Federal Judge Denies Facebook’s Motion to Dismiss, Allowing FTC Antitrust Lawsuit to Proceed and Discovery to Commence

By Jerri-Lynn Scofield, who has worked as a securities lawyer and a derivatives trader. She is currently writing a book about textile artisans.

Judge James Boasberg of the federal district court for the District of Columbia yesterday denied Facebook’s motion to dismiss the Federal Trade Commission’s (FTC) action for failure to state a claim.

Last June, the judge granted a Facebook motion to dismiss the FTC’s initial complaint, but without prejudice to repleading. The judge, an Obama appointee, invited the FTC to amend the original complaint, which it has now done to his satisfaction.

From the Memorandum Opinion:

Second time lucky? The Federal Trade Commission’s first antitrust suit against Facebook, Inc. stumbled out of the starting blocks, as this Court dismissed the Complaint last June. In doing so, the Court concluded that the Commission had failed to plausibly allege “that Facebook has monopoly power in the market for Personal Social Networking (PSN) services.” FTC v. Facebook, Inc., 2021 WL 2643627, at *1–2 (D.D.C. June 28, 2021). Because that “defect could conceivably be overcome by re-pleading,” however, the Court left the door ajar for the agency to amend the Complaint and reinstate its suit. Id. at *1.

Eagerly accepting such invitation, the FTC has filed an Amended Complaint containing significant additions and revisions aimed at addressing the shortcomings identified in the Court’s prior Opinion. The core theory of the lawsuit remains essentially unchanged. The Commission continues to allege that Facebook has long had a monopoly in the market for PSN services and that it has unlawfully maintained that monopoly via two types of actions: first, by acquiring competitors and potential competitors — most notably, Instagram and WhatsApp — that it believed were well situated to eat into its monopoly; and second, by implementing and enforcing policies that prevented interoperability between Facebook and other apps that it viewed as nascent threats. The facts alleged this time around to fortify those theories, however, are far more robust and detailed than before, particularly in regard to the contours of Defendant’s alleged monopoly.

Facebook nonetheless moves to dismiss once again, contending that the FTC’s latest effort is akin to rearranging the deck chairs on the Titanic. 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. That holding flows from several conclusions. First, the FTC has now alleged enough facts to plausibly establish that Facebook exercises monopoly power in the market for PSN services. Second, it has adequately alleged that the company’s dominant market share is protected by barriers to entry into that market. Third, the agency has also explained that Facebook not only possesses monopoly power, but that it has willfully maintained that power through anticompetitive conduct — specifically, the acquisitions of Instagram and WhatsApp. The Court will not, however, allow the allegations surrounding Facebook’s interoperability policies (also known as the Platform policies) to move forward; they founder for the same fundamental reasons as explained before: Facebook abandoned the policies in 2018, and its last alleged enforcement was even further in the past.

Key Takeaways

There’s lots to unpack here.  I’ll focus on three points only.

First, as the New York Times, among others, has recognized, the opinion clears the way for the FTC to pursue an aggressive Big Tech regulatory agenda; it “hand[s] the agency a major victory in its quest to curtail the power of the biggest tech companies”, according to A Facebook antitrust suit can move forward, a judge says, in a win for the F.T.C.

The Biden administration antitrust agenda represents a significant departure from that of recent predecessors. The last federal antitrust lawsuit of similar scope and amibition is probably the Clinton administration’s Microsoft litigation.

Central to pursuit of the Biden antitrust agenda is the participation of FTC chair Lina Khan, who made her bones in previous academic work dissecting Big Tech’s anti-competitive behavior (see Biden Taps Lina Khan to Chair the FTC; and Amazon Arrogance Backfires, Tries to Smear Incoming FTC Chair Lina Khan as Needing to Recuse Herself Because She Knows Them Too Well).

Second, as Judge Boasberg recognized, the FTC has a difficult path ahead to prevail in this lawsuit. Yet now, as a result of his ruling, the agency will be able to scour Facebook’s files in discovery. Only after it’s done so will it be possible to determine how strong the FTC’s antitrust case is.

And third, third Judge Boasberg gave very short shrift to Facebook’s attempt to kneecap Khan for her alleged “prejudgment of Facebook’s antitrust liability”:

Last, the company lets fly a new arrow this time around, urging dismissal on the independent basis that the FTC’s vote authorizing the Amended Complaint was invalid because Chair Lina Khan’s alleged prejudgment of Facebook’s antitrust liability required her recusal. The Court believes that such contention misses its target, as Khan was acting in a prosecutorial capacity, as opposed to in a judicial role, in connection with the vote.

Let the games begin!