Case 1:20-cv-03590-JEB Document 59 Filed 04/07/21 Page 1 of 56
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE DISTRICT OF COLUMBIA
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`FEDERAL TRADE COMMISSION,
`
`
`
`
`Plaintiff,
`
`v.
`
`
`FACEBOOK, INC.
`
`
`
`
`
`
`Civil Action No. 1:20-cv-03589 (JEB)
`
`
`
`Defendant.
`
`PLAINTIFF FEDERAL TRADE COMMISSION’S MEMORANDUM OF LAW IN
`OPPOSITION TO DEFENDANT FACEBOOK, INC.’S MOTION TO DISMISS
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`Case 1:20-cv-03590-JEB Document 59 Filed 04/07/21 Page 2 of 56
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`Table of Contents
`Table of Authorities ....................................................................................................................... iii
`INTRODUCTION .......................................................................................................................... 1
`BACKGROUND ............................................................................................................................ 3
`A. Instagram Acquisition .......................................................................................................... 3
`B. WhatsApp Acquisition ......................................................................................................... 4
`C. Facebook Platform ............................................................................................................... 5
`LEGAL STANDARD ..................................................................................................................... 6
`ARGUMENT .................................................................................................................................. 6
`I. THE FTC’S COMPLAINT STATES A CLAIM OF MONOPOLIZATION ......................... 6
`A. The Complaint’s Allegations Establish that Facebook Possesses Monopoly Power in PSN
`Services in the United States ....................................................................................................... 7
`1. The Complaint’s Allegations Establish that PSN Services in the United States
`Constitute a Relevant Market .................................................................................................. 8
`2. Facebook’s Criticisms of the Complaint’s Relevant Market Allegations Fail ............... 10
`a) Facebook’s Assertion that It Provides PSN Services “Free and In Unlimited
`Quantities” Provides No Basis for Dismissal .................................................................... 11
`b) The FTC’s Complaint Is Not Required to Plead a Method of Quantifying Cross-
`Elasticity of Demand.......................................................................................................... 12
`c) Facebook’s Claim that PSN Services Are Reasonably Interchangeable with Other
`Services Disputes the Complaint’s Factual Allegations .................................................... 13
`d) Facebook’s Remaining Arguments Fail to Undermine the Relevant Market ............ 15
`3. The Complaint’s Allegations Establish Facebook Possesses a Dominant Share of the
`Relevant Market that Is Protected by Entry Barriers ............................................................. 17
`B. The Complaint Details How Facebook Has Maintained Its Monopoly Position Through an
`Anticompetitive Course of Conduct .......................................................................................... 20
`1. The Complaint Alleges that Facebook Maintained Its Monopoly Through the
`Acquisitions of Instagram and WhatsApp ............................................................................. 21
`a) Facebook’s Acquisitions of Instagram and WhatsApp Constitute Anticompetitive
`Conduct .............................................................................................................................. 21
`b) The Complaint Provides Detailed Allegations that Facebook’s Acquisitions of
`Instagram and WhatsApp Caused Anticompetitive Effects ............................................... 23
`c) Prior HSR Review Does Not Bar this Action or Create a Heightened Pleading
`Standard ............................................................................................................................. 27
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`d) Section 2 Provides an Independent Basis for Challenging the Acquisitions of a
