Did the Federal Trade Commission blow it by allowing Facebook to buy Instagram in 2012 and WhatsApp in 2014?

That's what Facebook co-founder Christopher Hughes asserts in a recent New York Times opinion piece, where he called on the agency to unwind the acquisitions.

He's not alone. Democratic presidential hopefuls Elizabeth Warren and Kamala Harris, among others, have echoed his call to use antitrust laws to break the social media giant apart.

“The FTC's biggest mistake was to allow Facebook to acquire Instagram and WhatsApp. In 2012, the newer platforms were nipping at Facebook's heels because they had been built for the smartphone, where Facebook was still struggling to gain traction,” Hughes wrote on May 9. “Mark responded by buying them, and the FTC approved.”

Is it a valid criticism? Did the FTC fail to do its job by greenlighting the deals, much in the way I previously argued the Justice Department blew it by approving a series of airline mergers?

Antitrust lawyers I've talked to say no. “That's not how antitrust works,” one said, calling Hughes “naïve” and his suggested remedy “ridiculous.”

In hindsight, it's easy to second-guess the FTC commissioners' 5-0 vote to approve Facebook's $1 billion Instagram purchase in 2012 with no divestitures. The agency at the time was chaired by Jon Leibowitz, now a partner at Davis Polk & Wardwell, who did not respond to a request for comment. Richard Feinstein, now a partner at Boies Schiller Flexner, headed the Bureau of Competition, and declined comment.

I covered the FTC for The National Law Journal in Washington, D.C. during their tenure, and neither was viewed as a pushover or afraid of a headline-grabbing fight (if anything, the opposite). And the agency did issue a second request to review the Instagram deal.

So why no challenge?

To be sure, there were some at the time calling for the FTC to act. “Facebook can't just be allowed to buy up—and shut down—any smaller company that shows some promise to one day take over its mantle as king of social in the new mobile world,” wrote tech correspondent Eric Jackson in a prescient essay for Forbes, for example.

But the conventional wisdom, as Somini Sengupta wrote in 2012 in The New York Times, held that “how can [the deal] be anti-competitive? Instagram, after all, is one of several photo-sharing applications, even for mobile devices. By buying Instagram, at face value, Facebook does not seem to hurt the consumer's ability to choose to use any of the others.”

Moreover, Instagram in 2012 had 13 employees and no revenue.

The FTC doesn't explain why it declines to take action, but its UK counterpart, the Office of Fair Trading, does (which, by the way, is a practice our government ought to copy).

The OFT in approving the Instagram deal in August of 2012 noted there were multiple photo apps on the market, including Camera Awesome, Camera +, Flickr, Hipstamatic, Path and Pixable, plus Facebook's own (newly launched) photo app.

“[T]here are several relatively strong competitors to Instagram in the supply of camera and photo editing apps,” the OFT found—which meant the Facebook/ Instagram merger didn't substantially lessen competition.

What about the threat to potential competition? That's a trickier thing to assess, and there's been some hint of damning internal Facebook docs indicating that buying Instagram was viewed as a way to take out a competitor. Still, OFT noted that the barrier to entry in developing an app is low, and that apps themselves tend to be “faddish.”

“In the social networking space, the OFT has no reason to believe that Instagram would be uniquely placed to compete against Facebook, either as a potential social network or as a provider of advertising space,” the UK competition regulator concluded.

One can imagine the FTC's analysis was similar.

Of course, some of the assumptions turned out to be wrong. For example, the UK regulators thought Instagram wouldn't be attractive to advertisers because people didn't spend much time on the site.

Today, according to Hughes, the average Instagram user spends 53 minutes a day scrolling through photos and videos, and the site earned $9 billion in advertising in 2018. But to enforcers in 2012, that would have seemed like a low probability outcome—plus there's no way to tell if Instagram would have enjoyed the same level of success sans Facebook.

So what about WhatsApp, the text messaging and Voice over IP service that Facebook bought for $19 billion in 2014?

The FTC, which by then was headed by Edith Ramirez, was so unconcerned with the deal that it didn't even issue a second request. Ramirez, now a partner at Hogan Lovells, did not respond to a request for comment.

