Why the FTC and states’ Fb antitrust lawsuits say proudly owning Instagram and WhatsApp make it a monopoly

On Wednesday, the US Federal Trade Commission and 48 US attorneys general filed major lawsuits against Facebook, arguing the social media giant is a monopoly whose anti-competitive practices are harming Americans.

The two lawsuits, which have been investigated for more than a year, represent the biggest antitrust challenge Facebook has faced. Both are essentially calling for Facebook to be broken up by forcing it to reverse the takeover of Instagram and WhatsApp, which together have billions of users.

The lawsuits allege that such action may be necessary because Facebook knocked down its competitors and gained dominance by buying potential competitors. This limits choices for American consumers and reduces their access to privacy measures.

“They have stifled innovation and lowered privacy for millions of Americans,” New York attorney general Letitia James, who led the state’s lawsuit (which includes 46 states plus Washington, DC and Guam), told reporters on Wednesday. “No company should have so much control over our personal data and our social interactions.”

Facebook did not immediately respond to a request for comment. However, in a blog post published by the company on Wednesday, the lawsuits were described as a “revisionist story”. The company stressed that the WhatsApp and Instagram acquisitions were approved by the FTC years ago, saying that allowing a “do-over” would set a precedent that “no sale will ever be final”.

Her cases particularly focus on Facebook’s acquisition of Instagram, a photo-sharing app that was bought for $ 1 billion in 2012, and global messaging app WhatsApp, which was bought for $ 19 billion in 2014. The suits claim Facebook is dependent on those acquisitions, and the monopoly it is today gives it the power to crush competitors it is not acquiring.

“Facebook has had monopoly power in the market for personal social networks in the US for almost a decade,” argues the AG’s lawsuit. “Facebook illegally maintains this monopoly power by employing a buy-or-bury strategy that thwarts competition and harms both users and advertisers.”

The case of the FTC comes to the same conclusion. “Facebook is not content with attracting and retaining users through competition on the matter, but has maintained its monopoly by buying up companies that pose threats to competition and introducing restrictive policies that actual or potential competitors Facebook does not or cannot acquire, unjustifiably hinder, “says Facebook of the suit.

It’s a compelling argument, William Kovacic, former FTC member and professor of law and politics at George Washington University, told Recode. “Both are based on the idea that the main source of dominance for Facebook was the Instagram and WhatsApp acquisitions in particular, and that these are the most important pillars of the company’s current market position. And the only way to fix this is to start a new business. “

The lawsuits come at a crucial time for Big Tech as the public, regulators, and lawmakers on both sides of the aisle scrutinize these companies and their impact on society and the economy. In October, the House Antitrust Committee concluded a 16-month investigation with the release of a comprehensive report that found that Facebook and its counterparts, Amazon, Apple and Google, have antitrust practices and need better regulation. An unsolved question is whether the antitrust laws passed decades ago are up to the task of regulating companies in the age of the Internet.

While the results are similar, Wednesday’s lawsuits differ from the legislature’s report, which contains recommendations but cannot do much to help enforce those proposals. However, these suits could result in Facebook being forced to take certain actions, such as: B. Paying fines or selling WhatsApp and Instagram based on existing laws. However, it is too early to say how these lawsuits will play out.

Why the US government says Facebook is bad for Americans

Although the FTC and attorney general’s cases are not exactly alike, the parties have worked together, and their cases contain similar claims about why Facebook is anti-competitive.

In essence, they find that Facebook is a powerful social media monopoly that gathers a huge amount of data about American users that the company uses to sell advertisements. While the lawsuits focus on the Instagram and WhatsApp acquisitions, both say Facebook’s anticompetitive behavior is part of a wider pattern.

Much of the evidence in the cases cites comments from the company’s top executives, including CEO Mark Zuckerberg, as evidence that Facebook is deliberately anti-competitive. In the case of the FTC, for example, an email is cited that Zuckerberg sent to a colleague on the day that Facebook announced it would buy Instagram. “I remember your internal post about how Instagram was our threat and not Google+. You were basically right. One thing about startups, however, is that they can often be acquired, ”Zuckerberg quotes the lawsuit.

“The lawsuit means that Facebook’s monopoly power and personal social network are not just due to innovation or the best product or service out there, but that Facebook violated antitrust laws to make sure it wasn’t Fall is any reasonable competition, ”Sally Hubbard of the Open Markets Institute told Recode.

The cases also prompt Facebook’s treatment of developers. They accuse the company of allowing other software makers to use Facebook’s data to develop their own apps and connect them to its service. This benefited Facebook as it encouraged more people to join and use Facebook more often. But Facebook would then shut these apps out if it ultimately saw them as a threat to its own business.

“You can’t offer every company something that is critical to competition,” says Hubbard. “But then it gets cut off when a company dares to go up against you, which Facebook did too.”

“Users of personal social network services have suffered and continue to suffer a number of harms as a result of Facebook’s illegal behavior, including decreased quality of user experiences, reduced choice on personal social networks, stifled innovation, and lower investment in potentially competing services,” According to the AG’s lawsuit, it is argued that another consequence of all of this was violating Americans’ right to privacy as Facebook suppressed competitors who might have offered better privacy protection (2019 stated Facebook willing to pay a record $ 5 billion fine as part of a settlement with the FTC over allegations of data breach.)

A possible breakup of Facebook is still a long way off

So what’s the solution to undo the damage these lawsuits are causing its users and the market, according to Facebook?

The suits both argue that the social media giant must fundamentally part ways. But it will be difficult to get there and when it happens it will take time. Hubbard of the Open Market Institute told Recode that litigation over Facebook, which is being forced to part ways with Instagram and WhatsApp, would likely last years. Other experts told Recode that a process is unlikely to begin until next year or 2022.

Another complication: Facebook continues to weave its apps together, which would presumably make them harder to separate once it gets to that point. In 2019, Facebook announced that it would merge the technical infrastructure of the direct messaging systems used by WhatsApp, Instagram and Facebook. The company also has more ambitious hopes for WhatsApp, signaling that it may tie its Facebook and Instagram advertising businesses to the messaging platform.

In a tweet on Wednesday after the lawsuits were announced, Facebook pushed back against their claims, stressing that the FTC approved the WhatsApp and Instagram acquisitions years ago.

“We are investigating the complaints and will soon have more to say,” the company tweeted shortly after the complaints were announced. “Years after the FTC approved our acquisitions, the government now wants an overhaul regardless of the impact a precedent would have on the wider business community or the people who choose our products every day.”

In a blog post published later, the company also argued that it was competing for ad spend from other platforms like Google and TikTok.

However, these are not the only defenses Facebook has at its disposal. “Facebook’s core response is, ‘Look what we’ve done with the companies we acquired. Did we just put them on the shelf? Did we put them in the freezer? We have drawn relatively small – promising companies but small companies – into a fragile, uncertain part of their development and made them special, ”said Kovacic.

Still, he said the cases “create a very serious opportunity for the company to be restructured”. Now the foundation stone is likely to be laid for the case to be brought to justice.

It’s too early to tell how this will all play out, but experts told Recode that a forced sale is certainly a possibility.

While allegations that Facebook engages in anti-competitive behavior aren’t new, the new lawsuits give critics of the company even more opportunities to work with them. They also signal that the push for tighter regulation of big tech won’t abate when President-elect Joe Biden takes office in 2021.

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