Why the FTC and States’ Facebook Antitrust Lawsuits Say Owning Instagram and WhatsApp Makes You a Monopoly

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

The two lawsuits, which follow more than a year of investigations, are the biggest antitrust challenge Facebook has ever faced. Basically, they are both calling for the breakup of Facebook forcing it to undo its acquisitions of Instagram and WhatsApp, which together have billions of users.

The lawsuits allege that such action may be necessary because Facebook has crushed its competitors and gained dominance by buying potential rivals, and that this limits the choices of American consumers and reduces their access to privacy protections.

“They stifled innovation and downgraded privacy protections for millions of Americans,” New York Attorney General Letitia James, who led the lawsuit from the states (which includes 46 states plus Washington, DC, and Guam), told reporters Wednesday. . “No company should have so much power without control over our personal information and our social interactions.”

Facebook did not immediately respond to a request for comment. But a blog post published by the company on Wednesday called the lawsuits “revisionist history.” The company emphasized that its WhatsApp and Instagram acquisitions were approved by the FTC years ago, and said allowing a “renewal” would set a disturbing precedent that “no sale will be final.”

His cases focus in particular on the Facebook acquisitions of Instagram, a photo-sharing app that he bought for $ 1 billion in 2012, and the global messaging app WhatsApp, which he bought for $ 19 billion in 2014. The lawsuits claim that Facebook relied on these acquisitions to become the monopoly it is today, giving it the power to crush competitors it does not acquire.

“For nearly a decade, Facebook has had monopoly power in the US personal social media market,” the AG lawsuit argues. “Facebook illegally maintains that monopoly power by deploying a buy-or-bury strategy that frustrates competition and hurts both users and advertisers.”

The FTC case reaches the same conclusion. “Not content with attracting and retaining users through merit-based competition, Facebook has maintained its monopoly position by buying companies that pose competitive threats and by imposing restrictive policies that unreasonably hinder actual or potential rivals that Facebook cannot or cannot acquire. acquire, ”says The Suit.

It’s a compelling argument, Will Kovacic, a former FTC member and professor of law and policy at George Washington University, told Recode. “Both are based on the idea that Facebook’s main source of dominance was the acquisitions of Instagram and WhatsApp in particular, and that those are the key pillars of the company’s current position in the market. And the only way to repair it is to create a new company. “

The lawsuits come at a crucial time for Big Tech, as the public, regulators and legislators on both sides of the aisle are scrutinizing these companies and their impacts on society and the economy. In October, the House Antitrust Committee concluded a 16-month investigation by publishing a wide-ranging report that found that Facebook and its fellow tech giants Amazon, Apple and Google have antitrust practices and need better regulation. . An unresolved question is whether antitrust laws drafted decades ago are up to the task of regulating businesses in the Internet age.

Although the findings are similar, Wednesday’s lawsuits are different from the lawmakers’ report, which makes recommendations but cannot do much to enforce those suggestions. However, these lawsuits could lead Facebook to take certain actions, such as paying fines or selling WhatsApp and Instagram under existing laws. Still, it is too early to say what the impact of these lawsuits will be.

Why the US government says Facebook is bad for Americans

While the FTC and attorney general cases are not exactly the same, the parties collaborated and their cases make similar claims about why Facebook is anti-competitive.

Basically, they discover that Facebook is a powerful social media monopoly that collects a large amount of data on American users that the company uses to sell ads. While the lawsuits focus on acquisitions of Instagram and WhatsApp, both say Facebook’s anti-competitive behavior is part of a larger pattern.

Much of the evidence in the cases cites comments from top company executives, including CEO Mark Zuckerberg, as proof that Facebook is intentionally anti-competitive. For example, the FTC case cites an email Zuckerberg sent to a colleague the day Facebook announced it was buying Instagram. “I remember your internal post about how Instagram was our threat and not Google+. You were basically right. However, one thing about startups is that they can often be acquired, ”the lawsuit cites Zuckerberg.

“What the lawsuit means is that the monopoly power of Facebook and personal social media was not just the result of innovation or being the best product or service out there, but that Facebook has violated antitrust laws to ensure that it doesn’t face any significant competition, ”Sally Hubbard, of the Open Markets Institute, told Recode.

The cases also expose Facebook’s treatment of developers. They accuse the company of allowing the producers of other software to use Facebook data to develop their own applications and connect them to its service, which benefited Facebook by incentivizing more people to join and use Facebook more often. But Facebook would later shut down those apps if it eventually deemed them a threat to its own business.

“You are not allowed to offer something to all companies that is critical to their competition,” Hubbard explains, “but then cut it off when a company dares to compete against you, which is what Facebook did.”

“Users of personal social media services have suffered and continue to suffer a variety of harms as a result of Facebook’s illegal conduct, including degraded quality of user experiences, fewer choices on personal social media, suppressed innovation, and less investment in potentially competitive services ”, affirms the demand of AG. He argues that another consequence of all this was damaging Americans’ right to privacy because Facebook stifled competitors that could have offered better privacy protections. (In 2019, Facebook agreed to pay a record $ 5 billion fine as part of a settlement with the FTC over allegations of privacy violations.)

Any possible Facebook breakdown is a long way off

So what is the solution to undo some of the damage that these lawsuits say Facebook is causing to its users and the market?

Both lawsuits argue that the social media giant should basically have to separate. But getting there will be difficult, and if it happens, it will take time. Hubbard of the Open Market Institute told Recode that the litigation over Facebook’s obligation to ditch Instagram and WhatsApp would likely take years; Other experts told Recode that a test likely won’t even start until next year, or until 2022.

Another complication: Facebook continues to intertwine its apps, which would presumably make it harder to separate them if it gets to that point. In 2019, Facebook announced that it would begin to merge the technical infrastructure of the direct messaging systems used by WhatsApp, Instagram and Facebook. The company also has more ambitious hopes for WhatsApp, noting that it can link its Facebook and Instagram advertising business with the messaging platform.

In a tweet Wednesday after the lawsuits were announced, Facebook rejected contrary to his claims, emphasizing that the FTC had approved the WhatsApp and Instagram acquisitions years ago.

“We are reviewing the complaints and will have more to say soon,” the company tweeted just after the lawsuits were announced. “Years after the FTC authorized our acquisitions, the government now wants a revamp regardless of the impact the precedent would have on the broader business community or the people who choose our products every day.”

In a later blog post, the company also argued that it faces competition for ad spending from other platforms such as Google and TikTok.

But those aren’t the only defenses available to Facebook. “The main response from Facebook is: ‘Look what we did with the companies we acquired. Did we put them on the shelf? Did we put them in the freezer? We take relatively small, promising but small businesses, in a fragile and uncertain part of their development, and turn them into something special, ” said Kovacic.

Still, he said the cases “create a very serious possibility that the company will be restructured.” Now, the foundation is probably being laid for the case to go to trial.

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

So while allegations of Facebook engaging in anti-competitive behavior aren’t new, the new lawsuits give critics of the company even more to work with. They also note that the push to more strictly regulate big tech will not go away when President-elect Joe Biden takes office in 2021.

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