Antitrust Action against Facebook: Desirable, Sufficient, Realistic?

A N TA L L J Ó Z S E F K N OW L E D G E C E N T R E

ANTITRUST ACTION AGAINST FACEBOOK: DESIRABLE, SUFFICIENT, REALISTIC?

ZSOLT PÁLMAI

COMMENTARY AJRC-Analyses 2019A06

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A N TA L L J Ó Z S E F K N OW L E D G E C E N T R E

AJRC-Analyses Series of the Antall József Knowledge Centre

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© Zsolt Pálmai, 2019 © Antall József Knowledge Centre, 2019 ISSN 2416-1705

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A N TA L L J Ó Z S E F K N OW L E D G E C E N T R E ANTITRUST ACTION AGAINST FACEBOOK: DESIRABLE, SUFFICIENT, REALISTIC?

ZSOLT PÁLMAI

Perhaps nothing complicates tackling the numerous issues with Facebook more than the fact that it is a free service. A simple thought experiment raises a series of questions that illuminate the complexity of the situation: imagine of the company were to charge a dollar for a month of use. Would that near-negligible but at least concrete monthly fee drastically change the way we approach the social media behemoth in terms of our expectations regarding, for example, data privacy, and the general value of the service that we expect to be provided in exchange for our money? Would users deem the paywall a valuable tradeoff if somehow the platform were 100% secure from unauthorised accessing and use of data—or even abandoned data collecting beyond the bare minimum, and did away with targeted content altogether? Some argue that, without the latter provision, users would actually be paying double, since their data is also being indirectly monetised.

Let us turn the question around, then: what if Facebook were to pay users for their data, the amount depending on how much and what kind they share? What price would be put on details about people’s browsing, spending, recreational, and (among many-many others) socialising habits? What factors would an individual take into account when determining the price they would deem fair? And most importantly, what is the “realistic market value” of personal data? And what if users found out that that “realistic market value” is not only more than the hypothetical $1, but considerably more than the price they would have asked after more or less careful deliberation? Is it possible that we are already being grossly overcharged—for something that’s purportedly free?

Even if one can easily provide a more-or-less definitive answer to most of the questions above, it is difficult to have them be based on more than personal preference, which can hardly serve as the basis for a broad regulations regime. No wonder, then, that one of the most popular proposals for solving the Gordian knot of what to do with

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A N TA L L J Ó Z S E F K N OW L E D G E C E N T R E Facebook is to chop it up into pieces: breaking up the company to undo its acquisition of former emerging competitors Instagram and WhatsApp. That something needs to be done appears to be a unanimous consensus. Facebook itself, in addition to users and lawmakers from around the world, agrees (for at least partially selfish reasons, as will be shown below) with the notion that there is a need for government regulation of its activities. But when it comes to the scope and nature of the intervention, people tend to disagree wildly. Major factors in this state of affairs include the lack of sufficiently analogous social, technological, and legislative precedent, as well as disagreement over the nature of the various apparent issues with Facebook (as one commentator asks, “Do we believe that no single platform can reach 2.7 billion people a month without doing more harm than good? Or the size of Facebook’s audience isn’t the problem, but it’s the black-box algorithm that’s the problem? Or it’s Facebook’s cultural rot and repeated failures to set and enforce rules of healthy online behavior?”)1, and even the very nature of the company.

Depending on who—and, apparently, when—you ask, Facebook should be treated as a “social utility” 2, a publisher (the company has referred to itself as one or the other depending on which one suited its desired narrative at the time)3, a “platform utility”4, or a communications service.5 The underlying issue is clear: there is a general uncertainty regarding how to approach the social media (a term that this essay will use for the sake of simplicity) giant from a legal and policy perspective, which makes it even more difficult to lay out a roadmap for a breakup or some degree of regulation.

The variety of just the most recent complaints and scandals involving Facebook further reinforces this point. Much of the current debate regarding the proliferation of fake news, political disinformation, as well as foreign interference in the 2016 US presidential campaign revolves

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1 Shira Ovide: The Case Against Breaking Up Facebook. The Washington Post. 10 May 2019. <https://www.washingtonpost.com/business/the-case-against-breaking-upfacebook/2019/05/09/832b2e48-72a0-11e9-9331-30bc5836f48e_story.html? > Accessed: 2 December 2019.

