Facebook Hit With Antitrust Lawsuits by FTC, State Attorneys General

WASHINGTON—The Federal Trade Commission and a bipartisan group of 46 states filed broad antitrust lawsuits against
Facebook Inc.
on Wednesday, alleging the social-media giant engaged in a yearslong campaign to buy up or freeze out nascent technology companies that one day might have become rivals.

The FTC’s case is its most ambitious in recent memory and seeks to unwind Facebook’s prior acquisitions of the photo-sharing app Instagram and messaging service WhatsApp. It comes just weeks after the Justice Department brought an antitrust lawsuit targeting Google’s flagship search business. Each federal agency now has its own once-in-a-generation case at the same time, a signal of the level of U.S. concern about the power of dominant online platforms.

The FTC, on a 3-2 vote, filed the case in a Washington, D.C., federal court after an investigation that stretched more than a year. Commission staffers had been preparing the lawsuit for months and recommended that the FTC vote to bring a case. The FTC’s two Democrats joined Republican Chairman

Joseph Simons
in the majority, a sign that the case would likely continue on the same course once President-elect

Joe Biden
takes office.

New York State Attorney General Letitia James outlined a sweeping antitrust suit against Facebook by the Federal Trade Commission and a bipartisan group of 46 state attorneys general, targeting the company’s tactics against competitors. Photo: Saul Loeb/AFP via Getty Images[object Object]

Facebook’s Acquisition Strategy

“Personal social networking is central to the lives of millions of Americans,” said

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

New York Democratic Attorney General

Letitia James
announced the states’ lawsuit, which includes the District of Columbia and Guam.

“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,” Ms. James said at a press conference Wednesday. She alleged Facebook exploited its competitive dominance “so it could take advantage of users and make billions by converting personal data into a cash cow.”

Mr. Biden’s transition team didn’t immediately comment on the lawsuits.

Facebook said the lawsuits amounted to regulatory revisionism, noting that the FTC previously approved its Instagram and WhatsApp transactions.

New York State Attorney General Letitia James said Facebook has attempted to ‘take advantage of users and make billions by converting personal data into a cash cow.’

New York State Attorney General Letitia James said Facebook has attempted to ‘take advantage of users and make billions by converting personal data into a cash cow.’

Photo: Kathy Willens/Associated Press

“The government now wants a do-over, sending a chilling warning to American business that no sale is ever final,” said Facebook Vice President and General Counsel

Jennifer Newstead.
“People and small businesses don’t choose to use Facebook’s free services and advertising because they have to, they use them because our apps and services deliver the most value.”

The federal-state coordination signals the intensity of legal pressures Facebook is facing, as well as the leading role state law-enforcement officials are playing in antitrust battles with the nation’s most powerful tech companies. Some states also have joined the Justice Department in suing Google, and two other coalitions of states are weighing additional cases against the search giant, a unit of
Alphabet Inc.

For Facebook, Wednesday’s filings introduce a confrontation with the government that founder and Chief Executive
Mark Zuckerberg

has described in the past as “existential.” Mr. Zuckerberg, who personally engineered many of the actions being targeted by the lawsuits, has expressed confidence that Facebook would prevail in court.

Eric Schmidt says antitrust statutes shouldn’t be used to regulate something as complicated as the internet. Photo: Alex Wong/Getty Images[object Object]

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The cases present Facebook with one of its biggest challenges in its 16-year evolution from college startup to social-media giant. The Facebook app alone has 196 million daily active users in the U.S. and Canada, and more than 2.5 billion people use its products every day world-wide.

In Facebook’s early stages, public attention centered on the platform’s ability to grow and make money while minting cultural touchpoints and viral trends. But in more recent years the focus has turned to Facebook’s power: its extensive collection of data and its ability to shape users’ emotional states, accelerate the spread of hateful conspiracy theories and potentially influence democratic processes including elections. The company’s sway in business has come in for scrutiny, too, over its ability to blackball particular apps, cut preferential deals and use its financial power to acquire promising startups.

Facebook argues that its critics have no valid basis for claiming the companies it bought would have emerged as major competitors had they remained independent. Platforms such as Instagram have become enormously successful precisely because Facebook purchased them and invested heavily in their development, Mr. Zuckerberg has said.

Facebook has been building its legal arguments for months against a likely FTC lawsuit and plans to argue that the commission’s efforts targeting its past acquisitions would defy established law, harm consumers and cost billions of dollars if the government pursues a breakup.

