The Federal Trade Commission (FTC) has refiled an antitrust lawsuit against Facebook (NASDAQ: FB). The suit alleges that the company has made anti-competitive acquisitions and that it has purchased companies to stop them from developing into rivals. These are bold claims with strong implications for the social media giant but making them actually stick is another question entirely.

This lawsuit comes at a time when big technology has faced increased scrutiny from both sides of the aisle in Congress. Despite that, there are a lot of questions about the validity of this lawsuit — specifically, because U.S. regulators did sign off on the deals for WhatApp and Instagram. Simon Erickson, Matt Cochrane, Dana Abramovitz, and Maxx Chatsko joined Dan Kline on the August 20 edition of “7investing Now” to examine what the FTC has claimed in its court filing. We’ll also discuss the changing definition of “monopoly” being used in the suit and touch on what this may mean for big tech in general.

A full transcript follows the video.

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Dan Kline: But let’s move into what is happening with Facebook and the Federal Trade Commission. So this is a refiling of a lawsuit that was tossed out of federal court, but they weren’t given a chance. So they filed an antitrust complaint against Facebook. This happened yesterday. Facebook has until October 4 to respond to the amended complaint. And basically, it maintains the core arguments of the original.

This includes allegations that Facebook used anti competitive acquisitions of Instagram and WhatsApp to further its monopoly power. And then it also unfairly blocked rivals from accessing its application program interface. That’s API for those of you who are not super into the technical world. And it’s basically saying that Facebook failed in innovation, so it bought companies and stifled them as a way to compete. These are really serious allegations. Matt Cochrane, what’s your 10,000-foot takeaway here?

Matt Cochrane:  Basically, this is a like you said, this is a refiling of the complaint that was earlier thrown out. Um, look, there’s a lot of things here. But the main takeaway that Facebook’s unlawful, like the suit alleges that Facebook sought to suppress competition by buying up rivals, which includes like WhatsApp, and Instagram. Look, these are acquisitions that the FTC approved almost a decade ago. And to now go back and use, like 2020 hindsight vision and say, not only were they acquisitions approved by the FTC, almost a decade ago, but like, for most of that time, since then, like the, like, most people were like, Wow, I can’t believe Facebook paid all that money. For those acquisitions.

WhatsApp doesn’t make money, like it paid almost, you know, paid over $20 billion for WhatsApp, Whatsapp has earned almost nothing since that time, and Instagram, like, you know, they paid a billion dollars for Instagram. And for years, people like, oh, Facebook vastly overpaid for these acquisitions, the FTC approved the deals. And now to go back a decade later, and just say like, these were actually anti competitive moves. I think that’s like, you’re really using the benefit of hindsight.

And if you did that, you’d go through a number of companies with acquisitions that they made years ago that were approved at the time, and I’ll say like, Oh, no, these are these are actually like, anti-competitive moves, and we need to unwind them, like, are you going to go back to, you know, Microsoft buying MS DOS and say, Well, no, Microsoft needs to spin off windows that was an anti competitive, anti competitive move?

Well, I guess where does it end? Like the way I see it, like, what, how far back? Can the FTC go and say like these moves that were approved, at the time by all the regulatory agencies overseeing them are now we’re now going to unwind them? Because we have the benefit of hindsight.

I know there’s more, there’s more to being a monopoly than just to say you’re though you’re the only one out here. But the suit also alleges that like Tik Tok is not real competition to Facebook, that Snapchat is not real competition to Facebook. I mean, that’s indistinct. And I think that’s, I think that’s kind of ridiculous, just because they’re not exactly the same. They are social media sites that share many, many similar characteristics. The suit was started out in June it was dismissed, didn’t even go to trial. I think there’s a decent shot that happens again, but we’ll, we’ll have to see.

Obviously, if it’s not dismissed, this is gonna be a years long thing. where it won’t be resolved for years. But I do. Look, Lina Khan is a new chairwoman of the FTC. She has written several papers when she was at Columbia University, there are law University there. She has a very aggressive take on anti-competitive move the monopoly powers. So I think you’re gonna see a lot of these lawsuits in the coming years. And we’ll see how they go. But the fact that it was dismissed in June, I guess we’ll have to see. It’s the only way to put it. But I do think it’s a little ridiculous that they can go back this far.

