Facebook Got a Big Win, but Megacap Regulatory Battles Are Just Beginning

Facebook got a big win on Monday, when a federal judge tossed out a Federal Trade Commission complaint that asserted the social networking company violated antitrust laws. The judge also completely dismissed a parallel complaint from a group of state attorneys general making similar claims.

But the regulatory battles for both Facebook (ticker: FB) and its megatech peers are just beginning.

For one thing, Judge James Boasberg of the U.S. District Court for the District of Columbia left room for the FTC to amend its complaint. Boasberg found that the FTC failed to prove its assertion that Facebook has monopoly power, finding the Commission’s assertion that Facebook controls 60% of the social networking market to be unsupported by evidence.

But the judge did not dismiss the FTC case, only rejecting their complaint—that means an amended filing focused on Facebook’s acquisition of rivals could be likely. “The agency is on firmer ground in scrutinizing the acquisitions of Instagram and WhatsApp, as the Court rejects Facebook’s argument that the FTC lacks authority to seek injunctive relief against those purchases,” the judge wrote. “Whether other issues arise in a subsequent phase of litigation is dependent on how the Government wishes to proceed.”

In a research note, J.P. Morgan analyst Doug Anmuth writes that he finds the rulings to be “a clear positive” for Facebook. He expects the FTC will file an amended complaint, but even in that case, “the likelihood of a Facebook break-up is reduced”

“We believe the Judge’s ruling gives some indication of how difficult it will be for the FTC, DOJ and the [Biden] Administration overall to make major changes to these companies, while passing new legislation or revising antitrust will also prove challenging,” he writes. “As we indicated when the suits were filed in December, we believe the social space has never been so competitive, as evidenced by the strong growth of TikTok, YouTube, Snap, and others in recent years.”

New Street Research analyst Blair Levin writes in a research note that while new FTC Chair Lina Khan is likely to refile the case, “the simple reality is that while there is political and policy momentum for antitrust to be a more aggressive force in the economy, we don’t see that trend as evident anywhere in the courts.”

Levin says an early test of how the FTC will assess megatech mergers and acquisitions from here will be how it handles the pending Amazon.com acquisition of MGM Holdings. He notes that recent legal precedent suggests the case would be treated similarly to the Amazon’s (AMZN) acquisition of Whole Foods in 2017.

“While Amazon might be seen as dominant in terms of the online retail market, Whole Foods was not considered to have any market power in the grocery product market and therefore the combination was not, under prevailing law on vertical mergers, seen as diminishing competition,” Levin writes. “But the concern about Amazon’s reach has increased, and Ms. Khan’s leadership of the FTC suggests that the institution may well take a different view.”

He says the FTC could take the position that Amazon is so big that it shouldn’t be allowed to expand through mergers, but “the odds in court favor the deal going through.”

Facebook, which rose more than 4% Monday, slipped 1% to $351.22 in recent Tuesday trading.