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‘Difficult’ to Dismiss

Ex-Officials Think FTC’s Facebook Case Won't Be Dismissed

The FTC’s amended case against Facebook should survive a new motion to dismiss and go to trial due to solid evidence in the amended complaint demonstrating market power and the rising price of advertising, former FTC officials said in interviews.

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The agency showed advertising costs have risen significantly, a direct result of the platform’s market power, said antitrust attorney David Balto, a former FTC and DOJ official. In his dismissal, U.S. District Judge James Boasberg faulted the agency for not providing “better indirect evidence,” and the agency answered with direct evidence, said Balto.

The amended complaint cites Facebook “touting” to its advertising clients in 2011 that the platform “is now 95% of all social media in the US.” It cited Facebook Chief Operating Officer Sheryl Sandberg calling Facebook Blue and Instagram the “two most important mobile advertising platforms” in the world. Public earnings reports show Facebook earns “substantially all of [its] revenue from selling advertising placements to Marketers,” the agency said. The complaint cites Facebook’s anticompetitive conduct to protect its services, such as CEO Mark Zuckerberg’s role in cutting off Vine’s access to “important" application programming interface "functionality that would have helped it grow.” It also details his fears over WhatsApp surpassing Facebook in messaging in the same way Instagram surpassed Facebook in photos. A company spokesperson emailed a previous statement Tuesday, released when the agency filed its amended complaint (see 2108190059).

The key in the new filing was demonstrating Facebook has market power, and the evidence is comprehensive and compelling, said Balto: “The FTC put [the case] on a much stronger foundation, and I would expect they will survive a motion to dismiss and the case will go to trial.”

Dismissals are rare, and many judges wouldn’t have granted it in the first place, said Cornell law professor George Hay, who previously worked as DOJ Antitrust Division economics director. Boasberg showed the FTC what it needed to do to fix the problem, and the agency satisfied its burden, he added: “The FTC is in a very different position from the states, since the judge said that any kind of statute of limitations type of issue which might apply to the states would not apply to the FTC.”

The amended complaint "seems to address, in meaningful ways, the concern the district court judge had with the original complaint,” said a former FTC Competition Bureau director. “It would be difficult for Judge Boasberg to find a basis to dismiss this revised complaint, and if he did, I think the FTC would have a pretty good chance on appeal.” The former official said it’s unlikely the two sides will settle, given the agency’s desire to break up the WhatsApp, Instagram and other deals, and Facebook’s determination not to revisit any of those acquisitions.

There’s a better chance the amended complaint will survive an early renewed motion to dismiss, but it’s not clear the claims will go to trial, said Troutman’s Barbara Sicalides, who advises clients before the FTC and DOJ. Because the case is before a judge, not a jury, it’s possible the court will allow the two sides to present all evidence at trial before issuing its decision on the merits, she added. But it’s also possible that as the court becomes more familiar with factual and expert evidence, it will resolve the case at summary judgment, she said: “Either way the amended complaint makes certain leaps that the FTC will now have to prove. It is unclear from the FTC’s allegations whether the alleged price increases and reduction in quality are at anticompetitive levels.”

Boasberg seemed “content” for the pleading stage on the relevant market itself, said Hausfeld's Scott Martin, who has defended clients against FTC and DOJ regulatory actions: So the amended complaint “should survive a motion to dismiss.” It’s difficult to assess whether the two sides might settle, he said: “But barring that ... there likely will be sufficient factual disputes down the line to preclude summary judgment and that the case is headed to trial.”

The FTC has done an “admirable” job in responding to Boasberg’s concerns, said American Antitrust Institute President Diana Moss: The agency’s “level of work” in providing specifics to “support clear factual allegations should move this case ahead. A monopolization case of this magnitude and importance should not be bogged down in the motion to dismiss stage.”