Elon Musk’s lawsuit over alleged X ad boycott “a very weak case,” professor says

Antitrust law professors aren’t impressed by Elon Musk’s lawsuit alleging a supposed X advertising boycott amounts to an antitrust violation. Based on the initial complaint filed by Musk’s X Corp., it looks like “a very weak case,” Vanderbilt Law School Associate Dean for Research Rebecca Haw Allensworth told Ars.

“Given how difficult this will be to win, I would call it an unusual strategy,” she said.

The lawsuit against the World Federation of Advertisers (WFA) and several large corporations says that the alleged boycott is “a naked restraint of trade without countervailing benefits to competition or consumers.” The “collective action among competing advertisers to dictate brand safety standards to be applied by social media platforms shortcuts the competitive process and allows the collective views of a group of advertisers with market power to override the interests of consumers,” X claims.

Musk already won a victory of sorts as the WFA yesterday shut down the Global Alliance for Responsible Media (GARM) initiative that is the main subject of X’s allegations. “GARM is a small, not-for-profit initiative, and recent allegations that unfortunately misconstrue its purpose and activities have caused a distraction and significantly drained its resources and finances. GARM therefore is making the difficult decision to discontinue its activities,” the WFA said.

But the GARM shutdown won’t result in Musk’s company obtaining any financial damages unless X also wins in court. The company formerly named Twitter sued in a federal court in Texas, part of the conservative 5th Circuit, a venue that Musk likely believes will be more favorable to him than a court in another state. The District Court judge overseeing the lawsuit is also handling Musk’s case against Media Matters for America, a nonprofit that conducted research on ads being placed next to pro-Nazi content on X.

Texas is one of three states, along with Louisiana and Mississippi, where appeals go to the US Court of Appeals for the 5th Circuit. “The 5th Circuit is well known as the most conservative circuit in the country,” Professor Stephen Calkins of Wayne State University Law School told Ars.

“The law here is very unfavorable to X”

Despite the potentially friendly Texas court venue, Musk’s X faces a high legal bar in proving that it was the victim of an illegal boycott.

Allensworth said X must show “that the defendants did actually enter into an agreement—that they had a deal with each other to pull advertising spend from X as a group, not that each brand did it individually to protect their own brand status or make their own statement about Elon Musk. The law here is very unfavorable to X, but the complaint describes a lot of conduct that could support a jury or judge finding an agreement. But it’s a fact question, and we only have half the story.”

A bigger problem for Musk “is that X must show that the boycott harmed competition, not just that it harmed X,” Allensworth said. “The complaint is far from clear on what competition was harmed. A typical boycott will harm competition among the boycotters, but that doesn’t seem to be what the complaint is about. The complaint says the competition that was harmed was between platforms (like X/Twitter and Facebook, for example) but that’s a bit garbled. Again, we may know more as the suit develops.”

There’s one more problem that may be even bigger than the first two, according to Allensworth. Even if X proves there was an explicit agreement to pull advertising and that a boycott harmed competition, the advertisers would have a strong defense under the First Amendment’s right to speech.

“Concerted refusals to deal (boycotts) are not vulnerable to antitrust suit if they are undertaken to make a statement—essentially to engage in speech,” Allensworth explained. “It would seem here like that was the purpose of this boycott (akin to lunch counter boycotts in the ’60s, which were beyond the reach of the antitrust laws). Given that the Supreme Court has only increased First Amendment rights for corporations recently, I think this defense is very strong.”

All of those factors “add up, to me, to a very weak case,” Allensworth told Ars. But she cautions that at this early stage of litigation, “there’s a lot we don’t know; no one can judge a case based on the complaint alone—that’s the point of the adversarial system.”

An X court win wouldn’t force companies to advertise on the platform. But “if somehow they prevail, X could ask for treble damages—three times the revenue they lost because of the boycott,” Allensworth said.

Not the “classic” illegal boycott

Calkins told us that what X alleged is not “the classic illegal boycott.” The word “boycott” can mean lots of different things, he said; some types are illegal per se, meaning they can be deemed automatically illegal without much study of the boycott’s purpose or effect. The alleged X ad boycott is not one of those types.

If a group of competitors enter into an agreement to harm a rival, for example by withholding a crucial design element from a newcomer, it may be easy to prove that there was an illegal boycott. Or “if two car companies get together and agree they’re going to raise the price of cars by 10 percent, that’s automatically unlawful and we’re done,” Calkins told Ars.