2 Chris Hughes: It’s Time to Break up Facebook. The New York Times. 9 May 2019. <https://www. nytimes.com/2019/05/09/opinion/sunday/chris-hughes-facebook-zuckerberg.html > Accessed: 22 November 2019.

3 Sam Levin: Is Facebook a publisher? In public it says no, but in court it says yes. The Guardian. 3 July 2018. <https://www.theguardian.com/technology/2018/jul/02/facebook-mark-zuckerbergplatform-publisher-lawsuit > Accessed: 22 November 2019.

4 Elizabeth Warren: Here’s how we can break up Big Tech. Medium. 8 March 2019. <https://medium. com/@teamwarren/heres-how-we-can-break-up-big-tech-9ad9e0da324c > Accessed: 21 November 2019.

5 Matt Rosoff: Facebook is not a monopoly, and breaking it up would defy logic and set a bad precedent. CNBC. 9 May 2019. <https://www.cnbc.com/2019/05/09/facebook-should-not-bebroken-up-commentary.html > Accessed: 22 November 2019.

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A N TA L L J Ó Z S E F K N OW L E D G E C E N T R E around the lack of adequate action on Facebook’s part to counter such efforts, and the company was repeatedly called out for failing to prevent the dissemination of anti-Rohingya rhetoric that fueled an ethnic cleansing in Myanmar. Then, against the backdrop of such a track record, in October 2019 the company announced that it will be exempting political advertisements from fact-checking and the potential bans that might result from it.6 While many conservatives, long dissatisfied with Facebook’s moderation practices and alleged liberal bias, lauded the move, other commentators, including Democratic US presidential candidates, warned that it will open the floodgates to even more false, disingenuous, and hateful content. The pushback prompted the company to consider revising its hands-off approach, which, predictably, invited allegations from, among others President Trump’s campaign, that Facebook is once again trying to limit free speech.7 Facebook’s handling of users’ personal data has also been a sticking point for a long time. Notably, the Federal Trade Commission recently ruled that Facebook had failed to adequately protect that data from improper use by third parties, and levied the second-largest fine in its history ($5 billion) in the wake of the Cambridge Analytica scandal, where people were essentially tricked into giving access to their data for political purposes.8 This exacerbated already popular concerns about data breaches and, in general, the possibility that the large amounts of data collected by big tech leave users vulnerable all kinds of abuse. That the issue can be invoked to apply antitrust scrutiny to Facebook was demonstrated by the Assistant Attorney General for the Antitrust Division of the US Department of Justice, who has argued that “Price effects alone do not provide a complete picture of market dynamics (…) Diminished quality is also a type of harm to competition. As an example, privacy can be an important dimension of quality. By protecting competition, we can have an impact on privacy and data protection.”9 Finally, (at least for the purpose of this piece), on a less immediately user-focused level, there has been growing dissatisfaction with the way

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6 Alex Hern: Facebook exempts political ads from ban on making false claims. The Guardian. 4 October 2019. <https://www.theguardian.com/technology/2019/oct/04/facebook-exemptspolitical-ads-ban-making-false-claims > Accessed: 22 November 2019.

7 Zach Montellaro: Google to limit targeted political ads. Politico. 21 November 2019. <https://www. politico.eu/article/google-to-limit-targeted-political-ads-as-silicon-valley-grapples-with-2020 > Accessed: 22 November 2019.

8 Andrea Valdez: Everything You Need to Know About Facebook and Cambridge Analytica. Wired.

23 March 2018. <https://www.wired.com/story/wired-facebook-cambridge-analytica-coverage > Accessed: 25 November 2019.

9 Assistant Attorney General Makan Delrahim Delivers Remarks for the Antitrust New Frontiers Conference. The United States Department of Justice. 11 June 2019. <https://www.justice.gov/opa/ speech/assistant-attorney-general-makan-delrahim-delivers-remarks-antitrust-new-frontiers > Accessed: 2 December 2019.