Again, overseas regulators were far more transparent about why they approved the merger.

“[T]here is no feature offered by Facebook Messenger or WhatsApp which is not offered also by other market players,” wrote the European Commission in allowing the deal. “[T]he commission considers that Facebook Messenger and WhatsApp are not close competitors.”

The commission also noted that there were no significant costs or logistical hurdles preventing consumers from switching between different communications apps, that WhatsApp does not hold any important patents, that barriers to developing new apps are low, and that the market as a whole has been “characterized by disruptive innovation.”

But what if Facebook were to integrate WhatsApp into its platform, as Hughes contends it is now “working quickly” to do?

The EC shrugged at the prospect. “[T]here is already a significant overlap between the networks of WhatsApp and Facebook,” the commission noted, pointing out that 70-90% of WhatsApp users are also on Facebook.

What all this strongly suggests is that even if the FTC had wanted to block the Instagram or WhatsApp mergers, the agency would have gotten clobbered in court. It's unfair now to fault them for failing to act.

Breaking Up Is Hard to Do

Well, what about Hughes' contention that it's not too late for the FTC to do something ?

Technically, of course, he's correct. The agency periodically challenges consummated mergers deemed anticompetitive, though usually it's because the deal was small enough to slip under the Hart-Scott-Rodino reporting threshold. (Currently, transactions under $90 million don't have to apply for pre-merger clearance.)

For the FTC to try to unwind a $1 billion deal like Instagram, one that was subject to a second request and cleared seven years ago without divestitures, would be new territory. The example Hughes cites as precedent for such action—when Whole Foods agreed to divest 32 out of 110 Wild Oats stores and the rights to the Wild Oats brand to settle extended litigation with the FTC (which objected to the merger from Day One)—is not on point. The circumstances and scale of the fix are totally different.

Still, the FTC did warn Facebook antitrust counsel Thomas Barnett of Covington & Burling in a boilerplate closing letter in 2012 greenlighting the Instagram acquisition that “The commission reserves the right to take such further action as the public interest may require.”

Hughes is adamant that today, the public interest does indeed require action. And he's right that there are many reasons to be concerned about Facebook—Hughes notes “the sloppy privacy practices that dropped tens of millions of users' data into a political consulting firm's lap; the slow response to Russian agents, violent rhetoric and fake news; and the unbounded drive to capture ever more of our time and attention.”

But those aren't really antitrust problems. As Facebook COO Sheryl Sandberg said in an interview Friday on CNBC, “You could break us up, you could break other tech companies up, but you actually don't address the underlying issues people are concerned about. They're concerned about election security, they're concerned about content, they're concerned about privacy and data portability.”

Moreover, Hughes' proposed solution presents its own problems. He called for Facebook to spin off Instagram and WhatsApp, writing that “Facebook shareholders would initially hold stock in the new companies, although Mark and other executives would probably be required to divest their management shares.”

But such common ownership—when an investor simultaneously owns non-controlling interests in competing companies—is the subject of increasing antitrust scrutiny. As O'Melveny & Myers observed in a February client alert, “recent academic studies claim there is empirical proof that common ownership leads to reduced competition and higher prices,” and that both the FTC and Justice Department are currently studying the issue.

So maybe that's not such a silver bullet after all.

Hughes also points out that Facebook of late has been asking for more oversight, more government regulation, which he sees as a bid to head of antitrust action.

I wonder though if Facebook and its lawyers are not so worried about an antitrust challenge, which would require both the political will to bring and the legal ability to win—both far from certain. Because for Facebook, government regulation offers other potential advantages.

A common thread when antitrust enforcers approved the Instagram and WhatsApp mergers was that new competitors faced low barriers to entry. But government regulation tends to erect a thicket of obstacles for new entrants—barriers that Mark Zuckerberg and Chris Hughes didn't have to contend with when they launched Facebook as college students.

Facebook's biggest threat may not be an antitrust suit, but the Next Big Thing—an app or service that it can't buy or copy.  With that in mind, perhaps the most viable move for the FTC to protect competition is not to break up Facebook, but to make sure that any new regulations it erects won't shut out would-be competitors.