US trade commission and over 40 states accuse Facebook of illegally crushing competition

Washington: The Federal Trade Commission and more than 40 states accused Facebook on Wednesday of buying up its rivals to illegally squash competition, and they called for the deals to be unwound, escalating regulators’ battle against the biggest tech companies in a way that could remake the social media industry.

Federal and state regulators of both parties, who have investigated the company for more than 18 months, said in separate lawsuits that Facebook’s purchases, especially Instagram for $1 billion in 2012 and WhatsApp for $19 billion two years later, eliminated competition that could have one day challenged the company’s dominance.

Since those deals, Instagram and WhatsApp have skyrocketed in popularity, giving Facebook control over three of the world’s most popular social media and messaging apps. The applications have helped catapult Facebook from a company started in a college dorm room 16 years ago to an internet powerhouse valued at more than $800 billion.

The lawsuits, filed in the US District Court for the District of Columbia, underscore the growing bipartisan and international tsunami against Big Tech. Lawmakers and regulators have zeroed in on the grip that Facebook, Google, Amazon and Apple maintain on commerce, electronics, social networking, search and online advertising, remaking the nation’s economy. President Donald Trump has argued repeatedly that the tech giants have too much power and influence, and allies of President-elect Joe Biden make similar complaints. The federal case against Facebook is widely expected to continue under Biden’s administration.

The investigations already led to a lawsuit against Google, brought by the Department of Justice two months ago, that accuses the search giant of illegally protecting a monopoly. Prosecutors in that case, though, stopped short of demanding that Google break off any parts of its business. At least one more suit against Google, by both Republican and Democratic officials, is expected by the end of the year. In Europe, regulators are proposing tougher laws against the industry and have issued billions of dollars in penalties for the violation of competition laws.

Facebook, the prosecutors said Wednesday, should break off Instagram and WhatsApp, and they said new restrictions should apply to the company on future deals. Those are some of the most severe penalties regulators can demand. Facebook said it planned to vigorously defend itself against the accusations.

“For nearly a decade, Facebook has used its dominance and monopoly power to crush smaller rivals and snuff out competition, all at the expense of everyday users,” said Attorney-General Letitia James of New York, a Democrat who led the multistate investigation into the company in parallel with the federal agency, which is overseen by a Republican.

The lawsuits against Facebook will set off a long legal battle. The company has long denied any illegal anti-competitive behaviour and has a deep well of money to put toward its defence. Few major antitrust cases have centred on mergers approved years earlier. The FTC did not block Facebook’s deals for Instagram and WhatsApp during the Barack Obama administration.

If the prosecutors succeed, the cases could remake the company, which has experienced only unfettered growth. Mark Zuckerberg, Facebook’s chief executive, has described a breakup of the company as an “existential” threat. The company’s stock fell two percent, to $277.70 a share, after the lawsuits were announced.

The case is also being widely watched as a gauge for future mergers within the technology industry, which have continued to boom during the pandemic. Last month, Facebook said it was buying Kustomer, a customer relationship management startup, for close to $1 billion.

Facebook said the regulators had ignored important history.

“The most important fact in this case, which the commission does not mention in its 53-page complaint, is that it cleared these acquisitions years ago,” Jennifer Newstead, Facebook’s general counsel, said in a statement. “The government now wants a do-over, sending a chilling warning to American business that no sale is ever final.”

The company has also argued in the past that the market for social media remained competitive. Executives have pointed to the skyrocketing growth of TikTok, the Chinese short-video sharing app, and new growth in Parler, a social media firm popular among conservatives, as evidence that Facebook doesn’t have a lock on social networking.

The suit against Facebook shows how important the company has become for how Americans connect to one another. Its namesake product swelled to hundreds of millions of users in just a few short years. But by 2011, the landscape began to change as mobile phones came equipped with capable cameras and posting photos to social networks grew increasingly popular.

That led to the rise of a competitive threat to Facebook: Instagram. The photo-sharing site, founded in 2010, saw early explosive growth as a company that was native to the smartphone, perfectly timed for mass adoption as waves of consumers gravitated away from desktop devices and toward the mobile computers in their pockets.

The FTC said it found that Zuckerberg “recognised Instagram as a vibrant and innovative personal social network and an existential threat to Facebook’s monopoly power.”

But instead of continuing to compete with its own photo-sharing project, Facebook chose to buy its rival. The company repeated the practice with WhatsApp, which was a viable competitor to its own messaging system.

The agency also claims that Facebook maintained its dominance by threatening to cut off third-party software developers from plugging into the social network if they made competing products.

“Our aim,” said Ian Conner, who oversees antitrust enforcement at the agency, “is to roll back Facebook’s anti-competitive conduct and restore competition so that innovation and free competition can thrive.”

The lawsuits set off a chorus of bipartisan support on Capitol Hill.

“Facebook has crushed competition by breaking the law,” Representative Ken Buck, R-Colorado, and member of the House judiciary committee, wrote on Twitter. “Big Tech’s reckoning has just begun.”

Representative David Cicilline, D-Rhode Island, who led an investigation into the big tech companies, said, “Facebook has broken the law. It must be broken up.”

He added: “This marks a major step in our ongoing work to bring the tech industry’s monopoly moment to an end.”

Federal regulators began looking into Amazon, Apple, Facebook and Google in June 2019, in a sweeping effort to find anti-competitive practices among the tech platforms. States started to investigate not long after.

Cases around Google and Facebook, two companies with clear dominance in their markets of search, social media and online advertising, took shape faster than those against the other companies. Google had been the subject of a search antitrust investigation that closed at the FTC in 2013 without a lawsuit but created a trove of information. Facebook’s case quickly coalesced around its prior mergers, which regulators were able to investigate because of its past investigations into those acquisitions, some people close to the investigations said.

The FTC was split on its decision to pursue the lawsuit, with its chairman, Joseph Simons, a Republican appointed by Trump, and the two Democratic commissioners joined in their vote. The two remaining Republican commissioners voted against the lawsuit.

The state suit was signed by attorneys general from 46 states and the District of Columbia and Guam. Georgia, South Dakota, Alabama and South Carolina did not join the case.

There is a history of states going after large tech companies. In the landmark antitrust suit against Microsoft two decades ago, state attorneys-general played a crucial role in pushing the case through years of litigation.

Several Facebook rivals, including Snap, came forward to present evidence of what they said was anti-competitive behaviour. Zuckerberg was interviewed for the federal investigation, and prosecutors collected many of his communications to Facebook employees, investors and the leaders of the rivals he bought and tried to buy.

In a hearing before the House judiciary committee last July, Zuckerberg was confronted with emails from around the time of the acquisition of Instagram and WhatsApp that showed the Facebook’s founder saw the companies as competition and potentially a threat. Zuckerberg said the acquisitions have not reduced competition and that the emails were taken out of context.

The agency and states said the purchases ended up giving Facebook data on users that fed into its business of behavioural advertising, buttressing its monopoly.

“Facebook has coupled its acquisition strategy with exclusionary tactics that snuffed out competitive threats,” the states said in their suit, “and sent the message to technology firms that, in the words of one participant, if you stepped into Facebook’s turf or resisted pressure to sell, Zuckerberg would go into ‘destroy mode,’ subjecting your business to the ‘wrath of Mark’.”

Cecilia Kang and Mike Isaac c.2020 The New York Times Company

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