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A N TA L L J Ó Z S E F K N OW L E D G E C E N T R E big tech, and Facebook in particular, have potentially stifled innovation and competition. The company’s co-founder, Chris Hughes, even called allowing the social media platform holder to acquire Instagram and WhatsApp, in 2012 and 2014 respectively, “the FTC’s biggest mistake.” 10 As Hughes points out, the two companies were not taking much of a bite out of Facebook’s pie as far as revenue was concerned, but they were occupying valuable mindshare on mobile platforms, and thus represented a threat in, and ultimately an inroad to, that segment of users. Some have argued that these episodes demonstrate how startups have near-zero chance of challenging established market leaders: even if one has the confidence to resist a buyout by the large corporation, there is a high chance that they will see their product quickly and competently copied, as we are seeing in the case of Chinese social video app TikTok and Facebook’s response, Lasso. While this does allow for innovation to take place in the industry, its extent is largely limited by the industry leader.11 Ordinarily, this last point would constitute perhaps the strongest case for breaking up Facebook. Competition could, in theory, drive service providers to one-up each other in privacy protection, smart use of data, and even in the way they calibrate their moderation policies and algorithms (whether that would leave us with many Facebooks for our many political persuasions is a valid question, but beside the point for now). However, conventional wisdom regarding monopolies is hard to apply here—and this is where we return to this article’s jumping-off point—because Facebook is, at least in the classical sense, free.

Facebook critics calling for breaking up the company tend to cite two major precedents: Standard Oil in 1911, and AT&T with its Bell System in 1982. Both were demonstrably monopolies in their respective field, with unchecked power to suppress competition and control prices, and breaking them up yielded the desired effect of increased technological innovation and competitive pricing. That said, one major difference between those cases and Facebook is that the former involved “essentials”— oil and the phone system—while it would be difficult to make the case that Facebook and the platforms it owns are in any way indispensable to the broader economy.12 Moreover, and perhaps more importantly, as one analysis points out, by the late 1980s the entrenched approach was to take the factor of pricing—in other words, “economic efficiency”—as the basis for the legal definition of competition. Consequently, antitrust 10

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Hughes.

Kenneth Rogoff: Has Big Tech gotten too big for our own good? MarketWatch. 11 July 2018. <https://www.marketwatch.com/story/has-big-tech-gotten-too-big-for-our-owngood-2018-07-02 > Accessed: 25 November 2019.

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Rosoff.

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A N TA L L J Ó Z S E F K N OW L E D G E C E N T R E efforts in the United States have come to revolve around the concept of “consumer welfare.” 13 This has yielded an environment where, in 2012, major book publishers joined forced to challenge Amazon’s monopoly on e-books—and the Department of Justice ended up filing an antitrust suit against “them”, because Amazon’s domination of the market resulted in lower prices for customers, and DoJ had deemed that the publishers were in essence colluding to force the industry leader to raise its prices.14 Then there is also a problem discussed earlier: that “social networking” remains a relatively undefined industry, and based on the definitions that one begins to work towards, other prominent market players enter the picture, challenging the narrative that Facebook is a de facto monopoly: if we treat it as a messaging platform, then it can be argued that Apple iMessage, text message services, and even email-based platforms such as Gmail are competitors—and popular ones at that.15 Some hold that Facebook is actually primarily an advertiser, as ad sales constitute the vast majority of its revenue—within the digital advertising industry, it is not even the predominant player. That title belongs to Alphabet, the owner of Google and YouTube, with Facebook coming in at second place, and Amazon also occupying a increasingly sizable chunk of the pie.16 Meanwhile, if we look at the landscape of platforms used for creating and sharing content, Facebook’s decline in popularity among younger generations has been the subject of much recent analysis (although Instagram is still holding strong in the number-one spot), with Snapchat and YouTube as the preferred platforms for many Gen Z-ers.17 Whether the foundation of the legal status quo described earlier is a fair assessment of the relevant dynamics at play when considering antitrust cases is beside the point—the question is what to do with Facebook, which necessitates asking what can be done with Facebook.

Recent precedent suggests that completely unwinding Instagram and WhatsApp to create competition in the fields of content creation/

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13 Matthew Yglesias: The push to break up Big Tech, explained. Vox. 3 May 2019. <https://www.vox. com/recode/2019/5/3/18520703/big-tech-break-up-explained > Accessed: 25 November 2019.

14 Thomas Catan–Jeffrey A. Trachtenberg–Chard Bray: U.S. Alleges E-Book Scheme. The Wall Street Journal. 11 April 2012. <https://www.wsj.com/articles/SB100014240527023044446045773375730546 15152 > Accessed: 26 November 2019.

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Rosoff

Greg Sterling: Almost 70% of digital ad spending going to Google, Facebook, Amazon, says analyst firm. Marketing Land. 17 June 2019. <https://marketingland.com/almost-70-of-digital-ad-spendinggoing-to-google-facebook-amazon-says-analyst-firm-262565 > Accessed: 25 November 2019.

