The Federal Trade Commission (FTC) and 46 states launched a massive antitrust lawsuit on Facebook Wednesday (Dec. 9), accusing the social media network of “illegally maintaining its personal social networking monopoly through a years-long course of anticompetitive conduct,” according to a press release.
The FTC is seeking an injunction in federal court that could require divestitures of assets, including Instagram and WhatsApp.
The FTC complaint alleges that Facebook has engaged in a systematic strategy — including its 2012 acquisition of Instagram, its 2014 acquisition of WhatsApp, and the imposition of anticompetitive conditions on software developers — to eliminate threats to its monopoly, according to the release.
“Facebook would try to squeeze every bit of oxygen out of the room for smaller companies that refused to be bought,” New York State attorney general Letitia James told a Wednesday afternoon press conference. “Facebook used an ‘open first close later’ strategy to stop competitive threats. It would first open its platform to apps, created by third party developers. This increased functionality on the site and subsequently increase the number of users on Facebook. And then, Facebook, abruptly cut off apps. It viewed as a competitive threat. Some of these companies experienced almost overnight, drop off in user engagement and downvotes, and their growth stalled. They also sent a clear message to the industry. Don’t step on Facebook’s turf, or as one industry executive put it, you will face the wrath of Mark, referring to Facebook founder CEO, Chairman and controlling shareholder Mark Zuckerberg.”
In addition to potentially requiring divestitures of assets, the injunction could prohibit Facebook from imposing anticompetitive conditions on software developers, as well as require Facebook to seek prior notice and approval for future mergers and acquisitions, the release stated.
“Personal social networking is central to the lives of millions of Americans,” said Ian Conner, director of the FTC’s Bureau of Competition, in the release. “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.”
The pursuit and acquisition of Instagram is a central point of the complaint. According to the FTC’s complaint, Facebook targeted potential competitive threats to its dominance. It alleges that Facebook initially tried to compete with Instagram by improving its own offerings, but Facebook ultimately chose to buy Instagram rather than compete with it. Facebook’s acquisition of Instagram for $1 billion in April 2012 “allegedly both neutralizes the direct threat posed by Instagram and makes it more difficult for another personal social networking competitor to gain scale,” the release stated.
Around the same time, according to the complaint, Facebook leadership understood — and feared — that a successful mobile messaging app could enter the personal social networking market. By 2012, WhatsApp had emerged as the clear global “category leader” in mobile messaging. Again, according to the complaint, Facebook chose to buy an emerging threat rather than compete.
“Facebook’s acquisition of WhatsApp allegedly both neutralizes the prospect that WhatsApp itself might threaten Facebook’s personal social networking monopoly and ensures that any future threat will have a more difficult time gaining scale in mobile messaging,” the release stated.
The complaint also alleges that Facebook imposed anticompetitive conditions on third-party software developers’ access to its platform, through controlling application programming interfaces (APIs) that allow the developers’ apps to interface with Facebook, according to the release.
“In particular, Facebook allegedly has made key APIs available to third-party applications only on the condition that they refrain from developing competing functionalities, and from connecting with or promoting other social networking services,” the release stated.
In a newsroom statement, Facebook said both acquisitions had been cleared by regulatory agencies, and that overturning them after the fact would set a dangerous precedent.
“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,” the company said.
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