X's lawsuit over advertisers' group boycott raises competition issue of overarching concern — and what this has to do with Colin Kaepernick's career

The public debate over X Corp.'s antitrust lawsuit against the World Federation of Advisers (WFA) in the Northern District of Texas is largely off base. There are knee-jerk reactions by people who are not prepared and/or not able to differentiate between the political end pursued and the anticompetitive means at issue. On social media, one can find plenty of commentary that amounts to saying companies can decide to do what they want with their advertising budgets, or that no court can force someone to advertise on a given platform, one of which is what this is about. Then there are some "experts" who express rational views, but also some others who simply abuse their "authority" to manipulate public opinion.

If one reads the complaint (PDF) and looks at what standards may or may not be applied in court, it's pretty clear that this is a case that will normally survive a motion to dismiss. It goes beyond what's required to make the underlying conspiracy theory plausible, and plausibility is all that matters at the first stage.

Dissolution of GARM reflects defendants' fear of losing

What's telling is that the WFA has already disbanded its Global Alliance for Responsible Media (GARM) in response to the lawsuit. I've never seen an antitrust defendant do anything remotely like that. What you see often is that companies make concessions to avoid or end regulatory scrutiny, but that's often just because they want to be on good terms with those government agencies with a view to others matters (those involving them and those affecting their rivals). Even then, those concessions usually don't go so far as to completely discontinue an activity.

WFA and the other defendants have the resources to defend themselves, and they do still intend (obviously) to defend themselves against the lawsuit. That means they can't save much money on discovery by dissolving GARM now. Rational and unbiased observers (of which there are too few) will draw the only logical conclusion: no (well-resourced) party that is confident of its legal position takes such a radical step and so quickly. It would go too far to describe it as an admission of guilt, but at minimum it shows that the defendants are afraid. Very afraid.

The primary concern that led to GARM's sudden death, despite the way it also be perceived by judges as an indication of this being a serious case, may have been a fear of enhanced (up to treble) damages. In any event, it's simply not what someone convinced of having a super-strong defense and capable of duking it out in court would do. Instead, defendants to such cases normally want to demonstrate confidence in having the law and the facts on their side, even if they make (often just cosmetic) concessions.

Political polarization obstructs the view, but the end doesn't justify the means

Normally, WFA's lack of confidence would end the debate over whether X Corp's lawsuit is serious (and can't be compared to Elon Musk's OpenAI openness case, which has already disappeared). But some were quick to make dismissive comments early on, and many people just don't like Elon Musk and his political views, so they will ignore reality, at least in their public statements.

Reasonable people can disagree with, or even condemn, Mr. Musk's recent X post according to which "Civil war is inevitable." People may take the political position that X stoked the flames in the UK by not moderating the platform the way other major social networks do. But that is just a policy debate. Above political disagreements there is something more important: the rule of law. Otherwise someone else would argue that calling for the assassination of Mr. Musk would be justified in the current situation of political instability in the UK and elsewhere.

If one takes the position that the end justifies the means, sooner or later someone else will employ the same or similar means to pursue an end one doesn't support. That's why one has to be principled.

The only relevant type of policy here is competition policy: the Kaepernick analogy

X Corp. filed this lawsuit after a Congressional investigation brought a lot of hard evidence of concerted action to light. Other cases like this start out with allegations that are, at best, plausible based on the behavior exhibited, but not with plenty of emails between defendants that can be quoted and strongly support the allegations.

Now imagine this. If there had been a similar investigation into why no NFL team wanted to recruit Colin Kaepernick after he started kneeling during the national anthem in protest of inequality in law enforcement, and if such investigation had unearthed some highly incriminating emails between NFL team owners agreeing to sideline him for the rest of the career, who would have considered a demonstrably coordinated boycott fair and acceptable?

I don't know enough about American football to form an opinion on how good a player he was. I saw comments on social media by people who said they didn't like him as a player but welcomed his political activism, and I saw other comments according to which he was a great player but some disagreed with his politicization of the game. It's a safe assumption, though, that he was at least good enough a player that only one thing put an abrupt end to his career: he sparked political controversy (right or wrong).

