The Morning Dispatch: What’s Behind the FTC Suit Against Facebook

Happy Wednesday! A new Marist poll found for the twelfth consecutive year that Americans consider “whatever” to be the most annoying word or phrase used in conversation. Everybody talks about whatever, but nobody does anything about it.

Quick Hits: Today’s Top Stories

• Moderna’s COVID-19 vaccine is 94 percent effective at preventing symptomatic illness, data published Tuesday by the Food and Drug Administration confirmed. The FDA is expected to issue an emergency use authorization for the vaccine as early as Friday.

• The FDA issued an emergency use authorization on Tuesday for the Ellume COVID-19 Home Test, the first over-the-counter diagnostic test for COVID-19 that can be conducted entirely at home. Ellume expects to produce 3 million of the tests—which the FDA says boast greater than 90 percent accuracy and deliver results in about 20 minutes—in January.

• President-elect Joe Biden is expected to formally announce several more selections for his Cabinet in the coming days. Former South Bend Mayor Pete Buttigieg will be nominated for transportation secretary, former Michigan Gov. Jennifer Granholm is Biden’s pick to run the Department of Energy, and Gina McCarthy—who led the Environmental Protection Agency in the Obama administration—will serve as Biden’s climate czar.

• Senate Majority Leader Mitch McConnell on Tuesday officially recognized President-elect Joe Biden as such for the first time, telling his colleagues on the Senate floor that “the Electoral College has spoken.” On a call with Senate Republicans, McConnell also urged his colleagues not to object to the results when Congress counts the electoral votes on January 6.

• A handful of foreign leaders—Russian President Vladimir Putin, Brazilian President Jair Bolsonaro, and Mexican President Andrés Manuel López Obrador—also formally congratulated Biden yesterday, having waited until the Electoral College affirmed his victory to do so.

• The United States confirmed 199,058 new cases of COVID-19 yesterday per the Johns Hopkins University COVID-19 Dashboard, with 12.6 percent of the 1,582,642 tests reported coming back positive. An additional 3,023 deaths were attributed to the virus on Tuesday, bringing the pandemic’s American death toll to 303,500. According to the COVID Tracking Project, 112,816 Americans are currently hospitalized with COVID-19.

Why Did the FTC Sue Facebook?

Last Wednesday, the Federal Trade Commission—along with attorneys general in 46 states, the District of Columbia, and Guam—announced a lawsuit against Facebook on the grounds that “the company is illegally maintaining its personal social networking monopoly through a years-long course of anticompetitive conduct.” The lawsuit—which was filed just weeks after the Justice Department brought a similar one against Google—was generally welcomed by Democrats and Republicans alike, as Big Tech has become in recent years a favored punching bag for both sides of the political aisle.

The FTC’s lawsuit is bipartisan—can you think of any other policy issue that would receive support from nearly every state?—but Democratic and Republican attorneys general signed onto it for very different reasons. (Full disclosure: The Dispatch is a participant in Facebook’s fact-checking program.)

Progressives tend to criticize Facebook for the unprecedented amount of user data it gobbles up and the platform’s history of allowing disinformation to run rampant. “In the absence of competition and accountability, Facebook has harmed people’s privacy and allowed disinformation to flourish on its platform, threatening our democracy,” said Rep. David Cicilline, a Democrat from Rhode Island. Cicilline chairs the House Judiciary Committee’s Antitrust Subcommittee and has been holding hearings to investigate tech companies’ alleged anti-competitive practices for years.

Republican lawmakers—Sens. Josh Hawley, Ted Cruz, Marsha Blackburn, and Mike Lee chief among them—are concerned about Facebook’s size because they believe the company is biased against conservatives. “If Facebook faced greater competition, it might be more reticent to engage in the draconian censorship it has become fond of,” Lee—who chairs the Senate Judiciary Comitttee’s Antitrust Subcommittee—said last week.

But privacy, disinformation, bias—on their face, none of those issues have much to do with antitrust law, which in the United States has for decades been guided on a bipartisan basis by something called the consumer welfare standard. In a February 2019 speech, FTC Commissioner Christine Wilson—appointed by President Trump in 2018—laid out a definition of the principle. “Under the consumer welfare standard, business conduct and mergers are evaluated to determine whether they harm consumers in any relevant market. Generally speaking, if consumers are not harmed, the antitrust agencies do not act.”

