The legal justifications for the FTC’s plan with Facebook

You probably heard about one of the most colossal antitrust actions in history last week: The FTC accused Facebook of neutralizing competitive threats to attain power. It wants to break up Facebook by forcing the social media giant to sell Instagram and WhatsApp.  

But can the FTC really do that? Here’s a breakdown of why and why not.

The breakup

It sounds crazy to think that the FTC could break up a massive company. But these actions were once fairly common. In the early 20th century, at the height of crackdowns on monopolies, the Supreme Court ruled that Standard Oil could be split into 34 companies. In 1982, AT&T agreed in a consent decree to break up its “bell” phone companies.  

The legalese 

Justification traces back to the Sherman Antitrust Act of 1890 and Clayton Antitrust Act of 1914. When a company is found to have violated the acts and become a monopoly, courts can side with a breakup penalty imposed by the FTC. That power was set by the Supreme Court precedent with Standard Oil.

  • Still, precedent doesn’t mean a guarantee. Judges are typically cautious and want to ensure they don’t create a worse situation with a breakup. As William Kovacic, FTC chair under George W. Bush, told Politico, “(Courts) are being asked to perform surgery and they want confidence the surgery is not going to kill the patient.”    

Microsoft vs Standard Oil

Microsoft lost an antitrust case to the FTC in the 2000s. A trial judge ordered Microsoft to break into four separate companies focusing on Windows, software applications, e-commerce, and internet. An appeals court overturned the decision, and Microsoft made a settlement that did not require breaking off any parts of the company.  

  • The same caution may be applied for Facebook. Plus, as one legal analyst told CNN, the FTC asked for Facebook to provide support to any separated company formed by the antitrust action. That request could mean Facebook still has sizable influence regardless of the outcome.