On Wednesday, New York Attorney General Letitia James announced a massive antitrust lawsuit against Facebook, claiming the social media giant has harmed competition by buying up smaller companies like Instagram and WhatsApp to squash the threat they posed to its business. Forty-seven other state and regional attorneys general are joining the suit.
The lawsuit centers on Facebook’s acquisitions, particularly its $1 billion purchase of Instagram in 2011. In addition to its acquisition strategy, the attorneys general allege that Facebook used the power and reach of its platform to stifle user growth for competing services.
“Facebook has broken the law. It must be broken up.”
“For nearly a decade, Facebook has used its dominance and monopoly power to crush smaller rivals and snuff out competition,” James said in a press conference today. “Facebook used vast amounts of money to acquire potential rivals before they could threaten the company’s dominance.”
The Federal Trade Commission brought a separate lawsuit against Facebook on similar grounds, announced at the same time as the states’ lawsuit. The FTC case goes further than the state case, explicitly calling on the court to unwind the acquisitions of Instagram and WhatsApp, spinning off both into independent companies.
“Our aim is to roll back Facebook’s anticompetitive conduct and restore competition so that innovation and free competition can thrive,” said Ian Conner, director of the FTC’s Bureau of Competition, in a statement.
The FTC case also echoes the state AGs’ claims about anticompetitive use of platform power, particularly Facebook’s practice of “cutting off API access to blunt perceived competitive threats.” The FTC case cites Facebook’s decision to block Vine’s friend-finding feature after the Twitter acquisition as a particularly flagrant instance of this behavior.
In a newsroom statement, Facebook said both acquisitions had been cleared by regulatory agencies and that overturning them after the fact would set a dangerous precedent. “Years after the FTC cleared our acquisitions, the government now wants a do-over with no regard for the impact that precedent would have on the broader business community or the people who choose our products every day,” the company said.
In emails revealed by the House of Representatives’ antitrust subcommittee hearing this summer, Facebook CEO Mark Zuckerberg characterized his intent to buy Instagram in emails to his David Ebersman, who was then Facebook’s chief financial officer, as a way to neutralize a competitor while at the same time improving Facebook — by incorporating the features its competitor invented before any other upstart has enough time to catch up and pose a similar threat.
“It appears Facebook simply bought these firms to expand its dominance.”
“One way of looking at this is that what we’re really buying is time. Even if some new competitors springs up, buying Instagram, Path, Foursquare, etc now will give us a year or more to integrate their dynamics before anyone can get close to their scale again. Within that time, if we incorporate the social mechanics they were using, those new products won’t get much traction since we’ll already have their mechanics deployed at scale,” Zuckerberg explained.
Within the hour, Zuckerberg sent a follow-up reply, writing, “I didn’t mean to imply that we’d be buying them to prevent them from competing with us in any way,” he wrote. Antitrust lawyers saw that as an admission of guilt from Zuckerberg, who appeared to realize that what he wrote in those emails regarding his acquisition strategy constituted anticompetitive behavior.
Another pillar of the states’ antitrust lawsuit is whether Facebook acquiring a company made the product worse off from a consumer benefit standpoint — in particular, with regard to privacy. Facebook has long claimed that its resources and scale are responsible for turning apps like Instagram and WhatsApp into gigantic platforms with billions of users. But investigators targeting the deals for anticompetitive behavior are examining how, for instance, Facebook’s purchase of WhatsApp and its decision to later utilize WhatsApp user data may have harmed consumers and stifled competition from rivals with better privacy practices.
Notably, the creators of both Instagram and WhatsApp have left Facebook — some, like WhatsApp co-founder Brian Acton, vocally disagreeing with the direction Facebook took his product and what the company has done to privacy in general. WhatsApp’s other co-founder, Jan Koum, left shortly after Acton, having reportedly clashed with Facebook leadership over its data-sharing initiative. Instagram co-founders Kevin Systrom and Mike Krieger left the company over years of built-up tensions between the photo-sharing app and its relationship to Facebook’s business.
“Facebook has broken the law. It must be broken up.”
The actions are already drawing applause from antitrust advocates in Congress. Rep. David Cicilline (D-RI), who led the House Antitrust hearing in July, cheered on the lawsuits in a statement to the press. “Facebook is a monopoly,” he said. “Facebook has broken the law. It must be broken up. I applaud the FTC and state attorneys general who are leading this effort today.”
Rep. Jerrold Nadler (D-NY) echoed the comments, taking particular aim at the Instagram and WhatsApp acquisitions. “Rather than competing with Instagram and WhatsApp, it appears Facebook simply bought these firms to expand its dominance,” Nadler said. “This should never have happened in the first place, and accountability is long overdue.”
The lawsuit marks the second major regulatory effort from the US government to rein in Big Tech, following the Department of Justice’s lawsuit against Google in October for alleged illegal monopolization of the search and online ad markets.