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Rob Thubron: More teenagers are abandoning Facebook for YouTube, Snapchat, and Instagram.

Techspot. 8 July 2019. <https://www.techspot.com/news/80837-more-teenagers-abandoningfacebook-youtube-snapchat-instagram.html > Accessed: 25 November 2019; Olivia Solon: Teens are abandoning Facebook in dramatic numbers, study finds. The Guardian. 1 June 2018. <https:// www.theguardian.com/technology/2018/jun/01/facebook-teens-leaving-instagram-snapchatstudy-user-numbers > Accessed: 25 November 2019.

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A N TA L L J Ó Z S E F K N OW L E D G E C E N T R E publishing, messaging, and advertising might simply not be legally realistic at this point. Trying to demonstrate in court that, had Instagram and WhatsApp not been acquired by Facebook, they would have represented competition that would have forced the market leader to somehow give users a better deal would inevitably rely on hypotheticals, and would be much more difficult than to simply point to the very “concrete” $0 that these services currently cost.

Still, some argue that antitrust action against Facebook is a worthwhile endeavor even if it does not end in the breakup of the company. This assessment is most frequently based on precedent involving Microsoft. In 1998, the Department of Justice sued the tech company for alleged illegal practices in monopolising its Windows operating system and Internet Explorer browser. The government wanted to see Windows continue as a separate company, but ultimately settled with Microsoft, leaving the corporation intact.18 Still, provisions included in the settlement led to a partial fulfilment of the antitrust suit’s aims, and contributed to increased competition the wake of the case, as the company was required to share programming information with third-party developers—enabling the rise of modern disruptors in the tech industry, including Facebook.19 This example demonstrates that, even if breaking up Facebook proves to be unviable (or is ultimately deemed inadequate), alternatives are available and must be sought in an effort to tackle the clusters of pressing issues that have taken shape around its operation. In fact, even if there was sufficient will, ability, and opportunity to divest Instagram and WhatsApp from their parent company, most commentators appear to agree that there would be a need for reform and regulation to help tackle challenges related to privacy, problematic content, and insufficient competition beyond the scope of Facebook.

When it comes to the collection and handling of users’ personal data, a landmark piece of legislation that could serve as the model for US federal reforms is the European Union’s General Data Protection Regulation (GDPR) law, implemented in 2018. Hailed as a step in the right direction by consumer groups and businesses alike, it set new standards for transparency and accountability in how corporations handle personal data. In the meantime, with federal action currently unlikely due to political gridlock, US-made models for regulation comprise state-level initiatives such as the California Consumer Privacy Act, which features considerable overlaps with GDPR,

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18 Bhaskar Chakravorti: Don’t break up Facebook and Google based on these three myths. Fast Company. 20 July 2019. <https://www.fastcompany.com/90379246/dont-break-up-big-techbased-on-these-three-myths > Accessed: 25 November 2019.

19 Richard Blumenthal–Tim Wu: What the Microsoft Antitrust Case Taught Us. The New York Times.

18 May 2018. <https://www.nytimes.com/2018/05/18/opinion/microsoft-antitrust-case.html > Accessed: 2 December 2019.

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A N TA L L J Ó Z S E F K N OW L E D G E C E N T R E such as a private right of action that would give citizens increased power to enforce their rights against alleged privacy violators in court.20 Regulators in the US could also shift their focus from monetary cost to the cost that users pay in data, and whether it is appropriate in its amount and management— once again going back to the original question of whether Facebook users can be overcharged even if the platform has no paywall—enabling them to go so far as to limit the amount and nature of data that can be collected.21 Should the political/ideological debate around hate speech and fake news/disinformation ever be settled (readers are advised not to hold their breath) and agreement be reached that Facebook must also serve the “public interest”, there are a few easy adjustments to US federal law that would give regulators increased authority over the content published on the platform. One rather dramatic suggestion would involve modifying the 1996 Communications Decency Act to make Facebook (and all online platforms) accountable for the content its users post—essentially treating the company as the publisher it claims to be when it is legally convenient.

