When a federal judge James Boasberg dismissed in June the Federal Trade Commission’s lawsuit against Facebook, he gave the agency a lot specific instructions how to save it. According to him, the problem is that the FTC has not offered even the most blatant evidence that Facebook is a monopoly, except for the vague claim that it “maintains a dominant share of the US market for personal social networks (over 60 percent). As Boasberg points out, this inexplicably leaves some basic questions unanswered, such as: 60 percent of what? Who makes up the remaining 40 percent? It was a bit like blaming a driver for speeding, without even mentioning the speed limit.
In order to return to court and move on to the next stage of the proceedings, the FTC will have to return with something much more specific. This presented an interesting early task for Lina Khan, who was confirmed as agency commissioner just two weeks before Boasberg ruled. (Facebook tried to withdraw Khan from the case based on its public criticism of major technology companies before its current job, although experts see little chance of succeeding.)
On Thursday, the FTC filed its revised complaint, answering these unanswered questions. Although it is impossible to predict how a judge will rule, it appears that the new material will satisfy Boasberg and keep the case alive. “To my eye, they scratched Boasberg’s itch,” said Paul Swanson, an antitrust attorney in Denver. Facebook, he said, may fail to avoid a “long slogan of documents and deposits.”
To prove that Facebook is a monopoly for legal purposes, the FTC does not have to show that it is literally the only social network. They need to show that it has “market power”. In short, having market power means that you face so little competition that you can do things that your customers don’t like without losing business. This is one of the main reasons for antitrust law: When there is not enough competition, companies will stop trying to please their customers and start trying to pressure them. Think about how frustrating it is when your ISP raises prices and you realize that no one else is serving your neighborhood. This is the market power.
There are two ways to show market power: circumstantial evidence and direct evidence. Indirect evidence usually relates to a dominant market share. (This may sound counterintuitive, but the reason is indirect This is because being big alone does not prove that a company is doing something wrong – it just increases the likelihood.) In its initial complaint, the FTC offered only circumstantial evidence and very little: this poor 60% statistic, which Boasberg ruled that it was inadequate. The revised complaint, on the other hand, covers market share in great detail. Based on data from analyst firm Comscore – which Facebook itself relies on in the complaint – the FTC claims that in almost every way you cut it, Facebook controls a dominant part of the market for “personal social networking services.” According to Comscore, Facebook accounts for more than 80% of the time spent since 2011, at least 70% of daily active users and at least 65% of monthly active users.
The new complaint also tightens the FTC’s definition of the market itself, which is different crucial part in any case of monopolization. You cannot prove that a company has market power without explaining in which market it has power in According to the agency, the market for personal social networking services has three key attributes. First, the network must be “built on social graphics that map the connections between users and their friends, family and other personal connections.” Second, it must have functions so that users can interact with each other in a “shared social space”, such as a show or newsgroup. Third, it must allow consumers to search. (Consider how you can search for someone by name on Facebook but not iMessage.)