Facebook: The Bark and Bite of Government Lawsuits

First, this is not breaking news and much like the government’s recent suit against Google, is unlikely to have a lasting, much less negative impact on Facebook’s profitability or its attractiveness as a long-term investment.

Second, whatever you may read in the coming days about this suit, it will likely proceed, as most of these cases do, and drag on for at least five years. By that time, Facebook’s profits will have easily doubled if their historical profitability is halved. Much more likely, new, more dynamic, shiny objects will be nipping at the heels of Facebook’s dominance of all things digitally social. That’s a projection based on centuries of historical precedent.

The most recent example is Microsoft running into trouble with the government in 1998.

Microsoft today is still the second most valuable company in the world, but Google was born during Microsoft’s troubles.

Third, most who follow the twists and turns of anti-trust and privacy matters (which this suit does not address) see little economic benefit to the “people” by breaking up Facebook.

In fact, it is often argued with a great deal of sound business reasoning, that the resources needed to ensure privacy, security and all the other ‘must haves’ from the various spectrum of this debate, require a very profitable firm to endure the socially mandated costs and, more importantly, a central place to monitor all that which is deemed necessary to ‘police’. The simple fact is it is easier to keep track of bad guys if you know where to look. This argues for keeping Facebook intact.

Fourth, it was the government themselves who approved these so-called ‘egregious’ acquisitions that Facebook did (Instagram in 2012 for $1 billion and WhatsApp for $19 billion in 2014) when these companies had few users. The intent of anti-trust is not to punish success. It is not to stop synergies, nor is it to punish competitive behaviour. It was by no means a certainty when Facebook acquired Instagram or WhatsApp that they would be world dominating companies.

If the government wishes to undo what they approved, I imagine the courts would award the shareholders handsome damages for undoing what many would characterize as flawless corporate execution of integration, growth and most importantly innovation.

Just because you don’t like the outcome of something you approved, or you take offence to its success, doesn’t mean they have broken the law.

What law has Facebook broken?

That’s up to a judge to decide not a politician.

The rules as they are presently written make the burden of proof very heavy for the government in this case. Judges must weigh facts against the law as it is written. Judging, using hindsight or trumpeting populist opinion about harm or bias, is not what judges do. How could anyone have imagined eight short years ago the impacts and success of these investments? This is a classic case of hindsight bias. To argue that Mark Zuckerberg knew “it” all along will be a tough argument.

There is a long history of clinical studies that support the fact that people vastly overestimate the ability of people to anticipate the future. Proving otherwise will be the burden of the government.

Fifth, the government must prove harm to the consumer. The service Facebook provides to you and us is free. How are we being harmed from competition if what we are getting is free?

There are arguments that the harm to the consumer is that they are not being properly compensated for their ‘data’ in exchange for said free service. Measuring harm to a consumer, and that is the hurdle that anti-trust law as it is currently written must jump in America, is difficult at the best of times.

Lawyers have made fortunes debating this and, they will again. One could argue that Facebook has bought all the alternatives but that would ignore TikTok, Twitter and Snapchat to name only a few. These are companies that prove that there are competitors who can innovate, access financing to build, and do grow.

That Facebook copies this competition proves that there are alternatives, that they are not stifling competition but rather acting like any other company that sees a good idea and copies it.

That people use Facebook sites more and most choose Facebook is not a legal issue unless one wants to restrict the choices of the people. Good luck with that!

Sixth, public enemy number one is Zuckerberg. Just like Rockefeller in the Standard Oil case of 1911, he is being portrayed as a bully. Rockefeller threatened his competitors to sell to him and join the big tent or be destroyed. Allegedly, Zuckerberg played the same cards saying to the founder of Instagram: At some point soon, you will have to figure out how you actually want to work with us.”

That’s tough talk, but is it illegal? The guy on the other end of that message had to think what was important to him. He took the money and moved on.

Standard Oil was broken up in 1911 and eventually it re-emerged as a company called Exxon. AT&T was broken up into eight Baby Bells in 1984 and today its AT&T again. Bigger than ever. Just like Exxon. Bigger but increasingly marginalized by new competition. The laws didn’t change a thing.

The business belonged together in the first place; competitors wanted a helping hand from government to compete but, in the end, a new innovator created a whole new way of doing something.

That’s Facebook’s biggest threat.

Lastly, I really don’t think Facebook was chasing market share or trying to put anyone else out of business.

They were chasing a dream and through intelligence, hard work, luck, and a touch of hard-nosed determination they captured a new way of capturing what we as human have always done: gather round a warm fire and communicate.

That the fire is raging right now says more about the people sitting around the fire than the fire pit we are all using.

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