By Brent Kendall, John D. McKinnon and Ryan Tracy 

WASHINGTON -- The Federal Trade Commission is preparing a possible antitrust lawsuit against Facebook Inc. that it could file by the end of the year, according to people familiar with the matter, in a case that would challenge the company's dominant position in social media.

The case preparations come after the FTC has spent more than a year investigating concerns that Facebook has been using its powerful market position to stifle competition, part of a broader effort by U.S. antitrust authorities to examine the conduct of a handful of dominant tech companies.

No final decision has been made on whether to sue Facebook, people familiar with the matter said, and the commission doesn't always bring cases even when it is making preparations to do so, such as when it decided against filing an antitrust complaint against Google Inc. in 2013 after a lengthy investigation.

Facebook is still in the process of making its case to the commission, even as the probe has been progressing into its late stages, and recent efforts by FTC staff have included taking testimony from CEO Mark Zuckerberg, something the commission didn't do during a prior probe of the company's privacy practices. That matter resulted in a record-breaking $5 billion settlement.

A majority on the five-member FTC would need to vote in favor of any lawsuit. The commission comprises three Republicans, including Chairman Joseph Simons, and two Democrats.

Details of the FTC's likely legal theories in any Facebook lawsuit couldn't be learned. The company last year disclosed it was under investigation by the FTC, and The Wall Street Journal has previously reported that one focus of the agency's probe is the company's past acquisitions of potential competitors.

FTC staffers are continuing to ask questions about past acquisitions, as well as about issues related to how Facebook manages its platform with regard to app developers, some of the people said.

The company has argued that its acquisitions aren't anticompetitive and have improved products and experiences for its users, the people said. Facebook hasn't yet held discussions with the FTC's commissioners, which would likely happen at the very final stage of the process, the people said.

If Facebook were to lose an antitrust case, the FTC could seek a range of remedies designed to promote competition against the company, from restrictions on how Facebook operates to breaking off pieces of its business. The commission can't unilaterally dictate such changes; it would first have to prove in legal proceedings that the company violated federal antitrust law, and that such changes were necessary.

Asked about Facebook in an Aug. 5 hearing before the Senate Commerce Committee, Mr. Simons said he couldn't discuss specific companies. "We have the ability to look back at consummated mergers and to undo them," he said, adding that the agency has also asked major tech platform companies for information about past acquisitions that weren't required to be reported to antitrust authorities.

Facebook already has moved to integrate different services it has acquired, which it says it is doing to improve consumers' experience, for instance by allowing them to message one another through different Facebook-owned apps.

A case against the social-media giant would open up a second big front in the government's pursuit of Big Tech. The Justice Department, which shares antitrust authority with the FTC, is planning to file an antitrust lawsuit soon against Alphabet Inc.'s Google, The Wall Street Journal has reported.

A case against either company would likely take years to resolve, meaning the officials who bring a lawsuit may not be around to see its conclusion. The Nov. 3 election could impact the future of any case, though both Republicans and Democrats have been critical of tech-company practices, including at Facebook and Google.

The FTC previously has blessed Facebook's expansion through acquisitions of companies including the photo-sharing app Instagram in 2012, though not without qualms. Some on the commission worried about the implications of that deal, but weren't sure they could win a case, the Journal has reported.

The FTC allowed Facebook's purchase of the messaging service WhatsApp in 2014. The company had acquired scores of firms over the past decade.

Facebook has vigorously defended its deals, saying apps like Instagram have grown in popularity because Facebook has used its resources to make them better.

"The acquisition has done wildly well largely because not just of the founder's talent, but because we invested heavily in building up the infrastructure and promoting it and working on security and working on a lot of things around this. And I think that this has been an amazing success story." Mr. Zuckerberg said at a July 29 hearing before a House antitrust subcommittee, in which he testified along with chief executives from Google, Amazon.com and Apple Inc.

House Judiciary Committee Chairman Jerrold Nadler (D., N.Y.) called the Instagram deal "exactly the type of anticompetitive acquisition that the antitrust laws were designed to prevent. This should never have happened in the first place."

Lawmakers also raised questions about whether Facebook exploits outsize market share when it interacts with app developers or moderates online speech.

The antitrust subcommittee, which obtained more than a million documents from top tech companies, is expected to release a report in the coming weeks detailing its findings regarding potentially anticompetitive behavior in the tech sector and whether a legislative response is needed.

Members of Congress and other Big Tech critics also have faulted the FTC for not doing more over the past decade to rein in tech platforms that have grown increasingly dominant, creating additional pressures on the agency as its plots a course on Facebook.

"There has to be a deep awareness of how damaging it would be for the agency if it comes up with nothing," said George Washington University law professor William Kovacic, a former FTC chairman.

Mr. Simons, speaking at an antitrust event this week, said antitrust enforcers "have made mistakes" in the past, but said they were still well-positioned to address potential issues presented by the tech giants.

The FTC has a pair of options if it sues Facebook: It could bring a case in federal court or it could file a complaint in its in-house legal system, where the case would first go before an administrative law judge. The commission itself would then review that judge's work and issue a decision, which Facebook then could challenge in a federal appeals court.

If the commission wants to seek an interim injunction blocking certain Facebook practices before the end of litigation, it would have to go to federal court. But Mr. Kovacic said the administrative court approach may have significant advantages for the FTC because it would allow the commission to write the first legal decision in the case. "They have an opportunity to write an opinion that changes the law and shapes the future of U.S. policy involving dominant firms," he said.

Write to Brent Kendall at brent.kendall@wsj.com, John D. McKinnon at john.mckinnon@wsj.com and Ryan Tracy at ryan.tracy@wsj.com

 

(END) Dow Jones Newswires

September 15, 2020 19:32 ET (23:32 GMT)

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