Late complication tangles FTC’s decision on suing Facebook

A looming vacancy on the Federal Trade Commission has created a dilemma for the agency as it decides how to pursue its expected antitrust lawsuit against Facebook, contributing to a delay in the launch of the case, three people familiar with the discussions said.

While the five commissioners had been expected to file the suit by the end of this month, the agency’s commissioners are now grappling with the prospect that Republican Chairman Joseph Simons’ likely departure before the next administration could lead to 2-2 splits in future votes.

That’s important because Simons favors pursuing the suit against Facebook in the FTC’s in-house court, rather than in a standard federal court, according to the three people, who spoke on condition of anonymity to discuss the confidential matter. An in-house case would give the commission more control over the process, a better chance of winning, and an opportunity to write an opinion that could change legal doctrines affecting future antitrust cases.

But an in-house suit would also require the commission to vote on the case’s final resolution, long after Simons’ likely departure. And with no guarantee that President-elect Joe Biden could quickly fill the vacancy, the FTC could find itself in a deadlock — possibly to Facebook’s advantage.

The question has emerged as a last-minute snag in the next stage of Washington’s legal crusade against Silicon Valley, a month after the Justice Department sued fellow tech giant Google over its dominance of the online search market.

The FTC declined to comment about the status of the Facebook probe, and Facebook didn’t respond to a request for comment. The commissioners could still announce a decision as early as next week, possibly before November ends.

A divided commission

The commissioners — three Republicans and two Democrats, all nominated by President Donald Trump — have met twice to discuss the potential case, and the debate has continued more than a month. The case is expected to focus on Facebook’s pattern of buying up emerging rivals, including the photo-sharing app Instagram and messaging platform WhatsApp, as well as the way it controls access to users’ data.

The commissioners appear split 3-2 on whether to sue at all, the people said, adding that Simons’ most likely allies in bringing the case would be the FTC’s two Democrats.

If the commissioners pull the trigger, they also will have to decide where to file.

One option is federal court, which would leave the case and any potential penalties against Facebook in the hands of a federal judge. The other is the FTC’s in-house court, where an administrative judge would hear the case and the commissioners would make the final decision.

Suing in federal court would allow the FTC to join with as many as 40 state attorneys general who are expected to file their own antitrust suit against Facebook next month. But Simons favors the in-house option, the three people familiar with the case said.

Other people familiar with the FTC’s work say an in-house suit would hold institutional advantages for the agency.

The commission’s in-house court “gives [it] the possibility to write an opinion that would make a difference,” said William Kovacic, who served as the FTC’s general counsel before becoming chair during the George W. Bush administration. Filing in federal court, in contrast, would give fuel to FTC critics who want the Justice Department to take responsibility for all federal antitrust cases.

“A decision to go to federal court in the Facebook case says those distinctive features [of the FTC] don’t count for much,” said Kovacic, who also serves as a non-executive director for the U.K.’s Competition and Markets Authority. “Do you believe you are as good as the federal district courts or not?”

The looming vacancy

Simons’ future adds some complexity to that decision, however.

Republican Commissioners Christine Wilson and Noah Phillips are viewed as unlikely to support any FTC case against Facebook, the three people knowledgeable about the case said. That means Simons would need to reach an agreement with the agency’s two Democrats, Rohit Chopra and Rebecca Kelly Slaughter, if the agency is to move forward.

Suing one the United States’ largest, wealthiest companies would secure a legacy for Simons, who has served as the FTC’s chair since May 2018.

But it could take another 15 to 18 months for the outcome of the case to come back before the commission. And Democrats are concerned that Republican Mitch McConnell, if he remains the Senate majority leader, would slow-walk any Biden FTC nominees to keep the agency from having three Democratic commissioners.

The possible outcome, a year or more from now, is a 2-2 impasse that could hamstring the FTC’s final decision on the case and a potential breakup of Facebook.

The question of which party controls the Senate won’t be decided until after Georgia’s two runoffs Jan. 5.

The process of approving FTC commissioners can be slow even without a partisan split between the White House and Senate. The confirmation of Simons, Chopra and Phillips, for example, took seven months and moved forward only after Trump nominated Slaughter in March 2018.

How the case could go down

An internal lawsuit would go before the agency’s administrative court, whose sole judge, D. Michael Chappell, operates on a tight timeline.

Once Chappell holds a hearing and issues his ruling, the case moves to the commissioners, who review his decision and write their own. But if the commissioners deadlock, Chappell’s ruling stands, said Kovacic, now an antitrust professor at George Washington University law school.

Chappell, a gruff former prosecutor with the U.S. Army Judge Advocate General’s Corps, is known for his harsh treatment of FTC staff in administrative proceedings. In a number of antitrust cases, he has ruled against the FTC’s case only to have commissioners overturn his decision.

But should Chappell rule for Facebook and the commissioners deadlock, the agency would be unable to appeal.

One reason to go in-house: That kind of proceeding allows the commission to develop legal theories, such as how to deal with companies’ acquisitions of promising start-ups, that would probably arise in the Facebook suit and could then be used in future cases.

“That’s how it has been used over time,” said Maureen Ohlhausen, who served as the FTC’s acting chair during the first part of the Trump administration. “The FTC, as an expert body, weighing in on new interpretations of the antitrust laws.”

But that route would make it hard for the FTC to work with the state attorneys general, led by New York’s Letitia James, who are preparing their own federal antitrust suit against Facebook and are expected to file next month. (The Capitol Forum and the Washington Post first reported the states’ timeline.)

The FTC’s staff worked alongside state prosecutors throughout the 16-month investigation, including on joint interviews of Facebook CEO Mark Zuckerberg and other company executives.

The states, however, can’t participate in an FTC in-house proceeding. Because of that dynamic, in cases where the commission and states join forces, the commission generally sues in federal court alongside the states rather than pursuing a case in-house and having dual proceedings.

The FTC could ask a federal judge to pause a state suit against Facebook while its in-house trial is underway. But the attorneys general would probably oppose such a request and the commission would risk damaging its relationship with the states, whom they work with closely on privacy and other consumer protection issues.

A federal judge also might not grant such a pause request, leading to two proceedings against Facebook over the same conduct.

Still, two simultaneous cases might be preferable to one in federal court if, as sometimes happens, the judge is unfamiliar with antitrust law, Kovacic said.

The FTC has “accumulated knowledge and understanding of antitrust law in a way that ordinary federal district judges could not do,” he said.