In a landmark day for antitrust law, 46 states and the Federal Trade Commission sued Facebook for allegedly smothering competition. The lawsuits are a bombshell for the tech industry—most notably for what the FTC is seeking: an order to break up Facebook into separate companies.
Specifically, the agency wants Facebook to divest assets “including, but not
limited to, Instagram and/or WhatsApp.” This would mean Facebook shareholders may come to own three companies not one, while consumers could see two new firms take control of their data.
Such a move would mean a colossal shake-up of the social media landscape—if it ever happens in the first place. And that may be a long shot.
While regulators frequently require companies to divest business units, these orders typically occur in the context of proposed mergers. A prominent recent example is when the Justice Department required pharma giant Bayer to sell $9 billion worth of assets, including seed units, as a condition of acquiring Monsanto.
The Facebook situation is different as it concerns acquisitions the company made nearly a decade ago (Instagram) and six years ago (WhatsApp)—a point that Facebook was quick to point out.
“Now, many years later, with seemingly no regard for settled law or the consequences to innovation and investment, the agency is saying it got it wrong and wants a do-over,” said Facebook in a statement.
But while Facebook suggests it’s unfair for the FTC to try to reverse acquisitions it tacitly approved in the past, there’s no legal obstacle to prevent the agency from doing so, according to Charlotte Slaiman, a former FTC lawyer who now works at the nonprofit public interest organization, Public Knowledge.
Slaiman says the issue is whether Facebook has behaved anticompetitively, and if it has then the FTC can propose whatever remedies it views as necessary to fix the problem.
“They’ve presented a strong case and could win this,” says Slaiman of the government lawsuits, but adds that the question of remedies is far down the road.
Meanwhile, there are only a handful of precedents involving courts ordering the breakup of companies. The most famous recent example is when a federal judge ordered Microsoft in 2000 to be broken up into two firms—one controlling Windows, and another that would own all of Microsoft’s other businesses. An appeals court reversed that order, however, and accepted a series of less drastic remedies.
The other prominent break-up case involved AT&T. In 1974, the Justice Department sought an order requiring the phone giant to divest its equipment subsidiary, Western Electric. Sensing it was going to lose, AT&T proposed its own breakup arrangement that resulted in the company being split into various units in 1982.
The AT&T arrangement came about in the wake of numerous investigations by Congress—a process that Slaiman says should be followed in the case of Facebook. She praised recent antitrust inquiries by Congressional committees, which she believes helped lay the groundwork for this week’s lawsuits.
This still leaves the question of whether the FTC will actually succeed in forcing Facebook to divest WhatsApp and Instagram to a competitor, or to spin them off as independent companies.
Slaiman was reluctant to make a prediction, but she did say it will likely be years before we know the outcome. She noted that, when it comes to companies seeking merger approvals, the firms are typically eager to provide documents to the government as quickly as possible—but in the case of Facebook, which hates the idea of spinning off its prize assets, the company is likely to find every way to slow-roll the process.
The bottom line is that it appears unlikely Facebook will have to divest WhatsApp and Instagram anytime soon, if ever. But if Congress keeps up the pressure on big tech companies, it’s possible Facebook will propose a more modest solution of its own to address the monopoly concerns raised in the lawsuits.
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