Facebook Hit With Antitrust Lawsuits
WASHINGTON—The Federal Trade Commission and 46 states sued Facebook Inc. on Wednesday, accusing the social-media giant of buying and freezing out small startups to choke competition.
The FTC’s sweeping antitrust case seeks to force Facebook to unwind its acquisitions of WhatsApp and Instagram, two of its landmark deals. The states filed a separate and similar lawsuit, alleging a lack of competition has harmed consumers, including by weakening privacy protections.
The lawsuits come weeks after the Justice Department brought a case alleging Google was illegally maintaining a monopoly in its search business. Collectively, the cases reflect U.S. concern about the power of dominant online platforms.
“Facebook’s actions to entrench and maintain its monopoly deny consumers the benefits of competition,” said Ian Conner, director of the FTC’s Bureau of Competition. “Our aim is to roll back Facebook’s anticompetitive conduct and restore competition so that innovation and free competition can thrive.”
New York Attorney General Letitia James, a Democrat, asserted that Facebook “has used its dominance and monopoly power to crush smaller rivals and snuff out competition, all at the expense of everyday users,” and made “billions by converting personal data into a cash cow.”
Facebook fired back by noting the FTC had previously approved the Instagram and WhatsApp transactions.
“The government now wants a do-over, sending a chilling warning to American business that no sale is ever final,” said Vice President and General Counsel Jennifer Newstead. “People and small businesses don’t choose to use Facebook’s free services and advertising because they have to, they use them because our apps and services deliver the most value. We are going to vigorously defend people’s ability to continue making that choice.”
The FTC voted 3-2 to file the lawsuit, which came after an investigation that stretched more than a year. The agency’s two Democrats joined Republican Chairman Joseph Simons for the suit, a sign it will likely continue once President-elect Joe Biden takes office.
Mr. Biden’s transition team declined comment.
The federal-state coordination signals the intensity of legal pressures Facebook is facing, as well as the leading role state law-enforcement officials are playing in antitrust battles with the nation’s most powerful tech companies. Ms. James made public the states’ lawsuit, which includes the District of Columbia and Guam. Both lawsuits were filed in Washington, D.C.
Some states also have joined the Justice Department in suing Google, and two other coalitions of states are weighing additional cases against the search giant, a unit of Alphabet Inc.
For Facebook, Wednesday’s filings introduce a confrontation with the government that founder and Chief Executive Mark Zuckerberg has described in the past as “existential.” Mr. Zuckerberg, who personally engineered many of the actions being targeted by the lawsuits, has expressed confidence that Facebook would prevail in court.
The cases present Facebook with one of its biggest challenges in its 16-year evolution from college startup to social-media giant. The Facebook app alone has 196 million daily active users in the U.S. and Canada, and more than 2.5 billion people use its products every day world-wide.
In Facebook’s early stages, public attention centered on the platform’s ability to grow and make money while minting cultural touchpoints and viral trends. But in more recent years the focus has turned to Facebook’s power: its extensive collection of data and its ability to shape users’ emotional states, accelerate the spread of hateful conspiracy theories and potentially influence democratic processes including elections. The company’s sway in business has come in for scrutiny, too, over its ability to blackball particular apps, cut preferential deals and use its financial power to acquire promising startups.
Facebook argues that its critics have no valid basis for claiming the companies it bought would have emerged as major competitors had they remained independent. Platforms such as Instagram have become enormously successful precisely because Facebook purchased them and invested heavily in their development, Mr. Zuckerberg has said.
Facebook has been building its legal arguments for months against a likely FTC lawsuit and plans to argue that the commission’s efforts targeting its past acquisitions would defy established law, harm consumers and cost billions of dollars if the government pursues a breakup.
The two lawsuits tell a similar story. The FTC and the states each allege Facebook chose to buy companies rather than compete with them. Facebook recognized in 2011 that Instagram was becoming a viable competitor on mobile photos and that it could threaten the company’s position, the lawsuits allege. Buying Instagram neutralized that threat while discouraging any other photo-sharing apps, the suits claim.