Dan Kline:  I want to jump in and point out that just because you buy something doesn’t mean it’s going to be successful. Twitter bought vine was it Yahoo, who bought Tumblr, we have, we’ve seen all sorts of sites, buy things that look like they’d be good deals, and they don’t actually work out. So Facebook has to get some credit for the fact that WhatsApp and Instagram have built huge audiences.

Matt Cochrane:  They’ve shown phenomenal vision and execution on both of these acquisitions. Phenomenal. And now you’re and now we’re going to punish them for that vision in the execution.

Dan Kline:  Yeah, I want to bring Maxx in here. Because when we think monopoly besides picturing the guy with the monocle in the game, we think only player in the space. We think, you know, if AT&T buys Verizon and T Mobile, they are then a monopoly. But that’s not really the definition of Monopoly being used here. Maxx, you commented on this on slack. Why don’t you weigh in on sort of how we’re sort of looking at monopoly a little differently than the FTC is?

Maxx Chatsko:  Yeah, I think Matt kind of hit on the head a little bit there. And this is his area not mine, I just am a millennial who likes to complain a lot. But I think a lot of people take like to, like they, like you said, the board game definition of Monopoly to mean, you know, you have a 90% share, there’s no other platforms that could possibly do what you do. And that’s not really like the legal definition of monopoly, a lot of it really leans on anti competitive behavior. So that’s the argument, the FTC will have to make it just at a higher.

And so in this argument, as again, Matt touched on, you know, they really had an a more a much narrower definition of what Facebook, you know, is doing and why it might be a monopoly in its own little area. And that’s like mapping user behavior to then how it sells ads, maybe even influencing human behavior and user behavior as well. And I know Simon talked about this recently to Simon?

Simon Erickson:  Yeah, absolutely. I think that’s the key is right. This is going after Facebook, I mean, the the specific claim, and the allegation is that this is specifically for the use of social graphs to map user connections, features that are made for the users to interact with personal contacts, rather than broadcasting information. So the FTC doesn’t like that Facebook can, Matt can go post about Battlebots, an event that he’s really excited about.

And if I like that, it’s gonna say, Oh, hey, I saw that you liked Matt status about battle bots. And then Facebook can now send me personalized advertisements about that similar, like, if we’re in a bus driving down the highway, and we see a billboard about Battlebots. And Matt says, hey, that’s pretty awesome. And then three other people in the bus chime and say, Hey, I like that, too.

Facebook just has too much of a monopoly power over user interactions, because it’s got billions of users. I mean, that’s the the crux of this. I think that it’s gonna be a tough sell to push anything through to try to regulate that. I agree with a lot of what Matt said, but again, it’s something we shouldn’t take lightly. Because we know that Mark Zuckerberg is so visionary in his acquisitions, right? He does things like this several years ahead of anyone else talking about it.

He’s been criticized for spending billions of dollars, whether it’s on WhatsApp, or on Oculus or anything else, and then later on, they try to come back and regulate when it starts does catching on. I think it’s gonna be a tough sell. But it would be very restrictive to what Facebook does today if it goes through.

Dan Kline:  It’s very tricky if we start penalizing companies for being successful. So Spotify bought what is now called Green Room, it was called Clubhouse, then Locker Room it’s been a lot of different things. And if they can build that into a platform by leveraging the other assets they own well, they were smart to buy it before Disney bought it or other things. So I think this retroactive part of it is a little bit tricky.

I wanted to share a funny comment from Max Lucas, perhaps to open the floodgates on people comment again, Sam, if you want to bring that one up. He says not to be pedantic but unfortunately, dad, Mr. monopoly does not have a monocle common misconception that, that I did not know that that is a great one, the worst thing you can hear as a parent, the worst mundane thing you could hear is, Hey, would you like to play Monopoly? There’s nothing fun about monopoly.

But Simon, I wanted to talk about all of these behaviors Facebook is being accused of maybe not the ad targeting, but the buying smaller companies just to just to stifle them or make the technology go away? Couldn’t you argue that Apple and Microsoft do the same thing? How often does Apple buy a 40 or 50 person company, and then roll that like one tiny aspect of what they’re doing into a feature on another Apple device and thereby kill the competitor? This is pretty common. And it feels like there’s a whole range of startups that are created for exactly that purpose is they want to get on the radar of these big companies and be purchased. I know I threw a lot out there, Simon, but feel free to jump in Steve, jump in if you want to as well.

