States, feds file antitrust suits demanding breakup of Facebook

By Leah Nylen
·9 min read

Federal antitrust authorities and dozens of states launched a double-barreled legal assault on Facebook on Wednesday, in lawsuits that seek to break up the Silicon Valley giant and address years of complaints about its worldwide social networking empire.

Both suits ask a judge to make Facebook spin off its messaging service WhatsApp and photo-sharing app Instagram — two of the world's most popular mobile apps, which it acquired in deals that passed muster with federal regulators less than a decade ago. They also seek to require Facebook notify the FTC and states of any future mergers for antitrust review.

Democratic and Republican attorneys general from 48 U.S. states and territories, including New York, are behind one of the suits announced Wednesday. The Federal Trade Commission, filed its own suit Wednesday in U.S. District Court in Washington, D.C.

The suits, filed seven weeks after the Justice Department and a smaller coalition of states sued Google on antitrust grounds, represent the latest escalation of a power struggle between governments around the world and the United States' wealthiest tech companies. They also serve notice that regulators are no longer satisfied with the billions of dollars in fines that authorities in the U.S. and Europe have levied in recent years in unsuccessful attempts to curb Silicon Valley's dominance.

The last antitrust case to break up a major U.S. company was the federal suit that led to the dissolution of AT&T's old Bell telephone monopoly in 1984.

“No company should have this much unchecked power,” New York Attorney General Tish James said in a news conference announcing Wednesday's multistate suit, adding that Facebook engaged in a “buy or bury strategy” against potential competitors.

Rohit Chopra, a Democratic commissioner on the Republican-led FTC, said Facebook's behavior as a behemoth of the tech world — sweeping up data on billions of users, using the data to reap enormous windfalls, and stifling innovation along the way — has taken it far from its roots as the community-building website he first encountered as a college student.

"When Facebook started in 2004, I was one of its earliest users," tweeted Chopra, who like Facebook CEO Mark Zuckerberg went to Harvard. "Since then, Facebook has broken the privacy promises that initially made it popular and has become infamous for a business model prone to abuse. @Facebook must understand that it is not above the law."

The FTC voted 3-2 to file its suit, with Republican Chairman Joseph Simons siding with the commission's two Democrats.

Facebook’s critics in and out of government immediately praised the lawsuits. “Facebook’s reign of unaccountable, abusive practices against consumers, competitors and innovation must end today,” said Sen. Richard Blumenthal (D-Conn.) in a statement. “For too long, Facebook has avoided real competition through anticompetitive acquisitions, unchecked power over consumers, and the failure of federal antitrust enforcers to take action.”

Sen. Josh Hawley (R-Mo.), an ally of President Donald Trump, tweeted: "This is 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."

Both cases accuse Facebook of illegally using its power for more than a decade to muscle out rivals and snap up rising competitors, specifically including WhatsApp and Instagram, before they could gain a foothold. That spending spree has continued even as Facebook faces rising antitrust scrutiny in the U.S., Europe and Australia — just last month, it said it would buy a customer service startup called Kustomer in a deal that news reports valued at more than $1 billion.

Facebook pushed back on the complaints, noting that antitrust authorities looked at the Instagram and WhatsApp transactions at the time.

“This is revisionist history," Facebook's general counsel Jennifer Newstead said 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. The government now wants a do-over, sending a chilling warning to American business that no sale is ever final."

The Computer & Communications Industry Association, a trade group that counts Facebook as a sponsor, expressed dismay that a breakup is even on the table.

"Unwinding Facebook’s acquisitions of Instagram in 2012 and WhatsApp in 2014 is a drastic remedy that would not only harm consumers but also will have a chilling effect on innovation and the US innovation ecosystem," association President Matt Schruers said.

The states' lawsuit against Facebook involves D.C., Guam and every U.S. state except Alabama, Georgia, South Carolina and South Dakota — all four of which are led by Republican attorneys general. Alabama has eschewed the multistate coalitions focused on antitrust concerns by the tech giants, but both Georgia and South Carolina signed on the Justice Department's suit against Google.

The federal cases have landed during the final months of Trump's presidency. President-elect Joe Biden has voiced his own harsh criticisms of Facebook, accusing the company of "propagating falsehoods they know to be false, although his transition team and early personnel picks have drawn scrutiny for their ties to Silicon Valley.

