The Gerrymandering Happening Below the Fold

As partisan tensions boil over in Texas and California, where the respective minority parties cry foul over redistricting, federal antitrust enforcers and private plaintiffs are doing some gerrymandering of their own. In a win-at-all-costs approach, the plaintiffs are sacrificing the interests of small business app developers and consumers in order to pursue other goals. The lawsuits at issue take aim at the day-to-day services and tools of curated online marketplaces (COMs) and social media platforms. For ACT | The App Association’s members, who have built successful businesses on the marketplaces and platforms in question, the made-up markets appearing in these complaints are unrecognizable.  The App Association will continue to advocate in the courts for our members and for the rejection of the gerrymandering and a focus instead on real anticompetitive harms taking place in real markets.

The gerrymandering problem arises most seriously in four antitrust lawsuits the Federal Trade Commission (FTC) and Epic Games have filed against companies that operate COMs or social media platforms.

In each of these cases, a core allegation is that the defendants “monopolized” the markets in which each of them competes—a legal standard that requires the plaintiff to show harm to competition and consumers as a result of said monopolization.

Fundamental to a court’s analysis of whether a defendant is liable in cases like this is what, exactly, is the relevant market or markets for purposes of the complaint. The higher a defendant’s market share, the more likely it has market power and is therefore potentially liable for illegal conduct under antitrust law. In fact, one landmark opinion says market definition “generally determines the result of the case.”

This is where the FTC and Epic Games have the “means and motive” (to borrow some merger terminology) to propose market definitions that are as narrow as possible in order to show market power and win the case. In all of the complaints, the plaintiffs allege absurdly gerrymandered and narrow markets in order to rig the outcome in their favor rather than in the favor of competition and consumer benefits as the law is intended.

Let’s take a look at each case.

In FTC v. Meta, the FTC alleges that Meta has monopolized the market for “personal social networking services” or “PSNS.” In its amended complaint, the FTC described PSNS as “online services that enable and are used by people to maintain personal relationships and share experiences with friends, family and other personal connections in a shared social space” (emphasis added). To the casual reader that definition would easily encompass the entire sector we’ve come to know as social media including Facebook, Instagram, Snapchat, TikTok, YouTube, Twitter/X, LinkedIn, Nextdoor, Reddit, Pinterest, and more. But in this legal context this definition of the “market” means there is only one competitor to Facebook and Instagram—Snapchat—thus enabling the FTC to allege that Meta has a high market share. This characterization doesn’t pass a plain reading test, or an evidence test. Research has shown consumers actually treat Facebook, Instagram, TikTok, Snapchat, YouTube, and similar platforms as substitutes (see pages 15 to 29 of Meta’s post-trial brief).

Second, the FTC argues that these other platforms are not perfect substitutes for Facebook or Instagram and so cannot be competitors. But it is in part their differentiation that puts competitive pressure on Meta and makes these alternative platforms part of a relevant antitrust market. Consumers like product differentiation, and this is commonly accepted as evidence of competition in a given market. To draw an analogy, as one antitrust expert points out, excluding gas stoves from a market for electric stoves “pretends that they do not compete at all.” He points out that this is incorrect and overstates gas stove makers’ market power, even though they are not perfect substitutes.

Lastly, users now only spend about 7 percent of their time on Instagram and 17 percent of their time on Facebook consuming content generated by “friends.” This reality seriously undermines the FTC’s claim that Meta’s platforms operate all alone in a friend-sharing centered market, unconstrained by TikTok or YouTube.

In FTC v. Amazon, the plaintiffs’ proposed market definition is similarly divorced from reality in order to win. Specifically, the complaint argues that the relevant consumer-facing market is the market for “online superstores.” It further suggests that “online superstores provide a unique set of features” like 24/7 access and, therefore, are not interchangeable with brick-and-mortar stores. But as any consumer of retail services knows, reality is far different from this narrow definition.

Further weakening its position in the case, the FTC walked back its proposed market definition earlier this year during an economics hearing. An attorney for the FTC said the relevant market might be so narrow that Amazon is the only competitor, or it might encompass Walmart and eBay, suggesting the FTC might try and get the court to accept an even narrower and less realistic market definition. Going back to the drawing board on such a fundamental element of a case like this seems unlikely to help the plaintiff. Essentially the FTC wants to swap out a foundational leg of their initial complaint with a note that says “TBD.”

Courts usually give the relevant consumers’ perspectives the greatest weight in these scenarios, analyzing “demand substitution”—the extent to which a given product’s price is affected by the lack of a specific alternative, and vice versa. In this case, the plaintiffs provided no empirical evidence showing a lack of demand substitution between brick-and-mortar and online superstores, thus failing to meet the requisite burden to persuade the court. The court should then draw the obvious conclusion that excluding brick-and-mortar stores from the universe of competitors with Amazon ignores how consumers actually approach retail.

For example, someone shopping for a new toothbrush often considers physical retail outlets in addition to online options. Similarly, consumers may purchase a few items from online retailers and a few from physical outlets as part of a single project or shopping spree. This clouding of market boundaries must weigh in favor of a defendant because again, it evidences a range of options actually in use and the burden is on the plaintiff to get courts to look beyond these benefits.

Ultimately, the convenience of two-day shipping is only one factor among many as the shopper decides where to research various toothbrush options and ultimately buy one. Here again, this convenience differentiator does not put online marketplaces in their own antitrust market. In fact, Amazon’s introduction of greater convenience through always-available ordering and fast home delivery is a key indicator that competition is alive and well in retail markets. Failing to make this distinction puts the benefits of competition on the chopping block of the federal agency responsible for promoting competition.

In parallel, Epic Games has been using similarly improper market definitions to challenge basic app store management functions as antitrust violations. Specifically, Epic Games sued both Google and Apple, separately, claiming in each complaint that the respective app stores are separate antitrust markets. Here again, pretending that Apple does not compete with Google for developers is a fiction designed to get a court to reshape the stores to fit Epic Games’ needs. Unsurprisingly, the plaintiff claims that the differentiation between the Google Play store and Apple’s App Store means they cannot be said to compete directly. Once again, reality dissolves this argument, as developers often choose Android because it is more open and available on a broader range of lower-cost devices, while other (or the same) developers may choose iOS to reach consumers less worried about cost or device variety and more likely to make purchases. The appeals court properly affirmed a market definition including Google Play as a competitor to Apple’s App Store in the Apple case, but so far has erred in upholding a market definition leaving Google Play as the only competitor in the Google case.

A win for the plaintiffs in any of these four cases would be a loss for consumers and small businesses that rely on the infrastructure these marketplaces and platforms provide to be successful.

In Epic Games v. Google, the consequences are dire, as the district court has already imposed a remedy mandating that all apps in the Google Play store can be appropriated by any third-party app store, without proactive licensing from the app developer, and with only an inadequate right to opt out as the proposed solution. Courts must reject this obvious attempt by plaintiffs to reshape these marketplaces and platforms to fit their own interests.

Fortunately, courts are showing signs of skepticism over these manifested market definitions and looking likelier to reject them. The Trump Administration must carefully consider that as plaintiffs push ever smaller tech market definitions, the likelihood of a positive outcome in the case for consumers and small business app companies vanishes along with them.