Tech giants like Facebook have faced torrents of criticism for potentially anti-competitive practices, as illustrated in the recent complaint filed by the Federal Trade Commission (FTC) against Facebook. The FTC argues that Facebook has “hindered, suppressed, and deterred the emergence and growth of rival personal social networking providers” by its practice of “acquiring companies that could emerge as or aid” threats to Facebook’s overwhelming share of the social media market.
There are diverging views on how to best address these concerns. The FTC and others are focused on forcing Facebook to divest itself of the gains received through its acquirement of companies such as Instagram and WhatsApp. But this strategy focuses on punishing Facebook rather than preventing its undesirable behavior. Why not instead prevent Facebook from buying up smaller competitors like Instagram in the first place? Not only would this strategy spare the costs of litigation over each allegedly anticompetitive incident, but it would also avoid the sledgehammer approach of breaking up companies like Facebook, which could be unjust where they did not in fact engage in anticompetitive conduct.
Antitrust litigation is not the best way to do this. Rather, stronger patent protections for small, budding tech companies would help these companies stand against buyouts by larger, more established companies. If smaller companies were equipped with strong patent protections for their innovative features, larger companies would be forced to either license patent rights to the features or innovate better features themselves, rather than simply quash competitors through purchasing them.
Our current patent system fails to provide such protections to smaller firms, as illustrated by the strained relationship between Facebook and Snapchat. Facebook has offered billions of dollars to purchase Snapchat, which generated $2.5 billion in revenue last year, as compared to Facebook’s $26.17 billion and has allegedly done so multiple times. After its millennial founder, Evan Spiegel, refused to sell to Facebook, Snapchat’s defining features were repeatedly copied by the tech giant. Facebook closely, if not exactly, copied Snapchat’s most popular innovations, including ephemeral messaging, face-altering filters and masks, profile QR codes, and story features. Snapchat has been unable to successfully sue Facebook for these actions, precisely because current patent protections do not extend to such internet-based innovations. Consequently, Snapchat has struggled for years to stay afloat as Facebook commandeers its defining features; Spiegel even admitted that Snapchat slowed hiring due to financial troubles.
Companies such as Snapchat will continue to face financial losses if current patent rules remain in place. If tech giants like Facebook are to face meaningful competition, they must be checked both by antitrust litigation on the backend and by strong patent protections on the front. As Steve Brachmann of IP Watchdog states, “[These losses] will remain at least as long as the Patent Trial and Appeal Board . . . continues to render defective more than 90 percent of patents challenged at that agency. As long as the U.S. Supreme Court’s patentability standard coming from its 2014 decision in Alice Corp. v. CLS Bank International remains, tech companies like [Snapchat] cannot hope to protect many of their most innovative and popular software features, regardless of whether they hold a patent covering that software now.” The future of small firms’ viability hinges upon innovative patent protections, rather than solely antitrust litigation.
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