Facebook Sued by States, FTC Over ‘Monopoly’ Power

Facebook now has two major antitrust lawsuits to contend with.

The social media giant is being sued by a coalition of 48 state Attorneys General and separately by the Federal Trade Commission over allegations that its business has long operated in an anticompetitive manner. Namely by acquiring companies and businesses viewed as a threat or otherwise a potential impediment to its own massive growth, almost entirely via advertising revenue.

“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,” Letitia James, New York’s Attorney General, said in a statement.

“Instead of competing on the merits, Facebook used its power to suppress competition so it could take advantage of users and make billions by converting personal data into a cash cow,” she added. “Almost every state in this nation has joined this bipartisan lawsuit because Facebook’s efforts to dominate the market were as illegal as they were harmful. Today’s suit should send a clear message to Facebook and every other company that any efforts to stifle competition, reduce innovation, or cut privacy protections will be met with the full force of our offices.”

James is leading the lawsuit along with AGs from California, Colorado, Florida, Iowa, Nebraska, North Carolina, Ohio, Tennessee, and the District of Columbia. Other AG’s also a part of the lawsuit, but not in a leadership capacity, are from 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.

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In a separate statement, the FTC said its own lawsuit follows a “lengthy investigation,” done in cooperation with the 48 states involved in their own lawsuit, which found Facebook “is illegally maintaining its personal social networking monopoly through a years-long course of anticompetitive conduct.”

A Facebook representative could not be reached for comment, and the company made no immediate public statement on the lawsuits.

The FTC is asking in its lawsuit, filed in Washington D.C., that Facebook’s acquisitions of Instagram, which it acquired in 2012 for $1 billion, and WhatsApp, which it acquired in 2014 for $19 billion, be unwound. Going forward, the FTC wants wants a permanent injunction on its current alleged actions, along with “periodic compliance reports” and prior FTC approval for any future acquisitions. All would be new restrictions for Facebook.

“Our aim is to roll back Facebook’s anticompetitive conduct and restore competition so that innovation and free competition can thrive,” Ian Conner, the FTC’s director of its Bureau of Competition, said.

In its lawsuit, the FTC cites Facebook’s dominance in social media, with more than 3 billion active users among its cadre of apps, mainly Facebook, Instagram and WhatsApp, the latter two it acquired in the last decade after it found their offerings to be a “competitive threat.” It cited a 2008 email written by Facebook founder and chief executive Mark Zuckerberg in which he wrote “it’s better to buy than compete.”

The agency said plainly that Facebook “holds monopoly power for personal social networking services.” It also holds that the company, when it does not wish to buy a competitor, often restricts access to its platforms in order to “further entrench its position.”

“Facebook’s unmatched position has provided it with staggering profits,” the FTC said in its lawsuit. Last year, the company pulled in $70 billion in revenue, nearly all of it from advertising targeted at its billions of users.

In the states’ lawsuit, the Attorney Generals lay out a number of ways Facebook’s alleged actions harm competition and consumers.

Beyond its acquisition power, Facebook would allegedly “squash third-party developers invited to utilize its platform.” According to the lawsuit, if an app began to “encroach” on Facebook’s business but didn’t want to sell “Zuckerberg would go into ‘destroy mode,’ subjecting small businesses to the ‘wrath of Mark.’”

“Additionally, Facebook’s actions deter venture capitalists from investing in companies that Facebook might in the future see as competitors,” James wrote in her statement.
In the consumer realm, the states pointed out the basics of Facebook’s business model, which is offering apps for free and then monetizing almost unfathomable amounts of data on users as a way to sell highly targeted advertising to brands and companies. But with no other real options when it comes to social media, consumers are essentially forced to accept Facebook’s methods of gathering and utilizing user data.

“Because Facebook users have nowhere else to go, the company is now able to make decisions about how to curate content on the platform and use the personal information it collects from users to further its business interests, even if those choices conflict with the interests and preferences of Facebook users,” James wrote.

In order to remedy Facebook’s decade of allegedly anticompetitive conduct, the state AG’s are asking for an immediate injunction to the company’s anticompetitive practices and for it to be blocked from making any future acquisition valued at more than $10 million without advance notice to state authorities.

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