Simon Erickson:  Oh, go ahead, Steve. My only comment is I don’t take 20 seconds to say this is the new normal for Facebook. I mean, you’re gonna see bills come through all the time and people gunning for him. Matt and I have talked about this for years, I thought that there was too much regulatory scrutiny for Facebook. What was it Matt three years ago, and I’ve been proven wrong as the stock continues to climb. I no longer and so bearish about that argument. I don’t think it’s going to be an issue. I just think it’s continually something that Facebook’s gonna have to address every year.

Dan Kline:  It’s been something that Microsoft has had to address on a global level. If you remember, Microsoft has faced a ton of scrutiny for how it bundles its own apps. And for even things like you know, making, you know, being the default search engine when you log in. This is not new for tech companies. Steve happy to give you some thoughts here.

Steve Symington:  Yeah, and I think back to when was it it was like early 2018 when Zuckerberg was being grilled by Congress and just kind of made them all look silly with this responses you know and and I think it was Lindsey Graham that was that was grilling him and said you don’t think you have a monopoly? And I think he responded I’m paraphrasing sure doesn’t feel like it. And I think that speaks a lot to sort of the the the focus of the complaint is is interesting because it kind of assumes that  Facebook’s command of user data is going to give advertisers no other choice. And maybe I’m wrong there.

But I’m not convinced that it will, it might mean their ads are more effective in their ability to actually use our data to better target things. And maybe that’s what they’re upset about. But it is frustrating too, because, you know, Simon spoke earlier about kind of this after the fact how companies are often criticized, like Facebook, oh, he paid way too much for that.

And they criticize how much they spend for it. And then it turns out to be a fantastic deal. 10 years later, and they go, Wow, they didn’t pay nearly enough for that. And, and part of that’s their vision. And, and as Matt was saying, and their execution, to be able to leverage that platform to improve their own. And it’s punishing them for the success of their execution. So it’s kind of a slippery slope, and how do you walk it? But, you know, to prevent these companies from becoming all powerful? Is that their concern? Go ahead, Matt.

Dan Kline:  I want to talk about – Matt, I’ll jump to you in a second – but I don’t want to leave the advertising question alone. Because I think it’s important to consider who’s doing the regulation here. I’ve talked about on social media, that we had the FCC sort of bungle radio and television regulation for 30 years, and really, you know, not understand the subtleties and how content is being delivered. I think one of the issues we have here is that you have a federal trade commission that doesn’t understand what say Roku is doing, or what or what Viacom is doing in the targeted local advertising space.

So you could argue that as a small business owner, and Dana, you can weigh in here that Facebook is a place you should be for advertising. But you could also argue that if Roku catches up, or if Pluto which is Viacom own catches up, they should be able to deliver that micro targeting and be viable competitors. Look, local radio remains a viable competitor in many markets for Facebook advertising. Dana, you have a small business, would you like to weigh in here?

Dana Abramovitz:  Yeah, no, it’s all really good points. And as a business owner, I use Facebook, just because that’s where my clients are. And no, like, if you want to advertise your business, and hopefully you guys can hear me in the internet’s not horrible. If you want to advertise your business, you want to do it, you know, where your demographic is. And you know, my people are on Facebook, I mean, some on Instagram, Facebook owns Instagram, as well. But you know, hands down, Facebook’s the place where my users are. So that’s where we advertise.

Dan Kline:  And when I used to run the toy store, we advertised on social media, which was younger in those days. But if we wanted to advertise, say, our model section, we might advertise on the History Channel. If we wanted to advertise our gaming section, maybe we would go to sci fi or back then there was g4. So you could there really are other choices, Matt, I stepped on you a little bit there. So why don’t you weigh in and Dana, if you want to mute, there’s a little bit of a feedback from you.

Matt Cochrane: Oh no worries, I’m actually going to change the topic a little bit. We were talking about acquisitions that other companies have made. And like, you know, sometimes these acquisitions are shut down, which is like, a lot of times people use it like that as de facto evidence that maybe like they just bought that this to squash the competition? Well, a lot of times these acquisitions to the smaller acquisitions, if you will, like Apple, Microsoft Facebook, Alphabet, take your pick there.They’re made to get those developers like.

MasterCard CEO said, like, yeah, we acquired this company. And it’s nice what they do, but the real thing was they have like a, they have 50 mobile payments, like engineers on their team, you know how hard it is to go hire 50 mobile payment engineers out on the open market, it was easier for them to make the acquisition. And a lot of times when you know, talent is scarce, like acquisitions are made for talent like that. So I don’t think, you know, just because a large a big tech company buys something and then shuts down the service doesn’t necessarily mean they were just doing it for anti competitive behavior.

