Politico

States, feds file antitrust suits demanding breakup of Facebook


Federal antitrust authorities and dozens of states launched a double-barreled legal assault on Facebook on Wednesday, in lawsuits that seek to break up the Silicon Valley giant and address years of complaints about its worldwide social networking empire.

Both suits ask a judge to make Facebook spin off its messaging service WhatsApp and photo-sharing app Instagram — two of the world’s most popular mobile apps, which it acquired in deals that passed muster with federal regulators less than a decade ago.

Democratic and Republican attorneys general from 48 U.S. states and territories, including New York, are behind one of the suits announced Wednesday. The Federal Trade Commission, filed its own suit Wednesday in U.S. District Court in Washington, D.C.

“No company should have this much unchecked power,” New York Attorney General Tish James said in a news conference announcing the suit, adding that Facebook engaged in a “buy or bury strategy” against potential competitors.

Facebook’s critics in and out of government immediately praised the lawsuit. “Facebook’s reign of unaccountable, abusive practices against consumers, competitors and innovation must end today,” said Sen. Richard Blumenthal (D-Conn.) in a statement. “For too long, Facebook has avoided real competition through anticompetitive acquisitions, unchecked power over consumers, and the failure of federal antitrust enforcers to take action.”

Sen. Josh Hawley (R-Mo.), an ally of President Donald Trump, tweeted: “This is a necessity. The @instagram and WhatsApp mergers with @Facebook were anti-competitive, they were meant to be anti-competitive, and they should be broken up.”

Both cases accuse Facebook of illegally using its power for more than a decade to muscle out rivals and snap up rising competitors, specifically including WhatsApp and Instagram, before they could gain a foothold. That spending spree has continued even as Facebook faces rising antitrust scrutiny in the U.S., Europe and Australia — just last month, it said it would buy a customer service startup called Kustomer in a deal that news reports valued at more than $1 billion.

Facebook pushed back on the complaints, noting that antitrust authorities looked at the Instagram and WhatsApp transactions at the time.

“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,” the company said in a tweet.

The suits represent the latest escalation of a power struggle between governments around the world and the United States’ wealthiest tech companies. The Justice Department and a smaller coalition of GOP-led states lodged a similar antitrust case against Google in October. States and the DOJ are expected to file additional suits against Google in the coming weeks.

The federal cases have landed during the final months of Trump’s presidency. President-elect Joe Biden has voiced his own harsh criticisms of Facebook, accusing the company of “propagating falsehoods they know to be false, although his transition team and early personnel picks have drawn scrutiny for their ties to Silicon Valley.

Facebook has denied being a monopoly, noting that it ranks behind Google in how much revenue it claims from the $160 billion global market for online display advertising. CEO Mark Zuckerberg has also portrayed Facebook as a champion of the “American free speech tradition,” in contrast with China’s vision of a censored internet.

Still, the litigation follows a massive change in the U.S. political fortunes for Facebook and Zuckerberg, who co-founded the company in his Harvard dorm room in 2004 and now ranks fifth on Forbes’ list of the world’s richest billionaires. Less than a decade ago, Facebook’s cachet in D.C. was enough to draw then-President Barack Obama to its California headquarters for a town hall alongside Zuckerberg. Now, political leaders in both parties say the company’s unchecked power makes it a threat to rivals and countless Americans.

‘Better to buy than compete’

Facebook, which has 2.74 billion users worldwide, disclosed in July 2019 that the FTC was investigating it for alleged antitrust violations. New York state’s Democratic attorney general, Tish James, revealed two months later that she was leading a multistate coalition probing antitrust concerns involving the company.

The FTC’s suit has been expected for months, but the agency has recently been tangled in an internal debate over where to file the case: in a standard federal court or its own in-house administrative court. Either way, the final outcomes of the state and federal lawsuits could be years away.

Both investigations have focused on Facebook’s acquisitions of companies that could have grown into major rivals had they remained independent, particularly its purchases of Instagram in 2012 and WhatsApp in 2014. Prosecutors also concentrated on how the social network has interacted with potential rivals’ conduct, such as its moves in 2013 and 2014 to cut off competitors’ access to Facebook user data.

Both complaints rely heavily on communications among Zuckerberg and other Facebook executives, with the states referring to him by name 64 times and the FTC about 40. The FTC, in particular, cites a 2008 Zuckerberg e-mail as the company’s overarching philosophy: “it is better to buy than compete.”

The FTC looked into Facebook’s $1 billion Instagram purchase and $19 billion WhatsApp deal at the time but didn’t oppose the deals. However, recently disclosed internal communications show that Zuckerberg and other senior Facebook executives had pushed the details to neutralize a competitive threat to the social network, House Judiciary Committee investigators reported in October.

The messages included e-mails in which Zuckerberg described the Instagram purchase as “insurance” to protect Facebook’s main product, saying the company “can likely always just buy any competitive startups.”

In internal conversations about the WhatsApp deal, Facebook executives said the merger was needed to “shore up our position” and keep the smaller company from gaining more traction than Facebook Messenger.

“I hate the word ‘land grab’ but I think that is the best convincing argument,” the report quoted a Facebook executive as saying in support of the WhatsApp deal.

Mother lodes of data

Antitrust scrutiny has also focused on an October 2013 deal in which Facebook bought the Israeli startup Onavo for $115 million. The company measured how much time users would spend on other mobile apps, giving Facebook an “early bird warning system” about potential competitors, the House report found.

Facebook used data from Onavo to help justify its acquisition of WhatsApp the following year. It also used the data to monitor the success of other rivals, such as the disappearing-photo app Snapchat, which Facebook offered to buy more than once.

Investigators also looked into allegations that Facebook selectively enforced its policies to deprive potential rivals of access to user data.

Early in the company’s history, Facebook tools let other developers obtain some data from the social network, such as figuring out which of a user’s friends had also signed up for a new game or app. Beginning in 2012, however, Facebook began to cut off that access to rivals that it considered a threat.

In one well-publicized case, Facebook turned off data access to Twitter’s Vine, a new platform where users could make 6-second video clips. (Twitter, which shuttered Vine in 2016, found it “very difficult to compete” without that data, CEO Jack Dorsey told the Senate Judiciary Committee during a hearing Nov. 17.) The company did the same to MessageMe, a rival messaging app.

In other cases, Facebook gave more preferential access to companies it considered friendly, such as Amazon.

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