Meta faces historic antitrust trial that could force it to break off Instagram, WhatsApp

Mark Zuckerberg, chief executive officer of Meta Platforms Inc., center, arrives following a break during a Senate Judiciary Committee hearing in Washington, D.C., U.S., on Wednesday, Jan. 31, 2024. Congress has increasingly scrutinized social media platforms as growing evidence suggests that excessive use and the proliferation of harmful content may be damaging young people's mental health. (Kent Nishimura/Bloomberg)

WASHINGTON, D.C. — Meta CEO Mark Zuckerberg took the stand on Monday in a historic antitrust trial that could force the tech giant to break off Instagram and WhatsApp, startups it bought more than a decade ago that have since grown into social media powerhouses.

The Federal Trade Commission called Zuckerberg as its first witness, as it seeks to prove that Meta acquired Instagram and WhatsApp to preserve its monopoly in the social networking space.

In opening statements, FTC attorney Daniel Matheson said Meta has used its position to generate enormous profits even as consumer satisfaction has dropped. He said Meta was “erecting a moat” to protect its interests by buying the two startups because the company feared they were a threat to Meta’s dominance.

Zuckerberg and other key Meta witnesses will testify throughout the trial.

“We’re going to give them their chance to tell their side of the story,” Matheson said.

Mark Hansen, an attorney for Meta, said the FTC was making a “grab bag” of arguments that were wrong. He said Meta has plenty of competition and has made improvements to the startups it acquired.

“This lawsuit, in summary, is misguided,” Hansen said, adding: “anyway you look at it, consumers have been the big winners.”

The trial will be the first big test of President Donald Trump’s Federal Trade Commission’s ability to challenge Big Tech. The lawsuit was filed against Meta -- then called Facebook -- in 2020, during Trump’s first term. It claims the company bought Instagram and WhatsApp to squash competition and establish an illegal monopoly in the social media market.

Meta, the FTC argues, has maintained a monopoly by pursuing Zuckerberg’s strategy, “expressed in 2008: `It is better to buy than compete.’ True to that maxim, Facebook has systematically tracked potential rivals and acquired companies that it viewed as serious competitive threats.”

Facebook also enacted policies designed to make it difficult for smaller rivals to enter the market and “neutralize perceived competitive threats,” the FTC says in its complaint, just as the world shifted its attention to mobile devices from desktop computers.

“Unable to maintain its monopoly by fairly competing, the company’s executives addressed the existential threat by buying up new innovators that were succeeding where Facebook failed,” the FTC says.

Facebook bought Instagram -- then a scrappy photo-sharing app with no ads and a small cult following -- in 2012. The $1 billion cash and stock purchase price was eye-popping at the time, though the deal’s value fell to $750 million after Facebook’s stock price dipped following its initial public offering in May 2012.

Instagram was the first company Facebook bought and kept running as a separate app. Up until then, Facebook was known for smaller “acqui-hires” -- a type of popular Silicon Valley deal in which a company purchases a startup as a way to hire its talented workers, then shuts the acquired company down. Two years later, it did it again with the messaging app WhatsApp, which it purchased for US$22 billion.

WhatsApp and Instagram helped Facebook move its business from desktop computers to mobile devices, and to remain popular with younger generations as rivals like Snapchat (which it also tried, but failed, to buy) and TikTok emerged. However, the FTC has a narrow definition of Meta’s competitive market, excluding companies like TikTok, YouTube and Apple’s messaging service from being considered rivals to Instagram and WhatsApp.

“The FTC already has the difficult task, whether it’s looking at 10 years ago or five years ago or today, of trying to define what is the market we’re talking about in a sufficiently narrow way that it can show Meta has a ton of power in that market,” said Paul Swanson, an antitrust attorney for the law firm Holland & Hart. “And I do think that challenge has gotten harder as the years have gone by and we see more and more potential competitors in social media spaces.”

Meta, meanwhile, says the FTC’s lawsuit “defies reality.”

“The evidence at trial will show what every 17-year-old in the world knows: Instagram, Facebook and WhatsApp compete with Chinese-owned TikTok, YouTube, X, iMessage and many others. More than 10 years after the FTC reviewed and cleared our acquisitions, the Commission’s action in this case sends the message that no deal is ever truly final. Regulators should be supporting American innovation, rather than seeking to break up a great American company and further advantaging China on critical issues like AI,” the company said in a statement.

In a filing last week, Meta also stressed that the FTC “must prove that Meta has monopoly power in its claimed relevant market now, not at some time in the past.” This, experts say, could also prove challenging since more competitors have emerged in the social media space in the years since the company bought WhatsApp and Instagram.

Meta’s fate will be decided by U.S. District Judge James Boasberg, who late last year denied Meta’s request for a summary judgment and ruled that the case must go to trial.

Boasberg “seems to be skeptical” of the FTC’s narrow market definition in his rulings to date, Swanson said. He added that the judge also said it is a “fact question,” which means he is open to hearing what the FTC and its experts have to say to define that narrow market.

While the FTC may face an uphill battle in proving its case, the stakes are high for Meta, whose advertising business could be cut in half if it’s forced to spin off Instagram.

Meta isn’t the only technology company in the sights of federal antitrust regulators, Google and Amazon face their own cases. The remedy phase of Google’s case is scheduled to begin on April 21. A federal judge declared the search giant an illegal monopoly last August.

Article by Brian Witte And Barbara Ortutay.