It’s hard to imagine now, but such a social network once existed. It was called Facebook. The company’s journey from privacy-focused startup to mass surveillance platform is at the heart of the long-awaited antitrust case filed today by a group of 46 states, along with the District of Columbia and Guam. The bipartisan coalition, led by New York State Attorney General Letitia James, alleges that Facebook achieved its dominance through a years-long strategy of anticompetitive tactics, including its acquisitions of budding rivals like Instagram and WhatsApp. As it built up that dominant position, the suit argues, it began offering users a worse and worse privacy experience.
The Federal Trade Commission also filed suit against Facebook today. The two cases, which were filed in the District of Columbia federal district court and will likely be combined into one, come after more than a year of coordinated investigation into the company. In a statement, Facebook general counsel Jennifer Newstead referred to the allegations in the legal complaints as “revisionist history,” noting that the FTC approved the Instagram and WhatsApp mergers at the time.
That may be, but there isn’t any “no backsies” rule in antitrust. The FTC of 2020 appears to have a different view of online competition than it did six years ago. The agency is seeking bold remedies, including forcing Facebook to divest itself of Instagram and WhatsApp, which it acquired in 2012 and 2014, respectively. Together, the lawsuits confront a question that has long shadowed the push for antitrust enforcement against tech platforms: How do you prove people are being harmed by a product that’s offered for free? Judging by the complaint filed by the states, which is more thorough than the FTC’s, the answer will hinge on privacy.
At first blush, privacy and antitrust might seem like separate issues—two different chapters in a textbook about big tech. But the decline in Facebook’s privacy protections plays a central role in the states’ case. Antitrust is a complicated field built on a simple premise: When a company doesn’t face real competition, it will be free to do bad things. With Facebook, the lack of competition is easy to prove. The company is by far the biggest social network in the US and, thanks to Instagram and WhatsApp, owns two of the other biggest. Facebook itself boasted in 2011 that “Facebook is now 95% of all social media.” (Today, Facebook insists that it faces robust competition from everything else that a person could devote their attention to. That is generally not how markets are defined for antitrust purposes, however.)
The bigger hurdle for antitrust enforcement is proving the “bad things” part—showing not only that Facebook built up a monopoly, but that its monopoly has been harmful. Since the 1970s, antitrust law has revolved around the so-called consumer welfare standard, under which a monopoly is deemed illegal only if it hurts consumers. In practice, that turns most antitrust cases into arguments over whether a given merger will or won’t lead to a price increase. The consumer welfare standard is controversial—the House antitrust subcommittee has suggested scrapping it—but for now remains the law of the land. That poses a special challenge for a case against a company like Facebook that doesn’t charge users any money.
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. In 2007, it rolled out Beacon, a product that allowed it to track user activity even when they were off the site. Facing fierce backlash—Beacon publicly reported your purchase habits on friends’ NewsFeeds—the company discontinued Beacon within the year. Zuckerberg called it a “mistake.” After rivals like MySpace exited the stage, however, Facebook had less to fear. Today, its “pixel” tracks users all around the internet, just as Beacon did (but without the ill-considered NewsFeed posts). According to Srinivasan, this is just one of many ways in which Facebook rolled back privacy protections once it sensed users couldn’t take their business elsewhere.
Srinivasan’s theory provided an elegant theoretical solution to the consumer harm puzzle but left open some empirical questions: Did Facebook actually compete for users by offering better privacy protections? And did it really renege on those commitments later on simply because the company’s leaders thought they could get away with it?
The case filed by the state attorneys general provides new evidence suggesting that the answer to both questions is yes. It cites an internal report from 2008 in which the company identifies strong privacy controls as one of four pillars of “Facebook Secret Sauce.” The report observed, “Users will share more information if given more control over who they are sharing with and how they share.”
The most revealing insight comes from the summer of 2011, when the company was gearing up to fend off the threat of Google’s rival platform, Google+. The complaint quotes an email in which Facebook COO Sheryl Sandberg wrote, “For the first time, we have real competition and consumers have real choice … we will have to be better to win.” At the time, Facebook had been planning to remove users’ ability to untag themselves in photos. One unnamed executive suggested pumping the brakes. “If ever there was a time to AVOID controversy, it would be when the world is comparing our offerings to G+,” they wrote. Better, they suggested, to save such changes “until the direct competitive comparisons begin to die down.” This is close to a smoking gun: evidence that, as Srinivasan hypothesized, Facebook preserves user privacy when it fears competition and degrades privacy when it doesn’t.
The states and FTC make a number of other claims about the harm caused by Facebook’s monopolistic practices, but they are relatively vague. Sure, Facebook’s tendency to gobble up potential competitors or cut them off from its developer tools has probably reduced the level of innovation in the field, but who’s to say what social networking would look like in the counterfactual scenario? The privacy theory, by contrast, has the virtue of being concrete: Facebook really did backslide on privacy commitments as it grew more dominant, and that appears not to have been coincidental. That isn’t to say the government will therefore glide through litigation; antitrust law remains stacked in favor of big business, and the federal judiciary is full of judges who were indoctrinated into a narrow consumer welfare model. But the privacy argument will at least get the enforcers’ foot in the door. Facebook may not charge users a fee, but that doesn’t mean users haven’t been paying a price.
“Part of an antitrust case is to show anticompetitive harms, and because this is a market where users aren’t paying for the product, diminished quality is a really important measure of anticompetitive harm,” said Charlotte Slaiman, a former FTC lawyer and the director of competition policy at Public Knowledge, a DC think tank. Breaking up Facebook could help spur renewed competition for privacy-focused users. Indeed, Facebook had to commit to preserving user privacy as a condition of its WhatsApp acquisition; WhatsApp’s founder later quit after Facebook broke its promise. But Slaiman stressed that other remedies could be even more important. Mandating interoperability, for example, would make it easier for new entrants to attract users. “We really want Facebook to have to compete based on the quality of their product,” she said.
Facebook insists that that is what it has been doing all along. “People and small businesses don’t choose to use Facebook’s free services and advertising because they have to; they use them because our apps and services deliver the most value,” said Newstead. The question now is whether a federal judge will buy what Facebook is selling.