That approach has contributed to rising levels of market concentration across various industries in recent years, but market concentration itself is not inherently a negative development. If Firm A acquires Firm B, and the resulting synergies allow the combined company to produce higher quality goods at a lower price, that is not a bad thing. The FTC’s suit against Facebook zeroes in on two of Facebook’s acquisitions: Instagram in 2012 and WhatsApp in 2014.

“Since toppling early rival Myspace and achieving monopoly power, Facebook has turned to playing defense through anticompetitive means,” the lawsuit reads. (It’s worth remembering that many viewed Myspace as a monopoly just over a decade ago; the tech sector is inherently volatile.) “After identifying two significant competitive threats to its dominant position—Instagram and WhatsApp—Facebook moved to squelch those threats by buying the companies, reflecting CEO Mark Zuckerberg’s view, expressed in a 2008 email, that ‘it is better to buy than compete.’”

Tim Wu, a law professor at Columbia University who specializes in technology and antitrust, made a similar case in the New York Times last week. “In the early 2010s, Facebook became insecure about its prospects,” he argued. “Facebook’s strategy was similar to John D. Rockefeller’s at Standard Oil during the 1880s. Both companies scanned the horizon of the marketplace, searching for potential competitors, and then bought them or buried them.”

The FTC’s lawsuit seeks to order Facebook to divest Instagram and WhatsApp—and would require Facebook to obtain approval from the federal government approval of any future mergers or acquisitions—despite the fact that the FTC itself greenlit both acquisitions at the time. 

“The merger was—certainly at the time—pro-competitive,” Asheesh Agarwal, deputy general counsel at pro-tech think tank TechFreedom, told The Dispatch. “That’s why the FTC cleared both deals. And I think it’s a little troubling that the FTC would now—many years after the fact—go back and seek to unwind these transactions after Facebook made a lot of investments necessary to get those platforms up to where they are now.”

He compared the acquisitions to the New England Patriots drafting Tom Brady back in 2000. “[Brady] was a backup quarterback at the University of Michigan and a sixth round draft pick by the Patriots,” he said, arguing that Brady wouldn’t have been nearly as successful were he drafted by the Jets or Lions. “If you look at where Instagram was in 2011, it was kind of like a sixth round draft pick. They had no revenue and no viable business model. And it really took a lot of investment to get them to where they are today.”

In examining the antitrust case against Facebook, it’s worth spending some time looking at exactly “where they are today.” The FTC’s suit cites Facebook’s 3 billion users worldwide to define it as “the world’s dominant online social network.” And it almost assuredly is, bringing in $70 billion in revenue and $18.5 billion in profits in 2019. But it’s not a crime to be successful, or even to be dominant—provided that that dominance is achieved through competition.

And Facebook has plenty of competition. The FTC alleges Facebook has monopoly power in the market for “personal social networking,” but its 53-page lawsuit neglects to mention TikTok—the fastest growing social network in the world—even once. “Personal social networking” competitors also include Snapchat, Twitter, LinkedIn, YouTube, Nextdoor, Twitch, and Reddit. Facebook Messenger competes with Slack, Microsoft, Apple, Google, WeChat, Signal, Viber, Skype, Zoom, and Discord. Facebook Marketplace competes with eBay, Amazon, Craigslist, Poshmark, Rakuten, and Etsy. Facebook Watch competes with Netflix, Hulu, Disney, Amazon, HBO, Apple, YouTube, and Sling.

You get the idea. Because Facebook offers so many services, it’s difficult to define the market in which it would be a monopoly.

But the FTC decided on “personal social networking,” saying Facebook’s share of that market is “in excess” of 60 percent. In another market Facebook is accused of monopolizing—digital advertising—the company has a 23 percent share.

That 60 percent figure is in the “low end of the range that we usually use for condemning monopolization,” said Herbert Hovenkamp, law professor at the University of Pennsylvania and antitrust expert. When the government went after Microsoft on antitrust grounds in the 1990s, Bill Gates’ company had a greater than 90 percent share of the PC market. Google currently maintains a similar stranglehold in the market for online search.