`Monopolist ......................................................................................................................... 29
`2. The Complaint Alleges that Facebook Maintained Its Monopoly Through Its Platform
`Policies................................................................................................................................... 31
`a) Facebook’s Platform Policies Constitute Unlawful Conditional Dealing .................. 31
`b) Facebook’s Platform Conduct Is Also Actionable Under Trinko and Aspen ............. 34
`c) Facebook Inaccurately Claims that Courts Have Ruled on Its Platform Conduct ..... 37
`II. THE COMPLAINT ESTABLISHES THE FTC’S AUTHORITY TO FILE THIS SUIT ... 38
`A. Section 13(b) Empowers the FTC to Sue in Federal Court When the Commission “Has
`Reason to Believe” a Defendant Is Violating the Law .............................................................. 39
`B. The Complaint Alleges an Ongoing Monopolization Offense .......................................... 41
`CONCLUSION ............................................................................................................................. 45
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`Case 1:20-cv-03590-JEB Document 59 Filed 04/07/21 Page 4 of 56
`
`Table of Authorities
`
`CASES
`
`
`
`2301 M Cinema LLC v. Silver Cinemas Acquisition Co., 342 F. Supp. 3d 126
`
`(D.D.C. 2018) .......................................................................................................17, 18
`
`Ashcroft v. Iqbal, 556 U.S. 662 (2009) ................................................................................6
`
`Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985) ......34, 35, 36, 37
`
`Ball Mem’l Hosp., Inc. v. Mut. Hosp. Ins., Inc., 784 F. 2d 1325 (7th Cir. 1986) ........19, 34
`
`Behrend v. Comcast Corp., 2012 WL 1231794 (E.D. Pa. Apr. 12, 2012) .........................30
`
`Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) ..........................................................6, 13
`
`Bd. of Trade v. CFTC, 605 F.2d 1016 (7th Cir. 1979) ......................................................40
`
`Boise Cascade Corp. v. FTC, 498 F. Supp. 772, 779 (D. Del. 1980) ................................40
`
`BRFHH Shreveport, LLC v. Willis Knighton Med. Ctr., 176 F. Supp. 3d 606
`
`(W.D. La. 2016) ................................................................................................26, 30
`
`Broadcom Corp. v. Qualcomm Inc., 501 F.3d 297 (3d Cir. 2007) ....................................25
`
`Brooke Grp. Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993) ..............26
`
`Brown Shoe Co. v. United States, 370 U.S. 294 (1962) ............................................8, 9, 12
`
`Brown v. Gov’t of D.C., 390 F. Supp. 3d 114 (D.D.C. 2019) ............................................13
`
`California v. Am. Stores Co., 495 U.S. 271 (1990) ...........................................................43
`
`City of Anaheim v. S. Cal. Edison Co., 955 F.2d 1373 (9th Cir. 1992) .............................20
`
`Cmty. Publishers, Inc. v. Donrey Corp., 892 F. Supp. 1146 (W.D. Ark. 1995) ................12
`
`CollegeNet, Inc. v. Common Application, Inc., 355 F. Supp. 3d 926 (D. Or. 2018) .........10
`
`Concord Boat Corp. v. Brunswick Corp., 207 F.3d 1039 (8th Cir. 2000) ........................44
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`Consultants & Designers, Inc. v. Butler Serv. Grp., Inc., 720 F.2d 1553
`
`(11th Cir. 1983) .........................................................................................................37
`
`Cont’l Ore Co. v. Union Carbide & Carbon Corp., 370 U.S. 690 (1962) ........................21
`
`Covad Commc’ns Co. v. Bell Atl. Corp., 398 F.3d 666 (D.C. Cir. 2005) ..............31, 32, 33
`
`Dresses for Less, Inc. v. CIT Grp./Commercial Services, Inc., 2002 WL 31164482
`
`(S.D.N.Y. Sept. 30, 2002) .........................................................................................25
`
`Eastman v. Quest Diagnostics Inc., 2016 WL 1640465 (N.D. Cal. Apr. 26, 2016),
`
` 724 Fed. App’x 556 (9th Cir. 2018) ..................................................................26, 28
`
`Facebook, Inc. v. Power Ventures, Inc., 2010 WL 3291750
`
` (N.D. Cal. July 20, 2010) .........................................................................................38
