The federal government and 46 state attorneys general are suing Facebook, accusing the social media giant of using illegal tactics to maintain its dominance. The states’ lawsuit, led by New York Attorney General Letitia James, alleges that Facebook squashed potential rivals by buying up smaller competitors and closing off its platform to developers of apps it perceived as a threat. In the process, it weakened privacy protections for its users, she said.

“For nearly a decade, Facebook used its dominance and monopoly power to crush smaller rivals, at the expense of users,” James said in a press conference on Wednesday. “No company should have this much-unchecked power over our personal information and our social interactions.”

The suit is filed on behalf of 46 U.S. states, the District of Columbia and Guam. Alabama, Georgia, South Carolina and South Dakota did not join. The Federal Trade Commission filed a parallel lawsuit Wednesday. Both suits are asking the courts to force Facebook to spin off Instagram and WhatsApp, as well as to seek government approval for future mergers.

Focus on Instagram and WhatsApp deals

Both lawsuits cite Facebook’s 2012 purchase of Instagram for $1 billion and a $19 billion deal for WhatsApp in 2014 as examples of its efforts to eliminate competitors. Those acquisitions of fast-growing but unprofitable startups let Facebook solidify its social media dominance while depriving users of privacy-focused alternatives, prosecutors allege.

The states’ lawsuit quotes from internal Facebook discussions that reveal an obsession with losing users to competing apps. CEO Mark Zuckerberg told investors that mobile apps like Instagram offer features that Facebook doesn’t have, which create “ways for those apps to replace us,” according to the suit. The day that Facebook acquired Instagram, the lawsuit alleges that Zuckerberg sent the following email to a Facebook designer: “I remember your internal post about how Instagram was our threat and not Google+. You were basically right. One thing about startups though is you can often acquire them.”

The company took a similar approach to WhatsApp, the suit alleges. In April 2012, shortly after Facebook purchased Instagram, Zuckerberg wrote: “I actually think that messaging is the single most important app on anyone’s phone. It may not be the biggest business, but it is almost certainly by far the most used app, and therefore it’s a critical strategic point for us,” the lawsuit says.”Since we bought Instagram (and extended the close date!), I now feel like we’re ahead in photos but falling increasingly behind in messages,” Zuckerberg continued, according to the suit.

For Facebook, the coordinated federal and state lawsuits represent the most aggressive legal action against the company to date by government authorities, culminating a bipartisan campaign to rein in big technology companies. It’s the second time in two months that the government has moved against a tech giant. In October, the Department of Justice filed an antitrust suit against Google, accusing the search giant of exercising monopoly power. Republicans in Congress and President Donald Trump have also sought to roll back a 25-year-old law that protects internet companies from liability for users’ posts.

 A steep hill to climb

While public opinion has turned against tech giants, the government’s attempt to break up the industry’s largest player won’t be easy, say industry watchers. “While there is certainly merit to the FTC’s allegations that Facebook has strengthened its competitive position through these acquisitions, we are skeptical that the FTC will prevail,” Wedbush analyst Michael Pachter said in a note to investors Wednesday.

“Twitter (founded in 2006), Snap (founded in 2011) and TikTok (founded in 2016) have all thrived in spite of Facebook’s alleged anti-competitive behavior,” he added. “We are skeptical that a federal court will compel a divestiture, and equally skeptical that a divided Congress will pass a law that forces such a result.” Consumer advocates cheered the suit, and expressed hopes that it would lead to better privacy and choice for users of tech.

“It’s time that the courts put an end to Big Tech’s specious claim that its products are ‘free,’ so ‘consumer welfare’ is not infringed upon and the antitrust laws don’t apply,” Ed Mierzwinski, U.S. PIRG’s senior director for federal consumer programs, said in a statement. “Actually, consumers pay with our data, through a Big Tech business model of constant corporate surveillance and manipulation.”

Facebook sued for ‘predatory’ conduct by the U.S. government, States

 

The U.S. government and 48 States and districts sued Facebook on Wednesday, accusing it of abusing its market power in social networking to crush smaller competitors and seeking remedies that could include a forced spinoff of the social network’s Instagram and WhatsApp messaging services.

