This is Bloomberg Law with June Grosseol from Bloomberg Radio. We're going to work with President Trump to push back on governments around the world. They're going after American companies and pushing to censor more.
Meta's Mark Zuckerberg has been courting President Donald Trump since his election, scrapping his platform's content moderation policies on Facebook, Instagram, and threads, donating one million dollars to Trump's inauguration, and
visiting the White House several times in recent weeks. Despite all that, the historic anti trust case against Meta that was started in the first Trump administration went to trial this week in Washington, d C. As the Federal Trade Commission tries to force Metta to divest Instagram and WhatsApp, and Mark Zuckerberg was the first witness the government called joining me is anti Trump? Law expert Harry First, a professor at NYU Law School, Harry, what's the main issue the FGC has to prove? Here?
There are a few main issues. The first issue is the definition of the market. So the question is who are Facebook's competitors? That sort of in some ways a simple question. Who will consumers turn to? What sellers? If the sellers they're looking at offers a bad deal. Usually it's raises price, they switch to something else. We do this all the time. So the question is who are the rivals of Facebook and who do consumers switch to
if they wanted to switch. Market definition always critical issue in any trust cases, and the first issue to resolve. The second issue is are they a monopolists in this market? You know, do they have a large enough share of the market. Is it hard to enter the market so they can sort of have power to do what they want? Do we see them doing the bad things that monopolists do, which often means, you know, selling something at a high price. Of course, Facebook says, hey, we give our thing away
for free. So what's their problem? And then the third thing is, okay, if they are monopoly with monopoly power, have they engaged in anti competitive conduct that excludes competitors unreasonably from the market? Engage in some exclusion And so that's the third thing, and that's where the acquisitions of Instagram and WhatsApp come in.
Let's start with the market definition, which was one of the key points Zuckerberg was questioned about. So tell us how the FTC and Meta are viewing the market.
So the big argument is does Facebook compete with YouTube and Twitter, because YouTube and Twitter have huge numbers of users, and Facebook contends that the market is you know, whatever it was, maybe intoy eleven. Now there are lots of competitors and Facebook is doing things similar to particularly TikTok.
So the Federal Trade Commission has called the market we always love these names and any trust, the Personal Social Networking Services market, and then they use an acronym, so you think it's something special, the PSN market, and basically that's friends and family, you know where Facebook started out putting people together and creating the social network, as the name of that movie was way back at the start.
So this is the market now updated by name personal social Networking services, and the Federal Trade Commission says that's really the core of their services and it's not something that actually other platforms except for Instagram offer They don't really offer that sort of friends and family networking, and TikTok doesn't really follow people, but you know, not for keeping up on what your high school buddies are doing. So the first question is how how broad is that market?
And it's complicated by a couple of things that Facebook's done. They do have a chat function, Messenger, so that might bring in you know, other you know chat platforms Apple for example. Or they do have reels, which are you know, these short videos. Of course that's TikTok, and that was an effort to compete with them. So Facebook says, hey, you know, lots of choices for consumers. They don't want to watch reels on Facebook, they go to TikTok and
vice versa. So we have to include them in the market, says Meta. And you know, that's what a lot of the argument's going to be with data and consumer surveys and so forth. And the analogy that the Commission has used and I think will continue to use is supermarkets. So there was a famous case involving Whole Foods and an acquisition that Whole Foods did, and the market that the Federal Trade Commission called it and that they won was the PNOS market got it premium natural organic supermarkets.
And when Whole Foods made this acquisition of another market like that, they said, ah, that's the market. Other supermarkets are not in this market, you know, like stopping shopper and so forth. And the court in which this case is being tried. The PC Circuit accepted that definition, and the point is sort of a simple one. Yeah, they've got lots of things in the supermarket, but you go to certain supermarkets sort of a core of users for a core of things. So you go to Whole Foods
because you like to pay high prices. Oh wait a minute, that's wrong. You go to Whole Foods because you want the organic, natural, premium stuff that they specialize in, and then you buy milk. So you know, you go to Facebook because you want to communicate with your friends and family and then you know, maybe you'll look at some reels or maybe do some other things or what whatever other feeds they've got, but the core is still that.
