FTC’s Latest Facebook Fight Implicates NIL, Instagram

·4 min read

As college athletes sign name, image and likeness deals tied to their social media fame, the Federal Trade Commission on Thursday moved to fundamentally alter Instagram and other Facebook-owned properties that are popular with influencers.

In an 80-page complaint filed in D.C. federal district court, the FTC argues that Facebook’s “monopoly position” over “personal social networking services” violates federal antitrust law. The complaint amends a previous complaint that Judge James Boasberg dismissed in June.

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The agency, led by chair Lina Khan, a noted Facebook critic, demands the court order the divestiture or reconstruction of Instagram, WhatsApp and potentially other Facebook-owned social media platforms. The FTC also seeks expanded authority to review future mergers and acquisitions that involve Facebook, as well as a permanent injunction to bar Facebook “from reaching anticompetitive agreements governing, or imposing anticompetitive conditions on, developers’ access to APIs and data.”

The complaint was filed on the same day WME Sports announced the signing of All-American LSU gymnast Olivia Dunne. With 5.5 million followers, Dunne is the most followed college athlete on social media. Some experts believe Dunne could become the first college athlete to earn seven figures through NIL.

The FTC’s complaint asserts several types of arguments that attempt to depict Facebook as unlawfully “eliminating” meaningful competition.

To that end, the agency contends Facebook’s purchase of Instagram in 2012 for $1 billion was intended to “neutralize a significant independent personal social networking provider.” The same criticism, the agency maintains, applies to Facebook’s purchase of WhatsApp in 2014 for $19 billion. “Acquiring these competitive threats,” the complaint insists, “has enabled Facebook to sustain its dominance—to the detriment of competition and users—not by competing on the merits, but by avoiding competition.”

The alleged absence of competition for Facebook hurts consumers, the complaint declares. This purported harm is “particularly severe because Facebook increased barriers to entry and excluded competition during a critical period of technological transition in which nascent competitors could have effectively challenged Facebook’s monopoly power.” Stated differently, the FTC suggests there would be better options for personal social networking if Facebook had less control over the industry. In an alternative and more competitive setting, rival companies would have greater incentive to invest in and build competing platforms.

Facebook’s alleged stifling of consumer choices for personal social networking is worsened, the FTC charges, by buying rivals’ data and controlling how data is maintained and sold. This consequence, the complaint asserts, “continues to harm competition for the sale of advertising in the United States.”

The FTC’s complaint highlights the role of advertising, which the FTC explains is essential to social media platforms to generate revenue. The FTC depicts Facebook’s advertising policies as unjustly benefiting from a world without competition. Facebook can allegedly supply “non-transparent and sometimes unreliable advertising reporting metrics.” The complaint also argues that Facebook’s “suppression” of competition exacerbates “the prevalence of fake accounts on its platform.”

In public statements responding to the litigation, Facebook says it is “reviewing the FTC’s amended complaint.” It also reminds the public that it defeated the FTC in a recent litigation over a similar set of antitrust issues.

Last December the FTC sued Facebook seeking, as it does now, a divestiture of Instagram and WhatsApp, among other remedies. Judge Boasberg dismissed the complaint, concluding that the FTC “failed to plead enough facts” to show Facebook possesses monopoly power. The judge criticized the FTC for offering what he regarded as a muddled and unpersuasive attempt to calculate market share.

However, because Judge Boasberg acknowledged the FTC’s “defect could conceivably be overcome by re-pleading,” he dismissed the complaint “without prejudice.” That meant the FTC could file an amended complaint. It availed itself of that right on Thursday.

Attorneys for the social media giant will answer the complaint in the coming weeks and seek its dismissal. In addition to emphasizing the FTC’s failures in the first complaint, expect Facebook to portray its success as reflecting merit: It offers consumers a service they prefer over alternatives.

For example, the FTC criticizes Facebook’s response to the introduction of Google+, a social media network introduced by Google in 2011. As the FTC tells it, Facebook relied on anti-competitive practices to deny Google+ a legitimate chance to succeed. Facebook, the FTC charges, restricted Facebook apps from interacting with apps on competing platforms. It also terminated API access for apps that allowed users to migrate their Facebook contacts into Google+, which Google shut down in 2019.

In response, Facebook could argue that Google, with a market value of more than $1 trillion and a dominant position over Internet searches, was hardly competing from a disadvantaged position. As Facebook would tell it, its service was simply superior to Google+.

Still, the FTC’s complaint presents the possibility that Facebook’s market dominance could be found illegal. Such a finding could lead to a dramatic shift in social networking services that generate wealth for certain parts of the sports industry. Whether Instagram’s popularity would change—for better or for worse—if divested from Facebook would pose real-world consequences. That is true for college and pro athletes who rely on Instagram to market themselves and the goods and services they endorse.

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