Delaware Attorney General Kathy Jennings announced Wednesday that Delaware and other states are suing Facebook, citing antitrust issues.
More than four-dozen attorneys general filed the suit. The Federal Trade Commission also filed a lawsuit against the social media giant.
The suit charges Facebook Inc. with violating the Sherman Antitrust Act and the Clayton Antitrust Act to break up what states believe to be a monopoly.
Facebook issued the following response.
“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, stated Jennifer Newstead, vice president and general counsel, Facebook 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.”
The suit comes as Facebook remains under fire for allegedly failing to monitor data gathering and other activity from foreign actors, as well as not dealing with posts promoting violence or spreading discredited conspiracy theories.
The suit asks the court to halt Facebook’s “illegal, anticompetitive conduct and block the company from continuing this behavior in the future. Additionally, the coalition asks the Court to restrain Facebook from making further acquisitions valued at or more than $10 million without advance notice to 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 and current Facebook assets.”
“Whether it’s railroads, telecom, or social media, monopolies undermine our economy’s foundation of consumer choice,” said General Jennings. “Facebook knowingly, openly, and illegally made digital hostages of its users and developers over a decade of unfair acquisitions and mistreatment of developers. We are suing not just to hold this company accountable for its conduct, but to release consumers from a monopoly and to allow Delawareans the choice and freedom they deserve.”
The suit asserts that consumers have been harmed over the last decade by what CEO Mark Zuckerberg has described as an effort to “build a competitive moat.” This “moat” was principally comprised of two strategies: acquisition of potential rivals that might eventually threaten the company’s dominance and working to destroy third-party developers that Facebook invited to utilize its platform.
Facebook uses data-gathering tools to monitor apps and identify acquisition targets that pose the greatest threats to the tech giant’s dominance. The company offers the heads of these competitors vast sums of money — often extravagantly exceeding prior valuations – in hopes of squashing any future competition for the Silicon Valley behemoth, a release from Jennings’ office stated.
Cited as examples were the buyouts of Instagram and WhatsApp.
According to the suit, Facebook viewed Instagram as a threat shortly after the app took off in the early 2010s. After an attempt to develop a competing version failed to gain traction, Zuckerberg admitted that a better strategy would be “paying a lot of money” for Instagram to “neutralize a potential competitor.” At the time, Instagram had zero revenue but valued itself at $500 million, a sum that Zuckerberg called “crazy.” Despite that, Facebook acquired Instagram for $1 billion in April 2012.
Similarly, Facebook viewed WhatsApp as a unique threat to its growth, Jennings alleges; with over 400 million active users worldwide in 2014, WhatsApp was the leader among emerging mobile messaging services. In 2014 – just two years after another competitor offered the app $100 million – Facebook acquired WhatsApp for roughly $19 billion.
The complaint further describes an aggressive “buy or bury” strategy against Facebook competitors who refuse to be bought out.
The suit claims Facebook opened its platform to apps created by third-party and drove traffic to third-party sites by providing an easy sign-in mechanism on external sites and apps. The actions, in turn, allowed Facebook to capture valuable data about its users’ off-Facebook activity, enhance its ability to target advetising, and expand the site’s functionality. In 2011, Facebook began to rescind access to apps that the company viewed as competition.
The lawsuit is being handled for Attorney General Jennings’ Consumer Protection Unit by Deputy Attorney General Michael Undorf and Paralegal Zuri Ramsey.
