--:-- Jessica Mendoza: Welcome to The Journal, our show about money, business, and power. I'm Jessica Mendoza.
--:-- Dana Mattioli: This week, the billionaire CEO of Meta, Mark Zuckerberg, was on the stand in federal court. He was there to testify in a federal trade commission lawsuit against his company.
--:-- Jessica Mendoza: Meta CEO Mark Zuckerberg began his testimony in one of the most highly anticipated trials in the tech world. In a blockbuster antitrust trial to defend his social media company. Meta is accused of trying to eliminate competitors.
--:-- Dana Mattioli: In a trial that could break up his social media empire. The FTC is saying that Meta, formerly Facebook, is a monopoly.
--:-- Jessica Mendoza: The case was first filed back in 2020, and it's finally gone to trial. At its heart are two acquisitions that the company made over a decade ago, of Instagram and WhatsApp.
--:-- Dana Mattioli: The Federal Trade Commission sued Meta for being a monopoly. And they alleged that the company preyed on small competitors and bought them, took them off the market before they could emerge as very big competitors to them.
--:-- Jessica Mendoza: That's our colleague Dana Mattioli, who covers tech investigations. If the FTC succeeds, there's a possibility that Meta would have to divest these companies, which would be very unusual. I mean, it could mean that they have to sell Instagram and WhatsApp.
--:-- Dana Mattioli: Metta says that the FTC's case ignores how people use technology today and that the company had legitimate business reasons for buying the platforms.
--:-- Jessica Mendoza: This case is coming at a moment when a lot of large tech companies, like Apple and Amazon, are facing antitrust lawsuits. Just today, a federal judge ruled against Google, saying that the company acted illegally to maintain its dominance.
--:-- Dana Mattioli: You know, there's been a bipartisan effort in recent years on antitrust. It's very strange. We have a very politically divisive climate we're in where Republicans and Democrats can't seem to agree on anything. But we have this movement on antitrust to say that these companies have gotten too big. They've abused their power and something has to happen.
--:-- Jessica Mendoza: And I think that that movement really does have legs. And we've seen really prominent people from both sides of the aisle support these efforts.
--:-- Jessica Mendoza: Welcome back to The Journal. I'm Jessica Mendoza. Today, we're talking about the FTC's case against Meta. I joined Facebook in 2009 or 10. I think I started in 2006.
--:-- Dana Mattioli: And you know how Facebook now does these like memories of old posts?
--:-- Jessica Mendoza: I have sometimes seen just like one line status updates from like 2012 that make me cringe very much. A lot of photo albums.
--:-- Dana Mattioli: Exactly. The Facebook of the 2010s was very different from the meta we know today. This was a time before vertical video dominated our screens.
--:-- Jessica Mendoza: Back then, Facebook was all about status updates and comments, writing on someone's wall, and poking your friends.
--:-- Dana Mattioli: And then a new photo-sharing app that let people post filtered, artsy images hit the social media scene. Instagram was this hot, upstart, small app that I think was available only for iPhones at the time.
--:-- Jessica Mendoza: And it didn't have any advertising on it. It was really just a way for people to share photos with heavily filtered photos, I should say.
--:-- Dana Mattioli: And at the time, it definitely caught the attention of Mark Zuckerberg. In 2012, Facebook bought Instagram for a billion dollars.
--:-- Jessica Mendoza: Two years later, Facebook made another acquisition. This time, it was a quickly growing messaging platform called WhatsApp, which had a big international user base.
--:-- Dana Mattioli: These acquisitions were part of Zuckerberg's business strategy one that involved scooping up successful smaller companies. He had a certain philosophy around acquisitions and startups.
--:-- Jessica Mendoza: You know, there's one 2008 email from him saying, it is better to buy than compete.
--:-- Dana Mattioli: So you could sort of see his viewpoint here, that when things got big enough, rather than trying to go head-to-head with them, he decided to buy them and bring them under the fold.
--:-- Jessica Mendoza: The FTC approved the acquisitions of Instagram and WhatsApp at the time of their sales. And under Facebook's ownership, both platforms grew.
--:-- Dana Mattioli: But that smooth sailing came to a halt about five years ago, when the FTC filed the anti-monopoly case.
--:-- Jessica Mendoza: So in 2020, the FTC files its lawsuit against Meta. And it's a time, it's actually this zeitgeisty moment when the tide has sort of turned on big tech in the U.S.
--:-- Dana Mattioli: These companies were held up for years and years and years as bastions of innovation, as do no harm, as feel-good companies. And things start to really change in that time period.
