48 U.S. States and FTC are suing Facebook for illegal monopolization

The US Federal Trade Commission and a coalition of 48 state
attorneys general on Wednesday filed a pair of sweeping antitrust
suits against Facebook, alleging that the company abused its power
in the marketplace to neutralize competitors through its
acquisitions of Instagram and WhatsApp and depriving users of
better privacy-friendly alternatives.

“Facebook has engaged in a systematic strategy — including its
2012 acquisition of up-and-coming rival Instagram, its 2014
acquisition of the mobile messaging app WhatsApp, and the
imposition of anti-competitive conditions on software developers —
to eliminate threats to its monopoly,” the FTC said^[1]
in its complaint.

A separate lawsuit^[2]
filed by New York Attorney General Letitia James also claimed that
in illegally acquiring competitors in a predatory manner, the
social media company stripped users of the benefits of competition,
limited consumer choices, and their access to rivals with better
privacy practices.

Specifically, the lawsuits seek to rescind the acquisitions of
Instagram and WhatsApp (which it acquired in 2012 and 2014),
spinning off both platforms into independent companies, prohibit
Facebook from imposing anti-competitive conditions on software
developers, and require the company to seek prior notice and
approval for future mergers and acquisitions.

In response, Facebook called the lawsuits “revisionist history^[3],” while also pointing
out the fact that regulators “correctly” allowed these deals to
move forward because they did not threaten competition.

“These transactions were intended to provide better products for
the people who use them, and they unquestionably did,” Facebook’s
general counsel Jennifer Newstead argued. “The FTC and states stood
by for years while Facebook invested billions of dollars and
millions of hours to make Instagram and WhatsApp into the apps that
users enjoy today.”

Besides calling for a breakup of Facebook, the FTC also accused
the company of imposing anti-competitive conditions on third-party
software developers’ access to Facebook APIs by forcing them to
refrain from developing competing functionalities and adding
features that promote other social networking services.

As an example, the consumer protection agency cited Twitter’s
now-defunct short-form video app Vine, which had its access to
Facebook’s friend-finding API cut off on the same day the service
launched on iOS following CEO Mark Zuckerberg’s stamp of
approval.

Newstead, however, claimed this kind of API restriction is a
standard practice in the industry. “Where platforms give access to
other developers — and many do not provide access at all — they
usually prohibit duplication of core functions,” she said.
“LinkedIn, The New York Times, Pinterest and Uber, to name a few,
all have similar policies.”

The question of retroactively breaking up Facebook is as much to
do with addressing concerns of monopoly as it’s about the “harm”
caused by failing to meet user privacy expectations.

Essentially, antitrust laws prohibit business practices that
unreasonably deprive consumers of the benefits of competition,
resulting in higher prices for inferior products and services. But
how do you demonstrate people are being harmed by a product that’s
offered for “free”?

In a paper titled The Antitrust Case Against
Facebook^[4], legal scholar Dina
Srinivasan argued last year that by forcing users to accept
less-than-adequate privacy settings, Facebook’s monopoly power
harmed consumers by charging them ever-increasing amounts of
personal data in exchange for using its platform.

“The price of using Facebook has stayed the same over the years
(it’s free to join and use), but the cost of using it, calculated
in terms of the amount of data that users now must provide, is an
order of magnitude above what it was when Facebook faced real
competition,” Srinivasan said^[5].

The development also comes as regulators and lawmakers are
increasingly scrutinizing the business practices of tech companies,
and amid Facebook’s own plans to intertwine the backend
infrastructure^[6]
of Facebook Messenger, Instagram, and WhatsApp, possibly in part to
make the three services harder to separate.

“Overall, we disagree with the government’s allegations, and we
plan to fight this in court,” Zuckerberg said in a post to employees^[7]
shared by New York Times’ Mike Isaac on Twitter. “The reality is
that we compete with many other services in everything we do, and
we compete fairly.”

The lawsuits mark the second major regulatory effort from the US
government to check the power of Silicon Valley giants, following
the Department of Justice’s lawsuit against Google^[8]
in October for alleged illegal monopolization of the search and
online ad markets.