Musings on Meta

Resolving a case that had been pending since President Trump's first term, DC District Court judge James Boasberg on November 18 ruled that the Federal Trade Commission (FTC) had failed to carry its burden to establish the contours of any separate "personal social networking" (PSN) market or that Meta held a monopoly in that market. 

Judge Boasberg rejected the FTC's contention that Meta's apps, Facebook and Instagram, are primarily used for "personal social networking" while others, such as TikTok and YouTube are video entertainment apps, finding that the four platforms have "evolved to have nearly identical" features, and that "the evidence resoundingly shows that" users treat TikTok and YouTube as alternatives to Meta's app. Thus, the court concluded that TikTok and YouTube "compete fiercely over a meaningful share of Meta's business," and that "YouTube and TikTok belong in the product market, and they prevent Meta from holding a monopoly. Even if YouTube is out, including TikTok alone defeats the FTC's case."

Here are some thoughts on the implications of this decision:

• The appropriate timing of analysis in merger and conduct cases. Key to Judge Boasberg's decision was to define the market and to assess Meta's alleged monopoly power as of the time of the hearing – at the present, not at the time the FTC filed the complaint. This was critical to the Court's opinion, as "[l]ike Heraclitus's river, the rapids of social media rush along so fast" that both Meta's apps and the competition changed significantly each time the Court examined the marketplace. 

To come to his view on the law, Judge Boasberg relied primarily on the text of Section 13(b) of the FTC Act, which talks about a defendant that "is violating or is about to violate" the antitrust laws. This present/future tense means that the court needs to look at the matter now, not at the time of filing. Sec. 7 of the Clayton Act similarly uses the future and present tenses too: "No person . . . shall acquire [stock or assets, where] . . . the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly." Therefore, this decision can be used to counter the DOJ and FTC's frequent argument in merger challenges that the court should look at competition at the time of the merger agreement is executed, not at the time any challenge is brought. Certainly, the DOJ and FTC will argue that the announcement of a merger tends to distort an accurate look at the acquired entity's competitiveness, but Judge Boasberg's comments on timing still will be instructive. See also U.S. v. Syufy Enterprises, 903 F.2d 659 (Ninth Circuit Court of Appeals 1990) (finding that an increase in competition subsequent to a DOJ challenge demonstrated that there were low barriers to entry such that a company acquiring 100% of the first-run movie theaters in Las Vegas did not violate Section 2 or Section 7).

The decision may also prove to be impactful in conduct cases in which the government or plaintiffs seek injunctive relief. This is especially true in high-tech industries, where competition can change rapidly in a few years' time. This may also prove important in indirect purchaser class action cases, which are often based on state law claims with a Sherman Act Section 1 claim for injunctive relief used to justify a nationwide class. If competition has changed in the many years that frequently pass between complaint and class certification (or trial), the justification for an injunction may evaporate, and with it the jurisdictional basis for a nationwide class.

Finally, expect the agencies to bring future Section 2 cases arising in rapidly developing technology markets in the Eastern District of Virginia or other "rocket docket" courts with a reputation for speedily resolving cases.

• Core customers. The D.C. Circuit's Whole Foods opinion has been a thorn in defendants' side in market definition arguments in both government and private litigation. That decision based its market definition on consumer preferences, finding that "premium natural and organic supermarkets" were in a different market than standard supermarkets – even supermarkets that sold some organic foods – because there was a subset of grocery buyers that preferred those PNOS stores. Judge Boasberg severely criticized that approach. He dismissed the decision as entirely non-binding (Judge Brown's opinion in that case did not command a majority; it was never adopted by the D.C. Circuit; and it arose in the context of a tentative preliminary injunction ruling, not as a final merits decision) and limited its reasoning to situations in which prices are much higher in the narrower customer preference market. Expect Judge Boasberg's opinion to be used to limit any attempted reliance on Whole Foods going forward.
• Measuring market shares. While the court acknowledges that the typical way to measure market share is revenue, the discussion of measuring market share by time users spend on the app could be a useful alternative in multihoming markets. The fact that Meta and others tracked share by time spent (as well as numbers of users) aided in reliance on this measure. Opening up ways to measure market share beyond revenue in multihoming markets may help defendants describe a better picture of their true (smaller) market share. (And, of course, revenues are not a good measure where users do not pay – although advertising revenue might have been an alternative metric for assessing market share.)
• Expert witness views. While the court did not formally disqualify the FTC's expert witness, NYU Professor Scott Hemphill, Judge Boasberg may have made a significant dent in the activities of prospective testifying economists going forward. While acknowledging that experts get hired because they hold views that support the hiring party's position, Judge Boasberg found that Hemphill's activism went too far – specifically lobbying the FTC to bring the very case it did against Meta. As a result, economists hoping for expert work may be more reluctant to sign on to advocacy pieces or to engage in independent lobbying efforts in the future. But see Amazon's and Meta's efforts to recuse then-FTC Chairperson Lina Khan based on her prior advocacy against Amazon and other tech companies – Khan refused to recuse herself (despite an ethics officer recommending that she do so), and there was never an judicial intervention on the issue.
• Harm in innovation markets. The court's skepticism of the FTC's theory of harm – a limitation on quality – in the face of rapid innovation will likely be helpful in any case arising in a technology or innovation market. It is difficult to prove that despite significant leaps in technology that innovation would be even greater but for a restriction in competition. And Judge Boasberg's incredulity regarding the FTC's assertion to the contrary repeatedly came through in his opinion. Tech companies will be citing this to argue that their actions have not restricted innovation competition.

• "Submarkets." Judge Boasberg's tangent on submarkets is potentially useful to both the agencies and plaintiffs as well as defendants, depending on the circumstances. He essentially agrees with those who take the position that "there is no such thing as a submarket" – if you have a market and then (through application of a hypothetical monopolist test) you can make a narrower market, then the broader market is not a market.

In response to the decision, FTC spokesperson Joseph Simonson stated that the agency was reviewing its options. Nevertheless, a successful appeal would appear to be a long shot, as Judge Boasberg's opinion relies heavily on findings of fact.