So that's going to be the legal and sort of factual contention that the parties are going to litigate over during the course of this trial.
Yeah, and Zuckerberg said that Facebook's feed has turned away from family and friends and toward quote more of a broad discovery entertainment.
Space, right, yeah, yeah, they sure we compete with television, Yeah, and tennis and the national football They're not going to go that far. But you know, the game if you want to call it that. But The idea is you broaden out. Consumers do have lots of choices, do do different things, and they you know, they don't only look at Facebook, and Facebook over time has tried to bring more things within its ecosystem, within the platform and to
keep people centered on Facebook. So they're gone into virtual reality. That's why Zuckerberg renamed the company Meta because he wants the metaverse so true that you know, but that doesn't take away from the fact that they still sell groceries,
you know. You know, they may want to have espressos, you know, in the grocery store, but they're not an espresso store, so you know, they still sell their core function and that's why people put up with all the junk pardon my French that they see with these ads constantly. Can barely find things, you know, summing through all the ads that you get fits, so people still stick with that.
So how do you show that Meta is a monopolist?
Yeah, this is a good question. A normal way is by what is referred to as the structure of the market. So what's their share of the market and how easier hard is it for others to enter the market and reduce their power. So if it's very easy to enter, and you have one hundred percent of the market, you don't really have much power because someone can come in tomorrow and just wreck your plans. So you sort of look at both things, and they'll measure shares by daily
average users and monthly average users doors and mows. You know, how long do people stay, what's their engagement? They've got all sorts of data about that, and they're going to fight over how much of that time is spent on friends and family, and how much of that time is spent on let's say, reels or advertising or the news feed or whatever. And so maybe the share isn't so hard, so they'll look at market share. The judges already in the past have refused to dismiss the case on sort
of arguments they don't have a monopoly share. But you have to work through the facts and now convince the judge with all the data and how easier heart is it to get in well. Last, and you try to start a PSN company, it's pretty tough given the number of users they have and the unwillingness of people to you know, sort of move all their photos and information to some other platform. There's another way of proving it. The other is you act like a monopolist. You have
high prices. So since there are no prices, and the Federal Trade Commission is saying they take it out by degrading the product, they don't give us the privacy we'd like, and they increase the ad load so you get more and more ads. That seems like an easy one to me, for what little I use Facebook. But there'll as soon be some evidence and testimony about the extent to which, over time Facebook serves its users who think they're getting something for free, more and more ads that they've got
to go through and maybe they'll click on. Facebook says, hey, that's a service. People love ads. I'll leave that to the judge to decide.
But yeah, in the opening state, Meta's attorney said, quote, a lot of people find them useful, even entertaining. I guess I'm just not one of those people.
Yeah, advertising, you know, is information, but good lord, ad load is just well anyway, they can argue over that, and they're going to, you know, make those arguments to the judge. But it strikes me as a heavy lift for Facebook at some point to say that all these ads which we serve you because you happen to have clicked on one thing and then that's all you see for a while. That that's a great thing.
Stay with me, Harry coming up next on the Bloomberg Lawn Show, I'll continue this conversation with Professor Harry First of NYU Law School. How important is Zuckerberg's testimony and if the judge finds against Meta, my trump step in. I'm June Grosso. When you're listening to Bloomberg, I've been
talking to Professor Harry First of NYU Law School. The FTC has some smoking gun emails from Meta executives, including Zuckerberg, particularly one from twenty twelve where he described the Instagram deal as a way to quote neutralize a competitor.
Yeah, that's a good one. Yeah. I could see the lawyers looking at that going, oh my god, Zuckerberg, did you write that. There's a good reason why that would be called a smoking gun because it shows, you know, not every acquisition that a major platform or a monopoly, let's say, makes is illegal. It's not illegal for that reason. Firms make acquisitions all the time. The ones that are illegal in this context are those that are done to snuff out a threat to the monopolist. It's a, as
they said, a buyer bury strategy. They would just buy up the competitions they were worried about. So on its face it could be neutral. Well, they made an acquisition, what the heck? And maybe they have some alleged good reasons. But then you re the email in Zuckerberg says, hey, we're you know, we're worried about this company. Let's we better buy it. And their effort at incorporating photographs into Facebook and making it the kind of thing that Instagram
was doing was not going well. So they were really being challenged by Instagram. And you know, they responded to that challenge not by making a better product, but by buying their competitor. Classic move, but not a competitive move. It's an anti competitive move, so the government says, and so Mark Zuckerberg apparently said.
