobile social network king Instagram is now more valuable than the PC social networking king Facebook. Mark saved himself with a buyout. The FTC allowed it at the time cause they didn't realize it was a horizonal buyout; they didn't know what they were looking at.
Facebook's friends tab works very differently than Instagram's friend tab. On Instagram it's more about seeing what content your friends are interacting with rather than their direct posts. It's a "With Friends" feature, as it's sometimes called.
Meta is trying to save Facebook which has been losing user interest.
Meta will not give us this feature that we all want on Instagram.
On Instagram Meta wants us watching reels not interacting with friends.
Thank you for your insightful, comprehensive, and objective analysis, Brendan.
You brought informed perspective, and provided clever context at every step.
Your updates illustrate in stark detail the vast delta between cookie-cutter legacy media reporting and experienced specialized reporting, separating signal from noise.
Thank you for a fantastic summary of the case, Brendan!
I plan on using your summaries of the economic expert testimonies in my antitrust class next semester as I review the role of economic evidence. They are perfect.
Thank you, professor, and for your tip earlier! I'm a few blocks from the GULC campus and it's great that you're able to immerse students in these cases happening in our neighborhood.
Incredible reporting on this landmark case. This will 100% be a resource for future antitrust cases when looking back on what went right and what went wrong here. Great work and thank you!
I also wondered why the ftc didn't focus on the advertising angle. If I'm selling chocolates and i want to target the husbands of wives who like chocolate near their anniversary, there's one place i can go and it's not youtube or even tiktok.
Another thing they should have brought in was what facebook did the only time they had actual competition, when they were competing with myspace. If i remember right, they kind of pushed privacy at that point and, once they got rid myspace, all that went out the window and never came back.
One more thing they could have done is interview lower level engineers at instagram and asked about how hard it was to get their innovative ideas heard when instagram was a standalone company vs when it was part of facebook. I'm thinking they could have shown potential innovations that didn't make it but would have if instagram was independent.
Anyway, thanks for your coverage and good luck in all that you do!
If the FTC wins market definition fight and there is a PSN market and both Youtube and Titkok are found NOT to be included in the PSN market.... does the Judge then look at procompetitive versus anticompetitive effects to decide the winner? You wrote the Court called this "amorphous" so how will the Judge decide? I understand the anticompetitive effects to be (1) more ads shown, (2) seeing less friend-family posts than users desire to see, (3) privacy, (4) security/safety and (5) the argument not made in this case that higher prices to advertisers are logically passed on to consumers. Are there more?
You wrote "That boils the case down to three issues: (1) Is Meta a monopolist? (2) Were Instagram and WhatsApp nascent threats? And (3) If they were, did the acquisitions offer greater procompetitive benefits than anticompetitive harm?" Assuming the Court rules YES on questions (1) and (2) how will it decide question (3) ?
If the FTC shows that Meta is a monopolist, then the analysis turns to anticompetitive effects and procompetitive justifications. It's a little more complicated than that, because really defining the market and showing monopoly power in that market is all build-up for showing an anticompetitive effect, but caselaw out there still separates these out into two elements - monopoly power and then anticompetitive conduct.
The anticompetitive conduct analysis is functionally the same under Section 1 and 2 of the Sherman Act; it's a Section 2 claim for monopolization in this case. That test has been called the "Rule of Reason" under Section 1, and we might as well use that language to describe the similar test under Section 2. (Although there are still some lingering cases out there that describe the Section 2 test differently in a way that's more defendant-friendly.)
The best rule statement on this three-step burden-shifting framework is from the Supreme Court's decision in American Express: "Under this framework, the plaintiff has the initial burden to prove that the challenged restraint has a substantial anticompetitive effect that harms consumers in the relevant market. If the plaintiff carries its burden, then the burden shifts to the defendant to show a procompetitive rationale for the restraint. If the defendant makes this showing, then the burden shifts back to the plaintiff to demonstrate that the procompetitive efficiencies could be reasonably achieved through less anticompetitive means.”
