The Government Sues to Break Up Facebook

The Federal Trade Commission and 48 state attorneys general filed separate lawsuits against Facebook Wednesday, calling it an illegal monopoly that needs to be broken up. The complaints argue that Facebook acquired Instagram and WhatsApp illegally to stifle competition in the social media marketplace and calls for the company to divest from these popular applications, which have become key business units in recent years. “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,” said New York Attorney General Letitia James, who is leading the coalition of states in their lawsuit. “Instead of competing on the merits, Facebook used its power to suppress competition so it could take advantage of users and make billions by converting personal data into a cash cow.” The FTC’s complaint includes a 2008 internal Facebook email, obtained through subpoena, in which CEO Mark Zuckerberg wrote “it is better to buy than compete.” The states’ lawsuit paints a portrait of Zuckerberg as an attack dog, writing that the Facebook executive laid out that there would be “ominous ramifications if Instagram did not partner with Facebook.” “When a high-ranking Facebook executive asked whether one of Zuckerberg’s goals in trying to purchase Instagram was to ‘neutralize a potential competitor,’ Zuckerberg answered that it was,” according to the states’ suit. The suits also allege anti-competitive behavior with third-party developers working on its platform. Facebook’s conduct “harms competition, leaves consumers with few choices for personal social networking, and deprives advertisers of the benefits of competition,” the FTC wrote in a statement. Both suits called for Facebook to divest from Instagram and WhatsApp, commit to better business practices, and require government approval for future large-scale acquisitions. The states’ complaint alleges violations of Section 2 of the Sherman Act, which makes it illegal to “monopolize or attempt to monopolize,” and Section 7 of the Clayton Act, which prohibits mergers that “may be substantially to lessen competition, or to tend to create a monopoly.” The FTC lawsuit alleges Sherman Act violations, but also violations of Section 5 of the FTC Act, which prohibits “unfair or deceptive acts or practices in or affecting commerce.” Jennifer Newstead, Facebook’s vp and general counsel, called the suit “revisionist history” in a statement. “The most important fact in this case, which the Commission does not mention in its 53-page complaint, is that it cleared these acquisitions years ago," she said. "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.” Newstead also said Facebook will “vigorously defend” itself against the suits. Tracy Miller, senior policy research editor at libertarian Mercatus Center, expressed some sympathies with Facebook’s initial rebuttal. He said the FTC suit is more ambitious than he expected, particularly because the Commission “is doing what looks like a regulatory flip-flop.” “I think they can make some fairly strong arguments for divestiture,” Miller said. “But the fact that they approved the merger(s) in the past weakens their case.” Sally Hubbard, director of enforcement strategy at the liberal Open Markets Institute, pushed back on Facebook’s argument. “Merger reviews are prospective. The evidence may not have been clear then, but it's clear now," she told Adweek. "The fact that time has passed doesn't make an illegal merger legal. Also, the [European Commission] fined Facebook for deceiving them about the WhatsApp merger. I would expect it told the same falsehoods to the FTC.” At a time when Democrats and Republicans agree on little, the two parties share a belief that the largest firms in Silicon Valley have become too big and powerful. Internet firms’ Section 230 liability protections have come under fire this year, the Trump administration has cracked down on Chinese tech, and antitrust has reemerged as a hot topic in Washington. This summer, the House Democrats on the Judiciary Committee’s Antitrust Subcommittee slammed Amazon, Apple, Facebook and Google for abusing their market power in a lengthy report. The Justice Department also sued Google in October for anti-competitive behavior in its online search and search advertising business. Experts told Adweek that the suit will continue uninterrupted when the Biden administration takes over in late January. Rep. David Cicilline, the Democrat who leads the House’s antitrust efforts, applauded the FTC and states attorneys general in a statement Wednesday. “This marks a major step in our ongoing work to bring the tech industry's monopoly moment to an end,” he said. Sen. Josh Hawley, a particularly anti-tech Republican voice in the Senate, called the suits “a necessity.” “The @instagram and WhatsApp mergers with @Facebook were anti-competitive, they were meant to be anti-competitive, and they should be broken up,” Hawley tweeted. But the FTC itself wasn’t unanimous with this decision. Two of its Trump-appointed commissioners voted against taking this case. “The opposition of two Republican commissioners suggests to me there are some good arguments that could be made [that] these mergers have not reduced consumer welfare and thus should not be challenged,” Miller said. “But there is an important political dimension. The share of Democratic commissioners will increase under Biden, which may increase the likelihood that the FTC will push for divestiture. The courts, however, could be more skeptical.”

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The Government Sues to Break Up Facebook

FTC and 48 states want the social media giant to divest from Instagram and WhatsApp

Scott Nover

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