On January 28, 2022, Cohen Milstein filed an amicus brief with the United States Court of Appeals for the District of Columbia, on behalf of U.S. and international economists as amici curiae in support of plaintiffs-appellants and reversal of State of New York, et al. v. Facebook (D.D.C).

Amici curiae are economists, including antitrust expert Hal Singer, former Deputy Assistant Attorney General for Economic Analysis in the DOJ’s Antitrust Division, Nancy L. Rose, Nobel Prize winner Joseph Stiglitz, and the following well-respected experts in competition economics and industrial organization:

 

  • Daron Acemoglu
  • Cristina Caffarra
  • Gregory S. Crawford
  • Tomaso Duso
  • Florian Ederer
  • Massimo Motta
  • Martin Peitz
  • Thomas Philippon
  • Robert Seamans
  • Marshall Steinbaum
  • Ted Tatos
  • Tommaso Valletti
  • Luigi Zingales

Introduction and Summary of Argument

A coalition of States allege in this case that Facebook engaged in an inter-related course of conduct to entrench its monopoly power and stifle competition. When an anticompetitive scheme takes multiple forms and involves a combination of different conduct, analyzing each relevant instance separately as though it were independent of the rest discounts the full context and self-reinforcing harms of the conduct. Instances where the whole of the resulting injury exceeds the sum of its constituent parts require a holistic evaluation of the conduct at issue. It is well established that “legal presumptions that rest on formalistic distinctions rather than actual market realities are generally disfavored in antitrust law.”[1]

Amici economists offer perspective on the economic realities present in this case. In particular, they provide supporting economic and legal authority that:

(1) explains the effect of Facebook’s exclusionary conduct in preserving the company’s market power;

(2) describes the reinforcing and amplifying effects of Facebook’s multiple acquisitions and restraints on industry players;

(3) summarizes economic literature regarding strategic entry deterrence, reputational signaling, and “kill zones” that illustrates why Facebook’s conduct should be evaluated holistically; and

(4) demonstrates that legal precedent aligns with the economic literature and supports taking a holistic approach to evaluating the course of conduct at issue here.

Case Background

Plaintiff-Appellant States allege that Facebook engaged in a strategy and inter-related course of conduct whose combination preserved its monopoly power and suppressed competition in the market for personal social networking services. In short, the States allege a “buy or bury” course of conduct that involves two interrelated theories. First, the States allege that Facebook engaged in a series of acquisitions that enhanced its market power and reduced competition (the “buy” component). This includes acquiring well-known applications like Instagram and WhatsApp, potential competitors, lesser-known potential rivals, and firms offering products that could complement and thus enhance Facebook’s offerings to create user stickiness. Second, after using broad interoperability to increase its market power, Facebook used its “bury” strategy to close off or limit interoperability between itself and other applications that it deemed a competitive threat or that rejected its buy-out offers. Facebook thus impeded the innovation that flows from greater competition.

District Court’s Analysis and Decision

In evaluating Facebook’s conduct, the district court considered and dismissed Facebook’s “buy” and “bury” conduct separately. But trying to determine the extent of anticompetitive harm that would have resulted if Facebook’s “buy” strategy had not been accompanied by its “bury” component misses the forest for the trees. Each part of the strategy reinforces the other. In addition, Facebook incrementally weakened competition over time through successive use of the “buy or bury” strategy. The district court erred in analyzing and dismissing the “buy” and “bury” components of Facebook’s conduct separately, thereby disregarding both the temporal progression of Facebook’s conduct and the cumulative anticompetitive effects of the conduct. The effects of Facebook’s acquisitions and the limitations it placed on interoperability between itself and other applications—including targets that declined Facebook’s buy-out offers—should not, and indeed, cannot be decomposed.

Conclusion

Facebook’s holistic “buy or bury” strategy is both mutually reinforcing and cumulative. In economic parlance, Facebook’s dual actions serve as endogenous (internally-determined and self-reinforcing) causal factors resulting in harm to competition; by building on each other, the totality of the antitrust injury they are alleged to have caused in concert, exceeds that of the simple aggregation of each independent action. Decomposing the total anticompetitive harm between the buy and the bury components of an overarching anticompetitive scheme ignores the significant synergies and reinforcing effect that Facebook gained from combining the two in a coordinated strategy and elevates form over substance. An orchestral concert offers an apt analogy: each instrument on its own produces a sound, but a symphony represents far more than the sum total of separate instruments. Because the sounds of the instruments reinforce each other to produce the symphony, they cannot be separated into individual sonatas and still produce the same result.

 

[1] Eastman Kodak Co. v. Image Tech. Servs., Inc., 504 U.S. 451, 466–67

(1992).