As you likely know by now, Meta is currently fighting a lawsuit brought by the U.S. Federal Trade Commission, which alleges that the tech giant has engaged in unfair trade practices. So to make sense of it – as with all-things antitrust – we turned to our go-to legal expert James Ward.

For those unfamiliar, James Ward is CEO of Ward PLLC and Special Counsel at Actuate Law. So naturally, we turned to him to make sense of Meta’s situation. Here’s our discussion with Ward, and stay tuned for more as this story develops…

To start, let’s talk about how the FTC works. What’s its mandate, how does it bring these cases to fruition, and what are a few landmark examples of its work in tech in the recent past?

The Federal Trade Commission is the primary U.S. consumer protection and antitrust enforcement agency. Its mandate is to promote competition and protect consumers from unfair business practices – very similar to what you’ll see in states all around the country, where the Attorney General’s office (or a miniature FTC) enforces unfair trade practices act laws. FTC aims at protecting a competitive market and protecting consumers by using two primary vehicles – the Sherman Antitrust Act and the Federal Trade Commission Act. It does this both in its own administrative proceedings and in civil litigation in federal court, which is what we see happening with Meta now.

With that general backdrop, tell us a bit about its case against Meta. What did Meta do, and what is the FTC’s basis/ammunition?

FTC’s case focuses on Meta’s acquisitions of Instagram (2012, $1 billion) and WhatsApp (2014, $19 billion). The FTC argues that when Meta acquired Instagram, in 2012, and WhatsApp in 2014, it was carrying out a strategy to eliminate competition and maintain monopoly power over the social media market. In other words, Facebook (as it then was) wanted to vacuum up all potential competitors to eliminate the risk to its own business model.

The FTC’s core allegations include:

• Meta had a “buy or bury” strategy behind its acquisitions, leading Meta to gobble up competitors it viewed as threats, or to squash the rivals out of business altogether, which would be classic anticompetitive behavior
  
• The plan was obvious and intentional, given a 2012 internal email where Zuckerberg wrote that buying Instagram was motivated by a desire to “neutralize a potential competitor” which is just another reason why you never put anything in writing
  
• For FTC, this means that Meta aimed at monopolizing, and did in fact monopolize the specific market of personal social networking, saying there are no major alternatives to Meta’s apps like Facebook and Instagram, which are used by people to stay up to date and communicate with friends and family in an online, shared-social space
  

There’s loads of evidence on this, including internal Meta documents, emails from Zuckerberg expressing concern about competitive threats, and evidence that Meta’s market position allowed it to degrade service quality (more ads, reduced privacy protections) without losing users.

In your opinion, does it have a strong case? Does it adequately meet the standards that it needs to?

• FTC has some decent arguments. There is Compelling internal documents showing competitive concerns, which easily support an anticompetitive plan
• Clear evidence of intent to acquire potential competitors in pursuit of that plan
• Ability to demonstrate market concentration in a narrowly defined market — but how narrow is the key.

And therein lies the rub: in order to hold water, FTC’s case would need to support the idea that 1) you have to extremely narrowly define the market as social media networks where people post images and content (for instance) and 2) prove that Meta harmed competitors or consumers in this market. Well that’s just not how the social media market works — which is probably why the FTC itself approved these acquisitions in 2012 and 2014. If the court doesn’t agree with the government’s highly narrow definition of the social media market, it’s virtually impossible for Meta to have dominated, because even if you just add in TikTok, we’re no longer talking market dominance.

Now let’s talk about Meta. What’s its basic defense? Now that it’s case has rested, what’s your opinion on the testimony from Zuckerberg and others?

As you might imagine, Zuck was well prepared for his testimony, and I think it was probably enough to snag a win for Meta. Meta’s defenses overall were unsurprising: we were in a competitive market, we wanted to grow, we acquired companies that helped grow our base, consumers benefited from our improved products etc. Those are all strong. Their arguments included a ringer of a line: “[Meta’s] evidence at trial will show what every 17-year-old in the world knows: Instagram, Facebook and WhatsApp compete with Chinese-owned TikTok, YouTube, X, iMessage and many others.”

Kind of hard to argue with that one.

Zukerberg’s testimony was strong for them too. He said that they did a “buy v build” analysis during the camera app period, and, simply, Instagram was better, so they bought them. And he made clear that TikTok has been a huge problem for Meta competitively, a point that the numbers support. In other words, where’s the market dominance if we’re the dominant player?

Let’s game this out a bit. If Meta prevails, then presumably not much changes in the world. But if they don’t, what does this practically mean? What are the next steps they’ll need to execute to break out Instagram, WhatsApp, or any other pieces?

If Meta loses? Huge consequences. They’ll have to spin off Insta and WhatsApp, undo their technical integration, change the user data architecture, unwind revenue etc etc. This would take years (not even counting the appeals process). If that happens, it’s the death knell for Meta as we know it — 50% of Meta’s US revenue is Instagram as is.

Sticking with the same thread, what would that mean not just for Meta but for the market and other stakeholders throughout the AdTech or broader tech landscape? There’s some historical evidence that big breakups create more value in the long run – any predictions for how this could go on macro levels?

If Meta loses, the practical implications would be substantial for the tech industry:

• Precedent Setting: It might embolden regulators to pursue similar cases against Amazon, Google, and Apple more aggressively
• M&A Chill: Would signal that no acquisition is ever truly final, potentially freezing future tech consolidation
• Innovation Questions: If a lawsuit like this one (which, I think, wasn’t very strong) comes out successfully for FTC, it will make companies think twice before investing in innovation, knowing they may be punished if that innovation leads to success

There is precedent, of course. The AT&T breakup provides relevant lessons, as splitting up Ma Bell had a huge impact on US innovation in the telco sector. Patents in telco grew by 19% more than other comparable sectors, phone prices dropped, competitive pricing kicked in – there were real benefits. But remember: no consumer is paying for Instagram the way they paid for telephone services in the 1970s. Sure, there are other costs, but here we’re talking about a nontraditional economic model that the Sherman Act wasn’t designed to address.

Could there be benefits? Sure. An unbundled Meta might wind up with three companies worth more than Meta is today. Or they could tank, and this is the key — because the real value is the aggregated data, not the ads. FTC doesn’t get that Meta’s real value is in the data assets it holds, because thats where all the future value comes from.

Speaking of predictions, what’s your professional opinion and gut instinct on who will prevail in this case?

• I think you could guess based on what I’ve said, but I think Meta wins this one.
• The market definition challenge is substantial – excluding TikTok and YouTube from the social media market seems increasingly untenable.
• The significant time gap (10+ years) since the acquisitions makes proving current harm difficult
  The FTC’s previous approval of both deals creates a high bar for reversal.
• Meta faces strong competition in a rapidly shifting tech landscape that includes American and foreign competitors.

My guess is we get a ruling early fall, but it could be sooner.

Any other thoughts or insights we didn’t cover?

James Ward believes we can’t ignore the political aspect here, with this White House being much friendlier to Silicon Valley than the last. How will that play out? We’ll see, but he thinks it would be shocking if the FTC pursued any other cases like this in the near future.

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