The two lawsuits tell a similar story. The FTC and the states each allege Facebook chose to buy companies rather than compete with them. Facebook recognized in 2011 that Instagram was becoming a viable competitor on mobile photos and that it could threaten the company’s position, the lawsuits allege. Buying Instagram neutralized that threat while discouraging any other photo-sharing apps, the suits claim.

The commission and states likewise argue that the WhatsApp deal removed another worry for Facebook, making it harder for future mobile-messaging apps to acquire scale and threaten to enter the social-networking space.

Much of Facebook’s maneuvering was aided by its acquisition of an Israeli company, Onavo Mobile Ltd., that had developed a tool to monitor usage of scores of applications, allowing Facebook to identify competitive threats, according to the states’ complaint.

The lawsuits also say Facebook hobbled competitors by cutting off access to its platform for third-party app developers that wanted to offer services that encroached on Facebook’s core functions.

The states’ lawsuit alleges privacy harms created by Facebook’s conduct. The company’s monopoly position allowed it to retreat from early promises and collect data more aggressively about its users’ activities, the states allege.

Sizable mergers and acquisitions must be reviewd by the government before they are consummated, and the FTC allowed the tech giant to acquire Instagram and WhatsApp in 2012 and 2014, respectively. Of the dozens of companies Facebook has acquired over the past decade, some required government clearance while other smaller deals didn’t.

The commission’s lawsuit comes two months after a U.S. House antitrust subcommittee published a report on Big Tech dominance that concluded Facebook held a monopoly insulated from competitive threats because any potential rivals faced high barriers trying to challenge the tech giant with competing products. The panel found that Facebook also maintained and expanded its dominance by buying companies that might be threats and by selectively excluding other apps from building services on its platform.

Mr. Zuckerberg said in House testimony in July that Facebook continues to face intense competition. He has singled out the popular video-sharing app TikTok, which has gained hundreds of millions of global users.

During a Senate Judiciary Committee hearing Tuesday, Twitter Inc.’s Jack Dorsey and Facebook Inc.’s Mark Zuckerberg said their companies performed better in defending election integrity in the 2020 election. Photo: Fox[object Object]

Facebook reached a record $5 billion settlement with the FTC last year to resolve a non-antitrust probe involving consumer-privacy violations. Facebook said that it had made big strides on privacy and that the settlement was part of rebuilding public trust.

Some lawmakers, antitrust experts and consumer advocates have criticized the FTC as not doing enough to address the growing dominance of large tech companies. The Facebook lawsuit marks a departure from the commission’s reputation for being risk averse in its enforcement actions. It famously decided in early 2013 not to bring an antitrust case against Google after spending more than a year investigating the company. The search giant escaped with no binding legal requirements.

The FTC shares antitrust enforcement authority with the Justice Department, but the five-member bipartisan commission needs a majority vote to file a lawsuit. FTC Chairman Simons, a Republican appointed by President Trump, cobbled together that majority during the presidential transition, as the Biden administration will have an opportunity to shape the commission after he takes office. Democratic Commissioners

Rohit Chopra
and

Rebecca Slaughter
voted with Mr. Simons. Republican commissioners Noah Phillips and Christine Wilson voted no.

The cases are likely to take years to resolve. The commission and the states can’t impose changes on the company’s business; they first must prove in legal proceedings Facebook it violated federal antitrust law and that such changes are needed. The social-media giant already has moved to integrate different services it has acquired.

In addition to unwinding past transactions, the lawsuits seek to prohibit Facebook from engaging in future practices that harm competition, such as imposing restrictive conditions on software developers.

During the 2012 review of the Instagram deal, some at the FTC were worried about the competitive implications of the transaction but weren’t sure they could win a case, The Wall Street Journal has reported.

Facebook is also under increased antitrust scrutiny in Europe. The European Commission—the European Union’s top antitrust enforcement body—has been conducting a preliminary investigation into the company’s control over and use of user data, including for advertising purposes. The probe could turn into a formal investigation or end up being dropped.

“It’s a huge investigation, a lot of data coming in,” European Commission Executive Vice-President

Margrethe Vestager
said at a press conference last week.

Facebook has said it is committed to cooperating with the probe.

Write to Brent Kendall at brent.kendall@wsj.com and John D. McKinnon at john.mckinnon@wsj.com