The US has filed lawsuits against Facebook calling for the company to face sanctions for years of anti-competitive conduct to preserve its monopoly position.
The US Federal Trade Commission and a coalition of 48 US attorney’s general accuse Facebook of engaging in a systematic strategy to eliminate competitors.
The FTC said that it would be pressing the courts for Facebook’s acquisition of Instagram and WhatsApp to be unwound and for the Facebook to be barred from engaging in further anti-competitive practices.
“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.”
Letitia James, attorney general for New York, led a bipartisan coalition of 48 attorney’s general in 46 States that filed a second lawsuit arguing for the break-up of Facebook.
The attorneys general claim that Mark Zuckerberg “built a competitive moat” around he company, bought out rivals before they could threaten the company and crushed third party developers that it had invited to build apps on its platform.
The lawsuits refer extensively to internal memos contained in hundreds of pages confidential documents leaked to Computer Weekly in 2019, which were subsequently passed to the House Judiciary Subcommittee on Antitrust, Commercial and Administrative Law investigating anti-competitive behaviour in the tech industry.
Facebook last night criticised the legal actions as “revisionist history” and an attempt to reverse acquisitions that were approved by regulators at the time.
Instagram snapped up for twice its valuation
The FTC complaint alleges that Facebook executives realized that Instagram was an existential threat to Facebooks monopoly power.
Zuckerberg wrote in 2012 that Facebook was already “very behind” Instagram and that he “might want to consider paying a lot of money” for the picture messaging service. Zuckerberg agreed with a senior Facebook executive that his motive in buying the company was to “neutralize a potential competitor.”
Facebook acquired the company for $1 billion in April 2012, twice Instagram’s $500 million valuation.
An investor advised Kevin Systrom CEO of Instagram that Zuckerberg would go into “destroy mode” if he said no to the sale, according to the complaint.
The acquisition allegedly neutralized the threat from Instagram and made it more difficult for other rival social networks to gain traction.
Facebook ‘feared’ competition from WhatsApp
At the same time, Facebook concluded that mobile messaging apps posed a serious threat to its monopoly power.
Facebook’s leadership “understood and feared”, according to the complaint, that a successful messaging app could compete against Facebook.
In early 2013 Zuckerberg wrote to the board that the “biggest competitive vector for us is for some company to build out a messaging app for communicating with small groups of people, and then transforming that into a broader social network.” This was a “big risk for us”.
The company used a technology it acquired when it bought the Israeli company Onavo to “identify threats and opportunities” among emerging mobile apps on the Facebook Platform.
It identified WhatsApp as a potential threat to Facebook’s monopoly power, according to the complaint.
One executive wrote, “WhatsApp launching a competing platform is definitely something I’m super-paranoid about.”
Facebook bought WhatsApp, in February 2014 for $19 billion, a huge mark up on the $100 million a competitor had offered WhatsApp two years earlier, according to the complaint.
Once Facebook had acquired WhatsApp, it changed its terms of service, by linking the phone numbers of WhatsApp to other Facebook services, damaging users privacy.
Facebook employees were warned not to discuss WhatsApp’s data sharing policy.
One executive was told before attending a dinner, “Try not to get too much into the weeds on the types of data we’re sharing and for what use cases. It will get you trouble. Instead be prepared with a couple ‘safe’ examples, like spam/abuse.”
Software developers bought or cut-off
Facebook is also accused of imposing anti-competitive conditions on third-party software developers that it encouraged to build applications on the Facebook platform.
Facebook made its APIs available to third party applications only on the condition that they did not develop functions that competed with Facebook. They were also barred from linking to or connecting with other social networking services.
Facebook cut off API access to third party apps it considered competitive including mobile messaging apps.
They include Twitter’s Vine App, launched in 2013, to allow users to film and share sort videos. Facebook responded, according to the complaint by shutting down the API that would have allowed Vine to access friends via Facebook.
In other cases, Facebook bought apps only to immediately shut them down. This happened in the case of Glancee, a “social discovery” app that used geolocation services to help users meet new people, that had 50,00 users.
Facebook bought another app EyeGroove, that allowed users to create and share music videos with augmented reality effects, in 2016 after learning that Twitter and Snapchat were interested in buying it, and then shut the app down.
New York Attorney General Letitia James said in a statement that Facebook had used its monopoly power to crush smaller rivals and snuff out competition for more than a decade.
“Today, we are taking action to stand up for the millions of consumers and many small businesses that have been harmed by Facebook’s illegal behaviour,” she said.
“Instead of competing on the merits, Facebook used its power to suppress competition so it could take advantage of users and make billions by converting personal data into a cash cow.”
Facebook – law suits are revisionist history
Jennifer Newstead, vice president and general counsel, said in a statement that the law suits from the FTC and the state attorney’s general were “revisionist history.”
She said that Facebook’s acquisition of Instagram in 2012 and of WhatsApp in 2014 were reviewed by regulators at the time.
The FTC voted to clear Facebook’s acquisition of Instagram in 2012, and the European Commission reviewed the WhatsApp transaction in 2014 and found no risk of harm to competition in any potential market.
“This lawsuit risks sowing doubt and uncertainty about the US government’s own merger review process and whether acquiring businesses can actually rely on the outcomes of the legal process,” she said