Hovenkamp predicted there would be “some obstacles” to the FTC successfully forcing a spinoff of WhatsApp and Instagram, but did see the plaintiffs notching some smaller wins. “I think the claims against the allegedly anti-competitive agreements are pretty strong ones,” he said.

To access Facebook’s programming, app developers must obtain access to the company’s Application Programming Interfaces (APIs): nodes in Facebook’s computer code that provide entry points to the program. Hovenkamp explained that Facebook grants API access only to developers who agree, “No. 1,  not to engage in any activities that compete with Facebook, and No. 2, not to supply their app to any other firm that competes with Facebook.” Hovenkamp thinks that the FTC will likely succeed in persuading the D.C. District Court to prohibit these practices.

But on the bigger questions, the FTC will have a tougher hill to climb—particularly because the bulk of Facebook’s services are offered at no monetary cost to users, making it more difficult to prove tangible consumer harm. Critics will argue that, because Facebook makes its money from advertising, consumers are paying for the service—with their personal data.

All that said, Facebook’s unparalleled dominance may not be long for this world, regardless of the outcome of the FTC’s suit. “Their user base in the United States—both in terms of size and in terms of intensity of commitment, the amount of time people spend on Facebook—has been declining for the last several years,” Paul Matzgo, tech and innovation editor at Lib​er​tar​i​an​ism​.org, told The Dispatch last week. He added that the company recently tried and failed to create a competitor to TikTok. “They had to shut it down not that long ago because they just couldn’t compete. So Facebook is in serious trouble. People act like it’s a monopoly, when the market is punishing them badly.”

Kidnapping in Nigeria

Months of escalating violence by criminal gangs and jihadist groups in Nigeria’s northwestern region came to a head Friday, when armed gunmen entered a school and kidnapped more than 300 boys. On Tuesday, a man claiming to be Boko Haram leader Abubakar Shekau declared his group’s responsibility for the attack. “I am Abubakar Shekau and our brothers are behind the kidnapping in Katsina,” the voice said during a four-minute recording. “We carried out the Katsina attack for the religion of Allah to be supreme and to debase unbelief.”

Although local authorities and media outlets had initially attributed the attack to one of the state’s many opportunist “bandit” groups—anticipating that the students would eventually be held for ransom—many observers connected the dots to Boko Haram’s mass kidnapping of more than 276 schoolgirls in Chibok six years ago. The terrorist group—also known as the Islamic State in West Africa (ISWA)—has killed more than 36,000 people over the course of the decade in its efforts to “purify” Islam.

If this latest incident were indeed carried out by Boko Haram, it would indicate that the group has successfully expanded its terrorist cells westward—exerting influence outside of its stronghold in Nigeria’s northeastern Borno state. The move could be an effort by Boko Haram to fill the ranks of Shekau’s army with child soldiers, punish the region for instituting secular education, draw international attention to the group’s terrorist activities, or some combination of the three.

But there are also reasons to believe that the initial response blaming local gangs rather than Boko Haram—by media outlets, local government, and Nigerian President Muhammadu Buhari, who condemned “the cowardly bandits’ attack on innocent children” Saturday—was in fact the correct one.

“Boko Haram has not been particularly active in Katsina state, while criminal gangs involved in kidnappings certainly have been,” John Campbell, a former U.S. ambassador to Nigeria, told The Dispatch on Tuesday. “Further, when Boko Haram has attacked schools, the pattern has been to enslave the girls and kill all of the boys. In this particular case, not only were apparently no boys killed, but there is an anecdote repeated by one of the boys who escaped, who says he overheard telephone instructions saying that none of them were to be killed. That to me would imply that the goal is ransom, and that the perpetrators are a criminal gang.”

For months, armed groups seeking profit and power have been at the center of rising violence in Nigeria’s northwest region. On April 18, more than 300 gang members killed 47 people in simultaneous attacks in the Katsina towns of Dutsemna, Danmusa, and Safana. In June, bandits opened fire on locals during a looting in the village of Kadisau, killing at least 20. The United Nations reported that between April and June, a series of robberies, kidnappings, and mass murders forced the flight of more than 30,000 refugees into neighboring Niger.

After widespread protests against police brutality and deadly responses by security forces rocked Nigeria earlier this year, this latest kidnapping undercuts the legitimacy of an already deeply unpopular government.