`
`FTC v. AbbVie Inc., 976 F.3d 327 (3d. Cir. 2020).............................................................17
`
`FTC v. Accusearch, Inc., 570 F.3d 1187 (10th Cir. 2009).................................................45
`
`FTC v. Actavis, Inc., 570 U.S. 136 (2013) ...................................................................24, 33
`
`FTC v. Arch Coal, Inc., 329 F. Supp. 2d 109 (D.D.C. 2004) ............................................14
`
`FTC v. CCC Holdings, Inc., 605 F. Supp. 2d 26 (D.D.C. 2009) .......................................10
`
`FTC v. Hornbeam Special Situations, LLC, 391 F. Supp. 3d 1218 (N.D. Ga. 2019) ........39
`
`FTC v. Nat’l Urological Grp., Inc., 2006 WL 8431977 (N.D. Ga. Jan. 9, 2006) .............40
`
`FTC v. OSF Healthcare Sys., 852 F. Supp. 2d 1069 (N.D. Ill. 2012) ...............................18
`
`FTC v. Qualcomm Inc., 969 F.3d 974 (9th Cir. 2020) .......................................................41
`
`FTC v. RAG Stiftung, 436 F. Supp. 3d 278 (D.D.C. 2020) ................................................14
`
`FTC v. Shire ViroPharma, Inc., 917 F.3d 147 (3d Cir. 2019) .....................................40, 41
`
`FTC v. Staples, Inc., 190 F. Supp. 3d 100 (D.D.C. 2016) .................................................16
`
`FTC v. Surescripts, LLC, 424 F. Supp. 3d 92 (D.D.C. 2020) ......................................25, 41
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`FTC v. Vyera Pharm., LLC, 479 F. Supp. 3d 31 (S.D.N.Y. 2020) ........................39, 41, 45
`
`FTC v. W.Meat Co., 272 U.S. 554 (1926) .........................................................................43
`
`Gottesman v. Gen. Motors Corp., 414 F.2d 956 (2d Cir. 1969) ........................................43
`
`Hicks v. PGA Tour, Inc., 897 F.3d 1109 (9th Cir. 2018) ...................................................15
`
`Hughes v. Abell, 634 F. Supp. 2d 110 (D.D.C. 2009)..........................................................6
`
`In re Sanctuary Belize, 482 F. Supp. 3d 373 (D. Md. 2020) .............................................45
`
`In re Thalomid & Revlimid Antitrust Litig., 2015 WL 9589217
`
` (D.N.J. Oct. 29, 2015) ...........................................................................................34, 36
`
`Jacobs v. Tempur-Pedic Int’l, Inc., 626 F.3d 1327 (11th Cir. 2010) .................................15
`
`Lenox MacLaren Surgical Corp. v. Medtronic, Inc., 762 F.3d 1114 (10th Cir. 2014) ......19
`
`LePage’s Inc. v. 3M, 324 F.3d 141 (3d Cir. 2003) ................................................20, 22, 24
`
`Lorain Journal Co. v. United States, 342 U.S. 143 (1951)........................................ passim
`
`Madison 92nd St. Assocs., LLC v. Courtyard Mgmt. Corp., 624 F. App’x 23
`
`(2d Cir. 2015) .......................................................................................................14, 15
`
`McWane, Inc. v. FTC, 783 F.3d 814 (11th Cir. 2015) .......................................................25
`
`Morris Commc’ns Corp. v. PGA Tour, Inc., 364 F.3d 1288 (11th Cir. 2004)...................37
`
`Nat’l ATM Council, Inc. v. Visa Inc., 922 F. Supp. 2d 73 (D.D.C. 2013) .........................26
`
`O’Bannon v. Nat'l Collegiate Athletic Ass’n, 7 F. Supp. 3d 955 (N.D. Cal. 2014) ...........11
`
`O’Bannon v. Nat'l Collegiate Athletic Ass’n, 802 F. Supp. 3d 1049 (9th Cir. 2015) ........11
`
`Ohio v. Am. Express Co., 138 S. Ct. 2274 (2018) .............................................................14
`
`Queen City Pizza, Inc. v. Domino’s Pizza, Inc., 124 F.3d 430 (3d Cir. 1997) ..................14
`
`RealPage, Inc. v. Yardi Sys., Inc., 852 F. Supp. 2d 1215 (C.D. Cal. 2012) .................10, 13
`
`Rebel Oil Co. v. Atl. Richfield Co., 51 F.3d 1421 (9th Cir 1995) ......................................18
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`Reveal Chat Holdco LLC v. Facebook, Inc., 471 F. Supp. 3d 981 (N.D. Cal. 2020) ..38, 44
`
`Rochester Drug Co-op., Inc. v. Braintree Labs., 712 F. Supp. 2d 308
`
`(D. Del. 2010) .............................................................................................................20
`
`Rothery Storage & Van Co. v. Atlas Van Lines, Inc., 792 F.2d 210
`
`(D.C. Cir. 1986) ..........................................................................................................29