The commission and states likewise argue that the WhatsApp deal removed another worry for Facebook, making it harder for future mobile-messaging apps to acquire scale and threaten to enter the social-networking space.
Much of Facebook’s maneuvering was aided by its acquisition of an Israeli company, Onavo Mobile Ltd., that had developed a tool to monitor usage of scores of applications, allowing Facebook to identify competitive threats, according to the states’ complaint.
The lawsuits also say Facebook hobbled competitors by cutting off access to its platform for third-party app developers that wanted to offer services that encroached on Facebook’s core functions.
The states’ lawsuit alleges privacy harms created by Facebook’s conduct. The company’s monopoly position allowed it to retreat from early promises and collect data more aggressively about its users’ activities, the states allege.
Sizable mergers and acquisitions must be reviewd by the government before they are consummated, and the FTC allowed the tech giant to acquire Instagram and WhatsApp in 2012 and 2014, respectively. Of the dozens of companies Facebook has acquired over the past decade, some required government clearance while other smaller deals didn’t.
The commission’s lawsuit comes two months after a U.S. House antitrust subcommittee published a report on Big Tech dominance that concluded Facebook held a monopoly insulated from competitive threats because any potential rivals faced high barriers trying to challenge the tech giant with competing products. The panel found that Facebook also maintained and expanded its dominance by buying companies that might be threats and by selectively excluding other apps from building services on its platform.
Mr. Zuckerberg said in House testimony in July that Facebook continues to face intense competition. He has singled out the popular video-sharing app TikTok, which has gained hundreds of millions of global users.
Facebook reached a record $5 billion settlement with the FTC last year to resolve a non-antitrust probe involving consumer-privacy violations. Facebook said that it had made big strides on privacy and that the settlement was part of rebuilding public trust.
Some lawmakers, antitrust experts and consumer advocates have criticized the FTC as not doing enough to address the growing dominance of large tech companies. The Facebook lawsuit marks a departure from the commission’s reputation for being risk averse in its enforcement actions. It famously decided in early 2013 not to bring an antitrust case against Google after spending more than a year investigating the company. The search giant escaped with no binding legal requirements.
The FTC shares antitrust enforcement authority with the Justice Department, but the five-member bipartisan commission needs a majority vote to file a lawsuit. FTC Chairman Simons, a Republican appointed by President Trump, cobbled together that majority during the presidential transition, as the Biden administration will have an opportunity to shape the commission after he takes office. Democratic Commissioners Rohit Chopra and Rebecca Slaughter voted with Mr. Simons. Republican commissioners Noah Phillips and Christine Wilson voted no.
The cases are likely to take years to resolve. The commission and the states can’t impose changes on the company’s business; they first must prove in legal proceedings Facebook it violated federal antitrust law and that such changes are needed. The social-media giant already has moved to integrate different services it has acquired.
In addition to unwinding past transactions, the lawsuits seek to prohibit Facebook from engaging in future practices that harm competition, such as imposing restrictive conditions on software developers.
During the 2012 review of the Instagram deal, some at the FTC were worried about the competitive implications of the transaction but weren’t sure they could win a case, The Wall Street Journal has reported.
Facebook is also under increased antitrust scrutiny in Europe. The European Commission—the European Union’s top antitrust enforcement body—has been conducting a preliminary investigation into the company’s control over and use of user data, including for advertising purposes. The probe could turn into a formal investigation or end up being dropped.
“It’s a huge investigation, a lot of data coming in,” European Commission Executive Vice-President Margrethe Vestager said at a press conference last week.
Facebook has said it is committed to cooperating with the probe.
—Jeff Horwitz and Sam Schechner contributed to this article.
Write to Brent Kendall at brent.kendall@wsj.com and John D. McKinnon at john.mckinnon@wsj.com
Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
Appeared in the December 10, 2020, print edition as ‘Facebook Hit With Antitrust Suits.’
Comments are closed.