Is Zuckerberg the most important witness or not?
Really, It's hard for me to say exactly. I'm sure that Cheryl Sandberg, who ran a lot of the business, will be a very important witness. I mean, they have flashy emails from Zuckerberg, and I don't know who the more maybe some of the more current operating people, because one of the things sort of as a psychological point, I think the Commission's points the Commission going to make It's not a question that was then and this is now.
It's a question of this as always. So they got their monopoly, they maintained it by these acquisitions, and then they've stuck as a monopolist, not as a real competitor. And you know, maybe their platforms have changed over time a little bit, but it's still the same basic playbook that they're following. So I'm looking to see you know, some that more recent testimony and some other executives have to say, but particularly Sheryl Samberg and.
Matt Is arguing that Zuckerberg's past statements are no longer relevant because of competition from TikTok YouTube.
Yeah, so that was then, this is now. So you know, he wrote that then and maybe he was concerned and maybe should have been, maybe shouldn't have been, But you know, now the competitive environment looks very different, and you know, we're in a world where particularly TikTok but also YouTube, you know, consumers have lots of choices when they you know, look at these media and less and less as the choice. Because I want to be sure, I'm in you know,
a friends group with my grandma. It's I want these quick entertainment reels. I'm following performers. I want to know, you know, how to do something. And so the tension, which is, you know, in some sense what the limit is on what people can do, attention has shifted from you know, your father's or grandfather's product, which was Facebook, to you know, these other alternatives.
Where does it fit in that the FTC had a chance to challenge the deals for Instagram in twenty twelve, then for whatsappened twenty fourteen.
Well, so, first of all, legally it doesn't matter when the Federal Trade Commission or the Justice Department reviews emerge before it's consummated. All they do is look at it to see whether they want to bring suits in. They don't approve mergers, so in some sense it doesn't matter that they passed at that time, but it does cast a psychological poll a bit over the case. You know, well, if it was so obvious that this was, you know, trying to snuff out a Nason competitor, how come you
didn't see it? Both of them? It's not like these things, you know, they didn't come across your desk you had never heard of Facebook. I mean, so I think that's part of the poll, even though that doesn't matter, and it can later turn into something that was any competitive. So what I'd assume that that Facebook will try to do is to say, well, that wasn't the deal. Then it wasn't clear they were nason competitors. You don't want
to quash companies from acquiring small companies. It's important for innovation, and now to turn around, you know, a decade plus later and say guess what, now we don't like it. Maybe maybe that's not the best approach to antitrust. And it may come up, particularly even if it doesn't come up on liability directly, I'm sure that it's going to come up on remedy when they get to that that you know, time will be an important part of the theme in remedy. If Facebook does lose a.
Trial, so remedy. Speaking of remedy, is it an existential threat to Meta or more than that? Estimates say that it earns about half of its advertising revenue from Instagram.
Well, I don't know the exact numbers. That sounds plausible, and I don't know the extent to which those numbers are US only, you know, I mean, Facebook's worldwide, so an existential threat you know, probably not, but maybe a threat in terms of future development of AI. I don't know's it's obviously important. They certainly are fighting hard to
hold on to both of these acquisitions. So if they do lose on liability, that's sort of an obvious remedy, but not necessarily going to be the one the court will accept. So the threat is a potential threat, important threat, But there are lots of steps before we would see, you know, an order to separate those companies, because.
A breakup of that size hasn't happened since AT and T forty years ago.
Well, we haven't taken on companies of this size. We did take on Microsoft, didn't order structural relief. The AT and T breakup was by agreement. I mean, it was a result of litigation in a sense, but it was not a decree entered by a court after losing a case.
