By Jacob M. Schlesinger in Washington and Jeff Horwitz in San Francisco
Facebook Inc. CEO Mark Zuckerberg suggested in January when
releasing 2018 earnings that the social-media giant was at a
turning point, ending a year of answering critics and starting a
new era of growth and innovation. "We now have a clear sense of the
path ahead," he said.
Mr. Zuckerberg may have spoken too soon.
In the half year since, the political attacks on Facebook and
the other tech giants have only intensified. That is complicating
the expansion strategies of big online platforms whose dominance
was made possible in part by a quarter-century, bipartisan
Washington consensus backing rules and regulations designed mainly
to foster their development.
The erosion of that supportive environment has been on full view
over the past week. Facebook's $5 billion privacy settlement
Wednesday with the Federal Trade Commission only inflamed critics
-- including some within the agency -- who said the deal
underscored the need for tighter government restraints on the
company.
The penalty's announcement came the morning after the Justice
Department disclosed a new, broad-based antitrust review of
"search, social media, and some retail services online," an
apparent reference to Facebook, Alphabet Inc.'s Google unit, and
Amazon.com Inc.
Facebook on Wednesday disclosed a separate antitrust review by
the FTC that began in June. A week earlier, three separate
congressional committees held hearings scrutinizing the clout of
big tech. Those followed a White House "social media summit" called
to air grievances by conservatives saying the platforms were
improperly using their power to suppress free speech.
The pressure may already be affecting the company's business
strategy. Facebook has faced heightened criticism for acquiring
potential competitors such as WhatsApp and Instagram before they
can grow large enough to challenge it. Sensitivity to those
complaints played a role in the company nixing earlier this year
discussions about acquiring Houseparty, a group video-chat app
popular with teenagers, according to a person familiar with the
discussions.
The company's move to launch its Libra cryptocurrency has
sparked a storm of complaints in Washington -- from members of
Congress, the Trump administration, the Federal Reserve and the
Securities and Exchange Commission -- casting doubts about
Facebook's ability to enter what it had hoped to be a major new
line of business.
A few years ago, Facebook "would probably have just shown up and
tried to release a product on our own," Mr. Zuckerberg said of the
Libra challenge on the Wednesday earnings call. In a blog post
written earlier in the day about the newly-established
privacy-review process that will emerge from its settlement with
the FTC, he wrote: "We expect it will take longer to build new
products following this process going forward."
All of which signals a remarkable upending of the long-running
special relationship between Silicon Valley and the Beltway. The
tech industry long relied on support, protection, and deference
from Washington, a period in which any warning that a new
regulation might "stifle the internet" was often enough to fend it
off.
So far, the backlash against tech is worse than its bite. For
all the harsh words aimed at Facebook, Google, Amazon and others,
few signs have emerged of any immediate new policies, rules, or
enforcement actions that would restrict their dominance and
expansion. Any Justice Department investigation would likely take
years to complete.
The federal courts -- the final arbiters on major antitrust
actions -- remain dominated by judges who have set a very high bar
for government actions that challenge big business.
The last major federal attempt to curb the tech companies was
the 2012 "Stop Online Piracy Act," aimed at blocking websites
selling counterfeit goods and infringing on copyrights. The measure
was backed by the U.S. Chamber of Commerce, Hollywood, and the
recording industry, and, with strong bipartisan support in the
House and Senate, appeared on a fast track to passage.
Google, Wikipedia and others pushed back, asserting the law was
tantamount to censoring the internet, and persuaded congressional
leaders to drop the bill. That battle was seen as a sign of big
tech's clout to fend off new regulations, outmaneuvering
traditional Capitol power players.
Now the web giants face new challenges in Washington, which they
may have a harder time beating back.
The biggest threat may come from the Justice Department's
sweeping announcement of its tech antitrust inquiry. The Justice
statement came after the U.S. government had faced mounting
criticism from politicians, activists and antitrust scholars, for
lax antitrust scrutiny of the tech giants, allowing some of them to
achieve near-monopoly control of certain sectors. The FTC ended an
antitrust probe of Google in 2013 with a wrist-slap, while
competition authorities in Europe have in recent years started a
series of probes into multiple Google and Amazon practices and have
fined Google billions of dollars in three separate cases.
One difficulty for U.S. officials has been to challenge tech
companies using antitrust law's current "consumer welfare
standard," which requires proof that a certain company's practices
restrict competition, often measured by lower quality or higher
prices. That is a difficult benchmark to meet, since the tech
platforms offer many of their services for free.
The new probe could indicate that enforcers are calibrating
their gauges for the attributes of the digital age. Yale economist
Fiona Scott Morton, an antitrust official in the Obama
administration, says questions about Facebook's privacy practices
could become fodder for a broader antitrust action. "Privacy is
related to antitrust because it's an element of quality," she says.
"Harm to consumers comes from insufficient competition," she adds,
suggesting that in a more vibrant market, companies could compete
over privacy protections.
Some conservatives are growing increasingly vocal about using
antitrust to address their concerns. Sen. Ted Cruz (R., Texas) says
Google and Twitter are abusing their power by censoring speech in
the name of content moderation. Sen. Josh Hawley (R., Mo.) has
introduced legislation that would remove the immunity for content
posted by third parties, a shield that internet providers have
enjoyed since 1996, and which is widely credited for allowing the
rapid growth of the online giants.
Congressional action is unlikely in the near term. But the
political risks for the tech companies could be rising, especially
if a Democrat wins next year's presidential election with a
platform including stricter antitrust enforcement. The potential
ramifications of such a move were evident in this week's
FTC-Facebook settlement, which was narrowly approved by the
five-member commission, with the three Republicans in favor and the
two Democrats issuing stinging dissents.
Under a Democratic administration, Democrats would get the FTC
majority, and the settlement would likely have been much tougher,
along the framework outlined by one of the dissents written by
Democratic commissioner Rohit Chopra.
"The proposed settlement does little to change the business
model or practices" that allegedly led to the privacy violations,
he wrote.
--Betsy Morris contributed to this article.
Write to Jacob M. Schlesinger at jacob.schlesinger@wsj.com
(END) Dow Jones Newswires
July 26, 2019 06:14 ET (10:14 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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