FTC, US states sue to break up Facebook

The Federal Trade Commission (FTC) and most US states are ganging up on Facebook in a pair of antitrust lawsuits that aim to unwind Facebook's past acquisitions of Instagram and WhatsApp because of allegations that the social media giant has engaged in anticompetitive behavior that has effectively crushed competition.

Facebook "has engaged in an anticompetitive course of conduct to illegally maintain its monopoly position in personal social networking," Ian Conner, director of the Bureau of Competition at the FTC, explained in a video posted on the FTC website. "The Commission's complaint alleges that Facebook undertook a year's-long effort to maintain its monopoly through anticompetitive acquisitions and actions that target potential and nascent rivals."

The FTC is lodging the complaint in coordination with attorneys general from 46 states (Alabama, Georgia, South Carolina and South Dakota are not involved in the complaint), plus the District of Columbia and Guam. It arrives on the scene amid an antitrust suit against Google and other bipartisan government activity focused on curbing the dominance of the so-called "big tech" sector, which also includes Apple and Amazon.

Facebook acquired Instagram in 2012 for $1 billion, and snapped up mobile messaging app maker WhatsApp in 2014 for $19 billion. Almost all of Facebook's revenues are derived from advertising, but the company has also branched into other areas, including virtual reality (stemming from its $2 billion acquisition of Oculus) and alternative forms of broadband connectivity.

Claim: Facebook bought rivals to maintain monopoly position

The complaint alleges that Facebook execs, including CEO Mark Zuckerberg, quickly identified Instagram as a "threat to Facebook's monopoly power" and neutralized it through M&A. Additionally, Facebook, it claims, perceived WhatApp and its "over-the-top" mobile apps as a serious threat to Facebook's monopoly power that was effectively squashed through the acquisition.

The complaint further alleges that Facebook, over many years, "has imposed anticompetitive conditions on third-party software developers' access to valuable interconnections to its platform, such as the application programming interfaces," holding that Facebook allegedly provided key APIs available to third-party applications only on the condition that they refrain from developing competing functionalities. Tied in, the complaint alleges that Facebook shut down an API that would have allowed Vine, a short-form video service from Twitter that was shuttered in 2017, to access friends via Facebook.

Facebook will fight back

Facebook, which last month bought a customer relationship management company called Kustomer for a reported $1 billion and is facing competition from the likes of TikTok and, more recently, Parler, will put up a fight.

"The most important fact in this case, which the Commission does not mention in its 53-page complaint, is that it cleared these acquisitions years ago," Jennifer Newstead, Facebook's general counsel, said in a statement to multiple media outlets. "The government now wants a do-over, sending a chilling warning to American business that no sale is ever final."

Nothing stops the FTC from giving deals another look after the fact if new evidence surfaces, William Kovacic, former chairman of the FTC, told CNN.

"There's nothing in US merger law that says an agency's decision not to challenge a proposed deal immunizes that deal from future review," he said.

Facebook pulled in $21.22 billion in advertising revenues in Q3, up 22% year-over-year. Daily active users averaged 1.82 billion for September 2020, up 12%, while monthly active users also climbed 12%, to 2.74 billion. Facebook ended Q3 with a headcount of 56,653, up 32% year-on-year.

Facebook shares dropped $5.48 (1.93%) to $277.92 each on Wednesday, but they were almost unchanged in after-hours trading late Wednesday afternoon.

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— Jeff Baumgartner, Senior Editor, Light Reading