So we don't do divestitures that often, you know, not never, it does get done, but this is certainly of an important magnitude, and you know, puts the court in a difficult role of trying to separate companies that Facebook frankly has done its best to schmush together, to use the technical term. So I think that their operations are very integrated and part is I think probably a conscious effort to make it harder to disintegrate them. So yeah, it
would be difficult. There's a famous line that divestiture is a remedy, not a penalty, and Jedge learning Hand said that after the alcoholic case. So even if they broke the law quote unquote found to have violate the Clayton Act, that doesn't mean that, you know, the government is entitled to this remedy. They still will have a tough fight to get the court to do this.
Can we read anything into the fact that Judge Bosberg has sounded skeptical about the FTC's case. He dismissed the initial case in twenty twenty one, and in November he said the agency faces hard questions about whether it's claims can hold up in the crucible of trial.
Right, Well, he's running the crucible so like an Arthur Miller play. So Judge Boseburg, just you know from reading his opinions, is sharp, he's critical. He is not a pushover for the government. But he's not a pushover for the defendants either, So you know, I read this as saying he'll come out with an opinion that will prove challenge for the losing party on appeal, wherever that is.
And I don't predict that he's necessarily going to come out in favor of Facebook, frankly, because he's been willing to accept, at least as a legal matter, important arguments from the government and dismissed some of Facebook's defenses. And you know you're not going to fool a judge.
Finally, Harry, So suppose Judge Bosburg does rule for the government. Mark Zuckerberg has been closing up to President Trump for a while now. Could Trump bail Meta out?
I guess the answer is short, At least at this point, he has pretty much seized control. I don't know what you want to call it, a hostile takeover, whatever takeover of the Federal Trade Commission. He fired the two Democratic members of the commission. Two commissioners supposed to be balanced bipartisan commission fire the two for no reason other than the Democrats. The chair is slavish in his praise of the President. I think that's a fair word. I have
to say. So, yes, I think Trump could very well order whatever he wanted to order, and if the chairman or the other commissioners didn't want to go along, you can just fire them. At least that's how he sees the law. It may turn out that that's not going to be the law. Maybe the Supreme Court is going to not take that final step in terms of ending the independence of regulatory agencies, but we'll have to see. That's in litigation. But if he has control, then he
can do that. Even before he did try to pressure in his first administration, pressure the chair of the Federal Trade Commission, who resisted things. But now the ability and willingness of the chairman who resists whatever the president wants is zero. So we'll just have to see. That's said. I'm not quite sure I know or understand, and maybe the President doesn't either what he might want and what
he would pressure the Federal Trade Commission to do. Obviously he's not pulled the plug on this litigation, which he could have, so we'll just have to see how it goes.
So he's great to talk to you, Harry, Thanks so much. That's Professor Harry First of NYU Law School. Coming up next on the Bloomberg Law Show, it seems like President Trump is targeting blue states? How can they fight back? I'm June Grosso. When you're listening to Bloomberg, is President Trump's blue state bias? Showing some of his recent actions
seem to be targeting blue states? Like a Department of Health and Human Services funding cutoff that closed offices in Boston, Chicago, New York City, San Francisco, and Seattle, all cities in blue states. But even if Trump is singling out blue states in his retribution campaign, what can they do about it? My guest is retired federal judge Nancy Gertner, a senior lecturer at Harvard Law School. She's a co author of a Bloomberg Law legal insight piece entitled Trump's Blue State
Bias could rip the US apart? Judge, can you start by telling us about some of Trump's actions targeting blue states?
Well, the most recent one was when he closed five of the ten AHHS offices, and significantly, the five were all in blue states. In addition, he has suspended the funding for various kinds of programs to hospitals. But really he's listening, we believe, only to the red states that are begging for these this to return. So there was you know, Katie Britt from I think it was Alabama calls him, you know, terre and state, and we believe
that he will do that. So he's basically pulling out federal funds who advantage the red states over the blue and we think that that's going to be a pattern going forward. You know, the pattern has not been completed. We haven't seen all aspects of it, but clearly this is what we have seen so far, particularly the thing that happened ten days ago with respect to AHHS. I mean, why do you shut down the regional offices that do the most business, the most business namely you know, New York, Boston,
San Francisco, Seattle. I think Chicago was one of them as well. I mean, it's really pretty transparent what's going on?
And what does the Supreme Court said about the federal government's requirement to treat states the same?
