Big Tech foes in the U.S. woke up this week feeling a little envious of the United Kingdom: On Tuesday, the U.K.’s Competition and Markets Authority ordered Meta, formerly known as Facebook, to sell Giphy to address concerns about the impact of the deal on competition.
For reasons big and small, that decision moves us one step closer to the world that champions of bringing down the competition hammer on Meta and other Big Tech companies want to see in the U.S.
Tech skeptics have for years rallied around calls to break up Facebook, even as they know any path to do so through the U.S. courts is unsure and would, at best, take years. The U.K. regulator, meanwhile, ordered Meta to unwind the $315 million purchase of Giphy, just a year and a half after Facebook said it would buy the search engine, hosting and sharing platform for animated GIF images.
“Facebook built its monopoly power through a series of brazenly anticompetitive acquisitions, of which Giphy is a great example,” said Robyn Shapiro, director of communications for the American Economic Liberties Project, a group advocating for the expansion of antitrust thinking to curb tech companies. “The U.K.’s Competition and Markets Authority is right to unwind this illegal merger.”
Meta can still appeal the decision, and said it is considering doing so. But even aside from achieving a partial breakup, the CMA took on the deal in a way that advocates for increased competitive scrutiny liked a whole lot.
The decision, after all, marks a rare attempt to reverse a Big Tech deal. Digital giants such as Meta, Google and Amazon have often grown by making many small but deeply tactical acquisitions. Until recently, however, antitrust enforcers rarely paid attention to any individual transaction that appeared to have only a nominal financial value. In many cases, the companies didn’t even have to report the purchases to regulators: For example, Giphy paid a dividend to investors ahead of the transactions that lowered the company’s assets enough that Facebook wasn’t even required to report the deal to competition regulators.
“This is a problem that’s probably especially acute with tech,” said Alex Petros, policy counsel at Public Knowledge, a think tank that calls for more antitrust scrutiny of tech companies. “There are a lot of companies, like Giphy for example, that can have a lot of users [and] be a potential internet bottleneck without having a huge dollar value.”
Petros said the CMA’s analysis particularly reflected the ways past antitrust doctrine missed issues that are unique to the tech industry. Enforcers, for instance, have previously often doubted a small company could present a clear competitive threat to a huge one. The U.K. regulator had explicitly called Giphy “a potential challenger to Facebook” due to its “innovative” approach to digital display advertising, which allowed brands to promote themselves with GIFs before Facebook shut the service down.
Although U.S. antitrust analysis is concerned with acquisitions that may substantially lessen competition, Big Tech critics say enforcers have taken too narrow a view of what kinds of firms might constitute competitive threats to tech giants with expansive business models. Critics also say competition authorities have been too shy about projecting into the future and have often overlooked transactions involving firms that are in the midst of the kind of runaway growth that can occur with digital businesses.
U.S. enforcers have recently caught up to some of these criticisms. The Federal Trade Commission filed suit against Facebook about a year ago, alleging the company engaged in a pattern of anticompetitive acquisitions of small rivals with high potential. The FTC is also seeking to break up Meta by unwinding its acquisitions of WhatsApp and Instagram.
The lawsuit’s outcome is far from guaranteed, however, particularly after a judge threw out the FTC’s first complaint over the summer, and the clash is almost certain to spend several years in a lengthy appeals process.
Meta has previously said its investments in WhatsApp and Instagram are what made the apps so successful, and has suggested neither was on a trajectory to challenge Facebook. The company made the same claim for Giphy. “Both consumers and GIPHY are better off with the support of our infrastructure, talent, and resources,” the company said in a statement. The CMA also said Facebook had argued “it was likely that GIPHY would have become a significantly weakened business had it not been bought by Facebook.”
The U.K. regulator went beyond framing Meta and Giphy as head-to-head competitors, and considered the possibility that Meta could use Giphy to hurt TikTok, Twitter, Snap and other rivals by denying or limiting their access to GIFs. The analysis took seriously the notion that the deal would mean the larger company could exert its power in the social media supply chain to hurt competitors, the way a shoe manufacturer might buy a company selling laces and then cut off rival footwear makers.
In antitrust-speak, such arrangements are said to be “vertical” deals, rather than horizontal relationships between direct competitors. Since the late 1970s, competition law practitioners influenced by conservative jurist Robert Bork have argued that this kind of integration is less likely to be anticompetitive than deals where two companies producing the same thing merge. Supporters and scholars in favor of this legal theory say such deals don’t eliminate competitors, but instead tend to create savings that companies can pass on to customers. Businesses have continued to argue vertical arrangements don’t necessarily offer tech much additional power.
“Giphy no more has a monopoly over GIFs than Chipotle has a monopoly over burritos,” Adam Kovacevich, a former Google policy official who now runs a trade association for Big Tech companies, said in a tweet.
The CMA argued, however, that Facebook had “an incentive to foreclose its rivals from access to Giphy” and would face few costs for doing so.
Skepticism of vertical arrangements has been growing on both sides of the Atlantic as well as both sides of the aisle in the U.S., particularly as tech companies have drastically expanded their vertical integration. In 2020, the FTC, which was then led by Republicans, revamped its guidelines on the practice and elaborated on new potential areas of harm to consider during merger review. The commission’s Democrats complained the new approach still treated vertical deals as too likely to be beneficial.
In September, the FTC, now led by Democratic chair Lina Khan, rescinded the guidance, and the Justice Department, which also enforces competition law, announced it was undertaking a “careful review” of its guidelines “to ensure they are appropriately skeptical of harmful mergers.”
Petros of Public Knowledge praised the way the U.K. looked at the vertical components of the Giphy deal and said he hoped the regulator’s conclusions could provide a model in the U.S. — particularly with Khan in charge at the FTC and Jonathan Kanter, another favorite of tech skeptics, having received Senate approval to be the next antitrust head at the Justice Department.
“For the longest time, vertical deals were just kind of waved through,” Petros said. “That’s very much changing, and I think that’s a really good thing and something that I hope U.S. enforcers take note of.”