`
`Sambreel Holdings LLC v. Facebook, Inc., 906 F. Supp. 2d 1070
`
`(S.D. Cal. 2012) ..........................................................................................................38
`
`Search v. Uber Techs., Inc., 128 F. Supp. 3d 222 (D.D.C. 2015) .....................................11
`
`Standard Oil Co. v. FTC, 449 U.S. 232 (1980) .................................................................40
`
`Standard Oil Co. v. FTC, 596 F.2d 1381 (9th Cir. 1979) ..................................................40
`
`Standard Oil Co. v. United States, 221 U.S. 1 (1911) .............................................1, 22, 23
`
`Steves & Sons, Inc. v. JELD-WEN, Inc., 988 F.3d 690 (4th Cir. 2021) .............................28
`
`Steward Health Care Sys., LLC v. Blue Cross & Blue Shield of Rhode Island,
`
`311 F. Supp. 3d 468 (D.R.I. 2018) .............................................................................37
`
`Sun Newspapers, Inc. v. Omaha World-Herald Co., 713 F.2d 428 (8th Cir. 1983) ..........22
`
`Texaco Inc. v. Dagher, 547 U.S. 1 (2006) .........................................................................28
`
`Todd v. Exxon Corp., 275 F.3d 191 (2d Cir. 2001) .....................................................10, 15
`
`United States v. Aetna, 240 F. Supp. 3d 1(D.D.C. 2017) ..................................................14
`
`United States v. Anthem, Inc., 236 F. Supp. 3d 171 (D.D.C. 2017) ..................................18
`
`United States v. Anthem, Inc., No. 1:16-cv-1493 (D.D.C. Sept. 30, 2016) .................15, 16
`
`United States v. Anthem, Inc., Order Adopting R. & R. No. 4 (ECF No. 189),
`
`No. 1:16-cv-1493 (D.D.C. Oct. 14, 2016) ..................................................................16
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`United States v. Anthem, Inc., R. & R. No. 4 of the Special Master (ECF No. 172),
`
`No. 1:16-cv-1493 (D.D.C. Sept. 30, 2016) ...............................................................15
`
`United States v. Dentsply, 399 F.3d 181 (3d Cir. 2005) ....................................................24
`
`United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377 (1956) ..............................7
`
`United States v. E. I. du Pont de Nemours & Co., 353 U.S. 586 (1957) ..........................43
`
`United States v. Grinnell Corp., 384 U.S. 563 (1966) ............................................... passim
`
`United States v. H&R Block, Inc., 833 F. Supp. 2d 36 (D.D.C. 2011) ..............8, 11, 13, 14
`
`United States v. ITT Continental Baking Co., 420 U.S. 223 (1975) ............................43, 44
`
`United States v. Microsoft Corp., 84 F. Supp. 2d 9 (D.D.C. 1999) ...................................23
`
`United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir. 2001) .............................. passim
`
`United States v. Schine, 260 F.2d 552 (2d Cir. 1958) ........................................................43
`
`United States v. Village Voice Media, LLC, No. Civ.A. 1:03 CV 0164, 2003 WL 21659092
`
`(N.D. Ohio Feb. 12, 2003) ........................................................................................12
`
`U.S. Anchor Mfg. v. Rule Indus., 7 F.3d 986 (11th Cir. 1993) ..........................................12
`
`Verizon Commc’ns Inc. v. Law Offices of Curtis V. Trinko LLP,
`
`540 U.S. 398 (2004) ......................................................................................... passim
`
`Viamedia, Inc. v. Comcast Corp., 951 F.3d 429 (7th Cir. 2020) .................................36, 37
`
`Z Techs. Corp. v. Lubrizol Corp., 753 F.3d 594 (6th Cir. 2014) ......................................44
`
`
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` STATUTES AND RULES
`
`7 U.S.C. § 12a(9) ...............................................................................................................40
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`Clayton Act
`
`§7, 15 U.S.C. §18 ...................................................................................................25, 43
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`§7A(f), 15 U.S.C. § 18a(f) ...........................................................................................27
`
`§7A(i)(1), 15 U.S.C. § 18a(i)(1) ........................................................................2, 27, 28
`
