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FTC sues to break up Facebook again, with more data to back monopoly argument

The amended complaint which focused on Facebook’s acquisition of WhatsApp and Instagram comes after a judge threw out two antitrust cases against the company in June. 

The United States Federal Trade Commission on August 19 filed an amended complaint against Facebook in the agency’s ongoing federal antitrust case against the company. The complaint alleges that Facebook resorted to a “buy-or-bury” scheme to maintain its services’ dominance. It unlawfully acquired innovative competitors with popular mobile features that succeeded where Facebook’s own offerings “fell flat or fell apart,” the FTC said. Facebook lured app developers to the platform, surveilled them for signs of success, and then “buried” them when they became competitive threats, the complaint alleges.

“This conduct is no less anticompetitive than if Facebook had bribed emerging app competitors not to compete,” said Holly Vedova, the FTC Bureau of Competition’s Acting Director. “The antitrust laws were enacted to prevent precisely this type of illegal activity by monopolists. Facebook’s actions have suppressed innovation and product quality improvements. And they have degraded the social network experience, subjecting users to lower levels of privacy and data protections and more intrusive ads. The FTC’s action today seeks to put an end to this illegal activity and restore competition for the benefit of Americans and honest businesses alike.”

The FTC’s complaint against Facebook seeks its divestment in Instagram and WhatsApp; the former is how the company was able to stay relevant after social media went mobile, and the latter is arguably the largest messaging app in the world. Breaking up these key assets would have significant ramifications for Facebook worldwide, and other tech companies may be forced to undo or halt acquisitions of potential rivals.

What the amended complaint says

The amended complaint, filed in the US District Court for the District of Columbia, followed a June 28 dismissal of the trade regulator’s original complaint. The freshly filed amended complaint “includes additional data and evidence to support the FTC’s contention that Facebook is a monopolist that abused its excessive market power to eliminate threats to its dominance,” the FTC said.

  • Facebook was unnerved about mobile: According to the amended complaint, a critical transition period in the history of the internet, and in Facebook’s history, was the emergence of smartphones and the mobile Internet in the 2010s. Facebook CEO Mark Zuckerberg recognised at the time that “we’re vulnerable in mobile” and a major shareholder worried that Facebook’s mobile weakness “ran the risk of the unthinkable happening – being eclipsed by another network.”
  • Acquiring competitors: “After suffering significant failures during this critical transition period, Facebook found that it lacked the business talent and engineering acumen to quickly and successfully integrate its outdated desktop-based technology to the new era of mobile-first communication,” the FTC said. “Facebook’s executives addressed this existential threat by buying up the new mobile innovators, including its rival Instagram in 2012 and mobile messaging app WhatsApp in 2014, who had succeeded where Facebook had failed. The company supplemented its anticompetitive shopping spree with an open-first-close-later scheme that helped cement its monopoly by severely hampering the ability of rivals and would-be rivals to compete on the merits.”

Facebook for Developers blocked competition

“After starting Facebook Platform as an open space for third party software developers, Facebook abruptly reversed course and required developers to agree to conditions that prevented successful apps from emerging as competitive threats to Facebook,” the FTC said. “Developers that had relied on Facebook’s open-access policies were crushed by new limits on their ability to interoperate. Facebook’s conduct not only harmed developers […] but also deprived consumers of promising and disruptive mavericks that could have forced Facebook to improve its own products and services.”

  • Barriers and switching costs: “Facebook’s dominant position is also protected by significant barriers to entry, including high switching costs,” the FTC said, arguing that networks of friends added on the site cannot be ported to a competing service. “Other significant barriers to entry include user-to-user effects, known as network effects, which make a personal social network more valuable as more users join the service.”
  • Facebook still hawkish on competitors: “According to the amended complaint, Facebook continues to monitor the industry for competitive threats to its social network monopoly,” the FTC said. “Facebook is likely to impose anticompetitive conditions on access to its platform and seek to acquire companies it perceives as potential threats, especially when it next faces ‘acute competitive pressures from a period of technological transition,’” the complaint alleged.

Dissent: Christine S Wilson, one of the FTC’s commissioners, said in a dissent note that it would be improper of the FTC to challenge the Instagram and WhatsApp acquisitions after they were specifically approved by Congress. “The primary allegations in the amended complaint relate to Facebook’s acquisitions of Instagram and WhatsApp, transactions that the FTC previously evaluated pursuant to the Hart-Scott-Rodino premerger notification process and permitted to proceed. I believe it is bad policy to undermine the integrity of the premerger notification process established by Congress and the repose that it provides to merging parties that have faithfully complied with its requirements,” Wilson said.

Timeline: FTC v. Facebook

The case to break up Facebook was first filed by the FTC along with 46 US states on December 8, 2020. The action proceeded with bipartisan support and alleged that Facebook broke antitrust laws by, among other things, acquiring WhatsApp and Instagram. It sought a breaking-up of the products to end what it characterised as a monopoly by Facebook.

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On June 28, 2021, Judge James E Boasberg dismissed the petition, a blow to the FTC’s efforts. Boasberg said that the FTC had not adequately backed up its claim that Facebook had a monopoly. The judge gave the FTC time to refile the case with this evidence.

On July 14, 2021, Facebook petitioned the FTC that Lina Khan, the commission’s chair, should be recused from proceedings involving Facebook because of past statements she had made about the company’s business practices. “The FTC’s Office of General Counsel carefully reviewed Facebook’s petition to recuse Chair Lina M. Khan. As the case will be prosecuted before a federal judge, the appropriate constitutional due process protections will be provided to the company. The Office of the Secretary has dismissed the petition,” the FTC later said.

On August 19, 2021, the present amended petition was filed.

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I cover the digital content ecosystem and telecom for MediaNama.

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