What’s just happened?
Facebook is being sued in the US in a landmark lawsuit that could end up with the tech giant being stripped of its prized assets, Instagram and Facebook.[1] Regulators, who argue Facebook built its digital monopoly over the years by violating antitrust (competition) laws, are considering breaking up the company.
What does this mean?
For years, it has been cheaper for tech behemoths to pay measly fines rather than tinker with their highly lucrative business models. Instead of charging users directly, Facebook collects their data before selling this information to third parties looking to advertise products and services to users.[2]
However, 2020 has been something of an annus horribilis for Big Tech’s lawyers in the US and Europe. In July, Facebook CEO Mark Zuckerburg was grilled in Congress along with his counterparts at Amazon, Google, and Apple. In October, Google faced the wrath of US regulators for stifling competition in internet searches and advertising. This side of the pond, the UK’s Competition and Markets Authority published plans in December to level the playing field for smaller competitors with a new regime that will ‘proactively shape the behaviour of the most powerful tech firms’.[3] Finally, the EU, wounded by the ECJ’s decision to quash a €14 billion fine levied on Apple, has bounced back by drafting new laws to clip the wings of so-called ‘gatekeeper platforms’ - i.e., Google and Facebook.[4]
Antitrust, billion dollar fines, privacy violations and numerous federal investigations. Facebook, Google, Apple and Amazon are feeling the pressure from a wave of government inquiries. Will they be broken up? Or will they survive? This video explores the issue.
The latest lawsuit, however, moves into uncharted territory. If successful, it could seriously impact Facebook’s bottom line. Instagram, bought for just £1 billion in 2012, and Whatsapp, acquired for £14 billion two years later, have grown into vast repositories of personal data. As of July 2020, a combined 3 billion people use these apps every month - almost 40% of the world’s population.[5]
Why have regulators suddenly upped the ante? The FT’s Rana Foroohar argues that antitrust bodies such as the European Commission have finally put aside their focus on ‘efficient markets’ defined by low prices for consumers. Instead, they have started to see the digital economy as it really is - a winner-takes-all landscape in which consumers ‘barter’ their data in exchange for services.[6]
What does this mean for the legal industry?
A lengthy court case awaits. In a lengthy post, Facebook accused the regulators of ‘revisionist history’ by calling into question acquisitions cleared by the Federal Trade Commision over five years ago, and smugly assured consumers it will ‘look forward to our day in court’.[7]
If successful, the lawsuit would be a seismic victory for US regulators, who are held to antitrust laws that are over 100 years old (Sherman Law of 1890 and Clayton Law of 1914). Any new legislation would surely look to target the data-driven economy upon which Facebook has built its empire.
Since it is becoming increasingly clear which way the wind is blowing, legal practitioners would be well-advised to take action sooner rather than later. For instance, and in spite of the uncertainties generated by coronavirus, it might make commercial sense to push through with M&A deals in anticipation of increased regulatory pressure later down the line. At the same time, specialist antitrust layers will be busy preparing their corporate clients for competition litigation cases.
It is too early to say whether tech giants will need to make substantial changes to their business models. Whilst public opinion seems to be firmly in favour of regulators, lockdown has pushed more and more users onto Facebook’s platforms. Only time will tell if Big Tech is Too Big To Fail.
Written by Tom Higgins Toon
Assessing Firms:
Freshfields, Hogan Lovells, Slaughter and May, Bryan Cave Leighton Paisner, Clifford Chance, Herbert Smith Freehills, Linklaters, Mishcon de Reya, Travers Smith.
[1] Natalie Sherman, ‘Facebook facing US legal action over competition’, BBC News, 10 December 2020.
[2] Laura Petrone, ‘The issue with Big Tech is not competition, but how it makes money’, New Statesman, 31 July 2020.
[3] ‘CMA advises government on new regulatory regime for tech giants’, Gov.uk, 8 December 2020.
[4] ‘Gatekeeping rules - The EU unveils its plan to rein in big tech’, Economist, 15 December 2020.
[5] Dave Chaffey, ‘Global social media research summary August 2020’, 3 August 2020.
[6] Rana Foroohar, ‘The Federal Trade Commission strikes back against Facebook’, FT, 13 December 2020.
[7] Jennifer Newstead, ‘Lawsuits filed by the FTC and the State Attorneys General are revisionist history’, Facebook, 9 December 2020.
Disclaimer: This article (and any information accessed through links in this article) is provided for information purposes only and does not constitute legal advice.