Zuckerberg’s emails are integral to Fb antitrust case
“It is better to buy than to compete,” he wrote in an email in 2008. Four years later, after Facebook bought a photo sharing app that he described as “very annoying”, he told a colleague in another email: “Instagram was our threat. … One thing about startups, however, is that they can often be acquired. “
As an antitrust professor preparing a new spring course entitled “Antitrust for Big Tech”, I read the FTC complaint of December 9th with great interest. I have taught my students for years that internal documents can return to prosecute antitrust defendants. But I’ve never seen a plaintiff’s case rely so heavily on a CEO’s own words.
As I read the summary of the FTC’s arguments they are about to take in court, I started highlighting any direct quotation from an internal Facebook communication. My highlighter was running out of ink.
Basing a monopoly on a CEO’s own statements about his behavior may seem like a simple strategy to most people. But it is actually controversial among judges and antitrust experts how it will be safe in this case.
Despite this controversy, the FTC’s decision to pull Facebook up with its own petard makes sense. Zuckerberg’s emails are extensive and specific in describing how the mergers will keep his company away from competition. You avoid most of the problems critics have in using what lawyers call “hot documents” to initiate antitrust proceedings.
It worked against Microsoft
And anyway, it worked before.
The case against Facebook is similar to the US against Microsoft case, the landmark case of 2001 in which the software company was held responsible for the monopoly. Here the FTC has to prove that Facebook, like Microsoft, gained its market power in the social media market by excluding competitors, and not just by making a great product. In both cases, internal statements from executives play a major role.
In this case, the government issued a 1995 memo in which Microsoft founder Bill Gates identified Netscape as “a new competitor” born “on the Internet.” A few years later, another executive reportedly said, “We’re going to do [Netscape’s] Air supply. “
When Microsoft did this by hindering Netscape’s access to Windows users, statements like these made it difficult for the company to reason that its behavior was not predatory, and Microsoft lost the case.
As successful and intuitive as the strategy is, courts are surprisingly reluctant to attach their antitrust decisions to internal documents that reveal a manager’s intent.
The problem of relying too much on internal email
Judges often say that antitrust law is only interested in the economic impact of a company’s behavior – whether it suppresses competition, for example – and not in the motives of its executives. Critics have argued that CEOs are not economists and sometimes tend to beat braggadocio, which makes their emails and other communications better for impressing juries than providing an economic argument.
Judges and scholars fear that juries will view any aggressive comments as evidence of exclusive intent. But you can “destroy” a competitor by outperforming them. Economists call this competition.
For example, Facebook’s employee handbook states, “If we can’t do what kills Facebook, something else will happen.” That sounds threatening, but doing things to keep competing startups in check is exactly what the antitrust laws of Demand Facebook – Innovation.
Basically, it is controversial to rely on statements in which a defendant appears to have subjective intentions, as the law is unclear as to why or whether a defendant’s intention to suppress competition in the first place matters. The clearest statement we get on this subject – from US versus Alcoa – is puzzling: “To read this [law] The demand for a “specific” intention makes nonsense out of it, because no monopolist unconsciously monopolizes what he does. “
Even lawyers couldn’t figure out exactly what that means.
The role of intent as evidence
On the other hand, other types of evidence may not be sufficient to initiate antitrust proceedings.
The investigation into a monopoly case is often framed by whether the monopoly is enjoying its market position because it has excluded rivals or because it has made a better or cheaper product. The difficulty in using only objective market evidence to answer this question is that the evidence usually points both ways.
Defendants can almost always find a product improvement resulting from their behavior that tarnishes the waters of the plaintiff’s exclusion story. In the case of Facebook, the company has pointed to Instagram’s growing user base and improved user interface during its time under Facebook’s control.
In most cases of monopoly, courts get stuck trying to just use market data to answer the ultimate question: did the monopoly thrive because of the improvements or because of the decreased competition?
This is where “premeditated evidence” – information about what a defendant thought – can help. If a CEO intended a merger to keep his company out of competition, that likely actually cut the company off from competition. The judges will attribute some of the company’s dominance to expulsion in violation of antitrust laws.
It is for this reason that judges turn to evidence of intent, especially when it is not just economically ambiguous declarations of war against rivals.
Unfortunately for Facebook, Zuckerberg’s emails explicitly and in detail describe his desire not to compete with Instagram and WhatsApp. The court will find this relevant and potentially harmful.
For example, in the months leading up to the acquisition, Facebook’s CFO gave three reasons for buying Instagram:
“1) neutralize a potential competitor? … 2) acquire talent? … 3) integrate your products into ours to improve our service?” Zuckerberg replied, “It’s a combination of (1) and (3).”
Zuckerberg explains in detail the competitive threat posed by Instagram. When he came to the explanation of product improvement, he changed his mind. “(3) is also a factor, but in reality we already know [Instagram’s] social dynamics and we’ll be incorporating them in the next 12-24 months anyway. “
After the Microsoft fall, many companies implemented communication policies that prevented the creation of such documents. On the one hand, Google distributes a five-point anti-trust policy on communication security to employees.
What I find really remarkable about this case is not the amount of internal quotes in the complaint, but the paper trail that a sophisticated CEO like Zuckerberg created due to the violation of Facebook – which is why a federal antitrust lawsuit is an existential threat to his company represents.
Rebecca Haw Allensworth is a Professor of Law at Vanderbilt University. This article is republished by The Conversation under a Creative Commons license. Read the original article.