The Federal Trade Commission and a coalition of 47 states attorneys general today filed a pair of long-awaited antitrust suits against Facebook, alleging that the company abused its power in the marketplace to neutralize competitors through acquisitions and prevent anyone else from presenting a more privacy-friendly alternative to consumers.

“By using its vast troves of data and money, Facebook has quashed or hindered what the company perceived as potential threats,” New York Attorney General Letitia James, who led the states’ effort, said. “In an effort to maintain its market dominance, Facebook has employed a strategy to impede competing services.”

The lawsuit brought by the states (PDF) asks the court to prohibit Facebook from engaging in “any anticompetitive conduct” or practice going forward. That includes a request for Facebook to be blocked from any acquisitions valued at greater than $10 million without first getting permission from the states.

The states also explicitly ask that Facebook’s acquisitions of Instagram and WhatsApp be found in violation of the Clayton Act and that Facebook be required to divest those businesses if necessary “to restore competitive conditions” in the marketplace.

The suit filed by the FTC (PDF) also calls for Facebook to face more scrutiny when it acquires other firms and to be broken up if necessary to restore competition in the marketplace.

“Facebook’s actions to entrench and maintain its monopoly deny consumers the benefits of competition,” FTC Bureau of Competition Director Ian Conner said. “Our aim is to roll back Facebook’s anticompetitive conduct and restore competition so that innovation and free competition can thrive.”

Both cases were filed in the US District Court for the District of Columbia.

“We’re reviewing the complaints and will have more to say soon,” Facebook said in its original statement (which it made in a tweet). “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.”

If you can’t beat ‘em, buy ‘em

As we’ve explained before, antitrust law isn’t just about being a literal monopoly or even about being the biggest player in a sector. Instead, it’s about power—how much you have, and what you do with it. Antitrust investigators basically want to answer the question: did you become the biggest naturally, or did you cheat along the way?

In that framing, then, Facebook stands accused of cheating to beat out any potential competition—a lot.

Facebook was pretty much instantly popular when it first hit Harvard and other Boston-area colleges in 2004, but its path to world domination didn’t truly take off until it began acquiring other tech firms a few years later.

Most of those early acquisitions were of small businesses or of patents—basically, a way to bring new tools and developers in-house to bolster the Facebook platform. Its first major blockbuster deal was its $1 billion acquisition of Instagram in 2012. That transaction was controversial even at the time, with company CEO Mark Zuckerberg reportedly going around Facebook’s board to get it done, but antitrust regulators nonetheless allowed the deal to go through.

That was the beginning, not the end, of Facebook’s billion-dollar acquisition spree. In February 2014, Facebook offered a whopping $16 billion to acquire WhatsApp (a deal that eventually cost $19 billion), a messaging platform with enormous popularity outside of the United States. The social media giant followed that up one month later with a $2 billion deal to buy VR hardware developer Oculus.

Emails obtained by Congress earlier this year as part of its investigation into Big Tech’s outsized power revealed that Zuckerberg explicitly thought of Instagram as a threat before acquiring it.

If apps such as Instagram were allowed to grow, Zuckerberg wrote in a 2012 email, it “could be very disruptive” to Facebook, and he added that an acquisition “will give us a year or more to integrate their dynamics before anyone can get to their scale again.”

Facebook’s failed attempts to acquire potential competitors, such as Snapchat, also demonstrate its anticompetitive strategy, both suits allege.

What next?

Facebook has known for a long time that legal trouble was brewing, and it’s had years to prepare for what’s likely to be a long and ugly court battle.

The FTC and the states both launched their antitrust investigations back in the long-long ago of 2019, as did Congress, European Union competition regulators, and regulators from several other nations. The Congressional report, published in October, now seems like a harbinger of today’s suit: the House committee found that Facebook (as well as Apple, Google, and Amazon) exerts monopoly power in the marketplace and should be forced to split up.

It’s incredibly rare in the modern era for the courts actually to force a company to break up for antitrust reasons. The last major breakup came more than 35 years ago, when AT&T finally split up in to the seven regional “Baby Bells” after a decade-long legal fight with the Justice Department. The court initially ordered a breakup in the Microsoft antitrust case that began in the late 1990s, but Microsoft appealed the ruling and, in 2001, reached a settlement with the DOJ that left its business intact.

Some of Facebook’s app updates from earlier this year seem to have been designed with a potential antitrust suit in mind: the company in late 2019 began a plan to integrate WhatsApp, Facebook Messenger, and Instagram Direct messaging into a single service. The integration between Instagram’s and Facebook’s messaging services began in August; when all three platforms are combined, Facebook will reach an estimated 3.3 billion users on a single messaging service.

So many knots to untie

That kind of tie-up makes the businesses logistically much more challenging to unwind, and Facebook seems likely to argue that integration of the services is vital to its business strategy and should be permitted to continue.

“The claims being reported—serial predatory acquisition and withholding interoperability—set up a strong case,” said Charlotte Slaiman, competition policy director at Public Knowledge. “This action reflects a lot of work from advocates, experts, and enforcement officials to build the case, first that Facebook was deserving of scrutiny, and then that the company really has run afoul of our antitrust laws. To fix the harms to competition, we need to see changes to Facebook’s business and the company should be required to open up its network to competitors so that users are not locked in.”

https://arstechnica.com/?p=1728628