FTC and states sue Facebook, could force Facebook to divest Instagram and WhatsApp

Tech

The Federal Trade Commission and a coalition of attorneys general from 48 states and territories filed two separate antitrust lawsuits against Facebook on Wednesday. The lawsuits target two of Facebook’s major acquisitions: Instagram and WhatsApp.

Both are seeking remedies for the alleged anticompetitive conduct that could result in requiring Facebook to divest the two apps.

The company’s stock was down almost 4% following the news of the lawsuits.

Facebook said in a tweet shortly after the lawsuits were released, that it was reviewing the complaints and “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.”

FTC lawsuit

The FTC alleges that Facebook engaged in a systematic strategy to eliminate threats to its monopoly, including the 2012 and 2014 acquisitions of Instagram and WhatsApp. It alleges Facebook holds monopoly power in the U.S. personal social networking market.

The FTC alleges that Facebook engaged in a systematic strategy to eliminate threats to its monopoly, including the 2012 and 2014 acquisitions of Instagram and WhatsApp, which the FTC previously cleared. Facebook acquired Instagram for $1 billion and WhatsApp for $19 billion.

As part of the lawsuit, the FTC will seek a permanent injunction that could result in the divestitures of Instagram and WhatsApp, the agency said. Additionally, the FTC will seek to prohibit Facebook from imposing anticompetitive conditions against third-party software developers.

“Since toppling early rival Myspace and achieving monopoly power, Facebook has turned to playing defense through anticompetitive means,” the FTC states in its lawsuit. “After identifying two significant competitive threats to its dominant position — Instagram and WhatsApp — Facebook moved to squelch those threats by buying the companies, reflecting CEO Mark Zuckerberg’s view, expressed in a 2008 email, that ‘it is better to buy than compete.'”

The FTC lawsuits also notes that Facebook tried and failed to buy up rivals Twitter and Snapchat.

“In lamenting that Twitter had ‘turned down [Facebook’s] offer’ to be acquired in November 2008, Mr. Zuckerberg wrote: ‘I was looking forward to the extra time that would have given us to get our product in order without having to worry about a competitor growing,'” the FTC lawsuit states.

A partially redacted portion of the FTC lawsuit states that Facebook’s main blue app has lost users and engagement to Instagram.

“Through its control of Instagram, Facebook has attempted to prevent Instagram from ‘cannibalizing’ Facebook Blue, confirming that an independent Instagram would constitute a significant threat to Facebook’s personal social networking monopoly,” the lawsuit reads.

The commissioners voted to file the complaint in the U.S. District Court for the District of Columbia in a 3-2 vote. Republican Commissioners Noah Phillips and Christine Wilson dissented while Republican Chairman Joe Simons joined his two Democratic colleagues Rohit Chopra and Rebecca Kelly Slaughter in the majority.

States complaint

While the states and FTC cooperated during the course of their investigation, the coalition of states led by New York Attorney General Letitia James chose to file a separate lawsuit.

James said at a press conference Wednesday that while the states are “aligned substantively with the FTC” there may be stylistic differences in the lawsuits. She made clear that the states are “independent enforcers of the law.”

The coalition of states suing Facebook is much broader than that which initially joined the Department of Justice in its suit against Google. Eleven Republican state attorneys general joined the DOJ in its suit. Other states are continuing to investigate Google and could file their own charges and potentially join them with the DOJ’s complaint.

The states suing Facebook include a wide swath of backgrounds, both Democratic and Republican, and include Facebook’s home state of California.

The states’ complaint also alleges Facebooks holds monopoly power in the U.S. personal social networking market, which it illegally maintains by “deploying a buy-or-bury strategy that thwarts competition and harms both users and advertisers.”

James said the state lawsuit sent a message that “any efforts to stifle competition, hurt small business, reduce innovation and creativity, cut privacy protections, will be met with the full force of our offices.”

Facebook first disclosed it was being investigated on antitrust grounds by the Federal Trade Commission in July 2019. A coalition led by New York’s Letitia James announced a probe into the business shortly after.

Facebook has faced accelerating scrutiny around both its handling of user data and competition practices since 2017 when news investigations revealed its service had been used by political data firm Cambridge Analytica to gain information about users without their consent ahead of the 2016 U.S. presidential election. The FTC settled with Facebook for $5 billion last year after probing its data practices, which tech hawks in Congress criticized as a slap on the wrist for Facebook — it represented only about 9% of Facebook’s 2018 revenue.

On the competition side, lawmakers have criticized the FTC for failing to adequately scrutinize Facebook’s past acquisitions of Instagram and WhatsApp. The House Judiciary subcommittee on antitrust released internal Facebook documents from its own investigation into the company that showed Facebook executives worried about Instagram’s rise. In one correspondence between Instagram’s chief and an investor, he worried Facebook CEO Mark Zuckerberg would “go into destroy mode” if he refused to sell.

This story is developing. Check back for updates.

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