--:-- Jessica Mendoza: And a lot of the big tech companies start facing scrutiny, not just from consumers, but from regulators as well.
--:-- Dana Mattioli: The Justice Department and the Federal Trade Commission have agreed to split oversight on Google and Amazon.
--:-- Jessica Mendoza: The Justice Department is considering a probe of the iPhone maker.
--:-- Dana Mattioli: This coming as Apple's world...
--:-- Jessica Mendoza: The Trump administration's legal arm is suing Google for antitrust violations.
--:-- Dana Mattioli: Facebook tweeted a statement at the time saying, quote, years after the FTC cleared our acquisitions, the government now wants a do-over. with no regard for the impact that precedent would have on the broader business community or the people who choose our products every day.
--:-- Jessica Mendoza: Is it unusual for the FTC to change its position on an eight-year-old acquisition?
--:-- Dana Mattioli: Yeah, it's pretty unusual.
--:-- Jessica Mendoza: The FTC's case came at the end of President Donald Trump's first term.
--:-- Dana Mattioli: It was a moment when Zuckerberg's relationship with Trump was particularly rocky.
--:-- Jessica Mendoza: This is not a very friendly relationship.
--:-- Dana Mattioli: A lot of conservatives were also really, really angry at Zuckerberg for donating $400 million to different election offices around the time of COVID.
--:-- Jessica Mendoza: They thought that that benefited Democrats.
--:-- Dana Mattioli: It didn't help that Trump was suspended from Facebook after the January 6th riots.
--:-- Jessica Mendoza: And that was something that he and his people were livid about.
--:-- Dana Mattioli: He'd even spoken about maybe locking Zuckerberg up, like jailing him.
--:-- Jessica Mendoza: Of course, Trump couldn't do that.
--:-- Dana Mattioli: And anyway, his first term was up.
--:-- Jessica Mendoza: But the monopoly lawsuit continued under then-President Joe Biden and his FTC chair, Lena Kahn.
--:-- Dana Mattioli: Preparing for these trials can take years. In this case, it took the entirety of Biden's presidency.
--:-- Jessica Mendoza: Soon, it was 2024, and Trump was back on the campaign trail.
--:-- Dana Mattioli: Then in July, he survived a shooting at a rally in Pennsylvania.
--:-- Jessica Mendoza: Zuckerberg saw an opportunity to turn Trump from foe to friend.
--:-- Dana Mattioli: After the assassination attempt over the summer in Butler, Pennsylvania, Zuckerberg called Trump and basically told him, you know, you're such a badass, something along those lines.
--:-- Jessica Mendoza: So that was like one of the first overtures.
--:-- Dana Mattioli: And then once it became clear that Trump was going to be president, there was this like full court press, not just by Zuckerberg, by some of his peers as well.
--:-- Jessica Mendoza: And what we saw was this million-dollar check from Meta for the inauguration.
--:-- Dana Mattioli: He went to the inauguration and sat on the dais with all the other prominent CEOs, which was not something you would have seen in 2016.
--:-- Jessica Mendoza: He settled a $25 million lawsuit with Donald Trump, which lawyers viewed as kind of a frivolous lawsuit.
--:-- Dana Mattioli: And then he made policy changes at Meta.
--:-- Jessica Mendoza: You know, he relaxed content moderation.
--:-- Dana Mattioli: There had been a lot of concern from conservatives about the suppression of Republican voices on his platform.
--:-- Jessica Mendoza: So we saw a lot of actions like that.
--:-- Dana Mattioli: There was a lot of kissing the ring that we think that Mehta was hoping would go a long way.
--:-- Jessica Mendoza: While Zuckerberg tried to win over the administration, Mehta also looked at other ways to make this FTC lawsuit go away.
--:-- Dana Mattioli: Not only were they lobbying the White House to intervene on their behalf but they were also trying to settle the lawsuit with the Federal Trade Commission
--:-- Jessica Mendoza: And we had some very exclusive details on how that went down.
--:-- Dana Mattioli: Yeah, So, you know, the way these things are done is typically a CEO and his general counsel and, you know, other lawyers will have meetings with the FTC ahead of a trial and they might be able to hash out a deal.
--:-- Jessica Mendoza: What we learned was that Meta offered a settlement of $450 million to the FTC, which is a very small amount.
--:-- Dana Mattioli: And the FTC said they were thinking that it should be more of like a $30 billion settlement.
--:-- Jessica Mendoza: When you think about the number that was on offer, for a company as big as Meta's, you know, some might find it insulting.
--:-- Dana Mattioli: The FTC's former chair, Lena Kahn, for my story, and she told me that the $450 million settlement offer was, quote unquote, delusional.
