Facebook has been sued by the US Federal Trade Commission (FTC) and a bipartisan coalition of over 40 attorneys-general for allegedly stifling competition by buying up or cutting out competitors.
In two lawsuits, filed by the FTC [PDF] and attorney-general coalition [PDF], respectively, both accuse Facebook of buying up companies — namely, Instagram for $1 billion in 2012 and WhatsApp for $19 billion in 2014 — to eliminate any competition that has the potential to erode the company’s dominance.
The FTC said in its lawsuit that Facebook initially tried to compete with Instagram on the merits by improving its own offerings, but it ultimately chose to buy Instagram to neutralise the direct threat posed by Instagram and make it more difficult for another personal social networking competitor to gain scale.
The lawsuits also allege companies that rebuffed offers to be acquired by Facebook — or those that posed a competitive threat — would subsequently be cut off from access to various key components within the social networking giant’s network.
According to the coalition’s legal complaint, Facebook allegedly pursues an “open first-closed later approach” whereby its platform is open to third-party services unless they pose competitive threats to Facebook.
For third-party services that present such threats, Facebook would allegedly change its practices and policies to close APIs that are relied upon by those services, as well as take additional actions to degrade and suppress the quality of their interconnections with Facebook.
In light of these allegations, both the FTC and coalition of attorneys-general have called for Facebook to break off from Instagram and WhatsApp to “restore the competition that would exist” absent of the social networking giant’s alleged monopolistic practices.
The FTC and attorney-general coalition have also called for new restrictions to be applied to any future deals made by Facebook. In the coalition’s case, the attorneys-general have asked the court to restrain Facebook from making any future acquisitions that are valued at or in excess of $10 million without advance notice in their states.
Meanwhile, the FTC has sought for Facebook to always require prior approval for any future mergers and acquisitions.
“For nearly a decade, Facebook has used its dominance and monopoly power to crush smaller rivals and snuff out competition, all at the expense of everyday users,” New York Attorney-General Letitia James said.
“Almost every state in this nation has joined this bipartisan lawsuit because Facebook’s efforts to dominate the market were as illegal as they were harmful. Today’s suit should send a clear message to Facebook and every other company that any efforts to stifle competition, reduce innovation, or cut privacy protections will be met with the full force of our offices.”
The FTC pursued the lawsuit after gaining approval via a 3-2 split Commission vote, while the state suit went ahead after receiving backing from 46 state attorney-generals, the District of Columbia, and Guam.
Responding to these lawsuits, Facebook said both federal and state regulators are attempting regulatory revisionism, noting that the FTC itself approved the Instagram and WhatsApp transactions when they were finalised in 2012 and 2014, respectively.
Jennifer Newstead, Facebook vice president and general counsel, said if the company were to be forced to divest Instagram and WhatsApp, it would having a “chilling effect on innovation”.
“Now, many years later, with seemingly no regard for settled law or the consequences to innovation and investment, the agency is saying it got it wrong and wants a do-over. In addition to being revisionist history, this is simply not how the antitrust laws are supposed to work.
“This lawsuit risks sowing doubt and uncertainty about the US government’s own merger review process and whether acquiring businesses can actually rely on the outcomes of the legal process.”
The lawsuits follow an antitrust investigation that commenced over a year ago by James and 46 other state attorneys-general. The investigation, announced in September last year, focuses on whether Facebook’s dominant market position has stifled competition, put consumer data at risk, limited consumer choices, and resulted in advertisers paying more money.
Prior to that investigation, Facebook and other big tech companies were already the subject of various federal antitrust investigations conducted by the FTC, House Judiciary Committee, and the Department of Justice.
The findings from the House Judiciary Committee’s probe were released two months ago in a 450-page report, which found evidence of Facebook’s “monopolisation and monopoly power” in the social networking market.
The subcommittee also said a senior Facebook executive described the company’s acquisition strategy as a “land grab” to “shore up” Facebook’s position and another said the company purchased Instagram because it was a threat to Facebook.
“The online platforms’ dominance carries significant costs. It has diminished consumer choice, eroded innovation and entrepreneurship in the US economy, weakened the vibrancy of the free and diverse press, and undermined Americans’ privacy,” the report said.
According to the FTC complaint, Facebook is currently the world’s largest personal social networking service, earning revenues of more than $70 billion and profits of more than $18.5 billion.