The NFL team owners are innocent until proven guilty. Not a shred of evidence ever showed up for a conspiracy. The NFL didn't urge all teams to refrain from hiring that free agent, much less did it threaten sanctions if anyone did. There were no reports of emails, phone calls or secret meetings between owners where they said they wanted to keep Mr. Kaepernick out of the NFL and they all promised that none of them would seize this opportunity to hire a free agent who normally would have found a new team anytime.

If there was a conspiracy and just hasn't come to light, it would be a shame. If, however, each team's decision was independent (as we must assume unless and until evidence to the contrary is presented) and just based on the assessment that the negative impact of bringing him back to the NFL and having political debates distract from the sports business, then he just paid a price for the unwillingness of NFL team owners to prioritze politics over the game.

Let's assume an alternative universe where we have evidence that there was a conspiracy in place against him, and that a lawsuit had been brought on antitrust grounds (see the FTC's Antitrust Red Flags for Employment Practices presentation (PDF)).

In that otherworldly scenario, NFL team owners and those supporting them would have made some of the same arguments in an effort to defend the group boycott:

• Those who don't know even the most fundamental concept of law would argue that you can't sue NFL teams in order to force them to hire you.

• Another extremely stupid argument (but the equivalent has been made in the X v. WFA context) would be that there are plenty of other NFL pros, so a boycott affecting just one of them doesn't really impact competition as a whole.

• Many of the least sophisticated participants in the debate would also have said that it's about NFL team owners' money, and they can decide whom to give it to.

• A slightly better, but also unavailing manifestation of that same argument would have been that even if there had been a conspiracy, no one would have wanted to hire him even in the absence of a coinspiracy because every single team stood more to lose (because of the distraction and controversy) than to gain from hiring him. Even though we must assume that this is exactly what happened, a group boycott to ensure that outcome would still have been unacceptable for the reasons discussed in another section further below.

• There could have been an argument over whether keeping politics out of sports is a legitimate objective of the NFL and all of its teams, giving them the right to engage even in an organized boycott just to teach all athletes a lesson and avoid further controversy.

• Some would have argued that it's a First Amendment issue and the NFL owners have the right to decide that no member of their team will say or do anything that could be seen as criticizing U.S. law enforcement officers.

With respect to X v. WFA, the equivalents of all those arguments are made, plus an additional and really stupid one: some point to an interview in which Mr. Musk used the F-word with respect to advertisers who don't agree with his approach to content moderation. That interview statement didn't amount to a waiver of X Corp.'s rights against antitrust violations. It merely related to a scenario in which each company decides independently, and in fact reflected his conviction at the early stage that market dynamics would sooner or later solve the problem (he wasn't referring to a scenario in which the market would be distorted by a group boycott).

The patent licensing equivalent

As a commentator on patent litigation, licensing and policy, I've also taken the clear position, over several years by now, that companies implementing standards like 5G should not be allowed to coordinate a group boycott in the form of collective hold-out: if they jointly told a patent holder (or group of patent holders) that they won't take a license unless certain demands (such as lower royalties) are met, patentees with a need for a steady revenue stream from licensing would come under pressure. Now, that does not mean that there can't be negotiations involving multiple parties on one side or even on both sides, and the German Federal Cartel Office has granted conditional clearance to an Automotive Licensing Negotiation Group for standard-essential patents based on certain guardrails, but the key thing is that there must not be a group boycott.

Actually, while many wireless patent holders are dependent on licensing income, they could still overcome a group boycott through enforcement action. They could seek injunctions against and/or (major) damages from unwilling licensees. No equivalent option would have existed for Mr. Kaepernick if there had been a conspiracy in place, nor would one exist for X Corp. against advertisers.

Why and how a group boycott distorts the competitive process itself

The problem caused by a group boycott is that companies that normally compete with each other (advertising agencies, advertisers in a given industry, or NFL teams looking to recruit players) can ensure a certain outcome beforehand that is otherwise far from clear.

Assuming there was no conspiracy (as none has ever been shown), every single NFL team that decided to refrain from hiring free agent Colin Kaepernick had to live with the possibility of a rival seizing the opportunity, potentially becoming stronger on the field and/or finding a lot of new fans who would welcome such a courageous move.

