Facebook parent company Meta Platforms dodged a bullet on Tuesday when US District Judge James Boasberg ruled in its favour in a major antitrust case filed by the US Federal Trade Commission (FTC) in 2020 and ending in May.
The case posed an existential challenge to the company, charging that it had simply purchased Instagram and WhatsApp to stave off competition. An unfavourable ruling would have forced the company to divest from Instagram and WhatsApp.
Meta's win means the company will be able to continue operating WhatsApp and Instagram unimpeded. Had the FTC proven its claims in court, Meta likely would have had to break these applications off into their own separate social networking companies.
The tech giant bought WhatsApp for $19 billion in 2014. Losing either the image-based social network, which generates an estimated half of Meta’s revenue, or the world’s most popular messaging app could have done existential damage to Meta’s empire.
Judge James Boasberg of the US District Court for the District of Columbia released a memorandum opinion Tuesday, stating that the FTC failed to prove its claims in court.
Boasberg initially dismissed the FTC's complaint in 2021, stating that the agency lacked sufficient evidence that Meta holds "market power" in the social networking industry.
At the time, the FTC argued that "Facebook's course of conduct has eliminated nascent rivals," preventing "the benefits of competition, including increased choice, quality and innovation" from developing for US social media users.
In Silicon Valley, the CEOs of big tech companies in recent years have abided by an unspoken rule. Spending vast sums of money to swallow up competitors was off the table. Even snapping up the smallest of startups could bring unwanted regulatory attention.
After this week, that tacit understanding may no longer be in effect.
The court’s ruling has helped Silicon Valley, which has relied on big companies buying smaller ones to fuel the innovation engine.
Now Mark Zuckerberg, Meta’s CEO, as well as the leaders of Google, Microsoft and others may be able to resume buying young startups to stay ahead of the pack. The decision came not a moment too soon, as the tech industry spends billions of dollars to compete on artificial intelligence.
For years, tech’s biggest players paid premiums to gobble up their would-be competitors. In 2006, Google bought YouTube for $1.65 billion, which was considered a whopping sum at the time. YouTube is now valued at roughly $500 billion.
Google also acquired Android, the basis for its mobile operating system, for $50 million in 2005, and Waze, the maps startup, for just over $1 billion in 2013. Both Android and Waze have become central to Google’s offerings.
Meta, meanwhile, snapped up Instagram, WhatsApp and other small startups. Those services have become a major part of Meta’s offerings, with billions of users. At one point, Zuckerberg tried to buy Snapchat, though that purchase never materialised.
What was Meta accused of?
The Federal Trade Commission or FTC is an independent US agency tasked with enforcement of civil antitrust law — alongside the Department of Justice — as well as protecting consumers.
Prosecutors representing the FTC argued that Meta had systematically tracked and purchased companies that it viewed as competitive threats, following Facebook/Meta CEO Mark Zuckerberg's 2008 maxim, "It's better to buy than compete."
Zuckerberg has since sought to downplay such attitudes, and in April testimony said Facebook had not purchased Instagram in 2012 to neutralise it.
He admitted, however, that internal e-mails circulating at the time of its purchase — for $1 billion and stock options — did not fully reflect his true enthusiasm for the non-monetised photo-sharing app.
Instagram was the first company purchased by Facebook that was not scavenged and dismantled but rather allowed to keep running as an individual app.
The FTC claimed that Facebook had enacted policies designed to make it difficult for smaller rivals to enter the market and to "neutralize perceived competitive threats," at the precise time that the world began to shift from desktop computers to mobile devices.
The move also allowed Meta to connect with a younger audience than that of its original social network, Facebook, as it competed with emerging platforms like Snapchat and later TikTok.
In his ruling, Boasberg said prosecutors had failed to prove "current or imminent legal violation" by the company.
How did Meta react to the ruling?
The FTC argued that Facebook, Instagram and Snapchat competed in a distinct market of "connecting friends and family" that was separate from video entertainment platforms like YouTube or TikTok.
However, in his verdict, Boasberg said this distinction no longer applies in today's social media landscape, noting how Facebook and Instagram have both evolved to display short videos recommended by algorithms, much like TikTok.
The court noted that just 7 per cent of Instagram users nowadays spend their time viewing content from friends, instead mainly watching short videos, or Reels.
"Facebook, Instagram, TikTok, and YouTube have thus evolved to have nearly identical main features," Boasberg wrote.
Meta welcomed Judge Boasberg's recognition that the company "faces fierce competition."
CEO Zuckerberg had made several attempts to get President Donald Trump to intervene on his behalf and have the case dismissed but to no avail.
Since Trump's return to the White House, Zuckerberg and other tech titans in the US have donated massive sums of money to him. Trump has in turn forcefully sought to bolster big US tech firms and the billionaires that own and run them.
On Tuesday, Meta's chief legal officer said, "Our products are beneficial for people and businesses and exemplify American innovation and economic growth. We look forward to continuing to partner with the administration and to invest in America."
(With inputs from Reuters, Deutsche Welle, The New York Times)