In a landmark decision, the U.K.’s antitrust regulator today directed Meta Platforms Inc., formerly Facebook Inc., to unwind its purchase of GIF sharing platform Giphy.

Meta announced plans to purchase Giphy in May 2020 for a sum that was reported at the time to be $400 million. The U.K.’s antitrust regulator, the Competition and Markets Authority, opened an inquiry into the purchase this past June. Today’s decision is based on the findings of the inquiry.

There are several reasons why the CMA believes that Meta and Giphy should return to operating as separate companies.

Before the acquisition, Giphy monetized its platform by providing display advertising services to brands. Meta competes in the same part of the ad market. After the acquisition closed, Meta discontinued Giphy’s display advertising services, thereby “removing an important source of potential competition,” according to the CMA.

The regulator is also concerned about potential anticompetitive steps that Meta could take going forward. According to the CMA, the company could block rival social media platforms from accessing GIFs on Giphy or limit their ability to integrate with the platform. Officials also believe that it would be possible for Meta to impose new terms of service on rival social media firms, for example by requiring them to share more user data if they wish to integrate their services with Giphy.

“The tie-up between Facebook and Giphy has already removed a potential challenger in the display advertising market,” stated Stuart McIntosh, chair of the independent inquiry group that led the investigation of the Giphy acquisition. “Without action, it will also allow Facebook to increase its significant market power in social media even further, through controlling competitors’ access to Giphy GIFs.’

The CMA’s decision today follows a preliminary ruling from the regulator in August that found Meta’s acquisition of Giphy will negatively impact market competition. Following the preliminary ruling, the CMA consulted with a number of outside organizations about the matter. The regulator also reviewed proposed remedies submitted by Meta. After considering the various options, the CMA determined that the only way to address the competition concerns is by directing Meta to sell Giphy. 

Previously, the CMA fined Meta £50.5 million or about $70 million for failing to comply with an order that the regulator issued in connection with the Giphy acquisition. When the CMA launches acquisition-related investigations, it often directs the companies involved to temporarily pause their merger and continue competing with each other. Meta received the $70 million fine because officials determined that the social network limited the scope of the updates it sent to the CMA about its compliance with the order.  

Meta has four weeks to appeal today’s ruling. “Both consumers and Giphy are better off with the support of our infrastructure, talent, and resources,” Meta told The Verge in a statement. “Together, Meta and Giphy would enhance Giphy’s product for the millions of people, businesses, developers and API partners in the UK and around the world who use Giphy every day, providing more choices for everyone.”

Image: Meta