The sister complaints filed Wednesday afternoon are full of anecdotal morsels assembled to show that Facebook has systematically marched toward, as chief executive Mark Zuckerberg reportedly used to shout at the end of team meetings, “domination!” The company and its leader, according to the lawsuits, went from trying to win on the merits of a more secure, more appealing site to believing “it is better to buy than compete.” The government’s two primary cases in point: Instagram (purchased in 2012) and WhatsApp (2014), from which prosecutors suggest Facebook ought to be forced to divest itself.
Facebook responds that it shouldn’t be punished six-plus years and billions of dollars in investment after the fact for mergers that the FTC chose not to object to at the time. Indeed, such an action could deter all manner of acceptable acquisitions, as well as dissuade start-ups from starting up at all. The bar for structural separations is and ought to be lofty: That radical remedy should be invoked only when it is the only way to repair demonstrable harm. And the harm in this matter is hard to demonstrate. Would Instagram, which had 13 employees when it was purchased in 2012, have emerged as a viable rival to Facebook without incubation by the parent company? Would WhatsApp have developed from a messaging service into the full-scale social network that Facebook feared could fell it?
These questions are particularly difficult to resolve in digital markets made up of free services, where relying on prices to assess consumer welfare is a nonstarter. These lawsuits may be helpful if they generate light on whether 19th-century laws are sufficient for 21st-century realities in evaluating effects on quality of service or innovation as well as price. Also potentially helpful will be a weighing of the second, more compelling prong of the complaint, which alleges that Facebook closed off competitors’ ability to integrate with its platform. Generally, courts have found that companies don’t have a duty to deal with their rivals, but that may need reconsideration in a world where network effects can tip toward winner-takes-all outcomes.
The lawsuits, their overreach notwithstanding, may therefore prove to be constructive. After years of inaction from enforcers that left so much legal territory uncharted, there’s a chance to start drawing a map. We doubt that breakup will or should be the outcome, but smart remedies short of breakup might enhance competition without stifling innovation: requiring approval of future purchases by Facebook, for example, or restricting its ability to wield data to squelch competition. It also could inform what remedies are most appropriate in the rest of the vast technological realm. A complaint that looks eight years into the past may prove most useful for its role in charting the future.