--:-- Jessica Mendoza: And she said, you know, Mark bought his way out of competing, so I'm not surprised that he thinks he can buy his way out of law enforcement too.
--:-- Dana Mattioli: What came across in our reporting was that Zuckerberg felt confident that the White House would intervene on his behalf.
--:-- Jessica Mendoza: And was he right to be confident?
--:-- Dana Mattioli: Did his efforts work?
--:-- Jessica Mendoza: In the end, they didn't work.
--:-- Dana Mattioli: And there was a big meeting held in the Oval Office a week prior to the trial starting where aides and advisors met with Trump in the Oval Office and just said, you know, that this is an important lawsuit and it should move forward.
--:-- Jessica Mendoza: And he got his blessing.
--:-- Dana Mattioli: And so, despite the fact that Trump and Zuckerberg met a lot of times since he was reelected, and even before, it seems like his advisers were telling him not to step in and stop the trial.
--:-- Jessica Mendoza: That's correct.
--:-- Dana Mattioli: There are people around Trump who have told him, we've reported this, that don't believe this MAGA rebrand. Remember what he did to you.
--:-- Jessica Mendoza: Now the trial is finally here.
--:-- Dana Mattioli: Each side's argument after the break.
--:-- Jessica Mendoza: You're kind of on a time limit here with us.
--:-- Dana Mattioli: Can you explain to the audience why that is?
--:-- Jessica Mendoza: Well, I came back to the bureau from the courthouse. We're on a lunch break right now in the trial in the FTC's civil lawsuit against Meta.
--:-- Dana Mattioli: Our colleague Jan Wolf has been covering the trial since it started on Monday.
--:-- Jessica Mendoza: He says the courtroom was packed, and representatives from some of the biggest tech companies, like Google, TikTok, and Snapchat, were there to watch, particularly to see the testimony of Mark Zuckerberg.
--:-- Dana Mattioli: What does he look like up there?
--:-- Jessica Mendoza: Like, what is he wearing?
--:-- Dana Mattioli: You know, what's his sort of demeanor?
--:-- Jessica Mendoza: I mean, Zuckerberg's wearing a suit and tie.
--:-- Dana Mattioli: Like, you know, he has, I think, rolled out a relatively new wardrobe in the last year or two.
--:-- Jessica Mendoza: More T-shirts, sort of more like, I don't know, edgy fashion.
--:-- Dana Mattioli: Yeah, gold chain and all that.
--:-- Jessica Mendoza: Like, you know, suit and tie.
--:-- Dana Mattioli: Zuckerberg sat on the witness stand for more than 10 hours over the course of three days, defending his company against the FTC.
--:-- Jessica Mendoza: And big picture here, what is the FTC trying to prove in this case against Meta?
--:-- Dana Mattioli: The FTC alleges that Meta violated the Sherman Antitrust Act.
--:-- Jessica Mendoza: And there's a section of that saying that you can't establish a monopoly through unlawful conduct.
--:-- Dana Mattioli: And the alleged unlawful conduct here is the acquisition of two smaller startups that were threatening Meta's, formerly Facebook's business model, Instagram and WhatsApp.
--:-- Jessica Mendoza: To help prove this idea, the prosecution dug into emails that Zuckerberg had sent to his staff.
--:-- Dana Mattioli: They leaned on one message in particular, from before the acquisition in 2012.
--:-- Jessica Mendoza: There's one where he and a colleague are talking about why it would be beneficial to buy Instagram.
--:-- Dana Mattioli: And the Zuckerberg colleague said that one reason would be to neutralize a potential competitor.
--:-- Jessica Mendoza: And then Zuckerberg replies that that is a partial consideration here.
--:-- Dana Mattioli: So the FTC has said this is about as close to a smoking gun as you can get, because their whole theory of the case is that Facebook, now Meta, bought Instagram, bought WhatsApp to neutralize competition from a startup.
--:-- Jessica Mendoza: Why was that moment important?
--:-- Dana Mattioli: It's rare that you get evidence that really gets to the heart of the case like this.
--:-- Jessica Mendoza: So you know from the FTC perspective this is like pretty damaging It a real glimpse into the mindset at the time and really supports their theory that the Instagram purchase and the WhatsApp purchase was really about putting on the sidelines competition from rival upstarts
--:-- Dana Mattioli: Zuckerberg's defense was that the company bought Instagram and WhatsApp not to neutralize them, but to improve them.
--:-- Jessica Mendoza: His point is we bought Instagram because we thought it had really good technology.
