TR Daily FTC, 46 States, D.C., Guam File Antitrust Lawsuits Against Facebook
Wednesday, December 9, 2020

FTC, 46 States, D.C., Guam File Antitrust Lawsuits Against Facebook

The Federal Trade Commission and a group of states today separately filed lawsuits with the U.S. District Court for the District of Columbia, alleging antitrust violations by Facebook, Inc., and requesting, among other things, the divestiture of Instagram and WhatsApp.

Separately, forty-six states, the District of Columbia, and the territory of Guam filed their own antitrust lawsuit in the same court, asking that it declare Facebook’s 2012 acquisition of Instagram and 2014 acquisition of WhatsApp violated federal antitrust law.

Rather than compete for the developing consumer use of photo-sharing and mobile messaging nearly 10 years ago, Facebook chose to purchase the emerging leaders in those areas, Instagram and WhatsApp, respectively, the FTC said in a press release.

In a tweet, Facebook said, "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."

Both lawsuits allege that Facebook illegally used its market power to maintain monopoly power in the market for personal social networking services. Both state that the relevant geographic market is the United States. This is due, the two complaints state in identical language, "to several factors, including differences in broadband access and social norms that vary at the country level. In addition, network effects between users are generally stronger between users in the same country, because for most users the vast majority of relevant friends, family, and other personal connections reside in the same country as the user. Accordingly, users in the United States predominately share with other users in the United States. For users in the United States, a personal social networking service that is not popular in the United States, even if it is popular in another country, is therefore not reasonably interchangeable with a personal social networking service that is popular in the United States."

"Personal social networking services ‘include features that many users regularly employ to interact with personal connections and share their personal experiences in a shared social space, including in a one-to-many ‘broadcast’ format," the states’ complaint says.

"Personal social networking is distinct from, and not reasonably interchangeable with, specialized social networking services like those that focus on professional (e.g., LinkedIn) or interest-based (e.g., Strava) connections," the FTC said in its complaint. It also distinguishes personal social networking services from "online video or audio consumption-focused services such as YouTube, Spotify, Netflix, and Hulu," primarily used for "the passive consumption and posting of specific media content," as well as from mobile messaging services.

Both complaints cite as anticompetitive conduct Facebook’s use of the terms and conditions it imposes on access to the application programming interfaces (APIs) that enable third-party apps to operate on the Facebook platform.

"For many years—and continuously until a recent suspension under the glare of international antitrust and regulatory scrutiny—Facebook has made key APIs available to third-party apps only on the condition that they refrain from providing the same core functions that Facebook offers, including through Facebook Blue and Facebook Messenger, and from connecting with or promoting other social networks," the FTC said in its complaint. Facebook Blue is Facebook’s internal name for its U.S.-based social networking platform, commonly known to the public as Facebook.

In addition to the requested "divestiture of assets, divestiture or reconstruction of businesses (including, but not limited to, Instagram and/or WhatsApp)," the FTC is also asking the court to "prohibit Facebook from imposing anticompetitive conditions on software developers" and to "require Facebook to seek prior notice and approval for future mergers and acquisitions," the FTC said in its press release.

The FTC complaint also seeks "any other equitable relief necessary to restore competition and remedy the harm to competition caused by Facebook’s anticompetitive conduct described above"; a permanent injunction against Facebook to prevent similar or related conduct in the future; "a prior notice and prior approval obligation for future mergers and acquisitions"; a permanent injunction against the imposition of anticompetitive conditions on access to APIs and data; a requirement to file periodic compliance reports with the FTC; and "any other equitable relief, including, but not limited to, divestiture or restructuring, as the Court finds necessary to redress and prevent recurrence of Facebook’s violations of law, as alleged herein."

FTC Competition Bureau Director Ian Conner said, "Personal social networking is central to the lives of millions of Americans. 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 FTC’s vote to approve filing of the lawsuit was 3-2, with Republican Commissioners Noah Joshua Phillips and Christine S. Wilson voting against it.

In announcing the multistate lawsuit this afternoon, New York Attorney General Letitia James (D.) said that Facebook "was suffocating and stifling third-party developers" of apps, first opening its platform to them to increase Facebook functionality and increase subscriber numbers, and then "abruptly" shutting the platform to "apps it viewed as a competitive threat."

Asked why the states filed a separate lawsuit rather than joining the FTC’s, Ms. James said, "We work collaboratively with the FTC but we are separate enforcers. … We have conducted our own separate investigation."

She also expressed confidence in the state AGs’ chances of success in seeking divestiture of the seven- and eight-year-old acquisitions of Instagram and WhatsApp. "It’s critically important that we have the power and jurisdiction to seek remedies including but not limited to divestiture," she said.

Ms. James declined to discuss any settlement negotiations the states engaged in with Facebook.

The states’ complaint says, "For almost a decade, Facebook has had monopoly power in the personal social networking market in the United States. As set forth in detail below, Facebook illegally maintains that monopoly power by deploying a buy-or-bury strategy that thwarts competition and harms both users and advertisers."