Well in a decision that I mostly disagreed with, which is the Shelby County decision that was dealing with the preclearance requirement of the voting right fact. The preclearance requirement of the voting right fact was a requirement that really reflected discrimination against black people that had occurred in certain states in the South, that was documented, that was well known.
The Supreme Court eliminated Preclearance, which basically was a situation in which the government would review any changes in voting rights procedures in those states to make certain that it didn't continue to disadvantage black people or didn't redisadvantage black people. And what happened was the Court eliminated that preclearance requirement on the theory that there was a requirement of equal
treatment of all states. And so if that is a principle reaffirmed now only a few years ago, then Trump simply does not have the right to discriminate against blue states in favor of red. He can't use the federal spending power to disadvantage blue states at the expense of red.
I've lost track of how many of his executive orders have been challenged, and many of them have been found to be unlawful or unconstantitutional by lower courts. But the administration has not been following all the orders of the lower courts. Have we reached a constitutional crisis yet?
I don't think there's any doubt that we are in a constitutional crisis, whatever the name you put on it. I don't think that there's any doubt so far, there isn't a situation, you know, with a Southern politician now barring federal truths from coming into Mississippi or Georgia or Alabama or anything like that. That's not what we have seen yet. What we have seen, as with for example, the most recent case of mister Abrago Garcia, this is
an individual who is wrongly deported to El Salvador. What we have seen is the government effectively ignoring a Supreme Court decision. We've seen the government effectively ignoring decisions of the lower courts. We've seen sophistry an outright lying. The sophistry is describing the Spring Court's decision in a way
which is patently false, patently false. You know, they're saying things like the Supreme Court, in dealing with the Abrallo Parcia case, didn't really demand that the government do anything, but only they can passively make certain that if Elsa was a release as a man, he could come into the countries. I mean, that's absolutely not what the Supreme
Court said. It's not at all what the Supreme Court said, So that's sort of really sophistry in dealing with Supreme Court decisions, and then there's been outright ignoring and disobedience of them. You know, in the cases involving the funding freeze, a court will require that the funding be restored, the losses dealing with the funding freezes on government funds across the country, and the government is just ignoring it, just ignoring it, requiring you know, courts to essentially get to
the point to the moment of contempt. So I don't think there's any question we're in a constitutional crisis when the government can as they did in the Oval Office yesterday in the meeting with El Salvador Buquele about again this gentleman Albrego Garcia, when the government can lie flat out that he had been found to be an MS thirteen member, not true anywhere that the government can lie about his arrangements with Bouquele. I don't think there's any doubt that we're in a constitutional crisis.
You talk about the misinterpretation of the Supreme Court decision, not only by the Attorney General Pam Bondi, but by Stephen Miller, who said the Supreme Court rule for US unanimously right.
Again, this is not even close to true. It's just not even when the Supreme Court says the government has to facilitate its return, and clearly in the context of a decision that is about how there was no right to deport him, when they say he has to facilitate his return, that doesn't mean, well, El Salvador, if you wish to send him, we will allow him in. It's clear that it's meant more than that. It meant affirmative
steps to right or wrong. The government was responsible for a wrong and they had to take affirmative steps to write it. I mean. Also, the notion that this is a foreign policy issue is pure poppycock. This is a commercial issue. This is not like returning Brittany Griner from Russia, which was a matter of delicate diplomatic negotiations. This is about a commercial contract between a two big dictator and the United States dealing with a contract for six million
dollars to receive deportees from the United States. And clearly the United States has rights under the contract and the United States has power if in the meeting before the public meeting yesterday, Trump had said to Bouquele return this guy, it would have been over. It would have been over. And the fact that they don't need and think that this is a wrong that needs to be righted is stunning.
So in the article you talk about tax dollars, how could Blue states use the taxes they pay into the treasury to retaliate.
Every state is an employer, and it is oftentimes the major employer in any given state. And as with any employer, the state has to withhold money for federal taxes. And in the case of the Blue states that we mentioned, it is a substantial amount of money. In fact, as we note in the article, the Blue states are net donors. In other words, they give more money to the federal
government than they get in the form of services. Now, it would be illegal, and I have to say that quite candidly, for the Blue States to withhold federal dollars. In other words, the withholding that you do on your taxes, you withhold for the purpose of turning it over to the federal government at the appropriate time. This would be illegal to withhold it, frankly, until the government makes the allocations among the states equal. It would certainly be illegal.
