Antitrust Law Daily FTC, states sue Facebook for monopolizing personal social networking services market
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Wednesday, December 9, 2020

FTC, states sue Facebook for monopolizing personal social networking services market

By Jeffrey May, J.D.

Alleging that Facebook acquired Instagram and WhatsApp to neutralize competitive threats, a divided Commission seeks divestitures, a prior approval obligation for future acquisitions, and other relief. States seek similar relief and also include claims under Sec. 7 of the Clayton Act.

In two separate complaints filed in the federal district court in Washington, D.C. today, the FTC and a group of states are alleging that Facebook has engaged in monopolization. According to the FTC’s complaint, which was approved in a three-to-two vote, Facebook has maintained a monopoly position in the market for personal social networking services by buying up companies that present competitive threats and by imposing restrictive policies that unjustifiably hinder actual or potential rivals that Facebook does not or cannot acquire. Similarly, a coalition of attorneys general of 46 states, the District of Columbia, and Guam alleged that the social network engaged in a "buy or bury" campaign to maintain its monopoly. The state complaint also includes allegations of violations of Sec. 7 of the Clayton Act. Both actions seek the unwinding of acquisitions and other significant relief (FTC v. Facebook, Inc., FTC File No. 191 0134; New York v. Facebook, Inc.).

The FTC alleged that Facebook acquired Instagram and WhatsApp to neutralize competitive threats to its personal social networking monopoly. The FTC closed its nonpublic investigation of Facebook's acquisition of Instagram in August 2012 without taking action. Facebook's acquisition of WhatsApp for $19 billion in 2014 also was not challenged on antitrust grounds. In its current complaint, the FTC says that Facebook cannot substantiate merger-specific efficiencies or other procompetitive benefits sufficient to justify these two acquisitions.

"In addition to its strategy of acquiring competitive threats to its personal social networking monopoly, Facebook has, over many years, announced and enforced anticompetitive conditions on access to its valuable platform interconnections, such as the application programming interfaces (‘APIs’) that it makes available to third-party software applications," the agency also alleges. According to the FTC, third-party apps are deterred from including features and functionalities that might compete with Facebook or from working in certain ways with other firms that compete with Facebook. The purported conduct prevents promising apps from evolving into competitors, it was alleged.

According to an FTC statement released today, the agency is seeking a permanent injunction that could, among other things: require divestitures of assets, including Instagram and WhatsApp; prohibit Facebook from imposing anticompetitive conditions on software developers; and require Facebook to seek prior notice and approval for future mergers and acquisitions.

FTC Bureau of Competition Director Ian Conner issued a statement saying that there would be no further comment on the case. "We look forward to prosecuting and winning this case in court, not in the press, and we therefore will not be commenting further at this time."

The Commission vote to authorize the staff to file for a permanent injunction and other equitable relief was three-to-two. Republican commissioners Noah Joshua Phillips and Christine S. Wilson voted no.

State suit. Today, following confirmation of a multi-state antitrust investigation into Facebook in September 2019, the states announced their separate complaint charging Facebook with violating Section 2 of the Sherman Act, in addition to multiple violations of Section 7 of the Clayton Act. The statement notes that the states and FTC maintained a close working relationship and collaboration during the investigation.

The allegations of the two suits are fairly similar. With respect to relief sought, the states are asking the court "to halt Facebook’s illegal, anticompetitive conduct and block the company from continuing this behavior in the future." In addition to "divestiture or restructuring of illegally acquired companies, or current Facebook assets or business lines," they seek a court order to "restrain Facebook from making further acquisitions valued at or in excess of $10 million without advance notice to the [plaintiff] state[s]."

An executive committee comprised of the attorneys general from the following states and territories leads the state lawsuit: California, Colorado, Florida, Iowa, Nebraska, North Carolina, Ohio, Tennessee, and the District of Columbia. The executive committee is joined by the attorneys general of Alaska, Arizona, Arkansas, Connecticut, Delaware, Hawaii, Idaho, Illinois, Indiana, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nevada, New Hampshire, New Jersey, New Mexico, North Dakota, Oklahoma, Oregon, Pennsylvania, Rhode Island, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, Wyoming, and the territory of Guam.

Facebook response. Calling the suits an attempted do-over in light of past clearances of the acquisitions at issue in the complaints, Facebook said that it was reviewing the complaints and would 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," according to the statement.

Companies: Facebook, Inc.

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