Dan Kline:  Yeah, so we’re gonna start wrapping this topic up here, because we are trying to not do an hour long show today. And there is an unbelievable amount we’re going to cover here, this is going to be something that comes up, there are political winds on both sides of the aisle to regulate big technology. Traditionally, our government doesn’t get a lot done, because there’s obviously a very close divide. But you might have some action taken here for different reasons. So Simon, I’d like to hear the long term take. But I’d also like to hear should I be worried if I’m Apple? If I’m Amazon, there appears to be not a lot of understanding and a lot of desire to heavily regulate here.

Simon Erickson:  I agree. I agree. Dan. You know, we obviously want consumer protections out there. We don’t want companies to be recklessly using our data in a way that steps on our privacy, but on the other hand, as Investors in this space assuming that all investors are complying with regulations that are out there, you want to have companies try to be monopolies. Right? We call those competitive advantages.

I mean, it’s funny when you get to be large, and you’re a multitrillion dollar company, you try to convince everybody that you’re not a monopoly anymore. No, no, no, we’re not doing anything. That’s that’s monopolistic out there. And I think the investing takeaway from all this is, at least in my opinion, if you’re looking at Facebook, and you’re following the news, but if you’re a long-term investor, the question is, is Facebook going to get broken up?

Or is this going to be an operating expense? Where Mark Zuckerberg is going to have to be subpoenaed to court to talk about you know, what they do? And and kind of this is just continuing to gnaw away at an operating expense line items? Or is Facebook really monopolistic? And we’re gonna get broken up? I don’t think that it is. Personally, I’ll speak for myself on this team. But I think we’ve seen this. A lot of times, this is not Facebook’s first rodeo getting congressional subpoenas. I think that this is going to be just kind of a barrier to entry for others. You got to comply with regulations. And Facebook’s going to have to continue to fight these every year.

Dan Kline:  Well, Simon, let me ask one follow up question before we move on here. Is it actually bad for shareholders? If Facebook was forced to like spin off WhatsApp, wouldn’t that just create another company that you would own a piece of that probably has the heft to this, this isn’t having to spin off like Facebook dating or something that didn’t work? This would be a really major spin off. And we’ve seen, you know, eBay spins off PayPal and PayPal is by far the more successful company. Couldn’t that happen in this case?

Simon Erickson:  Yeah. I mean, if it’s free markets, and you spin it off separately, that’s a great win for shareholders, I think the question for me is, is if the regulator’s allowed the data to go back and forth between those companies, a lot of the critiques of Amazon and Facebook, too, is like, oh, they’re, they’re too powerful. You know, Amazon’s got web services, and then they got the marketplace, and they got to the divisions, can you share all of those user interactions between all the different groups, that would be the thing that would make it less valuable to split them off? But if you still maintain that, of course, you’re gonna unlock more value doing it that way?

Dan Kline:  I think this is a very slippery slope, because you could make this argument. Certainly for Amazon, certainly for Apple, you could argue that Disney has a monopoly on all the best content. You know, it gets really, really tricky. Matt, I’ll give you the last word before we move on here.

Matt Cochrane:  No, I think we I think we covered the bases pretty well, to be honest, I don’t think it’s catastrophic. At the end of the day, if Facebook is spun off for shareholders, I do think it’s not ideal, though, also, like, you know, and a lot of it would come into the details like, what exactly are they spinning off? What are going to be the separate companies, but also the thing is to it’s like, the thing that keeps coming to mind is like, what, what is this going to solve?

If we’re worried about user privacy, like his Instagram is a separate entity, then Facebook to set solve user privacy, and I don’t see how it really does. Like user data will still be out there and only be used by two separate companies. I don’t know if that’s necessarily better for privacy. I think a lot of times, a lot of people don’t like certain companies as they want to see them punished. But I don’t know if that makes these cases, right.

And I don’t really understand exactly what this would solve. There’s lots of competition out there for people’s eyeballs, and their attentions. And if you want to make a super narrow definition on what exactly Facebook is, and argue that these Tik Toks and Snapchat aren’t competitors. Like, I guess like, You’re one, you’re using the benefit of hindsight, and two, like I really don’t understand what it what it solves at the end of the day, if you’re worried about user privacy and things like that,

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