`Federal Trade Commission Act
`
`§5(a), 15 U.S.C. § 45(a) ...........................................................................................1, 38
`
`§5(b), 15 U.S.C. § 45(b) ..............................................................................................40
`
`§13(b), 15 U.S.C. § 53(b) ......................................................................2, 38, 39, 40, 41
`
`Hart-Scott-Rodino Antitrust Improvements Act of 1976,
`
`Pub. L. No. 94-435, 90 Stat. 1383 ............................................................... 27, 28, 29
`
`Sherman Act §2, 15 U.S.C. § 2 .................................................................................. passim
`
`Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56 ..............................29
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`
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`COURT FILINGS
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`Complaint, FTC v. Cardinal Health, Inc., No. 15-cv-3031
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`(S.D.N.Y. Apr. 20, 2015) ..........................................................................................28
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`Complaint, United States v. Parker-Hannifin Corp., No. 1:17-cv-01354-UNA
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`(D. Del. Sept. 26, 2017) ............................................................................................28
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`
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`ADMINISTRATIVE MATERIALS
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`U.S. Dep’t of Justice & Fed. Trade Comm’n, Horizontal Merger Guidelines
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`(2010) ...............................................................................................................7, 18, 26
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`LEGISLATIVE MATERIALS
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`S. Rep. No. 81-1775 (1950) ...............................................................................................29
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`OTHER MATERIALS
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`C. Scott Hemphill & Tim Wu, Nascent Competitors,
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`168 U. Pa. L. Rev. 1879 (2020) ................................................................................30
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`Howard A. Shelanski, Information, Innovation, and Competition Policy for the Internet,
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`161 U. Pa. L. Rev. 1663 (2013) ..................................................................................7
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`Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law: An Analysis Of Antitrust Principles
`
`And Their Application (4th ed. 2020) ...........................................................21, 24, 26
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`INTRODUCTION
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`The Court should deny Facebook’s Motion to Dismiss because the Federal Trade
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`Commission’s Complaint states a claim that Facebook holds monopoly power over personal
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`social networking (“PSN”) services in the United States, and is violating the antitrust laws by
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`maintaining its monopoly through means other than competition on the merits. The Complaint
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`describes in detail Facebook’s unlawful course of conduct, which includes acquiring competitive
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`threats and deterring or hindering the emergence of rivals by imposing anticompetitive
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`conditions on its trading partners. This conduct violates Section 2 of the Sherman Act, 15 U.S.C.
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`§ 2, and thus constitutes an unfair method of competition in violation of Section 5(a) of the FTC
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`Act, 15 U.S.C. § 45(a).