The landmark antitrust lawsuits, announced by the Federal Trade Commission and New York Attorney General Letitia James, mark the second major government offensive this year against seemingly untouchable tech behemoths. The Justice Department sued Google in October for abusing its dominance in online search and advertising – the government’s most significant attempt to buttress competition since its historic case against Microsoft two decades ago. Amazon and Apple also have been under investigation in Congress and by federal authorities for alleged anticompetitive conduct.

James noted at a press conference that “it’s really critically important that we block this predatory acquisition of companies and that we restore confidence to the market.”

The FTC said Facebook has engaged in a “a systematic strategy” to eliminate its competition, including by purchasing smaller up-and-coming rivals like Instagram in 2012 and WhatsApp in 2014. James echoed that in her press conference, saying Facebook “used its monopoly power to crush smaller rivals and snuff out competition, all at the expense of everyday users.”

The FTC fined Facebook $5 billion in 2019 for privacy violations and instituted new oversight and restrictions on its business. The fine was the largest the agency has ever levied on a tech company, although it had no visible impact on Facebook’s business.

Facebook called the government actions “revisionist history” that punishes successful businesses and noted that the FTC cleared the Instagram and WhatsApp acquisitions years ago. “The government now wants a do-over, sending a chilling warning to American business that no sale is ever final,” Facebook general counsel Jennifer Newstead said in a statement that echoed the company’s response to a recent congressional antitrust probe.

Facebook is the world’s biggest social network with 2.7 billion users and a company with a market value of nearly $800 billion whose CEO Mark Zuckerberg is the world’s fifth-richest individual and the most public face of Big Tech swagger.

James alleged Facebook had a practice of opening its site to third-party app developers, then abruptly cutting off developers that it saw as a threat. The lawsuit – which includes 46 states, Guam and the District of Columbia – accuses Facebook of anti-competitive conduct and using its market dominance to harvest consumer data and reap a fortune in advertising revenues.

North Carolina Attorney General Josh Stein, who was on the executive committee of attorneys general conducting the investigation, said the litigation has the potential to alter the communications landscape the way the breakup of AT&T’s local phone service monopoly in the early 1980s did.

“Our hope is to restructure the social networking marketplace in the United States, and right now there’s one player,” Stein told reporters. James said the coalition worked collaboratively with the FTC but noted the attorneys general conducted their investigation separately.

Antitrust expert Rebecca Allensworth, a law professor at Vanderbilt University, said it is “hard to win any antitrust lawsuit and this one is not any different.” But as far as antitrust cases go, she added, the government has a strong one.

The Justice Department’s suit against Google, announced just two weeks before Election Day, brought accusations of political motivation from some quarters. It was filed by a cabinet agency headed by an attorney general seen as a close ally of President Donald Trump, who has often publicly criticized Google.

The FTC, by contrast, is an independent regulatory agency whose five commissioners currently include three Republicans and two Democrats.

President-elect Joe Biden has said the breakup of Big Tech giants should be seriously considered. He has singled out Facebook’s Zuckerberg for scorn, calling him “a real problem.”

Instagram and WhatsApp are among some 70 companies that Facebook has acquired over the past 15 years. But they are the ones most frequently held up by Facebook critics as properties that should be split off.

Facebook paid $1 billion for Instagram, bolstering the social network’s business a month before its stock went public. At the time, the photo-sharing app had about 30 million users and wasn’t producing any revenue. A few years later, Facebook acquired WhatsApp, an encrypted messaging service, for $19 billion.

Zuckerberg vowed both companies would be run independently, but over the years the services have become increasingly integrated. Users are now able to link accounts and share content across the platforms. Instagram now has more than 1 billion users worldwide. Such integration could make it more difficult to break off the companies.

NetChoice, a Washington trade association that includes Facebook as a member, quickly panned the lawsuits. The case for antitrust enforcement against Facebook “has never been weaker,” NetChoice vice president Carl Szabo said in a statement, pointing to newer social services such as TikTok and Snapchat as rivals that could “overtake” older platforms.

“These lawsuits mark an important turning point in the battle to rein in Big Tech monopolies and to reinvigorate antitrust enforcement,” said Alex Harman, competition policy advocate for Public Citizen, a nonprofit consumer advocacy group.

 

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