At the first step, everything you listed could be considered an anticompetitive effect. But under the caselaw as the court has applied it at the summary judgment stage, the FTC doesn't even have to show those kinds of effects like increased quality-adjusted price or degraded privacy to meet its burden at step one; it's enough to show that Meta acquired nascent competitors to eliminate them. That makes it pretty easy for the FTC to meet its burden at Step 1 given the good communications on the Instagram acquisition in particular. As I summarized for WhatsApp, though, the story that they were a putative competitor is less compelling; though (as I've since revised my post), there is some evidence that that was a motivator, if you credit some non-Zuckerberg executives and their paranoia about WhatsApp.
The second step is where I've focused my analysis above. And the court here has said that it's the defendant's burden, not the plaintiff's burden as it says here in AmEx, to show that the procompetitive efficiencies could be achieved through less restrictive means. Whether that's correct or not - and being contrary to AmEx is a reason it probably is not, if the tests under Section 1 and 2 are the same - is further complicated by Meta apparently not disputing that point at summary judgment. Whether it is now barred from doing so is a further complicated question.
What I'm suggesting is that the answer to that question - whose burden is it to show less restrictive means for the procompetitive benefits - is what the whole case might turn on. If the district court is correct, the FTC probably wins because Meta didn't do enough to prove that the mergers were the only way to accomplish the benefits. If the district court is wrong and Meta can challenge that ruling post-trial or on appeal, then Meta's chances look better. That's why it's hard to make an ultimate prediction on the balance of pro- and anti-competitive effects. As the court aptly summed it up, by moving from Amazon's infrastructure to Facebook's, Instagram solved some problems and gained some other ones. If the evidence is balanced like that, a lot will turn on whose burden of proof it was.
Also, the FTC will argue that the claimed procompetitive benefits were just pretextual in light of the evidence that the intent was to "neutralize" a potential competitor. But that didn't carry the day at summary judgment. I think Meta is going to be credited for at least some portion of its claimed benefits.
Applause for this analysis. Really spectacular. This whole series of articles.
Multi-homing is bullshit. My friends use Facebook and Instagram. It is mostly young people using Snapchat. If Facebook and Instagram are down I cant go to Snapchat as a substitute. I strongly disagreed that multi-homing is common or as simple as the defense proclaimed. Multi-homing bothered me because I felt Judge Boasberg doesnt know if its real or not cause he doesnt use social media. If Meta's apps are down people may go to Youtube and Tiktok but they are not doing the PSN social friend/family communication that happens in Meta's apps. Carlton's argument is all trickery and makes no logical sense. Snap is in the PSN market because it does PSN functions. Youtube and Tiktok do not. When Meta's apps are down I go do something else because Meta has a monopoly on my social and I cant go anywhere else. Youtube and Tiktok are something else. They are not doing PSN. Again, hope Judge Boasberg (or one of his clerks) picks these things up.
Meta controls the sharing between friends/family. They control how many friends/family members see your posts and it pisses everyone off. Thats a clear sign of how strong their monopoly is. They severely limit how many of your friends/family see your posts and instead push reels in your face. Because they have a monopoly people have no choice but to stick around and put up with Meta's using us to compete with Tiktok. Yes that is what is happening. How will Judge Boasberg realize this?
I disagree that Instagram grew faster after Facebook bought it. Instagram was a rocketship. It was at 40m when Facebook bought it and almost 80m when the deal closed. Silly to think Facebook influenced this is any way that mattered. Facebook had nothing to do with Snapchat and it had no problem growing to 500m users. Instagram did not need Facebook. Facebook missed mobile and would be nowhere if it had not bought Instagram. Mark was desperate. He came to mobile with a crappy not-working HTML5 website and not an app. He was toast and we all knew it. Then he bought Instagram to save his tail. It pisses me off to see Meta pretend they helped Instagram rather than saving themselves with this buyout. It just not true.