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`Facebook is one of the largest and most profitable companies in the history of the world.
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`Facebook reaps massive profits from its PSN monopoly, not by offering a superior or more
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`innovative product but because it has, for nearly a decade, taken anticompetitive actions to
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`neutralize, hinder, or deter would-be competitors. For more than a century, courts have
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`condemned monopolists under Section 2 of the Sherman Act for resorting to similar
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`anticompetitive practices to maintain their dominance. See, e.g., United States v. Grinnell Corp.,
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`384 U.S. 563 (1966) (anticompetitive practices included acquiring rivals); Standard Oil Co. v.
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`United States, 221 U.S. 1 (1911) (same); Lorain Journal Co. v. United States, 342 U.S. 143
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`(1951) (refusal to deal with trading partners who dealt with monopolist’s rival); United States v.
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`Microsoft Corp., 253 F.3d 34 (D.C. Cir. 2001) (contractual conditions on trading partners to
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`eliminate risk that nascent threats might erode entry barrier).
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`Disregarding such plain precedents, Facebook claims that this case should be dismissed
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`before it even begins. It asserts that the FTC has failed to adequately allege that Facebook has
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`maintained monopoly power and harms consumers, or alternatively that the FTC should bring
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`this action through an administrative proceeding rather than in this forum. Neither argument has
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`merit. Facebook’s first argument fails because the Complaint’s factual allegations establish that
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`PSN services in the United States are not reasonably interchangeable with other services and thus
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`constitute a relevant antitrust market, see infra § I.A.1-2; that Facebook controls a dominant
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`share of this market and is protected by significant entry barriers, see infra § I.A.3; and that it has
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`maintained its dominant position through anticompetitive means, see infra § I.B. These
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`allegations must be credited, and Facebook cannot prevail by disputing their veracity, nor by
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`demanding that the FTC identify in its Complaint the specific evidence that the FTC will use at
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`trial to prove its claims.
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`Facebook’s argument that the FTC lacks authority to bring this suit likewise fails.
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`Section 13(b) of the FTC Act provides the FTC with statutory authority to bring suit in this Court
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`because the Complaint’s allegations establish that the FTC has determined that it “has reason to
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`believe” that Facebook “is violating” the antitrust laws. 15 U.S.C. § 53(b); see infra § II.
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`Facebook’s suggestion to the contrary disregards the language of Section 13(b) and ignores clear
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`authority interpreting the statute. See infra § II.
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`Facebook’s unavailing arguments are in no way enhanced by its repeated observation that
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`the FTC could have challenged its acquisitions of Instagram and WhatsApp at an earlier
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`juncture. Congress has explicitly provided that the FTC need not challenge an acquisition at its
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`first opportunity to do so; instead, the FTC can challenge an acquisition “at any time” under any
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`“provision of law.” 15 U.S.C. § 18a(i)(1). Moreover, the FTC challenges an ongoing course of
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`monopoly maintenance that includes not only Facebook’s elimination of competitive threats
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`through acquisition, but also the anticompetitive conditions that hindered other potential rivals.
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`BACKGROUND
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`PSN services enable and are used by people to maintain personal relationships and share
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`experiences with friends, family, and other personal connections in a shared social space.
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`Compl. ¶ 52. After first launching on college campuses in 2004, Facebook expanded to the
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`general public within a few years, and attained a dominant market share in PSN services in the
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`United States no later than 2011, which it has maintained ever since. Id. ¶¶ 3, 41, 62, 64.
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`Facebook’s dominant market position in PSN services is protected by formidable barriers
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`to entry. Facebook benefits from substantial direct network effects: because a core purpose of
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`PSN services is connecting and engaging with personal connections, it is very difficult for a new
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`entrant to displace an established PSN service in which users’ friends and family already
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`participate. Id. ¶ 65. Facebook’s position is also protected by switching costs, because of the
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`time and effort that users invest in developing a history and connections on the service. Id. ¶ 66.