But most behavior by companies “is judged under what’s known as the rule of reason, where it is lawful unless the plaintiff is able to show elements like market power and a competitive effect and harm to competition and higher prices and lower output and all that sort of stuff,” he said. “As you can imagine, it’s very hard for plaintiffs to win rule of reason cases.”

These cases would usually not be filed at all “because the plaintiff’s lawyers would say there’s not much chance of winning… a lot of plaintiffs’ lawyers are saying, ‘we’re going to bring only a per se case or not at all,'” Calkins said.

For a plaintiff like X, winning isn’t impossible if it can show the defendants have significant market power and harmed competition, “but it would not be easy,” he said. Calkins previously told The Wall Street Journal that “if people have simply switched purchasing ads from one platform to another, it’s not clear how that is going to be harming competition and ending up at higher prices.”

Politically motivated boycotts have protection

The First Amendment right to free speech isn’t absolute. “You don’t have a First Amendment right to fix prices, even though you do that by speaking the words,” Calkins told Ars.

But when a boycott is political in nature, the First Amendment would favor defendants in a rule of reason analysis. Calkins gave the example of a civil rights group like the NAACP organizing boycotts of businesses that discriminate against African-Americans. Combined with other defenses the WFA and advertisers can put forth, the First Amendment is a significant hurdle for Musk’s suit.

Musk’s lawsuit claims that because of the alleged advertising boycott, “X became a less effective competitor to other social media platforms in the sale of digital advertising and in competing for user engagement on its platform. By sharply curtailing its revenues, the boycott has reduced X’s ability to invest in new or improved functionality, thus harming the consumers who use X’s platform.”

X has lost advertisers due to changes in content moderation under Musk’s ownership and incidents like Musk responding favorably to an X post that said Jewish communities are “pushing hatred against whites.” After that November 2023 incident, Musk did a public interview in which he told advertisers to “go fuck yourself.”

“As a general rule, a politically motivated boycott is not an antitrust violation. It is protected speech under our First Amendment,” Bill Baer, who served as Department of Justice antitrust chief under President Obama, was quoted as saying in BBC coverage of the X lawsuit.

“Nothing illegal” about pulling ads, group says

X’s lawsuit was criticized by the Information Technology and Innovation Foundation (ITIF), a research group with funding from various corporations. “There is nothing illegal about companies deciding to refrain from advertising on a particular platform,” the group said. “Businesses have the right to make independent decisions about where to allocate their advertising budgets based on a variety of factors, including brand safety and alignment with their values. X’s attempt to challenge these decisions through litigation undermines the basic principle of free market competition and the autonomy of businesses to manage their reputations.”

The ITIF also said that “companies have every right to collaborate” through groups such as GARM in order to set “advertising standards to ensure their brands are not associated with content that could harm their image.”

Although the WFA shut down its GARM initiative, the group responded to criticism on its website. GARM said it provides “voluntary frameworks” to help brands make advertising decisions and “does not interfere with a member’s decision as to whether or not to invest advertising resources on a particular website or channel.”

“Suggestions that GARM practices may impinge on free speech are a deliberate misrepresentation of GARM’s work. GARM is not a watchdog or lobby. GARM does not participate in or advocate for boycotts of any kind,” the group said.

When contacted by Ars, a WFA spokesperson declined to comment specifically on X’s lawsuit. The corporations also named as defendants—Unilever PLC; Unilever United States; Mars, Incorporated; CVS Health Corporation; and Ørsted A/S—did not return requests for comment earlier this week.

Judge’s Tesla stock source of controversy

X filed the suit in the Wichita Falls division of the US District Court for the Northern District of Texas, and the case was assigned to Judge Reed O’Connor. As mentioned earlier, O’Connor is overseeing the Media Matters case.

Media Matters complained about O’Connor having owned stock in Tesla, one of Musk’s other companies. O’Connor in April denied a Media Matters motion to delay discovery until its motion to dismiss is resolved. Media Matters told the court that “X’s discovery requests are extremely broad and unduly burdensome,” and issued a statement to the press saying it needed to lay off staff because of a “legal assault on multiple fronts.”

X’s similar lawsuit against the Center for Countering Digital Hate (CCDH) was filed in a federal court in California. A judge there granted the defendant’s motion to dismiss the case.