See:
https://techcrunch.com/2012/09/11/mark-zuckerberg-our-biggest-mistake-with-mobile-was-betting-too-much-on-html5/
I helped get this article written in 2012 months after the announced buyout:
https://www.forbes.com/sites/ericjackson/2012/06/05/why-the-ftc-should-block-facebooks-acquisition-of-instagram/
All of this complex law analysis ultimately rely on the facts and what I worry about for the FTC is whether they knew and argued the facts well enough. I know they left out many things. I think they did a decent job. Lets hope its enough to right this wrong. Facebook never should have been allowed to buy Instagram.
ps. another thing that was never mentioned at trial was how Facebook passed the FTC in the first place. how did they convince the FTC to allow the buyout? the reason is because they pretended Instagram was a feeder app of stylized photos into Facebook when really it was already a 40,000,000 user strong social network competitor. Facebook pretended Instagram was a vertical purchase when it was really a horizontal competitor with 80,000,000 networked users at deal closing. Instagram didnt need Facebook. They could have raised as many billions as they wanted. Instagram owned social on mobile while Facebook was stuck on pc playing around with HTML5. Hope they dont let Facebook re-write the true history.
pss: Instagram founder Systrom went along with all of this because he wanted to be bought out by Facebook. Facebook was the king with the money; they were the first to go public. Systrom wanted to solidify money in his pocket. He told all sorts of fibs to get around the FTC. Only later when Zuck took over Instagram did Systrom get upset because Mark really did want to keep Facebook the king and Instagram under Facebook. Ironically (or perhaps expectedly for some of us) the mobile social network king Instagram is now more valuable than the PC social networking king Facebook. Mark saved himself with a buyout. The FTC allowed it at the time cause they didn't realize it was a horizonal buyout; they didn't know what they were looking at.
See:
https://archive.nytimes.com/bits.blogs.nytimes.com/2012/12/16/disruptions-instagram-testimony-doesnt-add-up-2/
https://www.amazon.com/No-Filter-Inside-Story-Instagram/dp/1982126809
The lesson of all this is that the FTC needs to hire people who understand what all these products actually do if they want to regulate properly.
Cheers!
The Friend Tab
Facebook's friends tab works very differently than Instagram's friend tab. On Instagram it's more about seeing what content your friends are interacting with rather than their direct posts. It's a "With Friends" feature, as it's sometimes called.
Meta is trying to save Facebook which has been losing user interest.
Meta will not give us this feature that we all want on Instagram.
On Instagram Meta wants us watching reels not interacting with friends.
Friends dont make reels.
Meta wants to compete with Tiktok.
They dont care what we want.
Monopoly power.
Thanks Franca as always for your insightful comments! You really know this case inside and out. Are you buying transcripts too?!
Thank you for your insightful, comprehensive, and objective analysis, Brendan.
You brought informed perspective, and provided clever context at every step.
Your updates illustrate in stark detail the vast delta between cookie-cutter legacy media reporting and experienced specialized reporting, separating signal from noise.
Thank you for a fantastic summary of the case, Brendan!
I plan on using your summaries of the economic expert testimonies in my antitrust class next semester as I review the role of economic evidence. They are perfect.
Thank you, professor, and for your tip earlier! I'm a few blocks from the GULC campus and it's great that you're able to immerse students in these cases happening in our neighborhood.
Incredible reporting on this landmark case. This will 100% be a resource for future antitrust cases when looking back on what went right and what went wrong here. Great work and thank you!
You are an incredible writer!
I also wondered why the ftc didn't focus on the advertising angle. If I'm selling chocolates and i want to target the husbands of wives who like chocolate near their anniversary, there's one place i can go and it's not youtube or even tiktok.
Another thing they should have brought in was what facebook did the only time they had actual competition, when they were competing with myspace. If i remember right, they kind of pushed privacy at that point and, once they got rid myspace, all that went out the window and never came back.
One more thing they could have done is interview lower level engineers at instagram and asked about how hard it was to get their innovative ideas heard when instagram was a standalone company vs when it was part of facebook. I'm thinking they could have shown potential innovations that didn't make it but would have if instagram was independent.
Anyway, thanks for your coverage and good luck in all that you do!