If there had been no conspiracy of major advertisers against X (still called Twitter when it started), it's absolutely plausible that some of those companies might have considered the upside of advertising there to outweigh the downside of seeing their ads next to social media posts that other networks would censor:

• Demand-and-supply dynamics suggest X would have lowered its prices in order to retain or regain some key customers in negotiations.

• Some companies might have liked the idea of reaching a huge audience without their competitors being presented. Imagine you're a car rental company and you get to be the only major player in your industry to communicate special offers to a given audience: your campaign will probably yield better results than otherwise.

• Then, if a company sees one of its competitors actually benefiting from advertisements on X, more and more of them would have overcome their politically motivated inhibitions.

Outrage over Elon Musk's more permissive approach to content moderation was over the top: the world wasn't going to descend into chaos

Let's be rational: it's not like Elon Musk was going to turn Twitter into a neonazi propaganda platform. It was about a more relaxed approach to content moderation, an approach that was actually pretty common in the industry in earlier years.

If advertisers decide to place ads on a more heavily moderated network such as Facebook, they still can't be sure that their ads will always be shown in contexts they like. Facebook can moderate public comments, but an ad may also appear in a user's personal feed where their friends may privately say things that would immediately get censored if the posts were public.

You can advertise on Google Mail and your ads will be shown next to some emails that contain the relevant keywords. Google doesn't read those emails first and ask you whether you like your ads to be displayed there.

The fact that X reports high levels of usage also shows that the situation can't be even remotely as bad as its critics argue. Otherwise there would just be too many end users who couldn't stand it and would leave.

Given that the situation wasn't all that terrible, it's overwhelmingly likely that in a functioning market, X could have solved the problem, even if there might have, temporarily, some downward pressure on its prices and some advertisers might indeed have stayed away forever.

Ad budget decision-makers were driven by emotion, possibly envy of a mega-rich man, and by a political agenda instead of doing what's best for their companies

This is too early a stage to talk in detail about whether (and if, so, on what terms) the dispute might be settled. It's possible that some companies will now decide to just simply allocate some advertising budgets to X again and that their voluntary dismissal from the litigation will be part of the deal.

The decision-makers who engaged in that group boycott are very afraid as the sudden disbandment of GARM shows. And they are rightly afraid.

Officially, they all argued that this was about brand reputation. They made it sound like they were doing the best for their companies. But given that the situation on X isn't all that serious and that they can't control what private social media posts or emails are shown next to their ads on other platforms, it appears that many of them did what they did because they wanted to use their power against the world's richest man (at least at the time he bought Twitter) and because they harbor certain political views.

What they see now that the lawsuit has been filed is that they've exposed their companies to a major litigation risk. If X prevails, gets a damages award and the awards is enhanced (meaning it could even be tripled) by judicial decision, this can get really costly. And it could end some careers.

If they had been good stewards of their companies' resources and defenders of shareholder value, they would have made individual decisions, but in the end it would have been a question of money, of price elasticity: at some price point they'd have decided that X made them an offer too good to refuse.

Emails show advertisers weren't really sure of a pressing reason not to advertise on X

If X had done something so outrageous that no reasonable advertiser would consider advertising there, not even if huge discounts were granted, then they wouldn't have had to coordinate via the WFA's GARM.

If you're absolutely convinced that it's a smart business decision for your company not to advertise on a given platform, you'll do it independently of what others do.

First, you assume that others will view it the same way.

Second, if others seize the short-term opportunity of reaching an audience without their competitors being around, you would be convinced that the blowback would make it a bad decision for those companies and they'd pay a high price in the end.

The fact that advertisers were nervous about what their competitors were doing is rather telling. It shows that it was all about an agenda rather than a dramatic problem.

Per se illegality vs. rule of reason or "quick look"

Group boycotts are rare, and even rarer are group boycotts that are not simply about bringing down prices but pursue some other objectives.

Para. 129 of X Corp.'s complaint shows that there is a spectrum of standards under which the lawsuit could succeed:

129. The conduct of Defendants and their co-conspirators alleged herein is per se illegal, or, in the alternative, illegal under the Rule of Reason or “quick look” analytical framework. There are no procompetitive effects of the group boycott, which was not reasonably related to, or reasonably necessary for, any procompetitive objectives of the GARM Brand Safety Standards. Alternatively, there are no procompetitive effects of the group boycott that outweigh its substantial anticompetitive effects or that could not be achieved through less restrictive means.

