Facebook Sued by US, States in Antitrust Case

December 10, 2020by David McLaughlin and Erik Larson, Bloomberg News (TNS)
This picture taken on October 5, 2020 shows logos of US social networks Facebook, Instagram and mobile messaging service WhatsApp on the screens of a smartphone and a tablet in Toulouse, southwestern France. (Photo by LIONEL BONAVENTURE/AFP via Getty Images/TNS)

WASHINGTON — Facebook Inc. was sued by U.S. antitrust officials and a coalition of states that want to break up the company by unwinding its acquisitions of Instagram and WhatsApp, deals the government says was part of a campaign to illegally crush competition.

The Federal Trade Commission and state attorneys general led by New York said they filed antitrust complaints against Facebook Wednesday, alleging conduct that thwarted competition from rivals in order to protect its monopoly. The lawsuits seek court orders unwinding Facebook’s acquisition of Instagram and WhatsApp, according to copies of the complaints provided by the agencies.

The cases represent the biggest regulatory attack against Facebook in the company’s history. They follow the Justice Department’s October lawsuit against Alphabet Inc.’s Google. Together, the Google and Facebook actions mark the most significant monopoly cases filed in the U.S. since the Justice Department sued Microsoft Corp. in 1998. Unlike the Google case, the Facebook complaints seek a court order breaking up the company.

Facebook shares fell 2.4% to $276.74 at 4:09 p.m. in New York after falling more than 4% earlier.

“Personal social networking is central to the lives of millions of Americans,” Ian Conner, Director of the FTC’s Bureau of Competition, said in a statement. ” Facebook’s actions to entrench and maintain its monopoly deny consumers the benefits of competition. Our aim is to roll back Facebook’s anticompetitive conduct and restore competition so that innovation and free competition can thrive.”

Facebook has squashed or hindered what the company saw as potential threats, said New York Attorney General Letitia James during an online news conference.

Facebook used “vast amounts of money” to acquire companies that could potentially threaten it’s dominance, particularly Instagram and WhatsApp, she said. The effort was meant to “squeeze every bit of oxygen out of the room.”

Facebook became a prime target for President Donald Trump in the last two months of his administration. Last week, he threatened to veto the annual U.S. defense authorization bill unless Congress adds a rider to abolish the law that protects technology companies, including Facebook, from liability over most content posted by users. The demand followed months of attacks by Trump and other Republicans, who claim the technology platforms suppress conservative views.

Facebook and its tech peers are facing a groundswell of bipartisan antagonism over their control of digital commerce and their ability to influence what users watch and read.

The investigations into the companies began in the summer of 2019 after the FTC and the Justice Department agreed on a plan to divide up scrutiny of Facebook, Google, Amazon.com Inc. and Apple Inc. A House report released in October following a 16-month investigation determined the four companies are abusing their market power as gatekeepers over the digital economy.

It will be up to Biden’s Justice Department to carry the Google case forward, while the Facebook case will fall to whomever Biden picks as FTC chairman if Joe Simons, who was appointed by Trump, leaves the agency. Simons, a Republican, voted with the agency’s two Democrats to approve the Facebook complaint.

Facebook said on Twitter that the company was reviewing the complaints. It pointed out that the FTC investigated and approved the acquisitions of Instagram and WhatsApp when they were proposed.

“Years after the FTC cleared our acquisitions, the government now wants a do-over with no regard for the impact that precedent would have on the broader business community or the people who choose our products every day,” it said.

Facebook offered $1 billion for Instagram in 2012 when it had only 25 million users and no revenue, but had already started to capture the market for mobile photo-sharing. Facebook “quickly recognized that Instagram was a vibrant and innovative personal social network and an existential threat to Facebook’s monopoly power,” the FTC says.

The deal “would not only squelch the direct threat that Instagram posed, but also significantly hinder another firm from using photo-sharing on mobile phones to gain popularity as a provider of personal social networking.”

The company repeated the anti-competitive exercise when acquiring WhatsApp, the mobile messaging leader, in 2014 for $19 billion, according to the agency. Employees saw direct messaging apps as a threat to social media companies, especially if they started to create their own competing features. In a 2012 email, Zuckerberg said messaging apps could be used “as a springboard to build more general mobile social networks.”

WhatsApp’s position as a global service without ties or restrictions to work with any single platform made it an attractive acquisition, the FTC found.

“Once again, Facebook decided it was better to buy than compete,” the FTC said. “After Facebook announced the acquisition of WhatsApp, employees internally celebrated the acquisition of ‘probably the only company which could have grown into the next FB purely on mobile(.)'”

WhatsApp, unlike Instagram, does not contribute meaningful revenue to Facebook today, but the company is setting the stage to turn the messaging app into a commerce and payments service in key international markets, including India and Brazil. In recent years, Facebook has been combining the WhatsApp and Instagram networks with its own, strengthening its power over global communication and making any future breakup more technically difficult.

The lawsuits also accuse Facebook of thwarting competition in violation of antitrust laws by preventing apps that were seen as competitive threats from accessing its platform. The House committee that investigated Facebook and the other tech companies said Facebook “weaponized” its platform against rivals by preventing them from getting access to the data they needed to grow.

According to the FTC, Facebook allowed third-party developers to connect to the platform only on condition that they didn’t build competing functionalities, and connecting with or promoting other social networking services.

“The two most utilized strategies have been to acquire smaller rivals and potential rivals before they could threaten Facebook’s dominance and to suffocate and squash third-party developers that Facebook invited to utilize its platform,” James’s office said in a statement.

Facebook has long denied it’s a threat to competition. Zuckerberg told Congress in July that the company faces intense competition around the world and is constantly innovating to develop products users will like and to avoid falling behind.

Instagram’s success was far from guaranteed, he told lawmakers. It was Facebook’s investments in the company that made it successful, he said.

“With hindsight it probably looks like obvious that Instagram would have reached the scale that it has today, but at the time it was far from obvious,” he told Rep. Jerrold Nadler, the New York Democrat who chairs the Judiciary Committee. “This has been an American success story.”

The Facebook complaint is the most significant antitrust action under Simons’ tenure since he took over the agency in 2018. Last year, Simons reached a $5 billion settlement with Facebook for privacy infractions, an agreement that was widely criticized by privacy advocates, Democratic lawmakers and the agency’s two Democratic commissioners for not securing changes in the way Facebook operates.

The FTC is taking on Facebook just as it’s coming off a stinging loss in a monopoly case brought against Qualcomm Inc. A federal appeals court in August ruled in favor of the chipmaker and reversed a lower-court decision that the company abused its dominant position in the market for cellphone chips.

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Sarah Frier and Kurt Wagner contributed to this report.

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(c)2020 Bloomberg News

Distributed by Tribune Content Agency, LLC

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