Doomed to Fail: The Limits of Musk’s Case Against the WFA

Elon Musk’s X Corp. (formally “Twitter”) has sued the World Federation of Advertisers (WFA) and a number of member companies for orchestrating an illegal boycott of Twitter. X Corp. v. World Federation of Advertisers. The complaint asserts that it is “an antitrust action relating to a group boycott by competing advertisers of one of the most popular social media platforms in the United States.” 

The lawsuit premise of this (forcing advertisers to do business with a floundering company using antitrust law) is absurd, and should not survive summary judgment (initial motions).  

This blog post explores what Twitter must do to show that the WFA boycott is illegal under antitrust laws, whether there is a reasonable business justification for the boycott, and why Twitter’s market power is critical in making its case.

 The Nature of the Complaint

Twitter has accused the WFA of organizing an illegal group boycott of Twitter. According to the complaint, the WFA decided that Twitter, under Elon Musk’s leadership, does not comply with its Global Alliance for Responsible Media (“GARM”) standards and instructed its members, including many of the biggest advertising agencies and consumer brands in the world, to stop purchasing advertising from them. Since Twitter derives 90% of its revenue from advertisers, the boycott has had a big impact on Twitter’s bottom line.  

Twitter claims that the WFA has encouraged/forced its members to cease advertising on Twitter, which Musk et al. assert constitutes an unreasonable restraint of trade in violation of the Sherman Antitrust Act. Boycotts can be a violation of the Sherman Act, 15 U.S.C. § 1, which prohibits contracts, combinations, or conspiracies that restrain trade or commerce. To succeed, Twitter must prove that the boycott is anticompetitive, meaning that the boycott impacts the entire social media market, not just Twitter. 

The Sherman Act

The Sherman Antitrust Act of 1890 made it a crime to unreasonably restrict trade. The Clayton Act of 1911 allowed the Sherman Act to be used in civil cases where a business is harmed by the actions of another company or group of companies, opening the door for cases like X Corp. v. WFA. 

Per se Violations

Boycotts that are designed to exclude competitors, fix prices, or control market dynamics are often found to be anticompetitive. Musk et al. initially assert that the boycott is a per se violation of Sherman Act, meaning that mere existence of a concerted boycott was enough to trigger antitrust liability. 

For example, in Klor's, Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207 (1959), Klor's (a small appliance store) alleged that Broadway-Hale (a large retail chain) conspired with major appliance manufacturers and distributors to boycott Klor's. The Supreme Court ruled that this group boycott was a per se violation of the Sherman Act. The Court found that the collective refusal to deal with Klor's constituted an illegal restraint of trade. The boycott of Klor’s, orchestrated by a larger competitor, deprived consumers in the area surrounding Klor’s stores of a choice or with whom to do business when purchasing appliances.  

The issue described in their complaint is significantly different. Most notably, the boycott has been orchestrated by Twitter's customers (advertisers buying ad space), and NOT a competitor. Applying the per se violation rule to customers is, frankly, ludacris. Imagine being forced under antitrust law to buy Scott toilet paper when your bum has become accustomed to Charmin. No bueno!

The facts presented by Musk et al. are similar to those in Northwest Wholesale Stationers, Inc. v. Pacific Stationery & Printing Co., 472 U.S. 284 (1985). Northwest Wholesale Stationers was a purchasing cooperative composed of various office supply dealers. The cooperative expelled Pacific Stationery without providing a reason. Pacific Stationery claimed that this expulsion constituted an illegal group boycott. The Court found that the expulsion of Pacific Stationery did not automatically violate the Sherman Act because it did not have clear anticompetitive effects. The case was remanded for further analysis under the rule of reason. 

Rule of Reason    

The rule of reason was established in Standard Oil Co. of New Jersey v. United States, 221 U.S. 1 (1911), the rule of reason establishes that a business practice is illegal if it unreasonably restricts trade. Under the rule of reason, courts assess:

• Market power: Does the company or group involved have sufficient market power to significantly affect competition?

