Facebook could be forced to sell off Instagram and WhatsApp under a massive lawsuit filed by 46 US states which accuses the social media giant of running an illegal monopoly.
The suit filed on Wednesday, spearheaded by New York Attorney General Letitia James, accuses Facebook of illegally acquiring its competitors in a ‘predatory’ manner in order to dominate the market.
‘For nearly a decade, Facebook has used its dominance and monopoly power to crush smaller rivals, snuff out competition, all at the expense of everyday users,’ said James.
The coalition of 46 states, Washington DC and Guam has called on judges to rule that Facebook’s acquisition of WhatsApp and Instagram were illegal.
The lawsuit highlights the growing political consensus to hold Big Tech accountable, and comes weeks after the Department of Justice launched a suit against Google which accused the $1trillion firm of using its market power to fend off rivals.
Facebook boss Mark Zuckerberg and Twitter chief Jack Dorsey were both hauled in for a highly-politicised Senate hearing last month, and Donald Trump has feuded with both firms over the fact-checking of his posts.
The Federal Trade Commission has filed a separate lawsuit, saying that ‘our aim is to roll back Facebook’s anticompetitive conduct and restore competition so that innovation and free competition can thrive’.
The federal lawsuit comes just weeks before Trump leaves office to be replaced by Joe Biden, who was less combative about Big Tech during the campaign.
In a statement to DailyMail.com, Facebook’s general counsel Jennifer Newstead blasted the litigation, calling it ‘revisionist history.’
‘Antitrust laws exist to protect consumers and promote innovation, not to punish successful businesses,’ she said. ‘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.’
New lawsuits from 46 states and the FTC accuse Facebook CEO Mark Zuckerberg of anti-competitive conduct and seek to break up the company
New York Attorney General Letitia James, a Democrat, led the coalition of 46 states, plus DC and Guam, in the lawsuit seeking to split up Facebook
Newstead vowed the company would vigorously defend against the lawsuits, and pointed out that the acquisitions of Instagram and WhatsApp had been cleared by the Federal Trade Commission at the time they were consummated.
‘The government now wants a do-over, sending a chilling warning to American business that no sale is ever final,’ she said.
Separately, the Federal Trade Commission filed a 53-page complaint against Facebook on Wednesday, also seeking to break up the company.
‘Facebook’s actions to entrench and maintain its monopoly deny consumers the benefits of competition,’ said Ian Conner, Director of the FTC’s Bureau of Competition in a statement.
‘Our aim is to roll back Facebook’s anticompetitive conduct and restore competition so that innovation and free competition can thrive,’ he added.
The FTC suit was filed in coordination with James and the other state attorneys general. Attorneys general from Alabama, Georgia, South Carolina and South Dakota did not join the lawsuit.
‘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 James, a Democrat, in a statement.
‘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,’ she 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,’ she added.
Zuckerberg is seen in 2013 touting Facebook’s acquisition of Instagram. Facebook is accused of illegally acquired potential competitors in a predatory manner to dominate the market
The states’ 123-page complaint specifically focuses on two massive Facebook acquisitions: that of Instagram in 2012 for $1 billion, and of WhatsApp in 2014 for nearly $19 billion.
The suit accuses Facebook and CEO Mark Zuckerberg of using acquisitions to gobble up smaller competitors — and when that fails, using market dominance ‘to suffocate and squash’ rivals.
‘Facebook targets competitors with a ‘buy or bury’ approach: if they refuse to be bought out, Facebook tries to squeeze every bit of oxygen out of the room for these companies,’ the New York attorney general’s office said in a statement.
On the Instagram acquisition, the suit alleges that 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.’
Facebook acquired Instagram for $1 billion, despite the company having no revenue and valuing itself at only $500 million, according to the complaint.
Zuckerberg offered Instagram’s owners double the valuation that Instagram came up with even though Zuckerberg previously told a Facebook investor that the initial $500 million value as ‘crazy,’ the complaint states.
‘A significant portion of the purchase price was a premium paid to remove a competitive threat from the market,’ the complaint says of the Instagram acquisition.
A demonstrator joins others outside of the San Francisco home of Facebook CEO Mark Zuckerberg last month to protest what they say is Facebook spreading disinformation
The lawsuit also focuses on Facebook’s purchase of WhatsApp in 2014, which at the time was the largest acquisition of a venture-backed startup ever.
The suit alleges that Facebook feared WhatsApp, a messaging service with some 400 million global users at the time, would erode its monopoly power.
In 2013, Zuckerberg wrote that WhatsApp or similar products posed ‘the biggest competitive threat we face as a business,’ according to the complaint.
The whopping $19 billion price tag that Facebook paid for WhatsApp was well above the price Zuckerberg had recommended just a few months earlier, the lawsuit claims.
One Facebook employee, while conceding that WhatsApp’s rapid growth made it a valuable company, said the price ‘sounds insane,’ according to the complaint.
The lawsuits argue that the only rationale for the price of the deal was to eliminate a competitive threat, and accuses Facebook of breaking its promise to regulators that it would not combine user data across the two services.
The suit asks the court to restrain Facebook from making further acquisitions valued at or in excess of $10 million without advance notice to the plaintiff states.
It also asks the court for ‘any additional relief it determines is appropriate,’ including the divestiture or restructuring of ‘illegally acquired companies.’
In separate moves, the Justice Department also sued Google in October, accusing the internet giant of abusing its dominance in online search and advertising.
The suits mark the government’s most significant antitrust actions since its historic case against Microsoft two decades ago, which ended in a settlement.
Amazon and Apple also have been under investigation in Congress and by federal authorities for alleged anticompetitive conduct.
Facebook’s full statement in response to the antitrust suits
Jennifer Newstead, Facebook’s Vice President and General Counsel, told DailyMail.com in a statement:
‘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 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.’