Recently, a group of states Attorneys Generals (AG’s) announced that they would be conducting their own investigations against Facebook for possible violations of anti-trust and consumer protection statutes. The efforts of the states AG’s will coordinate and complement the anti-trust inquiries currently underway by the Justice Department.
Although the market seemed to respond to the announcement of the consolidated legal effort with indifference or outright dismissal, the joint state effort could substantially heighten the liability exposure of not only Facebook, but also, the other tech giants as well.
There are a number of reasons why the new wave of investigations will subject Facebook to enhanced risks the company has avoided – or fortuitously dodged — to date.
The $5 billion fine the FTC levied against Facebook recently shouldn’t be used as a basis for minimizing the exposure of the company. There were a number of unique factors in the FTC proceedings that circumscribed or limited the Commissions ability to assess a more punitive fine. First, there was the unavoidable bureaucratic turf war between the FTC and the Justice Department concerning jurisdiction over unfair competition cases.
Secondly, the FTC settlement was limited to determining a fine appropriate for Facebook’s breach of a previous consent decree regarding user privacy, and was subject to statutory limitations by which the AG’s actions will not be bound.
Lastly, there was a component of the FTC’s settlement that was unavoidably political: there was a split between the Democrat and Republican members of the Committee. Democrats believed the $5 billion fine was de minimis for a $527.4 billion company; Republicans believed the amount of the fine was sufficient to send a message concerning privacy abuses. Additionally, the amount of the fine, to some degree, was an attempt by FTC chairman Joseph Simons, to present to the public a consensus decision between all members of the Committee.
The AG’s efforts against Facebook will not be similarly constrained by such political considerations.
Indeed, the states’ joint investigations is a bipartisan effort. It is significant to note that only 20 states were involved in the Microsoft anti-trust case; attorneys general from 50 states will be subjecting Facebook to intense scrutiny, with subpoena powers at their disposal. It is truly a rare political event, when Democrats and Republicans both agree on a course of action to be pursued against a corporation that enjoys a dominant market position in its industry. This factor, in and of itself, should worry not only Facebook and other tech companies, but investors as well.
Many investors and financial journalists who use the Microsoft case as the template to support their belief in Facebook’s limited anti-trust liability, seem to take comfort in the outcome of that case decided more than three decades ago. While there are those who claim that any Justice Department anti-trust action against Facebook is destined ultimately to result in a Microsoft-like settlement, that preserved