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`Since achieving monopoly power, Facebook has defended its position through years of
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`anticompetitive conduct. Id. ¶¶ 5, 9, 71. With its monopoly position at risk as users shifted their
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`online behavior from desktop PCs to mobile phones, Facebook navigated this period of
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`transition—and has maintained its PSN services monopoly ever since—not by competing on the
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`merits, but rather through a course of anticompetitive conduct that includes acquiring Instagram
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`and WhatsApp, and imposing and enforcing anticompetitive conditions on access to Facebook’s
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`valuable platform interconnections. Id.
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`A.
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`Instagram Acquisition
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`Shortly after Instagram—a mobile-first, photo-centric PSN provider—launched in
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`October 2010, Facebook executives identified the service as a key competitive threat. Compl. ¶¶
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`81-82. By September 2011, Facebook founder and CEO Mark Zuckerberg described Instagram
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`as “a large and viable competitor” presenting “a big strategic risk for us.” Id. ¶¶ 83-84. In
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`February 2012, Mr. Zuckerberg worried that “a huge number” of users were moving their
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`engagement away from Facebook to Instagram, and that Instagram was building a social network
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`that was competitive with Facebook’s. Id. ¶¶ 89-90. In explaining his rationale for pursuing
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`Instagram as an acquisition target, Mr. Zuckerberg explained to CFO David Ebersman that
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`“there are network effects around social products and a finite number of different social
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`mechanics to invent. Once someone wins at a specific mechanic, it’s difficult for others to
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`supplant them without doing something different.” Id. ¶ 91.
`
`Facebook announced its agreement to acquire Instagram in April 2012. By acquiring
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`Instagram, Facebook neutralized a singularly threatening PSN competitor, thereby depriving
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`users of the benefits of competition between the two companies, see, e.g., id. ¶¶ 98-99, and
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`making it harder for another firm to enter into PSN services. Id. ¶¶ 100-05.
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`B. WhatsApp Acquisition
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`Following the Instagram acquisition, Facebook turned to what it considered “the next
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`biggest consumer risk” to its PSN services monopoly: the possibility that an app offering mobile
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`messaging services would enter the PSN services market. Compl. ¶¶ 17, 107. In particular,
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`Facebook executives identified a serious strategic threat in the form of mobile messaging apps
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`launching a spinoff PSN service or adding PSN features. Id. ¶¶ 18, 108-11.
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`Facebook identified WhatsApp as the clear “category leader” in mobile messaging and as
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`the most significant threat in this regard. Id. ¶¶ 17, 19. Facebook’s own messaging app,
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`Facebook Messenger, was launched in 2011, but was already too far behind WhatsApp to
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`prevent WhatsApp from gaining scale. Id. ¶ 115-16. With Facebook’s “window of opportunity
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`to solve the messaging situation shrinking,” Facebook once again decided it was “better to buy
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`4 
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`Case 1:20-cv-03590-JEB Document 59 Filed 04/07/21 Page 15 of 56
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`than compete.” Id. ¶¶ 20, 117. In 2014, Facebook acquired WhatsApp for $19 billion. Id. ¶¶
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`120-21. The acquisition neutralized WhatsApp as a nascent threat and thereby deprived, and
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`continues to deprive, users of the benefits of competition from an independent WhatsApp. Id. ¶¶
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`21, 126-27. As Facebook recognized, an independent WhatsApp (on its own or acquired by a
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`third party) would have the ability and incentive to enter the U.S. PSN services market, but under
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`Facebook’s control that competitive threat no longer exists. Id. Moreover, the acquisition makes
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`it harder for other mobile messaging apps to acquire scale and threaten to enter PSN services. Id.
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`C.
