The big news of Wednesday was that the FTC and 46 state Attorneys General filed separate antitrust suits against Facebook. Earlier this year I wrote about the novel antitrust theory advanced in the House Subcommittee on Antitrust that privacy violations are evidence of platform market power.[1] This is an argument relied on heavily in the Attorneys General’s complaint.
As a refresher, the key in antitrust is not proving monopoly but proving that the monopoly gives the company power to inflict harm, which traditionally is seen by raising prices. The problem with bringing antitrust in our current internet ecosystem is that plenty of things are free – the default mode on the internet. Businesses to have to make a difficult decision, do they stay in the “free” model by relying on advertising revenue or do they eventually restrict free materials while encouraging a subscription or payment model?[2]
Obviously, we all know what Facebook does, they rely on ads to make revenue. To supplement this, they play a huge role in the internet advertising marketplace (its known as “the duopoly” between Alphabet and Facebook)[3]. I won’t comment more on the advertising market because I admit I don’t know much about it, but Facebook’s business is laser focused on advertising.
So, a Facebook business model is a little difficult to challenge in traditional antitrust. How can you argue consumers are harmed when they get the product for free? As part of the growing techlash, the privacy argument took shape. Here it is summarized in Gilad Edelman’s article on the antitrust filings:
Facebook began its existence in 2004 by differentiating itself on privacy. Unlike then-dominant MySpace, for example, where profiles were visible to anyone by default, Facebook profiles could be seen only by your friends or people at the same school, verified by a .edu email address. “We do not and will not use cookies to collect private information from any user,” vowed an early privacy policy.
As the company grew, Srinivasan argued, Facebook tried to backslide on its privacy commitments, but it faced discipline from a market that it still hadn’t cornered… After rivals like MySpace exited the stage, however, Facebook had less to fear…Facebook rolled back privacy protections once it sensed users couldn’t take their business elsewhere.[4]
If you read the Attorneys General complaint, it echoes Srinivasan’s theme completely:
Slowly but surely, Facebook became more aggressive about both collecting data on its users’ off-platform activity and pushing users to make more information public. In what came to be an oft-repeated theme, Facebook made great efforts to present its privacy changes as giving users greater control, even as Facebook made more privacy settings public and thus less protective by default, took away options to limit visibility, and changed its privacy policy to allow for more collection and data use.[5]
I was pretty critical in my take on the privacy argument earlier this year. The House Subcommittee argued tech had swallowed the market and destroyed privacy, but also consumers cared about privacy and switched to competitors when available. I’m not sure I’m a lot more convinced by the AsG argument, but Edelman pointed out one really fascinating thing in his article:
The harms alleged in the FTC/AsG complaints often revolve around the problems of gobbling up competitors and destroying competition or cutting up APIs to reduce innovation. But those are counterfactual positions – we cant prove what the world would’ve been like if Facebook didn’t do those things. However, “The privacy theory, by contrast, has the virtue of being concrete: Facebook really did backslide on privacy commitments as it grew more dominant.”
This is some god-blessed evidence for those antitrust litigators.
I haven’t seen a lot of discussion of the merits of this argument, one way or the other (perhaps the dumb privacy guy will attempt one himself). But, this statement from district court judge Clark Waddoups, a former antitrust litigator, seems prescient (from a conference last year): “You’re facing a case in which there is no precedent, you have no pricing, and you can’t look at the normal factors.”[6] Judges love the system, and it’ll take a brave judge to forge a new path in antitrust law.[7]
This is rapidly turning into my “thing” to follow this argument, so you’ll stay posted I’m sure. Thanks for reading.
[1] I should properly attribute this theory to legal scholar Dina Srinivasan (and thanks to Casey Newton’s newsletter Platformer for making me aware).
[2] I think of the difference between say, Facebook and the NYT. Both are focused on gathering eyes on the internet, but Facebook keeps it free and serves you a buttload of ads in the process. The NYT still serves ads, but also limits your access unless you pay the subscription tier.
[3] https://www.warc.com/newsandopinion/news/the-duopoly-is-now-worth-more-to-advertisers-than-tv/43295
[4] https://www.wired.com/story/facebook-ftc-antitrust-case-smoking-gun/
[5] At paragraph 237.
[6] https://www.wsj.com/articles/yale-law-grads-hipster-antitrust-argument-against-facebook-findsmainstream-support-11575987274
[7] If we’re being real, many judges if the argument is successful. I assume if this wins at the District Court level it will at least go to a Circuit Court.
Dumb Privacy Guy 