The states allege consumers suffered privacy harms because Facebook’s monopoly position enabled it to set the terms for use of users’ data, and users had no competing services to turn to.

Facebook’s monopoly position also gives it access to data on consumer preferences regarding third-party apps, helping it "select acquisition targets that pose the greatest threats to Facebook’s dominance," the states said in a press release.

Advertisers also suffer from Facebook’s monopoly position, the states said.

In addition to requesting divestiture of Instagram and WhatsApp, the states’ lawsuit asks the court to require Facebook to inform the plaintiff states prior to any acquisition valued at $10 million or more—mirroring the pre-merger notice requirements at the federal level under the Hart-Scott-Rodino Antitrust Improvements Act—and to enjoin the company from future anticompetitive conduct "having a similar purpose or effect" as that outlined in their complaint. The states also ask for "such other and further equitable relief as this Court may deem appropriate to restore competitive conditions and lost competition and to prevent future violations, including divestiture or reconstruction of illegally acquired businesses and/or divestiture of Facebook assets or business lines."

Joining the New York AG as the executive committee for the lawsuit were the AGs of California, Colorado, the District of Columbia, Florida, Iowa, Nebraska, North Carolina, Ohio, and Tennessee. Also joining the lawsuit were the AGs of Alaska, Arizona, Arkansas, Connecticut, Delaware, Guam, 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, and Wyoming.

In a statement, California Attorney General Xavier Becerra (D.) said, "Facebook leveraged its market power to squash competition and monopolize the market, enabling greater collection and control of data and squandering innovation. Rather than outcompete or outperform, Facebook simply bought the competition. Innovation in Silicon Valley and elsewhere depends on a fair and competitive marketplace. California consumers deserve options—not oppressive monopolistic behavior."

Rep. Jerry Nadler (D., N.Y.), chairman of the House Judiciary Committee that has investigated Facebook as part of its bipartisan investigation into the state of competition in digital markets, said, "Rather than competing with Instagram and WhatsApp, it appears Facebook simply bought these firms to expand its dominance. As a result, Facebook has illegally maintained its monopoly, allowing it to engage in other abusive conduct. This should never have happened in the first place, and accountability is long overdue."

Rep. David Cicilline (D., R.I.), who, as chairman of the House antitrust subcommittee oversaw the Judiciary Committee investigation in competition on tech platforms, said, "Facebook is a monopoly. Its abuse of its dominance harms competition, innovation, and other businesses. In the absence of competition and accountability, Facebook has harmed people's privacy and allowed disinformation to flourish on its platform, threatening our democracy."

Rep. Cicilline added, "Facebook has broken the law. It must be broken up. I applaud the FTC and state attorneys general who are leading this effort today. This marks a major step in our ongoing work to bring the tech industry’s monopoly moment to an end."

Sen. Amy Klobuchar (D., Minn.), the ranking minority member on the Senate Judiciary antitrust subcommittee, said, "Numerous reports have brought Facebook’s long history of anti-competitive behavior to light. The company’s acquisitions of Instagram and WhatsApp have made the social media landscape less competitive and worse for users. Big technology companies like Facebook should not have free reign to impose their will on the market, and they must be held accountable when they attempt to do so. I’m glad the FTC and state enforcers are taking action to stop Facebook’s anti-competitive behavior."

Sen. Richard Blumenthal (D., Conn.), a member of the Senate Judiciary Committee and the Senate Commerce, Science and Transportation Committee, as well as a former state attorney general, said, "Facebook’s reign of unaccountable, abusive practices against consumers, competitors and innovation must end today. For too long, Facebook has avoided real competition through anticompetitive acquisitions, unchecked power over consumers, and the failure of federal antitrust enforcers to take action. The Federal Trade Commission and the state Attorneys General’s cases against Facebook should set a new standard for how we fight back against entrenched corporate power. The case against Facebook is clear and compelling—competition has been stifled, innovation has suffered, and consumers have been harmed."

Sen. Mike Lee (R., Utah) said, "I am glad to see that our antitrust enforcers are finally taking the threats posed by Big Tech seriously. If Facebook faced greater competition, it might be more reticent to engage in the draconian censorship it has become fond of. At the same time, the FTC previously cleared both the Instagram and WhatsApp acquisitions, and I hesitate to congratulate it now for trying to clean up its own mess. This is one more reason that antitrust enforcement should be consolidated at the Department of Justice, as I’ve proposed in the One Agency Act. I’ll be following this case closely, and look forward to continuing to exercise oversight in this area."

Computer & Communications Industry Association President Matt Schruers said, "CCIA strongly supports antitrust enforcement when consumers are harmed. However, the remedy needs to be tailored to the evidence, and not based on an artificially narrow definition of the market. Unwinding Facebook’s acquisitions of Instagram in 2012 and WhatsApp in 2014 is a drastic remedy that would not only harm consumers but also will have a chilling effect on innovation and the US innovation ecosystem."