“There’s considerable public anger in Nigeria over what is seen as a slow response. Large numbers of Nigerians feel that the government is fundamentally failing in the first requirement of any state, which is to protect its citizens,” Campbell said. “Not just tied to this particular incident—though it highlights it—but more generally to Boko Haram in the northeast, farmer-herder conflict in the Middle Belt, the spread of jihadism to the northwest, ongoing low-level insurrection in the oil patch, and this nationwide crime wave involving kidnapping.”

“The disillusionment is much broader and much deeper than with a single politician,” he added. “It is rather with the whole system.”

Worth Your Time

• Hundreds of thousands of Uighurs are being forced to pick cotton by hand, according to a BBC investigation by John Sudworth. “China is forcing hundreds of thousands of Uighurs and other minorities into hard, manual labour in the vast cotton fields of its western region of Xinjiang,” Sudworth reports. Newly discovered online documents provide “the first clear picture of the potential scale of forced labour in the picking of a crop that accounts for a fifth of the world’s cotton supply and is used widely throughout the global fashion industry.”

• We wrote to you yesterday about the staggering series of cyberattacks levied against the United States in recent months. In a piece for the Washington Post, Craig Timberg and Ellen Nakashima, who have been all over this story, detail how it happened. “When computer networks at the State Department and other federal agencies started signaling to Russian servers, [why] did nobody in the U.S. government notice that something odd was afoot?” the pair write. “The Russians, whose operation was discovered this month by a cybersecurity firm that they hacked, were good. After initiating the hacks by corrupting patches of widely used network monitoring software, the hackers hid well, wiped away their tracks and communicated through IP addresses in the United States rather than ones in, say, Moscow to minimize suspicions.”

• Facebook may or may not be a monopoly, but—in a scathing piece for The Atlantic—Adrienne LaFrance argues that it is a Doomsday Machine. “The social web is doing exactly what it was built for. Facebook does not exist to seek truth and report it, or to improve civic health, or to hold the powerful to account, or to represent the interests of its users, though these phenomena may be occasional by-products of its existence,” she writes. “The rise of QAnon, for example, is one of the social web’s logical conclusions. That’s because Facebook—along with Google and YouTube—is perfect for amplifying and spreading disinformation at lightning speed to global audiences. Facebook is an agent of government propaganda, targeted harassment, terrorist recruitment, emotional manipulation, and genocide.”

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Also Presented Without Comment

Toeing the Company Line

• In yesterday’s edition of The Sweep, Sarah previewed the off-year elections coming in 2021, including gubernatorial races in Virginia and New Jersey, and mayoral races in big cities like New York. “Odd-year elections are, well, just that: odd,” she writes. “Turnout tends to be lower, of course, because only the highest propensity voters who aren’t motivated by national issues turn out for non-federal races. This tends to favor incumbents who come in with a sizable advantage on name identification and fundraising and tend to have the support of the most hardcore party faithful.”

• Scott Lincicome’s Capitolism newsletter (🔒) this week focused on the American industry that has attracted more taxpayer subsidies than any other: agribusiness. “This year, farmers (on net) will derive almost 40 percent of their income directly from the U.S. government,” he writes. “Once the subsidy train gets rolling, it’s often difficult—if not impossible—to stop it, regardless of the overwhelming merits of doing so.”

• Jonah had Scott Winship—director of poverty studies at the American Enterprise Institute—on The Remnant yesterday to discuss persistence of poverty in American society, and what progress has been made both recently and over the long term.

• Up on the site today, Declan has a piece looking at how the post-election period has turned into a circular firing squad for Republicans in Arizona and Georgia. “In the weeks since November 3,” he writes, “a handful of state parties across the country [are] … attacking the highest-ranking Republicans in their states, with a ferocity that will leave lasting political damage.”

Let Us Know

Assuming you’re still there, do you enjoy the time that you spend on Facebook? Not counting our own pleasant little online community, which social media platform do you use the most?

Reporting by Declan Garvey (@declanpgarvey), Andrew Egger (@EggerDC), Haley Byrd Wilt (@byrdinator), Audrey Fahlberg (@FahlOutBerg), Charlotte Lawson (@charlotteUVA), and Steve Hayes (@stephenfhayes).