They plead per se illegality, which would make it easiest for them to win because they wouldn't have to establish market power and there wouldn't be any balancing of anticompetitive and procompetitive effects under the rule of reason. The current situation in the U.S. is that the Supreme Court described group boycotts as per se illegal a long time ago, but the courts below have more frequently performed rule-of-reason balancing in such cases in recent decades.

By the "quick look" framework, X Corp.'s lawyers mean that the court would not decide at the outset whether the alleged conduct is per se illegal or falls under the rule of reason, but would establish enough facts to decide whether to turn left or right at that juncture.

There will be a motion to dismiss, but it's unlikely to dispose of the case, and an order to dismiss would be appealed with strong arguments for reviving the case.

The per se claim is difficult to get thrown out because the Supreme Court has yet to say that group boycotts no longer are per se illegal. But even if that one was dismissed, the case won't go away as long as X can show that it has plausibly pled what it takes to prevail under the rule of reason.

Under the rule of reason, the defendants would have to present a strong procompetitive (or "business") justification for what they did, and it would to be so overwhelming that the case would necessarily die at the earliest stage. That is hard to imagine unless some judge makes a politically motivated decision, which will be discussed in the next section.

Defendants will try to move the case out of the Northern District of Texas

One of the stupidities that have been uttered about the case is that the choice to file it with a particular judge in the Northern District of Texas says anything about the merits. As a litigation watcher I obviously know that even a party having the strongest case imaginable would never settle for a suboptimal forum.

What does indeed happen is that parties bring weak cases (for instance, cases over weak patents) in places where they think the outcome is less predictable, but those are the kinds of cases in which someone just wants to extract a settlement without really believing in the ability to win in the trial court and defend the win on on appeal. While X Corp. would presumably also settle if the terms make sense, this is a case that they will see through if necessary, and that could even make it all end up in the Supreme Court.

I believe the case would stand pretty good chances as long as judges and jury members are just neutral. But defendants have engaged in conduct that could now have severe consequences, and they actually need liberal judges with a bias against X and Mr. Musk. They will be very uncomfortable with

• a conservative trial judge who's a Tesla shareholder,

• a regional appeals court (Fifth Circuit) that is the most conservative in the country, and

• a Supreme Court with a 6-3 conservative majority.

They can't avoid the Supreme Court because Tesla would file a cert petition if necessary, but if they won the first two rounds they would at least have the chance of SCOTUS declining to hear the matter. It's just that if the defendants lose, they're unlikely to turn things around in the Supreme Court.

For some other media cases, the Central District of California is a key venue, and the appeals court would be the Ninth Circuit, which used to be liberal but where you can now easily get a panel with a Trumpian majority. Also, it doesn't look like the defendants X Corp. has strategically chosen here can make a strong argument for California.

The WFA has a New York office. Maybe they'll try to get the case transferred to the Southern District of New York, and an appeal would then go to the Second Circuit, which is actually a very good appeals court.

What does this have to do with the First Amendment?

It's absurd that some argue the advertisers simply exercised their First Amendment rights by boycotting X.

The First Amendment is about the U.S. government not censoring free speech, particularly not political free speech.

If insults, libel or slander meets the applicable standard, it's not protected free speech. If someone makes a death threat, it's not lawful because it's free speech.

The advertisers don't have a First Amendment story because what they did here was actually designed to restrict the free speech of X's users by forcing X to engage in aggressive moderation.

Consumer choice: X is an important permissive alternative to other social networks

Content moderation on social networks, to the extent it goes beyond what is strictly necessary under the law, is inherently subjective and controversial.

Before Elon Musk acquired it, Twitter moderated quite aggressively and with clearly a liberal bias. That bias is also a fact on some other platforms. Yes, that means some hate speech (the definition of which obviously varies) gets deleted. But it also means that politically incorrect, yet reasonable arguments are disallowed, and it can even result in accurate facts being suppressed, such as the Hunter Biden laptop story, which admittedly seemed unlikely to be true but turned out to be a fact.