• Competitive effects: Does the practice have a net negative effect on competition in the relevant market? Does it harm consumers by reducing competition, raising prices, or stifling innovation?

• Purpose of the practice: Why was this business decision made?

• Pro-competitive effects: Does the practice promote competition in some way, such as by improving efficiency, fostering innovation, or lowering prices?

The rule of reason protects defendants that have a reasonable business justification for the boycott, i.e. legitimate reasons that a company might have for engaging in behavior that restricts competition, for example, increasing efficiency, reducing costs, improving product quality, or enhancing consumer choices if the practice has pro-competitive effects.

Does the Boycott of Twitter Restrict Trade?

To properly apply the Rule of Reason framework, we’re going to need to understand the social media market, so we can understand how the boycott impacts this market, and more importantly, its consumers. 

Remember, antitrust law focuses specifically on the consumer. Twitter’s injury (loss of revenue) is irrelevant. 

Market power: Does the company or group involved have sufficient market power to significantly affect competition?

The complaint claims that Twitter is “one of the most popular social media platforms in the United States.” The fact is Twitter is in decline. As of April, 2024, Twitter only holds about 32% of the US social media market behind FaceBook (77%), YouTube (65%), Instagram (56%), TikTok (45%), and Snapchat (34%). Since Musk’s takeover in 2022, the number of active Twitter users has dropped by at least 15%, and Twitter’s ad reach has declined by more than 33%.  

Musk himself is responsible for at least some of these losses. Musk has tweeted that ads on Twitter are a “necessary evil” and that “ads are too frequent on Twitter and too big.” The platform has been modified to reduce advertisers reach on the platform.  

The combined market power of platforms that comply with GARM standards and are not being actively boycotted (FaceBook, YouTube, Instagram, TikTok, and Snapchat) make Twitter a relatively small player in the market. Twitter and its diminishing market power does not significantly affect competition in the social media market as a whole.

Overall, and since advertisers have other avenues to reach consumers using platforms that comply with GARM standards, the WFA boycott of Twitter does not significantly affect competition.

Competitive effects: Does the boycott have a net negative effect on competition in the relevant market?

The boycott of Twitter has a relatively small impact on competition in the social media market as a whole. Few US Consumers are only active on Twitter, and because consumers have a variety of (more popular) social media platforms that comply with GARM standards, advertisers have a number of outlets for interacting with consumers. It will be very difficult for Twitter to show that the WFA boycott significantly affects competition.

Purpose of the practice: Why did the WFA institute the boycott? 

The GARM standards were created to improve brand safety (ensuring that ads do not appear next to harmful or inappropriate content) and suitability (content on the platform matches the brands values and messaging), and reduce harmful content on digital platforms such as hate speech, violence, adult content, and misinformation.  

As you may recall, Musk’s response to advertisers threats to boycott Twitter because the platform (and Musk himself) were amplifying antisemitic Tweets was to characterize the boycott as “blackmail” and telling the boycotting advertisers to “Go F— Yourself.” In doing so, Musk made it clear that he has no interest in complying with GARM standards. 

Pro-competitive effects: Does the practice promote competition in some way?

The complaint asserts that the boycott has no pro-competitive effects. This is not true. 

The GARM standards, themselves, have a pro-competitive effect. The standards were designed to make social media safe for more consumers, which increases the size of the market, which attracts more advertisers, making the market more competitive.    

Conclusion 

While the complaint seeks to paint the boycott as an anticompetitive conspiracy, the facts suggest otherwise. There are no facts presented in the complaint that suggest that WFA’s boycott of Twitter restricts trade. Twitter’s diminished market power, the availability of alternative platforms for advertisers, and the pro-competitive effects of the GARM standards all weaken Musk’s claim that the boycott unreasonably restrains trade. 

Rather than a concerted effort to stifle competition, the WFA’s decision to enforce brand safety and suitability standards enhances consumer choice, fosters a healthier digital advertising environment, and ultimately improves competition. Twitter’s struggles are more reflective of its own business practices, Musk’s ego, and market position than the actions of the WFA or its member advertisers.