UPDATED 20:22 EDT / DECEMBER 09 2020


Federal Trade Commission and states file antitrust lawsuit against Facebook

The U.S. Federal Trade Commission, with the support of 46 states, the District of Columbia and Guam, have finally filed an antitrust lawsuit against Facebook Inc. alleging that the social media giant undertook a multiyear course of unlawful conduct.

The lawsuit, more than a year in the making, specifically targets Facebook over its 2012 acquisition of Instagram and its 2014 acquisition of WhatsApp.

The unexpected part of the antitrust lawsuit is an allegation that Facebook imposes anticompetitive conditions 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 FTC said in a statement.

According to the complaint, Facebook targeted potential competitive threats to its dominance starting with Instagram. The complaint details how Facebook executives, including Chief Executive Officer Mark Zuckerberg, identified Instagram as an “existential threat to Facebook’s monopoly power.”

Although the social network giant initially tried to compete with Instagram, Facebook ultimately chose to buy it instead, both to neutralize “the direct threat posed by Instagram” and to make it “more difficult for another personal social networking competitor to gain scale.”

At around the same time, the complaint alleges, Facebook also identified over-the-top mobile messages apps as a serious threat to the company’s monopoly power. Executives were said to understand and fear that a successful mobile messaging app could harm the personal social networking market. Facebook went on to purchase WhatsApp for $19 billion.

Both those acquisitions are known facts, but the complaint alleges in stamping out competition, Facebook undertook illegal anticompetitive conduct in violation of the Clayton Antitrust Act of 1914.

The third leg of the complaint argues that Facebook has imposed anticompetitive conditions on outside software developers to access interconnections on its platform such as with application programming interfaces. Specifically, it alleges that Facebook made key APIs available to those applications only on the condition that they refrain from developing competing features and from connecting with or promoting other social network services.

Further, the complaint alleges, Facebook enforced these policies by cutting off API access to any perceived competitive threats, specifically citing Facebook cutting of API access to the now-defunct Twitter Inc.-owned Vine short video service in 2013. In doing so, Facebook denied API access that would have allowed Vine users to access friends on Facebook.

On all three allegations, the FTC is seeking a permanent injunction in federal court that would require Facebook to divest assets, including Instagram and WhatsApp. The FTC is also seeking an order to prohibit Facebook from imposing anticompetitive conditions on software developers and to require Facebook to seek prior approval for future mergers and acquisitions.

“Personal social networking is central to the lives of millions of Americans,” said Ian Conner, director of the FTC’s Bureau of Competition. “Facebook’s actions to entrench and maintain its monopoly deny consumers the benefits of competition. Our aim is to roll back Facebook’s anticompetitive conduct and restore competition so that innovation and free competition can thrive.”

Facebook responds

Facebook’s expected response to the FTC antitrust lawsuit was first revealed in a paper prepared by the company’s lawyers in October. The response today expanded further on some of those arguments, addressing specific parts of the complaint.

Along with broad sweeping statements, such as citing Apple Inc., Google LLC., Twitter Inc., Snap Inc., Amazon.com Inc., TikTok and Microsoft as competitors to Facebook, the company said that the acquisition of both Instagram and WhatsApp was “intended to provide better products for the people who use them, and they unquestionably did.”

Facebook argues that the acquisition of both companies was reviewed at the time, the Instagram deal by the FTC and the WhatsApp deal by the European Commission with both finding no risk of harm to competition in any potential market.

“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,” Jennifer Newstead, vice president and general counsel for Facebook said. Newstead argues that both the FTC and the states have stood by for years while Facebook invested billions into both apps but has now 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 U.S. government’s own merger review process and whether acquiring businesses can actually rely on the outcomes of the legal process.”

On the unexpected complaint that Facebook imposes anticompetitive conditions on third-party software developers, Facebook is claiming that it is “a platform for innovation” but certain apps used the platform not to enhance the experience of Facebook users but in an unfair fashion duplicated services Facebook already provided.

Facebook argues that this restriction is standard in the industry in that where platforms give access to other developers they usually prohibit duplication of core functions. The company goes on to argue that these restrictions have no impact on competition, citing YouTube, Twitter and WeChat as examples of services that have done fine without access to Facebook’s platform.

The argument against the third leg of the complaint appears to be weak. Although the arguments against the complaint about the acquisitions of Instagram and WhatsApp seem to be well-prepared in advance, the response to the anticompetitive conditions on third-party developers comes to only two paragraphs.

What’s next

The lawsuit has been a long time coming, and although Facebook’s legal team needs to work on its response to the third leg of the complaint, it will be well-prepared to fight the charges in relation to Instagram and WhatsApp.

The case is likely to be stuck in courts for years to come. There’s very little recent precedent of a case like this. The closest equivalent would be the breakup of the Bell System in 1982. In a somewhat more recent tech case, United States v. Microsoft Corporation considered Microsoft abusing its power to maintain its monopoly position illegally in the personal computer market through legal and technical restrictions, including forcing users to use its Internet Explorer browser.

The suit in the Microsoft case began in May 1998 and a judgment was handed down in November 1999. By June 2000, the court ruled a breakup of Microsoft as a remedy. Microsoft appealed, then eventually reached a settlement with the U.S. Department of Justice in September 2001 that did not include a breakup.

That kind of timing could provide a reasonable reference as to how long the lawsuit against Facebook is likely to drag on. It’s likely the court will begin hearing the case in 2021, but an initial decision will not come until 2022 or as late as 2023, and penalties and appeals are likely to drag out even further.

Photo: Eston Bond/Flickr

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