If the platform operator faced a fine every time a user posted forbidden content (there is, of course, a debate to be had on free speech as well, but it warrants a separate look), it would presumably be forced to adopt an “editorial model, like the traditional ad-selling media companies that Facebook actually competes against, where content is checked an edited before it is posted.”22 A perhaps more realistic solution would be to modernise the mandate of the federal agency best-positioned for the purpose, the Federal Communications Commission, which works, among others, to fight disinformation in broadcasting.23 However, it currently has no authority to police content on Facebook, as the platform, as it is currently understood, does not utilise a public resource. One of the more bold suggestions is that users’ personal data should be regarded as a public resource since it is, by definition, “owned by the people,” which would enable the FCC to ensure that Facebook operates in service of “social welfare” by holding it accountable for the content that it allows through its filters.24

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20 Todd Ehret: Data privacy and GDPR at one year, a US perspective. Part Two—US challenges ahead.

Reuters. 29 May 2019. <https://www.reuters.com/article/us-bc-finreg-gdpr-report-card-2/dataprivacy-and-gdpr-at-one-year-a-us-perspective-part-two-us-challenges-ahead-idUSKCN1SZ1US > Accessed: 2 December 2019.

21 Chakravorti; Kate Cox: Antitrust 101: Why everyone is probing Amazon, Apple, Facebook, and Google. Ars Technica. 11 May 2019. <https://arstechnica.com/tech-policy/2019/11/antitrust-101why-everyone-is-probing-amazon-apple-facebook-and-google > Accessed: 25 November 2019.

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Ovide

Consumer Guide: Broadcasting False Information. FCC. <https://www.fcc.gov/sites/default/ files/broadcasting_false_information.pdf > Accessed: 25 November 2019.

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24 Philip M. Napoli: What Would Facebook Regulation Look Like? Start With the FCC. Wired. 4 October 2019. <https://www.wired.com/story/what-would-facebook-regulation-look-like-startwith-the-fcc > Accessed: 26 November 2019.

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A N TA L L J Ó Z S E F K N OW L E D G E C E N T R E Finally, creating a level playing field for healthy competition to thrive in the social media market is a pressing necessity to which not even radical antitrust action offers a shortcut. Even is Facebook were broken up, the current state of digital markets have an “underlying tendency (…) to tip toward few or one dominant player.” 25 Part of this goes back to the already-discussed practice of Facebook buying up emerging competitors, which has reportedly bred an environment where startups now attract investors with the expectation of eventually being bought by Facebook.

This creates a cycle where the development of a potentially competitive product becomes contingent on that developer’s willingness not to compete with the market leader beyond a certain point. 26 Part of the problem is that the higher echelons of the market have an extremely high barrier of entry, and thus lowering it should be the primary task of regulative efforts. Since much of this gap in competitiveness comes not from the incomparable financial and human resources of Facebook but from their huge advantage in how much user data they have access to, efforts should focus on reducing this particular gap— which could also be made easier by treating personal data as a public resource. Then, Facebook could be required to adopt interoperability measures—a tool employed in the settlement of the Microsoft antitrust case mentioned earlier—that would help up-and-comers take advantage of the market leader’s resources to make up for their lack thereof (of course, mandating a broader access to data collected by other platforms would require very careful balancing with privacy protections), and even by imposing stricter limits on how much and what kind of data can be collected. 27 It has been mentioned that Facebook itself has also called for regulations to govern the way it manages these issues. The “selfish reasons” behind this, alluded to earlier in this piece, have hopefully become clear by this point: while also (ideally) serving the public interest, increased government intervention in the way Facebook conducts its business also enables the company to shift responsibility and move the debate from the field of antitrust action to regulation— by far the lesser of two evils for a corporation. The most vocal critics of the company will no doubt voice their dissatisfaction if breaking up Facebook does indeed turn out to be an unviable path for the reasons 25

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Napoli

Why Breaking Up Big Tech Could Do More Harm Than Good. Knowledge @ Wharton. 26 March 2019. <https://knowledge.wharton.upenn.edu/article/why-breaking-up-big-tech-could-domore-harm-than-good > Accessed: 26 November 2019.

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27 Gene Kimmelman: The Right Way to Regulate Digital Platforms. Shorein Center on Media, Politics, and Public Policy. 18 September 2019. <https://shorensteincenter.org/the-right-way-to-regulatedigital-platforms > Accessed: 26 November 2019.

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A N TA L L J Ó Z S E F K N OW L E D G E C E N T R E listed above, but a closer look at the underlying issues that make up “the Facebook problem” shows that the most dramatic action is not necessarily the most effective one.

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