--:-- Dana Mattioli: We wanted to incorporate it into our platform and we wanted to make it better.
--:-- Jessica Mendoza: So Zuckerberg has pointed out that the Instagram founders stayed around for years afterward.
--:-- Dana Mattioli: And he says that's not consistent with the FTC's theory.
--:-- Jessica Mendoza: He called it a buy versus build analysis.
--:-- Dana Mattioli: And he says there's nothing wrong with that in the Silicon Valley context.
--:-- Jessica Mendoza: Sometimes you just buy a startup and a startup is happy to have that exit.
--:-- Jan Wolfe: Like most antitrust hearings, the FTC meta-trial is what's called a non-jury or bench trial, which means the two sides are making their cases in front of a judge rather than a jury.
--:-- Jessica Mendoza: In this case, that judge is James Boesberg.
--:-- Jan Wolfe: If his name sounds familiar, it's because Boesberg has recently been in the news after he ruled against some of Trump's deportation efforts.
--:-- Jessica Mendoza: So this Facebook antitrust case is very different than what he's used to handling.
--:-- Jan Wolfe: He's acknowledged that he's not like a tech savvy guy.
--:-- Jessica Mendoza: And there was a tutorial before the trial where social media analysts like explain really basic concepts about social media to him.
--:-- Jan Wolfe: He's like, what is tagging of like, like, I think I know what it is. But when someone says I tagged you in this, what does that mean?
--:-- Jessica Mendoza: So, you know, he's not like some tech expert, but you don't need to be either.
--:-- Jan Wolfe: Ultimately, Judge Boesberg will have to make a decision on whether or not Meta is a monopoly in the social media sphere and who Meta's competitors are.
--:-- Jessica Mendoza: I mean, what Meta is saying is we compete with TikTok, we compete with iMessage, we compete with YouTube for people's screen time online.
--:-- Jan Wolfe: We are not primarily about friends and family.
--:-- Jessica Mendoza: Yes, we have that use case. Yes, that's how we started.
--:-- Jan Wolfe: But we are a discovery portal. You come here to be entertained and find content, and then you can share that with your friends on all kinds of other platforms.
--:-- Jessica Mendoza: But the FTC disagrees.
--:-- Jan Wolfe: The case may come down to how Meta is defined, as an entertainment app or a social networking app.
--:-- Jessica Mendoza: How strong would you say the FTC's case is?
--:-- Jan Wolfe: The FTC's general point about consolidation in tech, you know, there's obviously truth to the fact that there are some dominant players that have a ton of power over how we talk online and have tremendous access to our data.
--:-- Jessica Mendoza: But when it comes to meta, I mean, these transactions, the WhatsApp and Instagram transactions, are really old.
--:-- Jan Wolfe: I mean, we're talking about like almost 15 years ago now.
--:-- Jessica Mendoza: And they were approved by the FTC and other regulators at the time.
--:-- Jan Wolfe: So that's, I think, rhetorically a difficult thing for the FTC to get across.
--:-- Jessica Mendoza: So let's talk kind of timeline here.
--:-- Jan Wolfe: When will we get a verdict?
--:-- Jessica Mendoza: This case has moved really slowly, which is often the case for these complex antitrust lawsuits.
--:-- Jan Wolfe: And I think, you know, don't expect quick resolution of it from this point, unless there's a settlement, because there's still a lot to do.
--:-- Jessica Mendoza: The trial is set to run for about eight weeks.
--:-- Jan Wolfe: If Meta loses the case, there's a chance that the company will have to break up.
--:-- Jessica Mendoza: And possibly have to sell off Instagram and WhatsApp.
--:-- Jan Wolfe: I mean, this is an enormously important case because Meta is such an important vehicle for just communicating, and it has all this data on us.
--:-- Jessica Mendoza: So, I mean, the stakes are really enormous, and I think the case matters a lot from that perspective.
--:-- Jan Wolfe: So we'll definitely be keeping a close eye on it.
--:-- Jessica Mendoza: And with that, Jan's lunch break was over. Right on schedule.
--:-- Jan Wolfe: Thank you so much for your time.
--:-- Jessica Mendoza: Get you back to the courthouse.
--:-- Jan Wolfe: Yeah, sure.
--:-- Jessica Mendoza: That's all for today, Thursday, April 17th. The Journal is a co-production of Spotify and The Wall Street Journal. Additional reporting in this episode by Rebecca Ballhaus, Megan Bobrowski, Josh Dossie, and Dave Michaels.
--:-- Jan Wolfe: Thanks for listening.
--:-- Jessica Mendoza: See you tomorrow.
