Amicus Brief in the Matter of State of New York et al. v. Facebook

Aurelien Portuese March 28, 2022
March 28, 2022

ITIF filed an amicus brief with the U.S. Court of Appeals for the District of Columbia Circuit in the matter of State of New York, et al. v. Facebook, Inc. on appeal from the U.S. District Court for the District of Columbia.

Argument Summary

Antitrust law broadly honors the right of a business to refuse to cooperate with its competitors. Indeed, cooperation among competitors can be a red flag, as collusion is the “supreme evil of antitrust.” Verizon Commc’ns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 408 (2004). Exceptions are accordingly rare: the Supreme Court has recognized that a monopolist may be unable to end a preexisting and profitable relationship with a competitor when that decision is explicable only as a plan to harm competition itself. See Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 607–09 (1985). But that exception has always stood on shaky ground. Aspen was sharply criticized. See, e.g., Herbert Hovenkamp, The Monopolization Offense, 61 Ohio St. L.J. 1035, 1044 (2000). And in Trinko, the Supreme Court carefully cabined Aspen as a “limited exception” that lies “at or near the outer boundary of [Sherman Act] § 2 liability” and that must be applied with “cautio[n].” Trinko, 540 U.S. at 408–09. Lower courts have correctly followed Trinko and refrained from expanding Aspen beyond its unique facts.

The district court properly understood the Aspen/Trinko framework and correctly dismissed the States’ Section 2 claim challenging Facebook’s Platform policy. Under that policy, Facebook limited Platform access for app developers who would use the Platform to replicate Facebook’s core functions or export Facebook’s data to rivals. That policy was forward-looking and, as relevant here, did not terminate an existing venture with a rival (much less a profitable one). Because Platform access was free to app developers, Facebook could not have been forsaking short-term profits to achieve anticompetitive ends. Facebook’s rational business justification was self-evident. It did not want to help rivals replicate its core functions, nor did it want to share its intellectual property with its rivals. And it certainly did not want to do either thing for free. That is rational competition, not unlawful anticompetitive behavior, as the district court correctly concluded.

To reach a contrary result, the States and DOJ ask this Court to treat Aspen as a “flexible” test, e.g., States Br. 63, apparently satisfied by a refusal to deal coupled with mere allegations of a purpose to harm competitors. This Court should decline that effort to radically expand refusal-to-deal liability, which Trinko so carefully limited.

First, the States’ argument that Aspen provides a “flexible” and open-ended test conflicts with Trinko, which foreclosed a general duty to deal and emphasized that Aspen’s refusal-to-deal exception was “limited.” 540 U.S. at 409. The Supreme Court has never endorsed a duty to deal with competitors for free and, to the contrary, emphasized that Aspen involved a defendant that refused to deal at retail prices. Id. The prior course of dealing is also a critical part of that exception, not just a factor that may be disregarded. Without a prior course of dealing, there is no evidence that a particular arrangement would be profitable, no reason to infer that the monopolist’s otherwise lawful refusal was unjustified, and no prior terms to guide the court in determining what terms to impose on the competitors. Not only would courts become “central planners”—something antitrust law seeks to avoid, see id. at 408—but, worse, they would be centrally planning on a blank slate. And a subjective motivation to harm competitors cannot differentiate lawful from unlawful conduct, as harming competitors is the essence of competition. What is needed is conduct with the effect of harming competition itself, which is absent here.

Second, the fast-moving and ever-changing market here is particularly unsuited to imposing novel duties to deal, making the proposed expansions of Aspen even more problematic. The market for social media services, like other online services, is highly disruptive, with extraordinarily low barriers to entry and rapid changes from constant innovation and competition. For example, Facebook has long faced competition from companies like Twitter; Snapchat quickly rose to prominence; and now TikTok has emerged. Facebook has responded with innovations of its own, developing a new platform called the metaverse, focused on 3D social experiences. In this industry, competition is vigorous, disruptive, and only a click away: A user can shift from Facebook to a competitor simply by opening a different app or website.

Judicial creation of a novel duty to deal in this fast-changing and highly competitive industry would threaten to harm competition and consumers. It would discourage growth and create a powerful incentive to free-ride on others’ success. It would force courts to act as central planners by crafting the terms on which competitors must deal with one another. By the time courts arrive at their preferred terms, the fast-moving industry likely will have already morphed, rendering the intrusion obsolete or misplaced. And courts could not limit an expanded duty to deal to the social media space, because any new antitrust duty would reach economy-wide. This Court should refrain from breaking so much new ground, and instead should affirm the district court’s thoughtful judgment.

Read the full brief. (PDF)

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Amicus Brief in the Matter of State of New York et al. v. Facebook