But it is leverage what we say, and the piece is that the government, if they continue to favor Red states over blue, will be acting illegally and unconstitutionally, and so we speculate that this is something the Blue states could do, although it is illegal.
And California has a ballot issue where voters are already considering this right.
There's a ballid issue where the voters are not considering withholding tax dollars, California ballot initiative goes even further. The ballot initiative is to secede from the Union, which is extraordinary. It's asking the voters to endorse the idea of secession. It's not clear what legal authority that would have, but that's certainly what California voters are indulging in. Again, you know, both withholding federal tax dollars and obviously seceding from the
Union are patently illegal. But the notion here is the government is behaving illegally. Were they to punish Massachusetts and California, for example, in favor of the Red states, the government is behaving blatantly illegally. And to your question about constitutional crisis, there's a question. When the government behaves illegally, citizens have to decide what to do. Citizens have to decide what
the appropriate response is. And make no mistake, this government is behaving illegally on numbers of fronts, as numbers of federal courts have found.
Do you think that this is the most serious constitutional crisis we face since the Civil War?
I think that that's true. It's one thing to have, you know, the pictures of the Southern States defying a constitutional directive to desegregate, requiring troops to be sent to Southern states to enforce the prog vision against segregation. That was a confrontation as between a unified federal government and particular states. This is a confrontation between the federal government as a whole individuals, and a confrontation between the federal government as a whole and the states. It's about to
involve almost every aspect of our lives. The federal government is asserting control over universities. The federal government is seeking to control who is in the country and who is not, seeking to control who is a citizen, and flouting the Constitution in numbers of ways. So I mean this is both the scope of the disobedience the scope of the violations by the federal government on every front. So yes, I would call it the most serious constitutional crisis in the Civil War.
It seems like Trump threatens and it seems like he's winning.
In a lot of respects because, for example, law firms the biggest law firms in the country, you have decided to give him close to a billion dollars in free legal services, and you have universities that have capitulated to his demands. So it seems like there's less fighting back.
Well, I think we're beginning to see something different. And let me make a more general point. So, the strength of the United States is not just in representative government, not just having Congress and the president elected by the people, not just having local governments. The strength of the United States is also having civil society, namely organizations like universities and law firms that are independent of the government. They
stand for principles that the government can't control. So what Trump has done is he's taken over the government we elected him. That was the product of the voters, namely that he has the House of Representatives, the Senate, and the Lighthouse. But the judges are supposed to be independent, and the judges have been holding the judges have reflected that independence. What he is doing is trying to dismantle
civil society. And the way you dismantle civil society is you dismantle the universities, and you dismantle the law firms. Not dismantle exactly, but you sort of tried to co opt the law firms. I think we're seeing a change now. I think there was a certain kind of shock at the beginning of this administration. People didn't quite understand how
far he was prepared to go. I think as the firms that have sued the government for its illegal actions, like Wilmer Hale, like Perkins Kohi, like the latest one is Susman Godfrey, the firms that have stood up to the government I think are going to be the wave of the future. Three hundred and forty six retired federal and state judges have signed on to brief supposing the government's actions with respect to Perkins COOHI. Numbers and numbers of people have signed on from all walks of life
to a Meeks brief. So the law firms, I think are beginning to learn a different lesson. And Harvard's example yesterday of standing up to Trump, I think will forecast other universities doing exactly the same thing. I think that people there was a certain amount of shock. Surely he didn't mean to go as far as he went, was the sense, And the answer is yes, he has an indeed further.
Thanks so much for joining me tonight. That's retired Judge Nancy Gertner a lecture at Harvard Law School. You can read her column on the Bloomberg Terminal. It's entitled Trump's bluestate bias could rip the US apart. And that's it for this edition of The Bloomberg Law Show. Remember you can always get the latest legal news on our Bloomberg
Law Podcast. You can find them on Apple Podcasts, Spotify, and at www dot Bloomberg dot com, slash podcast slash Law, And remember to tune into The Bloomberg Law Show every weeknight at ten pm Wall Street Time in grosso and you're listening to Bloomberg mm hmm