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48 AGs, FTC Sue Facebook, Alleging Illegal Power Grabs To 'Neutralize' Rivals

Dec 9, 2020
Originally published on December 10, 2020 7:00 am

Updated at 9:30 p.m. ET

The Federal Trade Commission and 48 attorneys general across the nation filed much-anticipated lawsuits against Facebook on Wednesday, accusing the social media giant of gobbling up competitive threats in a way that has entrenched its popular apps so deeply into the lives of billions of people that rivals can no longer put up a fight.

"For nearly a decade, Facebook has used its dominance and monopoly power to crush smaller rivals and snuff out competition, all at the expense of everyday users," said New York Attorney General Letitia James, who led the states' investigation. "Today, we are taking action to stand up for the millions of consumers and many small businesses that have been harmed by Facebook's illegal behavior."

The suits are the latest salvo against Big Tech and come less than two months after the U.S. Justice Department and 11 states sued Google, alleging the company violated competition law. Together, the efforts to rein in the power of the tech giants mark a new era for U.S. regulators, who for decades allowed the technology sector to grow rapidly with few restraints.

Lawsuits take aim at Facebook's alleged 'buy-or-bury' strategy

Wednesday's lawsuits take particular aim at Facebook's blockbuster acquisitions of photo-sharing app Instagram, for $1 billion in 2012, and messaging app WhatsApp, for $19 billion in 2014. Thanks in large part to the growth of the two hugely popular properties, more than 2.5 billion people use one of Facebook's apps every day.

The attorneys general allege that the deals for Instagram and WhatsApp broke competition law. Prosecutors are asking a federal court to intervene by possibly forcing a sale or spinoff of those apps.

In addition, authorities are asking the court to prevent Facebook from making any acquisitions worth more than $10 million while the case proceeds.

In its separate suit, the FTC is also pushing to have Facebook unwind its purchases of Instagram and WhatsApp.

"Today's enforcement action aims to restore competition to this important industry and provide a foundation for future competitors to grow and innovate without the threat of being crushed by Facebook," said Ian Conner, director of the FTC's competition bureau.

Facebook, according to the lawsuits, cut off other apps viewed as potential competitors from critical access to its data and systems.

"In an effort to maintain its market dominance in social networking, Facebook has employed a buy-or-bury strategy to impede competing services," James said. "They also sent a clear message to the industry: Don't step on Facebook's turf. Or as one industry executive put it, 'You will face the wrath of Mark,'" she said, referring to CEO Mark Zuckerberg.

Facebook's general counsel, Jennifer Newstead, dismissed the legal challenges as "revisionist history." In a statement, she said the company's takeover of Instagram and WhatsApp had been approved by federal regulators at the time of the acquisitions.

"Now, many years later, with seemingly no regard for settled law or the consequences to innovation and investment, the agency is saying it got it wrong and wants a do-over," she said.

Facebook said it faces plenty of competition from other social media companies, including messaging platform Snapchat and video-sharing app TikTok.

Big Tech is in the regulatory spotlight after years of a laissez-faire approach

The 48 attorneys general — representing 46 states, the District of Columbia and Guam — involved in the lawsuit and federal investigators have been conducting probes into Facebook for more than a year.

Attorneys general from Alabama, Georgia, South Carolina and South Dakota did not join the states' suit, which legal experts say could turn into a landmark case against one of the most powerful companies in the world.

After years of taking a laissez-faire approach to the tech giants, regulators and lawmakers on both sides of the aisle have grown increasingly concerned about the influence that the biggest tech companies wield over how people live, work, shop and receive information about the most vital topics of the day, such as presidential elections and the coronavirus pandemic.

Sally Hubbard, a former antitrust lawyer in New York's Office of the Attorney General and author of the new book Monopolies Suck, said industry onlookers have long criticized Facebook's aggressive tactics.

"Facebook has ensured that any company that is innovating is just destroyed. Copy, killed or acquired — that's the modus operandi of Facebook," Hubbard said. "This is a big deal. I think we're finally turning the tide and reinvigorating our antitrust laws. Everybody is going to benefit when we have markets that are competitive and functioning."

Facebook and Google are not the only tech behemoths under intense government scrutiny. Others, including Apple and Amazon, are under examination by the Justice Department and the FTC, as part of a wide-ranging review.

"There was a long period where antitrust enforcers and regulators were saying, 'We need to stay hands off Big Tech,' and it's really becoming clear with cases like this that that time is over," said Charlotte Slaiman, a former FTC lawyer who now leads competition policy at the Washington-based advocacy group Public Knowledge.

Lawmakers on Capitol Hill are circling the companies, too. In a damning report in October accusing Facebook, Google, Apple and Amazon of abusing their market dominance, House Democrats zeroed in on Facebook's acquisition strategy. The report quoted messages between Zuckerberg and a top deputy in which they discussed "neutraliz[ing]" a potential competitor as a reason to pursue Instagram.

The report concluded that Facebook's lack of competition has led to lower quality, harming users' privacy and fueling the spread of online misinformation. It cited internal documents showing that Facebook is now more worried about competition among its own products than the threat of rivals.

On Wednesday, House Judiciary Committee Chairman Jerrold Nadler, D-N.Y., said he welcomed the lawsuits. "Facebook has illegally maintained its monopoly, allowing it to engage in other abusive conduct," he said in a statement. "This should never have happened."

