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Facebook former privacy chief on why Mark Zuckerberg will win his biggest political battle

Key Points
  • Facebook's third-quarter earnings estimated that more than 2.1 billion people use Facebook, Instagram, WhatsApp or Messenger daily; more than 2.7 billion people use at least one of its services each month.
  • Facebook's former general counsel and privacy chief Chris Kelly said if it comes to an antitrust court fight in a Warren presidency, Facebook's odds of winning are high.
  • "There would be no reason for the company not to fight it," Kelly said at the CNBC Technology Executive Council summit in New York on Tuesday.
Facebook co-founder and CEO Mark Zuckerberg smiles at the conclusion of his testimony before the House Energy and Commerce Committee in the Rayburn House Office Building on Capitol Hill April 11, 2018, in Washington, DC.
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Facebook's business remains strong, even if its standing in Washington D.C. is uncertain.

Facebook reported its third-quarter earnings after the close on Wednesday and it beat on the top and bottom line, and estimated that more than 2.1 billion people use Facebook, Instagram, WhatsApp or Messenger daily; more than 2.7 billion people use at least one of its services each month. But the social media giant also had to include in its earnings another material note to investors: "The online technology industry and our company have received increased regulatory scrutiny in the past quarter."

In June, the Federal Trade Commission opened an antitrust investigation, and in July, the Department of Justice said it would begin an antitrust review.

Facebook CEO Mark Zuckerberg has said he expects the company would face an antitrust case if Democratic candidate for president Elizabeth Warren were to win her party's nomination and prevail over Donald Trump in the general election. But how bad would the consequences actually be? Facebook's former chief privacy officer Chris Kelly has a few words for Warren about winning an antitrust battle against the social media company: "Good luck."

"When she [Elizabeth Warren] comes out and says platform companies need to be broken up, she has to pass a new law," Kelly said at the CNBC Technology Executive Council summit in New York on Tuesday. "I represented Netscape against Microsoft and I know how to throw bombs at tech companies that are acting like monopolies. It's hard to say they [Facebook] have a monopoly in a relevant antitrust market. If you want to define social marketing as antitrust, good luck," Kelly said.

Kelly said the recently leaked audio from a Facebook employee meeting at which Mark Zuckerberg spoke about fighting antitrust actions against a potential Warren administration was just the Facebook CEO stating the obvious. "It's possible we will see court action and if it gets to a court of law the company will fight it," Kelly, who also served as Facebook's first general counsel, said. "There would be no reason for the company not to fight it. They have a vision about the future and it is about more integration and by choice, users can choose to use or not."

"I would bet that we will have a legal challenge, and I would bet that we will win the legal challenge," Zuckerberg says on the leaked audio.

A recent CNBC Technology Executive Council quarterly survey found that a majority of tech executives think Facebook faces the highest risk of punitive action in government review of big tech.

Kelly said the biggest change he sees coming is the inability of big technology companies to make acquisitions that would have been approved by regulators in the past. "Facebook buying large platforms isn't going to happen anytime soon, and the company understands that." But he said any acquisitions proposed by Google or Apple or Amazon will also get "extreme antitrust review."

Antitrust experts: Facebook overly confident

Antitrust law experts said Kelly has a point, but may be overconfident in Facebook's legal standing.

Doug Melamed, Stanford Law professor, former general counsel at Intel and former assistant attorney general in charge of the Antitrust Division at the U.S. Department of Justice, said he is skeptical of the government making a strong case, but does see potential for a breakup in other ways.

"I think it is very unlikely that an antitrust case will result in breaking up Facebook in any fundamental way, although I can imagine a case leading to an order to divest certain businesses acquired in a merger transaction. A narrower antitrust case focused on specific wrongdoing might succeed, but that will depend on the particular facts which are largely unknown," Melamed said.

Harry First, law professor at New York University School of Law and a former Chief of the Antitrust Bureau of the Office of the Attorney General of the State of New York, said Kelly's responses strike him as "a bit odd."

First said restructuring monopolies is possible under U.S. antitrust law, although it's not a remedy lightly taken. "No new law is needed," First said.

FB is a company that controls billions of people, run by 1 person: Swisher

The definition of a "relevant market" in an antitrust context, which Kelly seemed to interpret as fixed in the law, is not that way at all, according to Michael A. Carrier, Rutgers Law School professor.

"Does Facebook have a monopoly in a relevant market? It depends on whether consumers have a choice when using social media platforms like Facebook. If they don't practically have a choice, Facebook could."

Carrier said an antitrust challenge the government would need to overcome is that Facebook is not charging high prices to consumers, "but it could be exercising power in other ways."

The European Commission has defined social networks as a market (in the Facebook/WhatsApp merger case).

"It's not an off-the-wall conclusion. FB might need 'good luck' to avoid such a finding," said NYU's First.

The antitrust experts all said that the case will hinge on the specific development of facts showing that Facebook has violated antitrust law, and that less aggressive remedies would not be effective in addressing this.

"It's uncharted territory to find Facebook liable for an antitrust violation, but not impossible," Carrier said. "Antitrust is flexible in nature. The statutes are very open-ended and the law has developed in the courts (with sometimes significant changes from one generation to the next). Endangering consumer data, increasing the price of advertising, and reducing the quality of consumer choices are three effects the state AGs are focusing on."

Last week, CEO Mark Zuckerberg was heavily criticized for his position on political ads when he testified before Congress. On Wednesday afternoon, Twitter CEO Jack Dorsey announced the company would stop all political advertising on its platform in November.

On the earnings call Wednesday night Zuckerberg said the need to make money is not the reason for its position on ads from politicians, and it represents a miniscule percentage of revenue (less than 0.5% next year). He also claimed Facebook has the most transparent political ads of any media.

He added during a lengthy defense of the policy on the call, "I expect that this is going to be a very tough year."