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`Facebook Platform
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`In 2007, Facebook launched “Facebook Platform,” a service allowing third-party apps to
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`interoperate and exchange certain information with Facebook, including via application
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`programming interfaces (“APIs”). Compl. ¶¶ 23, 129. Facebook Platform has proved highly
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`valuable to Facebook—with at times nearly one billion pieces of social data channeled back to
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`Facebook Blue each day. Id. ¶¶ 132-34. Facebook Platform also became an important
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`distribution channel for third-party apps, with features like the Find Friends API serving as a
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`valuable growth tool. Id. ¶¶ 130, 132, 135.
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`Between 2011 and 2018, Facebook made Facebook Platform available to developers only
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`on the condition that their apps neither competed with Facebook nor promoted its competitors.
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`Id. ¶ 136. Facebook punished apps that violated these conditions by terminating their access to
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`the Find Friends API and other APIs. Id. ¶¶ 136, 152. Facebook’s terminations were directed
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`against promising competitive threats, including PSN apps, apps with some social functionality,
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`and mobile messaging services. Id. ¶¶ 153-54, 156. Facebook’s imposition and enforcement of
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`its anticompetitive conditions have served to hinder, suppress, and deter the emergence of threats
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`to its U.S. PSN services monopoly. Id. ¶ 159.
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`5 
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`Case 1:20-cv-03590-JEB Document 59 Filed 04/07/21 Page 16 of 56
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`Facebook’s illegal monopolization persists today. Facebook continues to hold and
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`operate Instagram and WhatsApp, which neutralizes them as direct competitive threats to
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`Facebook, and maintains a protective “moat” around its PSN services monopoly. Id. ¶ 76.
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`Facebook recognizes that so long as it maintains Instagram and WhatsApp operating at scale, it
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`will be harder for new firms to enter and build scale around their respective mechanics. Id.
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`LEGAL STANDARD
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`A motion to dismiss can be granted only if the FTC’s Complaint does not allege facts
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`that, if accepted as true, state a plausible claim for relief. Bell Atl. Corp. v. Twombly, 550 U.S.
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`544, 555-56 (2007). The Court does not need to determine whether the facts alleged are true to
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`deny a motion to dismiss. See id., at 556 (“Rule 12(b)(6) does not countenance . . . dismissals
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`based on a judge’s disbelief of a complaint’s factual allegations.”) (internal citation omitted).
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`Instead, the Court “should assume the[] veracity” of the Complaint’s factual allegations, Ashcroft
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`v. Iqbal, 556 U.S. 662, 678 (2009), which “should be liberally construed in [the FTC’s] favor.”
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`Hughes v. Abell, 634 F. Supp. 2d 110, 113 (D.D.C. 2009).
`
`ARGUMENT
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`I.
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`THE FTC’S COMPLAINT STATES A CLAIM OF MONOPOLIZATION
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`The Complaint’s allegations establish that for nearly a decade Facebook has engaged in a
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`course of anticompetitive conduct to maintain a monopoly in PSN services in the United States,
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`in violation of Section 2 of the Sherman Act, 15 U.S.C. § 2. See Compl. ¶¶ 169-74. “The
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`offense of monopolization has two elements: ‘(1) the possession of monopoly power in the
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`relevant market and (2) the willful acquisition or maintenance of that power as distinguished
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`from growth or development as a consequence of a superior product, business acumen, or
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`6 
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`Case 1:20-cv-03590-JEB Document 59 Filed 04/07/21 Page 17 of 56
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`historic accident.’” Microsoft, 253 F.3d at 50 (quoting Grinnell, 384 U.S. at 570-71). The
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`Complaint’s factual allegations establish both elements, and therefore state a claim.
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`A.
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`The Complaint’s Allegations Establish that Facebook Possesses Monopoly
`Power in PSN Services in the United States
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`The Complaint provides detailed allegations that Facebook possesses monopoly power in
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`
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`the relevant market for PSN services in the United States. See Compl. ¶¶ 38-42, 51-67.
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`Monopoly power consists of “the power to control prices or ex