The US Federal Trade Commission has filed a lawsuit against Facebook alleging that the social media giant has "engaged in a systematic strategy" to preserve its monopoly by eliminating competitors. The FTC cited Facebook's 2012 acquisition of Instagram, the 2014 acquisition of WhatsApp, and "the imposition of anticompetitive conditions on software developers" as evidence of its claim, which comes in the wake of an investigation that was conducted in cooperation with the attorneys general of 46 states, plus the District of Columbia and Guam.
The lawsuit alleges that when Instagram first came on the scene "at a critical time in personal social networking competition," Facebook initially tried to compete with it on merit. In the end, however, it decided it would be easier to just buy it outright, which it did in April 2012 for $1 billion, a move the FTC said both neutralized the immediate threat and made it more difficult for other competitors to gain ground.
2012 also saw the emergence of WhatsApp as the "clear global 'category leader' in mobile message," and so Facebook did it again, acquiring the company for an astounding $19 billion in February 2014. It's also taken more behind-the-scenes steps to preserve its position, according to the FTC, such as in 2013 when it disabled the API that enabled Twitter's Vine video app to access friends on Facebook.
The FTC is swinging for the fences on this one: The lawsuit seeks "divestiture of assets, divestiture or reconstruction of businesses (including, but not limited to, Instagram and/or WhatsApp), and such other relief sufficient to restore the competition that would exist absent the conduct alleged in the Complaint." In non-legal terms, that means the FTC wants the courts to break up Facebook.
"Personal social networking is central to the lives of millions of Americans," FTC Bureau of Competition director Ian Conner said. "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."
Watch this message from FTC’s Bureau of Competition Director Ian Conner re: FTC’s lawsuit against Facebook for illegal monopolization: 12/12 pic.twitter.com/Cj57ACvIGJDecember 9, 2020
A full-on bust-up of Facebook isn't likely to happen anytime soon, if at all, but there could be long-term repercussions. In a similar case, an investigation of Microsoft in the early 1990s led to an antitrust lawsuit filed in 1998 by the US Department of Justice and 20 state AGs, alleging that company also engaged in actions intended to eliminate potential competition.
The DOJ won the case and Microsoft was ordered to split into two separate entities, one for Windows and the other for everything else. That judgment was overturned on appeal, however; Microsoft agreed to a settlement with the US government in 2001 that opened the door to increased competition, although it still remains one of the biggest players in the tech industry.
Facebook vice president and general counsel Jennifer Newstead described the lawsuit as "revisionist history" in a lengthy response, saying that the Instagram acquisition was approved by the FTC when it happened in 2012, while the European Commission threw the thumbs-up to the WhatsApp takeover two years later.
"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. In addition to being revisionist history, this is simply not how the antitrust laws are supposed to work," Newstead wrote.
"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. And, notably, two FTC commissioners voted against the action that the FTC has taken today."
We're reviewing the complaints & will have more to say soon. 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.December 9, 2020
She also suggested that there's some element of political motivation to the lawsuit, saying that Facebook is "aware of the atmosphere in which the FTC is bringing this case," which includes hard questions about its actions relating to "elections, harmful content, and privacy." But these aren't antitrust issues, she added: "Those hard challenges are best solved by updating the rules of the internet."
"Facebook as we know it today would not have been possible without US laws that encourage competition and innovation. We’ve been successful because we’ve made risky bets, invested, innovated and delivered value to people, advertisers and shareholders," Newstead wrote.
"We have operated and continue to operate in a highly competitive space. Our acquisitions have been good for competition, good for advertisers and good for people. We look forward to our day in court, when we’re confident the evidence will show that Facebook, Instagram and WhatsApp belong together, competing on the merits with great products."