Courts could pursue a range of remedies to address claims against Facebook

In the most extreme outcome, the lawsuits could result in Facebook being forced to spin off parts of its business or face far-reaching restrictions on how it operates.

But experts say other outcomes remain possible. Among them, forcing Facebook to allow people to post simultaneously across platforms not owned by Facebook, letting users view posts from competing social networks within Facebook and permitting friend lists and other data to be exported to rival platforms.

"So it's easier for people to leave Facebook if they're not happy with how Facebook is running things," Slaiman, the former FTC lawyer, said.

This idea, known in tech circles as "interoperability," could help introduce more competition into social media and give people more choices, state and federal investigators say.

"When Facebook doesn't have competition, it can abuse us all. It doesn't have a competitor that is requiring it to do better. People don't have an option," said Hubbard, the former New York antitrust enforcer.

Facebook has already faced questions over how it handles user privacy and data. Last year, the company agreed to pay the FTC $5 billion for failing to protect data from being shared with third-party apps.

Experts say from dominating online advertising, which has a cost that can be passed off to consumers, to harvesting vast amounts of data that can be used to target users with ads or other content, Facebook exerts an unfathomable amount of power that has gone virtually unchecked since the company was founded in a Harvard University dorm room in 2004.

"People are used to having been abused by monopoly by having prices jacked up on them. People understand when their cable bill is high and they only have a choice in one or maybe two providers," Hubbard said. "People have a harder time understanding how Facebook's monopoly power makes their life worse."

Editor's note: Facebook is among NPR's financial supporters.

Copyright 2020 NPR. To see more, visit https://www.npr.org.

ARI SHAPIRO, HOST:

For years, Facebook has become bigger and more powerful, buying other tech companies along the way. And today, the social media giant got hit with a one-two punch - first, a lawsuit from 48 attorneys general across the country and then another lawsuit from the Federal Trade Commission. Both say Facebook has gone too far. NPR tech correspondent Shannon Bond joins us.

And we need to mention that Facebook is a financial supporter of NPR.

Hi, Shannon.

SHANNON BOND, BYLINE: Hi, Ari.

SHAPIRO: Walk us through the argument that these lawsuits are making.

BOND: Sure. So the FTC and these states have been investigating Facebook together, and the core accusation is the same in both suits. Here's what New York Attorney General Letitia James, who led the state's investigation, said at a press conference today.

(SOUNDBITE OF PRESS CONFERENCE)

LETITIA JAMES: For nearly a decade, Facebook has used its dominance and monopoly power to crush smaller rivals and snuff out competition, all at the expense of everyday users.

BOND: So James described this strategy at Facebook of crushing the competition by buying or burying. So in the first case, you know, she says, Facebook spends huge amounts of money to buy companies that it sees as potential rivals. And the key companies at issue here are Instagram, which Facebook bought in 2012, and WhatsApp, which it bought a few years later. And those deals, you know, they really helped Facebook gain users, especially on smartphones, and become even more powerful. You know, today, more than 2 billion people use its apps every day.

SHAPIRO: So that's the buy part of the equation. What about the bury? How does James say Facebook crushed competitors?

BOND: Right. So for companies that rebuffed Facebook's offers to do a deal or that it didn't want to buy, prosecutors say Facebook lured them in - lured their developers in - with promises they could plug into its systems and access its data. And then they allege if those companies look like they might be a competitive threat, Facebook would pull the plug.

So as an example, you might remember Vine, the short video app. It was really popular. You could look on there and find your Facebook friends in the app until Facebook cut off that access. And what, you know, James and the FTC allege is that this buy or bury strategy, it not only harmed competitors, it also actually hurt social media users because they have less choice over what social networks to use.

SHAPIRO: So what are these lawsuits seeking? I mean, how do they propose to dismantle this, if that's actually what they want?

BOND: Well, among other things, both lawsuits have a really big ask. They're basically asking the courts to look at breaking up Facebook, forcing it to undo these purchases of Instagram and WhatsApp, which, of course, are its crown jewels. And you know, that's a really big ask. The attorney generals' suit also asked the court to block Facebook from making any new deals worth more than $10 million while this case is going on. And, you know, $10 million sounds like a lot of money, but that's not necessarily a lot for a tech company. So that could basically stop Facebook from buying almost, you know, anything that it might have its eye on while this is all happening.

SHAPIRO: Now, Facebook has been under this kind of criticism from Congress for a while, although these lawsuits are new. How does Facebook respond to to these critiques?

BOND: That's right. Well, Facebook says, you know, look, the FTC had a chance to raise concerns over the purchases of Instagram and WhatsApp back when they happened years ago, and it didn't do it. So Facebook is accusing the government of asking for a do-over. It says that's just not fair. It also says, you know, that Instagram and WhatsApp are so successful in large part because Facebook bought them and invested in them. And it says it's unfair to try to punish them for that success.

You know, Facebook also has pointed repeatedly to other competition it faces in social media. It says it's not the only player. Look at TikTok, which has gained lots of users. But you know, Ari, four years, these biggest tech companies, you know, they didn't receive a lot of scrutiny or regulation. That is really starting to change. Just in October, the U.S. Justice Department sued Google, alleging anti-competitive behaviour.

SHAPIRO: That's NPR tech correspondent Shannon Bond. Thank you.

BOND: Thank you. Transcript provided by NPR, Copyright NPR.