Facebook has denied being a monopoly, noting that it ranks behind Google in how much revenue it claims from the $160 billion global market for online display advertising. Zuckerberg has also portrayed Facebook as a champion of the "American free speech tradition," in contrast with China's vision of a censored internet and the behavior of Chinese-owned rivals like TikTok.

Still, the litigation follows a massive change in the U.S. political fortunes for Facebook and Zuckerberg, who co-founded the company in his Harvard dorm room in 2004 and now ranks fifth on Forbes' list of the world's richest billionaires. Less than a decade ago, Facebook's cachet in D.C. was enough to draw then-President Barack Obama to its California headquarters for a town hall alongside Zuckerberg. Now, political leaders in both parties say the company's unchecked power makes it a threat to rivals and countless Americans.

‘Better to buy than compete’

Facebook, which has 2.74 billion users worldwide, disclosed in July 2019 that the FTC was investigating it for alleged antitrust violations. New York state’s Democratic attorney general, Tish James, revealed two months later that she was leading a multistate coalition probing antitrust concerns involving the company.

The FTC's suit has been expected for months, but the agency has recently been tangled in an internal debate over where to file the case: in a standard federal court or its own in-house administrative court. Either way, the final outcomes of the state and federal lawsuits could be years away.

Both investigations have focused on Facebook’s acquisitions of companies that could have grown into major rivals had they remained independent, particularly its purchases of Instagram in 2012 and WhatsApp in 2014. Prosecutors also concentrated on how the social network has interacted with potential rivals’ conduct, such as its moves in 2013 and 2014 to cut off competitors’ access to Facebook user data.

Both complaints rely heavily on communications among Zuckerberg and other Facebook executives, with the states referring to him by name 64 times and the FTC about 40. The FTC, in particular, cites a 2008 Zuckerberg e-mail as the company's overarching philosophy: “it is better to buy than compete.”

The FTC looked into Facebook’s $1 billion Instagram purchase and $19 billion WhatsApp deal at the time but didn’t oppose the deals. However, recently disclosed internal communications show that Zuckerberg and other senior Facebook executives had pushed the details to neutralize a competitive threat to the social network, House Judiciary Committee investigators reported in October.

The messages included e-mails in which Zuckerberg described the Instagram purchase as “insurance” to protect Facebook’s main product, saying the company “can likely always just buy any competitive startups.”

In internal conversations about the WhatsApp deal, Facebook executives said the merger was needed to “shore up our position” and keep the smaller company from gaining more traction than Facebook Messenger.

“I hate the word ‘land grab’ but I think that is the best convincing argument,” the report quoted a Facebook executive as saying in support of the WhatsApp deal.

Mother lodes of data

Antitrust scrutiny has also focused on an October 2013 deal in which Facebook bought the Israeli startup Onavo for $115 million. The company measured how much time users would spend on other mobile apps, giving Facebook an “early bird warning system” about potential competitors, the House report found.

Facebook used data from Onavo to help justify its acquisition of WhatsApp the following year. It also used the data to monitor the success of other rivals, such as the disappearing-photo app Snapchat, which Facebook offered to buy more than once.

Investigators also looked into allegations that Facebook selectively enforced its policies to deprive potential rivals of access to user data.

Early in the company’s history, Facebook tools let other developers obtain some data from the social network, such as figuring out which of a user’s friends had also signed up for a new game or app. Beginning in 2012, however, Facebook began to cut off that access to rivals that it considered a threat.

In one well-publicized case, Facebook turned off data access to Twitter’s Vine, a new platform where users could make 6-second video clips. (Twitter, which shuttered Vine in 2016, found it "very difficult to compete" without that data, CEO Jack Dorsey told the Senate Judiciary Committee during a hearing Nov. 17.) The company did the same to MessageMe, a rival messaging app. Facebook's shut-off of data access to Vine and its conduct toward two now-defunct rival social network, Circle and Path, are mentioned in the FTC's complaint.

In other cases, Facebook gave more preferential access to companies it considered friendly, such as Amazon.

The FTC's complaint asks the court to "permanently enjoin [Facebook] from imposing anticompetitive conditions" on its data, a move that could lead to a court order requiring the company to make it easier for users to port their data to other apps or websites.