If one doesn't pursue a political agenda, but favors consumer choice, then the existence of social networks with different content moderation principles (provided that none falls short of hard legal requirements) is a good thing.

By acquiring Twitter in order to turn it into a more free speech-oriented network, Mr. Musk contributed to consumer choice. Users can leave X. Such platforms have network effects, but it's hard to imagine many situations in which someone would absolutely have to use it. Maybe political journalists want to keep an eye on it, and it plays a role in the tech industry, but consumers don't really depend on it.

What could be a procompetitive (or "business") justification?

If the advertisers can't escape per se illegality, they're almost certain to lose. But let's assume that it becomes a rule-of-reason (or at least "quick look") matter. Then they need to present a procompetitive (or "business") justification.

That justification has to be so strong that it outweights the negative effects of simply disabling market dynamics through a coordinated boycott. But in the first place, it has to be eligible.

Advertisers can't just say that the law favors self-appointed enforcers of political taste. They can't use their market power for political hygiene. If there are things that are said on X that are not in the public interest, they're either unlawful and action can be taken against them anyway, or they're lawful, in which case the advertisers would have to persuade U.S. Congress to change the laws, which in light of the First Amendment would face limits sooner or later.

They will argue that other group boycott cases failed because industry bodies were just found legitimately to have pursued standard-setting. That argument is certain to come up here.

Interestingly, their response to the lawsuit, even prior to filing anything with the court, was to disband GARM, which suggests they don't really need to enforce brand safety standards like that.

X Corp.'s lawsuit doesn't say that the WFA can't, for example, give a stamp of approval to certain social networks that meet its standards. That would be one of the less restrictive means that X Corp.'s lawyers will likely argue would have been an option for the advertisers. The issue is just that they coordinated a boycott, and that there is a plausible case that some companies would otherwise still (or again) have advertised on X, which ultimately could have brought almost everyone back.

There will be a major fight over a potential justification, but it's hard to see how a group boycott was a legitimate course of action. They attempted to force X to cease to differentiate itself from more heavily moderated networks, thereby reducing consumer choice. They thought they could do so much financial damage to X that Mr. Musk would either cave or that he would sell the company to a new owner who would acceed to the WFA's demands. Chances are that quite some incriminating evidence will be uncovered through pretrial discovery.

One key criterion will be whether the group boycott was meant to be coercive. There can be no doubt about that, even just based on the email passages quoted in the complaint and considering that a vast majority of the advertising budgets for large campaigns was controlled by the WFA's members.

What if they don't settle and X wins the case?

If X won an enforceable damages award here, it would likely be large enough for the WFA to go bankrupt. It would also be quite costly to the other defendants, though they'd survive.

An injunction would ensure that after the disbandment of GARM they're not going to do anything similar again. The corporate defendants would have to tread carefully because if they coordinated with others not to advertise on X, they'd be held in contempt of court, which could even get some decision-makers into jail in a hypothetical worst-case scenario.

Companies that are not named as defendants wouldn't be bound by the injunction, but they, too, would face a greater risk after an injunction issues if they engaged in the accused conduct. The fact that they engaged in conduct already held lawful in another case would be held against them, such as with a view to (enhanced) damages.

By contrast, for X this litigation is just a cost of defending its product differentiation. Discovery goes both ways, but it's going to be very difficult for the advertisers to find anything that X said or did and that makes a group boycott lawful. They can try to find material that calls into question the collective power of that group.

X already made the most difficult decision

The most difficult part in all of this for X was to decide to sue (former) customers. That is a tough call for any company. It's infinitely easier to sue competitors or maybe even suppliers.

X's public statements show that they carefully considered this step. They tried for about two years to work things out with some of those major advertisers, but not enough progress was made. Then, as a result of a Congressional investigation, they became aware of the degree of collusion that took place behind the scenes. The calculus was such that they stood more to gain than to lose from this litigation.

It would now be best for both sides to find a face-saving exit. The advertisers face a huge risk, in financial as well as reputational terms. Only some radical liberal judges and jurors would subscribe to the idea of the end justifying the means.

All that X wants, and what it is totally entitled to, is that each company decides independently at what point the upside of advertising on X outweighs any downside due to the absence of aggressive content moderation.