Mr. Schruers added, "CCIA has supported merger reviews generally as a way for regulators to do analysis and make better future decisions. Refining policy through retrospective merger reviews can be useful for clarity and better outcomes. Using them to declare a ‘do-over’ for regulators when the mergers at issue were approved by the relevant authorities is inappropriate. We look forward to learning more about the facts and regulators’ evidence."

Public Knowledge Director–competition policy Charlotte Slaiman said, "These lawsuits mark a huge step towards reining in the power of dominant digital platforms. For too long, our country and our world have been unwilling participants in Facebook’s ‘move fast and break things’ experiment. Without competition, users, news organizations, rival apps, and others have been locked into the Facebook network. Now we see that the FTC and multiple state attorneys general obtained evidence that Facebook used that network power anticompetitively and outright purchased companies that might have overtaken Facebook’s powerful market position."

Ms. Slaiman added, "Today’s antitrust suits demonstrate both the evidence and bipartisan appetite for powerful action to tackle these problems. Resolving the issues caused by years of Facebook’s anticompetitive behavior and abuse of power will take both time and effort from not just antitrust enforcers, but also from Congress—and all of us."

Sarah Miller and David Segal, co-chairs of the coalition Freedom from Facebook and Google, said that Facebook’s acquisitions of Instagram and WhatsApp "have undercut online privacy, entrenched Facebook’s advertising monopoly, empowered Facebook to be an arbiter of what information can be shared and how—and turned it into a global censor. These acquisitions more generally vastly increased Facebook’s power over our economy, democracy, and broader society. The FTC should never have allowed Facebook to grow into a monopoly and we applaud state and federal authorities for seeking to break it up."

Ms. Miller is executive director of the American Economic Liberties Project, and Mr. Segal is the executive director of Demand Progress

Open Markets Institute Director–enforcement strategy Sally Hubbard said, "Facebook’s role as a gatekeeper of speech has had devastating impact on the marketplace of ideas, the public sphere of debate, and our elections. The platform’s monopolistic control of information flow allows Facebook to pick the winners and losers of speech based on what maximizes its profits—and the winner is disinformation. Facebook has maintained its monopoly power not by outperforming competitive threats, but rather by muscling them out of the competition altogether or by buying them. The evidence that Facebook has violated Section 2 of the Sherman Act and Section 7 of the Clayton Act is overwhelming."

TechFreedom Deputy General Counsel Asheesh Agarwal said, "The FTC assumes that these companies [Instagram and WhatsApp] would have grown into giants if left alone, but in reality, it has no idea what would have happened. This is pure hindsight bias. Even worse, by filing this lawsuit, the FTC will discourage companies from investing in start-ups and thereby hinder innovation. Rather than punishing companies for their size and success, antitrust law should focus on actual harm to consumers."

Jessica Melugin, associate director of the Competitive Enterprise Institute’s Center for Technology and Innovation, said, "Today’s actions by the Federal Trade Commission and state attorneys general against Facebook are the perfect example of political theater dressed up as antitrust law. The FTC suit asserts that Facebook acquired Instagram and What’s App to suppress competition. But when viewed through the lens of the U.S. antitrust law standard of consumer harm, the question becomes, so what? Facebook’s superior resources and expertise took Instagram from a modest and glitchy app to one with a billion users as of 2018."

Ms. Melugin continued, "Facebook took a risky bet on Instagram, whose owners were compensated to the tune of $1 billion. More users than ever use Instagram and presumably enjoy an improved experience. It’s worth noting that the FTC approved this purchase in 2012. Whatever Facebook’s motive was in acquiring Instagram, it’s clear that neither consumers nationally nor residents of the states filing suit have been harmed."

She added, "Competition was not hurt by the acquisition either. Three of the top five apps in the App Store in recent weeks didn’t exist when Facebook purchased Instagram. Parler, MeWe and TikTok are all proof that Facebook’s social media business faces fierce competition in an innovative sector. The market is working to let consumers pick the winners and losers; both the FTC and state attorneys general should stay out of the way."

Information Technology and Innovation Foundation President Robert Atkinson said, "Today’s antitrust actions threaten both U.S. competitiveness and U.S. consumers. Silicon Valley enjoys tremendous success globally in part because U.S. tech firms innovate quickly, including through acquisitions that allow them to bring in new talent, intellectual property, and more users. Companies and investors are going to lose faith in regulators if policymakers want to reverse course on prior decisions and call a mulligan this late in the game. Moreover, the proposed remedy—divesture of Instagram and WhatsApp—would cause a massive disruption to these services, negatively impacting consumers and businesses who rely on their services. For example, Facebook has invested heavily in cyber security and content moderation across its platforms."

Mr. Atkinson also argued that "the relevant market is not social media—it’s the advertising market, where there is significant competition for both advertisers and consumers. Even if the FTC only considers the consumer side of the market, a wide array of Internet platforms bid for the time of consumers, including new and fast-growing ones like TikTok." —Lynn Stanton, [email protected]

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