US Government sues Facebook for anticompetitive acquisition of WhatsApp and Instagram
In October this year, the US Subcommittee on Antitrust, Commercial and Administrative Law published a report calling out Amazon, Apple, Facebook, and Google for their anticompetitive, monopolistic, and dominating practices. Shortly after that, the US Department of Justice filed an antitrust lawsuit against Google for its anticompetitive and monopolistic business practices. Now, the US Federal Trade Commission (FTC) and 48 State Attorneys General have filed similar lawsuits against Facebook, focusing on the anticompetitive nature of its acquisition of WhatsApp and Instagram.
In its lawsuit, the FTC alleges that Facebook identified Instagram and WhatsApp as threats to its monopoly power and acquired them instead of competing with them. This move not only neutralized the direct threat posed by the two platforms but also made it “more difficult for another personal social networking competitors to gain scale.”
The lawsuit also alleges that Facebook has imposed anticompetitive conditions on third-party developers’ access to APIs that allow their apps to interact with the social media platform. This includes conditions that prevent developers from offering competitive functionalities or connecting with/promoting other social networking services. The lawsuit cites an episode with Twitter’s short video sharing service Vine as an example and states that following its launch in 2013, Facebook shut down the API that would have allowed Vine to access friends via Facebook.
Speaking about the lawsuit, Director of FTC’s Bureau of Competition, Ian Conner, said, “Personal social networking is central to the lives of millions of Americans. 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.”
Through this lawsuit, the FTC is seeking a permanent injunction in court that could force Facebook to spin Instagram and WhatsApp into independent companies. The lawsuit also seeks to prohibit Facebook from imposing anticompetitive conditions on developers and seek prior permission for future mergers and acquisitions.
The State Attorneys General antitrust lawsuit is based on similar grounds, but it focuses primarily on Facebook’s $1 billion acquisition of Instagram in 2011. The suit not only questions Facebook’s acquisition strategy but also alleges that Facebook misused its power and reach to stifle the growth of competing services. Furthermore, the states’ antitrust lawsuit alleges that Facebook’s acquisition of WhatsApp and its decision to utilize WhatsApp user data may have harmed consumers and stifled competition from rivals that have better privacy practices.
In response to the lawsuits, Facebook’s VP and General Counsel, Jennifer Newstead, wrote:
“The Federal Trade Commission and state attorneys general today attack two acquisitions that we made: Instagram in 2012 and WhatsApp in 2014. These transactions were intended to provide better products for the people who use them, and they unquestionably did. Both of these acquisitions were reviewed by relevant antitrust regulators at the time…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.”
Talking about the alleged anticompetitive conditions imposed on third-party developers, Newstead wrote that such conditions were imposed on certain apps that tried to “unfairly duplicated services Facebook already provided, like sharing photos or messaging with Facebook connections.” She further added that such restrictions were “standard in the industry.”
It will be a while before these lawsuits reach their conclusion, with both sides using all lawful means available to them for a decision in their favor. For now, it seems that the US Subcommittee report did indeed spur some entities into action.