The US Federal Trade Commission along with 48 states and territories of the US have filed lawsuits against Facebook, accusing the company of illegally maintaining a monopoly in the social networking market. The case centres on the company's takeovers of Instagram and WhatsApp and may lead to Facebook being forced to divest some of its business. Facebook said the regulators were engaging in "revisionist history" by trying to undo acquisitions they had already approved.
According to the FTC, Facebook has engaged in a "systematic strategy" to eliminate threats to its monopoly, including the two acquisitions of rivals in 2012 and 2014 and anticompetitive conditions imposed on software developers. "This course of conduct harms competition, leaves consumers with few choices for personal social networking, and deprives advertisers of the benefits of competition," the regulator said.
The FTC is seeking a permanent injunction in federal court that could, among other things require divestitures of assets, including Instagram and WhatsApp; prohibit Facebook from imposing anti-competitive conditions on software developers; and require Facebook to seek prior notice and approval for future mergers and acquisitions worth more than USD 10 million.
The suit claims that Facebook aimed to neutralise potential competition with the takeovers of Instagram and WhatsApp. New York Attorney General Letitia James called it a "buy or bury approach: if they refuse to be bought out, Facebook tries to squeeze every bit of oxygen out of the room for these companies". The charges claim Facebook worked to limit other apps developing similar services.
In particular, Facebook allegedly has made key APIs available to third-party applications only on the condition that they refrain from developing competing functionalities, and from connecting with or promoting other social networking services. As an example, it cites Twitter's former app Vine, which allowed users to make and share short videos. In response, according to the complaint, Facebook shut down the API that would have allowed Vine to access friends via Facebook.
The FTC's investigation included the support of attorney generals from 46 states, the District of Columbia and Guam. They have filed a separate lawsuit, led by the AG of New York, that accuses Facebook of similar anti-competitive practices, including violations of Section 2 of the Sherman Act and Section 7 of the Clayton Act.
Facebook said it "looked forward to our day in court", when it was confident the evidence would show it "competing on the merits with great products". According to Facebook VP and general counsel Jennifer Newstead, the suit ignores the significant competition Facebook faces from the many other forms of communication and other media competing for advertising spend.
She also noted that the FTC was not unanimous in deciding to go ahead with the case, as two of the five commissioners voted against. The case to overturn previously approved acquisitions was unprecedented and would "sow doubt and uncertainty" about the US government’s merger review process and the legal process surrounding other acquisitions, Newstead said.
She also defended Facebook's right to protect its "investment and technology from free-riding by those who did not pay for the innovation", saying if companies did not do this, they would be less able to develop new products and services in the long term. Many other companies employ similar policies to limit duplication of key features, she noted, citing as examples LinkedIn, The New York Times, Pinterest and Uber, while others such as YouTube and Twitter "have done just fine" without integration with Facebook.
This is not the first time Facebook has faced a case from the FTC, which enforces both competition and consumer law in the US. In July 2019, the company agreed to pay a USD 5 billion fine for privacy violations, as well as implement a 20-year compliance agreement aimed at improving protection of personal data on Facebook services.
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