Thank you for your insights.
If the FTC wins market definition fight and there is a PSN market and both Youtube and Titkok are found NOT to be included in the PSN market.... does the Judge then look at procompetitive versus anticompetitive effects to decide the winner? You wrote the Court called this "amorphous" so how will the Judge decide? I understand the anticompetitive effects to be (1) more ads shown, (2) seeing less friend-family posts than users desire to see, (3) privacy, (4) security/safety and (5) the argument not made in this case that higher prices to advertisers are logically passed on to consumers. Are there more?
You wrote "That boils the case down to three issues: (1) Is Meta a monopolist? (2) Were Instagram and WhatsApp nascent threats? And (3) If they were, did the acquisitions offer greater procompetitive benefits than anticompetitive harm?" Assuming the Court rules YES on questions (1) and (2) how will it decide question (3) ?
Thanks for your note.
If the FTC shows that Meta is a monopolist, then the analysis turns to anticompetitive effects and procompetitive justifications. It's a little more complicated than that, because really defining the market and showing monopoly power in that market is all build-up for showing an anticompetitive effect, but caselaw out there still separates these out into two elements - monopoly power and then anticompetitive conduct.
The anticompetitive conduct analysis is functionally the same under Section 1 and 2 of the Sherman Act; it's a Section 2 claim for monopolization in this case. That test has been called the "Rule of Reason" under Section 1, and we might as well use that language to describe the similar test under Section 2. (Although there are still some lingering cases out there that describe the Section 2 test differently in a way that's more defendant-friendly.)
The best rule statement on this three-step burden-shifting framework is from the Supreme Court's decision in American Express: "Under this framework, the plaintiff has the initial burden to prove that the challenged restraint has a substantial anticompetitive effect that harms consumers in the relevant market. If the plaintiff carries its burden, then the burden shifts to the defendant to show a procompetitive rationale for the restraint. If the defendant makes this showing, then the burden shifts back to the plaintiff to demonstrate that the procompetitive efficiencies could be reasonably achieved through less anticompetitive means.”
At the first step, everything you listed could be considered an anticompetitive effect. But under the caselaw as the court has applied it at the summary judgment stage, the FTC doesn't even have to show those kinds of effects like increased quality-adjusted price or degraded privacy to meet its burden at step one; it's enough to show that Meta acquired nascent competitors to eliminate them. That makes it pretty easy for the FTC to meet its burden at Step 1 given the good communications on the Instagram acquisition in particular. As I summarized for WhatsApp, though, the story that they were a putative competitor is less compelling; though (as I've since revised my post), there is some evidence that that was a motivator, if you credit some non-Zuckerberg executives and their paranoia about WhatsApp.
The second step is where I've focused my analysis above. And the court here has said that it's the defendant's burden, not the plaintiff's burden as it says here in AmEx, to show that the procompetitive efficiencies could be achieved through less restrictive means. Whether that's correct or not - and being contrary to AmEx is a reason it probably is not, if the tests under Section 1 and 2 are the same - is further complicated by Meta apparently not disputing that point at summary judgment. Whether it is now barred from doing so is a further complicated question.
What I'm suggesting is that the answer to that question - whose burden is it to show less restrictive means for the procompetitive benefits - is what the whole case might turn on. If the district court is correct, the FTC probably wins because Meta didn't do enough to prove that the mergers were the only way to accomplish the benefits. If the district court is wrong and Meta can challenge that ruling post-trial or on appeal, then Meta's chances look better. That's why it's hard to make an ultimate prediction on the balance of pro- and anti-competitive effects. As the court aptly summed it up, by moving from Amazon's infrastructure to Facebook's, Instagram solved some problems and gained some other ones. If the evidence is balanced like that, a lot will turn on whose burden of proof it was.
Also, the FTC will argue that the claimed procompetitive benefits were just pretextual in light of the evidence that the intent was to "neutralize" a potential competitor. But that didn't carry the day at summary judgment. I think Meta is going to be credited for at least some portion of its claimed benefits.