New York Attorney General Letitia James has led 47 other state attorneys general in filing a joint lawsuit against social media giant Facebook, alleging that the company has illegally stifled competition in order to protect what is described as its monopoly power.
The action was filed Wednesday in the U.S. District Court for the District of Columbia. In a separate action, in coordination with James and the coalition of other attorneys general, the U.S. Federal Trade Commission also today filed a complaint against Facebook in the U.S. District Court for the District of Columbia.
The lawsuit announced by James at a news conference Dec. 9 alleges that Facebook has illegally acquired competitors in a predatory manner and reduced privacy protections to users.
“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,” James said. “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.”
It’s alleged that Facebook’s two most-utilized strategies have been to acquire smaller rivals and potential rivals before they could threaten Facebook”™s dominance and to suffocate and squash third-party developers that Facebook invited to utilize its platform. The lawsuit charges that Facebook did this to maintain its monopoly over the social networking market and make billions from advertising.
Allegations include that Facebook”™s unlawful monopoly gives it broad discretion to set the terms for how users”™ private information is collected and used to further its business interests.
It’s charged that Facebook offers vast amounts of money to acquire companies that might prove to be competition in the future.
James used Facebook’s purchase of Instagram as an example of how it exerts its power.
She explained that after initially trying to build its own version of Instagram that gained no traction, founder Mark Zuckerberg admitted in early 2012 that Facebook was “very behind” Instagram and a better strategy would be “to consider paying a lot of money” for the photo-sharing app in an effort to “neutralize a potential competitor.”
A few months later, in April 2012, Facebook acquired Instagram for $1 billion, despite Instagram having no revenue and valuing itself at only $500 million, according to James.
James said another example was Facebook’s purchase of WhatsApp. The mobile messaging application posed a unique threat to Facebook”™s growth, James alleged, by giving users the ability to send messages on their mobile devices both one-to-one and to groups. She charged that Facebook feared WhatsApp eroding its monopoly power, leading to Facebook in 2014 buying WhatsApp for nearly $19 billion, while merely two years earlier another company had offered to buy it for only $100 million.
The lawsuit charges Facebook with violating Section 2 of the Sherman Antitrust Act of 1890, in addition to multiple violations of Section 7 of the Clayton Antitrust Act of 1914.
The lawsuit asks the court to halt Facebook”™s illegal, anticompetitive conduct and block the company from continuing the same type of behavior in the future. Additionally, the lawsuit asks the court to restrain Facebook from making further acquisitions valued at or in excess of $10 million without advance notice to the state of New York and other plaintiff states.
Finally, the court is asked to provide any additional relief it determines is appropriate, including the divestiture or restructuring of illegally-acquired companies, or current Facebook assets or business lines.
In a statement, Jennifer Newstead, vice president and general counsel of Facebook, said: “This is revisionist history. Antitrust laws exist to protect consumers and promote innovation, not to punish successful businesses.
“Instagram and WhatsApp became the incredible products they are today because Facebook invested billions of dollars, and years of innovation and expertise, to develop new features and better experiences for the millions who enjoy those products.
“The most important fact in this case, which the Commission (Federal Trade Commission) does not mention in its 53-page complaint, is that it cleared these acquisitions years ago. The government now wants a do-over, sending a chilling warning to American business that no sale is ever final.
“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. We are going to vigorously defend people”™s ability to continue making that choice.”
