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Facebook Accused of Deceit in Suit by Defunct Competitor

November 8, 2021 by Tom Ramstack
Facebook CEO Mark Zuckerberg

NEW YORK — Facebook used illegal trade practices to run former competitor and photo app Phhhoto Inc. out of business, officials from the now-defunct company said in a lawsuit filed Thursday.

It represents the latest antitrust challenge to the social media giant in an outcry also being taken up by Congress.

“Phhhoto failed as a direct result of Facebook’s anticompetitive conduct,” says the lawsuit filed in U.S. District Court in New York. “But for Facebook’s conduct, Phhhoto was positioned to grow into a social networking giant, similar in size, scope, and shareholder value to other social networking and media companies with which Facebook did not interfere.”

Facebook’s executives were among users of the free photo sharing service after its startup in 2014, the lawsuit says. Among them was CEO Mark Zuckerberg.

At its peak, Phhhoto had 3.7 million average monthly users. They included celebrities such as Beyoncé, Katy Perry, Miley Cyrus and Chrissy Teigen, the suit alleges.

From the Phhhoto app, users could post photos to other websites, including Facebook-owned Instagram, which also allows photo sharing.

Shortly after the startup began, Facebook’s strategic partnerships manager approached Phhhoto about a deal that would allow its users’ photos to be posted on Facebook’s messenger service, the lawsuit says.

When Phhhoto declined, Facebook made a second proposal offering to incorporate it into Facebook’s News Feed, which would garner a much larger audience. The second offer interested Phhhoto executives but Facebook never moved forward with it, the lawsuit says.

Instead, Facebook started a competing product that incorporated many of Phhhoto’s features. It also blocked Phhhoto’s users from posting on Instagram.

“The injurious intent and effect of these actions was not known to, and indeed concealed from, Phhhoto at the time,” the lawsuit alleges. “The anticompetitive campaign culminated in a change in the way that Instagram displayed content in its own users’ feeds which had the intent and effect of suppressing Phhhoto content. Instagram affirmatively concealed the nature of its change and even published misleading statements about the change.”

Phhhoto was forced to close down in June 2017. Facebook officials so far have declined to comment on the lawsuit.

Only after they were forced out of business did Phhhoto officials realize the “anti-competitive” strategy used by Facebook against competitors, the lawsuit says.

Similar allegations are made in other pending lawsuits and recent statements to federal regulators. The lawsuits were filed by competitors and state attorneys general.

An amended complaint the Federal Trade Commission filed in August says Facebook  “has the power to control prices or exclude competition; significantly reduce the quality of its offering to users without losing a significant number of users or a meaningful amount of user engagement; and exclude competition by driving actual or potential competitors out of business.”

Complaints about Facebook compelled members of Congress during a hearing last month to threaten a regulatory clampdown on the company.

The Phhhoto lawsuit is PHHHOTO Inc. v. Meta Platforms, Inc. et al., case number 1:21-cv-06159, in the U.S. District Court for the Eastern District of New York.

Tom can be reached at [email protected]

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