Facebook should be broken up, FTC and states allege in pair of lawsuits
Facebook’s purchases of photo service Instagram and messaging app WhatsApp have helped fuel the social media giant’s massive growth. They’ve also prompted concerns from federal and state authorities about Facebook’s dominance in social networking.
The uneasiness with Facebook’s power bubbled over on Wednesday as the Federal Trade Commission and 48 attorneys general filed separate lawsuits in federal court accusing Facebook of illegally stifling its competition by snapping up its rivals.
The lawsuits are the latest sign that lawmakers and regulators are ratcheting up their scrutiny of the power that tech giants wield. In addition to Wednesday’s actions, the US Department of Justice’s antitrust division has been talking to developers about their interactions with Oculus, the virtual reality headset maker Facebook owns, Bloomberg reported last week. In October, the Justice Department filed a landmark lawsuit against Google for allegedly holding monopolies in both search and search advertising.
The antitrust scrutiny isn’t limited to the US. A day after the US lawsuits, German regulators said they were investigating how Facebook required users of its Oculus virtual reality products to link their accounts with the social network. In November, the European Commission filed antitrust charges against Amazon over the e-commerce giant’s use of data gathered from sellers on its platform. Regulators are also looking into Facebook’s access to user data and whether the company used that information to stifle competition. Google has been hit with a series of fines, including one for $1.7 billion last year over “abusive” online advertising practices.
Facebook CEO Mark Zuckerberg told employees on Wednesday the company plans to fight the cases, which could take years to play out.
“Overall, we disagree with the government’s allegations,” Zuckerberg said in an internal post seen by CNET. “The reality is that we compete with many other services in everything we do, and we compete fairly.”
Here’s what you need to know about Facebook’s latest legal woes:
Why is Facebook being sued?
Facebook has been under fire for numerous complaints, including failing to protect US privacy and not doing enough to combat the spread of online lies. Zuckerberg has been hauled in front of Congress repeatedly over the past several years to address some of those concerns. So it’s no surprise federal and state officials are taking a closer look at Facebook’s activities and the company’s dominance in social media.
The Federal Trade Commission, which focuses on consumer protection, slapped Facebook with a record-setting $5 billion fine last year after UK political consultancy Cambridge Analytica harvested the data of up to 87 million users of the social network without their knowledge.
Shortly after, the FTC began investigating whether Facebook violated laws intended to promote competition. In Wednesday’s lawsuit, the FTC alleges that Facebook engaged in illegal anticompetitive practices to hold onto its monopoly power in social networking. Some of those tactics included purchasing rivals rather than competing with them, according to the lawsuit. Facebook also cut off data access to developers such as Twitter-owned Vine that could be potential competitive threats, the FTC said.
The FTC’s lawsuit is similar to a separate lawsuit filed by attorneys general for 46 states, the District of Columbia and Guam. That lawsuit also challenges Facebook’s $1 billion purchase of Instagram in 2012 and its $19 billion acquisition of WhatsApp in 2014.
“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,” New York Attorney General Letitia James said in a statement.
Facebook’s alleged tactics to squash its competitors, the lawsuits say, have resulted in fewer choices for consumers because it’s difficult to move your data to another social network. They have also led to poorer privacy protections.
What do the lawsuits seek?
Federal and state regulators want a federal court to potentially order Facebook to break up Instagram and WhatsApp from the company and to get prior notice and approval for future mergers and acquisitions.
“Facebook’s actions to entrench and maintain its monopoly deny consumers the benefits of competition,” Ian Conner, director of the FTC’s Bureau of Competition, said in a statement. “Our aim is to roll back Facebook’s anticompetitive conduct and restore competition so that innovation and free competition can thrive.”
The lawsuit filed by 48 attorneys general said Facebook should be required to notify states if they plan to acquire a company valued at $10 million or more. It also asks the court to stop Facebook’s alleged anticompetitive practices and take other measures, which could include breaking up the company.
What’s Facebook got to say about this?
Jennifer Newstead, vice president and general counsel for Facebook, called the actions “revisionist history,” noting that the FTC had already cleared its acquisitions of Instagram and WhatsApp. Facebook users and advertisers, she added, choose to use the social network because of its “value,” not because they’re forced to do so.
“Antitrust laws exist to protect consumers and promote innovation, not to punish successful businesses,” she said.
Facebook fueled the success of Instagram and WhatsApp, Newstead said, adding that the government’s lawsuit sends a “chilling warning to American business that no sale is ever final.”
Over the summer, Zuckerberg was asked about the acquisition of Instagram during a high-profile House antitrust subcommittee hearing that included the heads of Google, Amazon and Apple. “At the time, almost no one thought of [Instagram] as a general social network, and people didn’t think of them as competing with us in that space,” Zuckerberg said.
Facebook COO Sheryl Sandberg echoed that sentiment in an interview with Tamron Hall that will air on Friday. Instagram had 13 employees, while WhatsApp had 55, she told the journalist.
“We bought them a long time ago, we invested, we grew them, and now they’re really big,” Sandberg said. She reiterated that the acquisitions were cleared by the government and said that unwinding them now could create a “a really big chilling problem for American business.”
In a blog post, Facebook said it faces plenty of competition, citing rivals such as short-form video app TikTok, short-messaging site Twitter, ephemeral messaging app Snapchat, Apple, Amazon and Google.
How likely is a Facebook breakup?
Some analysts say a breakup of Facebook appears unlikely. “We expect the courts to side with the FTC regarding limitations on future acquisitions, but we think the likelihood of a forced breakup is low,” said Ali Mogharabi, an analyst for Morningstar, in a post on Thursday.
Facebook’s dominance in social networking, he said, hasn’t led to higher consumer prices because users don’t pay money to use the ad-funded service. He also noted that TikTok, Pinterest and Snapchat have emerged as competitors to Facebook.
Analysts for Wedbush Securities also said in a note that a breakup seemed unlikely and that they were skeptical it would happen.
Forcing Facebook to spin off WhatsApp and Instagram is just one of the solutions that state and federal authorities want a federal court to examine. “It’s too early to say definitively what would be necessary and appropriate to restore competition here,” the FTC said in an FAQ about the lawsuit.
Why should I care?
Every month, more than 3 billion people use Facebook or one of the apps it owns. Social networks are a big part of how we keep in touch with friends and families and consume news. There’s a good chance that a government action, such as a forced sale of Instagram or WhatsApp, will affect social media users in some way.
The company’s legal woes could prompt more choice for consumers by creating an environment in which small or new companies have the opportunity to challenge established firms, like Facebook. They could also pressure the company to make changes, such as simplifying the transfer of your data to another platform or providing better privacy safeguards.
What happens next?
No surprise, Facebook plans to challenge the lawsuits in court.
“We look forward to our day in court, when we’re confident the evidence will show that Facebook, Instagram and WhatsApp belong together, competing on the merits with great products,” Newstead said in a blog post.
Authorities have also been looking at other tech companies. In a 449-page report released in October, the House antitrust subcommittee accused Facebook, Google, Amazon and Apple of abusing their monopoly power.
Federal and state authorities are reportedly preparing antitrust lawsuits against Google, which could come as soon as next week.