Breakup threat. Social networking giant sued by federal regulator and US states, and could be forced to sell WhatsApp, Instagram
Facebook has become the latest technology giant to face a significant threat to its continued existence as a complete entity.
The firm was hit with two separate antitrust lawsuits from the Federal Trade Commission (FTC) and a coalition of attorneys general from 48 states and territories on Wednesday.
“For almost a decade,Facebook has had monopoly power in the personal social networking market in the United States,” the US state lawsuit alleges. “As set forth in detail below, Facebook illegally maintains that monopoly power by deploying a buy-or-bury strategy that thwarts competition and harms both users and advertisers.”
“Facebook has intensively monitored the growth of scores of applications (or “apps”) and purchased those it believed might threaten its monopoly power, sometimes snatching them from other firms in whose hands the acquired firms might flourish and become challengers to Facebook’s dominant personal social networking service,” that lawsuit alleges.
“Two of Facebook’s largest acquisitions, the mobile social photo app Instagram and the mobile messaging service WhatsApp, each posed a unique and dire threat to Facebook’s monopoly,” it added.
“Each had enormous and rapidly growing user networks, and each was well-positioned to encroach on Facebook’s dominant market position,” said the lawsuit. “Facebook kept both services running after the acquisitions to fill the void, so they would not be replaced by another app with the potential to erode Facebook’s dominance.”
Officials accused Facebook of taking a “buy or bury” approach to potential rivals, hurting competitors and users, who have lost control of their own data to support the firm’s advertising revenue.
But Facebook has slammed both lawsuits, claiming that the lawsuits filed by the FTC and the State Attorneys General are revisionist history.
“The Federal Trade Commission and state attorneys general today attack two acquisitions that we made: Instagram in 2012 and WhatsApp in 2014,” noted Jennifer Newstead, Facebook’s VP and General Counsel.
“These transactions were intended to provide better products for the people who use them, and they unquestionably did,” said Newstead. “Both of these acquisitions were reviewed by relevant antitrust regulators at the time. The FTC conducted an in-depth ‘Second Request’ of the Instagram transaction in 2012 before voting unanimously to clear it. The European Commission reviewed the WhatsApp transaction in 2014 and found no risk of harm to competition in any potential market. Regulators correctly allowed these deals to move forward because they did not threaten competition.”
“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,” said Newstead. “In addition to being revisionist history, this is simply not how the antitrust laws are supposed to work. No American antitrust enforcer has ever brought a case like this before, and for good reason.”
“The FTC and states stood by for years while Facebook invested billions of dollars and millions of hours to make Instagram and WhatsApp into the apps that users enjoy today,” wrote Newstead. “And, notably, two FTC commissioners voted against the action that the FTC has taken today.”
“Now the agency has announced that no sale will ever be final, no matter the resulting harm to consumers or the chilling effect on innovation,” Newstead added. “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. It would also punish companies for protecting their investment and technology from free-riding by those who did not pay for the innovation, making those companies less likely over the long term to make their platforms available to spur the growth of new products and services.”
And Newstead hinted that the lawsuits were part of a political campaign against it.
“Of course, we are aware of the atmosphere in which the FTC is bringing this case,” she wrote. “Important questions are being asked about ‘big tech’ and whether Facebook and its competitors are making the right decisions around things like elections, harmful content and privacy.”
“We have taken many steps to address those issues, and we’re far from done,” said Newstead. “We have called for new regulation to address some of them on an industry-wide basis. But none of these issues are antitrust concerns, and the FTC’s case would do nothing to address them. Those hard challenges are best solved by updating the rules of the internet.”
But Facebook has been facing a lot of criticism in recent years, given the size of the firm and its reach into the daily lives of 2.5 billion people.
Indeed, even one of Facebook’s co-founders (Chris Hughes) last year called for the breakup of the Facebook, saying that the firm he helped create was now a threat to democracy and that CEO Mark Zuckerberg welded too much power.
And the political environment has certainly turned against big tech.
In the summer the CEOs of Google, Amazon, Facebook and Apple were forced to testify before the US Congress, as part of a bigger investigation of their influence on the market.
And then in October, the Department of Justice sued Google, accusing the search giant of violating US competition laws to maintain a monopoly on internet searches and online advertising.