How the Facebook case will test the limits of antitrust law

Does Facebook monopolize the "personal social networking" market?

Does that market even exist?

Is Facebook really free, or do people pay for the site with their data and attention?

Those are some of the questions at the center of the sweeping antitrust cases from the FTC and state attorneys general filed on Wednesday. And together their answers will determine, once and for all, whether the country's centuries-old antitrust laws are equipped to wrangle in the disruptive tech industry — or whether new laws are needed entirely.

The federal government and states are alleging that Facebook abused its dominance in the digital marketplace and violated the law with acquisitions of two nascent competitors, Instagram and WhatsApp. The cases, alongside the DOJ's case against Google, could enable the courts to finally drag antitrust law into the 21st century, recognizing that data has monetary value and consumers are harmed when their online privacy is eroded.

For decades, major antitrust cases have revolved around evidence that companies are unfairly raising prices for consumers. That "consumer welfare" standard has made it harder than ever to bring significant antitrust action against some of the country's most powerful companies, especially in the tech industry, where many of the most important products are free and harms can be less tangible than price increases.

But government regulators and state attorneys general leading the charge against Facebook are arguing money isn't the only commercial exchange that matters — in fact, data is an equally valuable resource, and Facebook harmed its users as it gobbled up more and more information about them.

"It's the first monopoly case to ever directly involve exchange of attention or data for a product," said John Newman, an associate professor of law at the University of Miami and former DOJ antitrust lawyer.

Facebook has pledged to fight the case aggressively in court and could file a motion to dismiss it entirely. "We disagree with the government's allegations and we plan to fight this in court," Mark Zuckerberg said in a letter to employees on Wednesday night. But experts said the cases against Facebook, which are expected to be consolidated, are strong and straightforward antitrust complaints with good prospects in court, meaning they could actually result in the unwinding of the Instagram and WhatsApp mergers and disrupt Facebook's central business model.

But before that happens, they'll have to surmount significant hurdles in court.

The first, and always the most consequential for antitrust cases, will be their definition of the market that Facebook monopolizes. "For almost a decade, Facebook has had monopoly power in the personal social networking market in the United States," claims the case from the state attorneys general. "As set forth in detail below, Facebook illegally maintains that monopoly power by deploying a buy-or-bury strategy that thwarts competition and harms both users and advertisers."

Facebook insists that it competes directly with platforms like TikTok, YouTube and Snap. But the case argues that those apps don't have the ability to connect directly with families and friends that Facebook offers. A judge will have to believe that "social networking" is its own market in order to even move forward with the case. "This is a category of market where competition is particularly difficult and particularly rare," said Charlotte Slaiman, an antitrust attorney with the advocacy group Public Knowledge.

If the judge agrees to that market definition, the government will then have to prove that consumers, including users and advertisers, were harmed as Facebook abused its dominance to buy up Instagram and WhatsApp while kneecapping potential rivals by leveraging the power of their APIs. In their suit, the states are claiming that Facebook's conduct deprives users of product improvements, including better privacy options.

David Dinielli, a former special counsel with the DOJ's antitrust division who has pushed for the government to bring a case against Facebook, said he thinks it will be necessary to "educate" the judge on how Facebook monetizes user data, but he remains optimistic that the claims can pass the stress test.

After years of hand-wringing over the limitations of the law, the case could mark a turning point when it comes to antitrust enforcement in the U.S., proving once and for all that the government has all the tools it needs to take on the Silicon Valley giants.

"There has been tons of public discussion over the last several years about ways we should think about updating the antitrust laws and ways we should grant new powers to regulators," said Dinielli. "What I think is interesting about these cases is they rely on tried-and-true theories of antitrust law."

Ultimately, supporters of the case have emphasized that the conduct at the center of the complaint amounts to a basic violation of the Sherman and Clayton Acts, as well as the FTC Act. The cases allege that Facebook has used exclusionary conduct to grow or maintain its monopoly power, a textbook violation.

"The theory itself is the most straightforward antitrust theory there is: You're buying your rival," Newman said.