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

Facebook CEO Mark Zuckerberg testifying before a House Financial Services Committee hearing in 2019.
Andrew Harnik
Facebook CEO Mark Zuckerberg testifying before a House Financial Services Committee hearing in 2019.

The state and federal officials say Facebook's acquisitions of WhatsApp and Instagram violated competition laws and served to stifle rivals by giving the social network an unfair advantage.

Updated at 3:27 p.m. ET

Attorneys general from 46 states, the District of Columbia and Guam as well as the Federal Trade Commission filed much-anticipated lawsuits against Facebook on Wednesday. The suits accuse the social network of abusing its online dominance by gobbling up competitive threats that served to entrench the platform so deeply into the lives of billions of people that rivals could 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," New York Attorney General Letitia 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."

The suits take particular aim at Facebook's blockbuster acquisitions of photo-sharing app Instagram and messaging app WhatsApp, posing a historic threat to Facebook's grip on the two hugely popular properties the social network controls.

The attorneys general allegethat Facebook's acquisitions of Instagram and WhatsApp were done illegally and are asking the federal court to intervene over possibly spinning off those apps. The lawsuit also asks a court to immediately prevent Facebook from making any acquisitions worth more than $10 million as the case pends.

Attorneys general from Alabama, Georgia, South Carolina and South Dakota did not join the lawsuit.

In a separate suit, the Federal Trade Commission is also pushing to have Facebook divest from WhatsApp and Instagram. James said the attorneys general look forward to collaborating with the federal agency.

The suits, the culmination of a yearlong probes, are the latest salvo against Big Tech and comesless than two months after the U.S. Justice Department and 11 states sued Google, alleging the company violated competition law.

"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.

She said that when Facebook did not buy potential rivals, it cut off their access to Facebook's data to suffocate them.

"Some of these companies experienced almost overnight drop off in user engagement and downloads. And their growth stalled," 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,' " referring to CEO Mark Zuckerberg.

Facebook said it was reviewing the complaints "and will have more to say soon. Years after the FTC cleared our acquisitions, the government now wants a do-over with no regard for the impact that precedent would have on the broader business community or the people who choose our products every day."

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

"Facebook has ensured that any company that is innovating is just destroyed. Copy, killed, or acquired, that's the modus operandi of Facebook," said Sally Hubbard, a former antitrust lawyer in New York's Attorney General's Office and author of the new book, Monopolies Suck. "This is a big deal. I think we're finally turning the tide and re-invigorating our antitrust laws. Everybody is going to benefit when we have markets that are competitive and functioning."

Along with the Justice Department, the FTC has also been examining tech giants including Apple and Amazon.

"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 advocacy group Public Knowledge.

The investigations could result in Facebook being forced to spin off parts of its business or in far-reaching restrictions on how it operates.

But experts say other outcomes are possible, too. 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 said.

This idea, known in tech circles as "interoperability," could help introduce more competition into social media and give people choice that has until now been stifled, state investigators allege.

"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," adds Hubbard.

Critics say when Facebook is not squashing competition by buying up competitive threats, it is copying rivals, such as copycatting popular features of Snapchat and TikTok.

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 discussing "neutralizing" 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 between 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."

Facebook has said it competes with lots of other companies, often pointing to TikTok, the short video app owned by a Chinese-based company that has surged in popularity since the coronavirus outbreak. It has also said that the success of Instagram, which it bought for $1 billion in 2012, and WhatsApp, which it paid $19 billion for in 2014, were not assured at the time of those purchases and are in large part due to Facebook's ownership.

Facebook has already faced scrutiny 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 on Americans every day, which 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 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," said Hubbard, the former New York antitrust enforcer. "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.

Shannon Bond is a business correspondent at NPR, covering technology and how Silicon Valley's biggest companies are transforming how we live, work and communicate.
Bobby Allyn is a business reporter at NPR based in San Francisco. He covers technology and how Silicon Valley's largest companies are transforming how we live and reshaping society.