The story so far: On December 9, social networking giant Facebook was sued by the Federal Trade Commission (FTC), the U.S. agency which seeks to protect consumers and promote competition, as well as by the attorneys general of 46 States, the territory of Guam and the district of Columbia. Their complaint against the Mark Zuckerberg-run company is that over the years, it has unlawfully maintained its monopoly in the social networking space. Among other things, they have called for a break-up of Facebook. This comes in the wake of several recent moves across the world targeting what’s called the ‘Big Tech’ on anti-trust charges. In October, for instance, the U.S. Justice Department sued Google for alleged abuse of its dominance in the search services market.
What are the core arguments made against Facebook in the lawsuits?
The plaintiffs — the FTC and attorneys general of all U.S. States except Alabama, Georgia, South Carolina and South Dakota — essentially say that Facebook has engaged in anti-competitive conduct over the years in order to maintain its monopoly in the market for social networking services, and that this has been driven by a fear of falling behind emerging competitors.
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The lawsuits highlight two broad areas where such conduct has been evident. Facebook’s acquisition strategy is one of the areas. The FTC lawsuit says the acquisition of photo-sharing network Instagram and messaging platform WhatsApp reflects Mr. Zuckerberg’s view that “it is better to buy than compete”. The plaintiffs reckon that the only reason why Facebook paid a whopping $19 billion to buy WhatsApp, which in six years it has not monetised, was that by doing so, it was eliminating a serious challenger to its top position in the social networking space.
The second area relates to “anti-competitive platform conduct”. The lawsuit by the States says, “When Facebook opted not to purchase a firm presenting a competitive threat, or was rebuffed, Facebook cut off access to key components of its immensely valuable network.” This is what happened to Twitter’s Vine, Path, Circle, and other apps, according to the lawsuit. The complaint is that Facebook closed access to its platform by potential competitors after having opened it up to enlarge its base and increase engagement with users.
Take the example of Vine, which allows users to create and share short videos that go in a loop. Its users could find friends via Facebook. But on the day of Vine’s launch, Facebook made sure this feature was no longer available. By cutting off Vine, says the FTC lawsuit, Facebook prevented it from accessing APIs (application programming interfaces) that could have helped it grow.
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In essence, the complaint is that Facebook either gobbled up potential competition or used its platform’s power to prevent them from scaling up.
What remedies do the lawsuits seek?
The lawsuits invoke the Sherman Act, 1890, and the Clayton Act, 1914. Section 2 of the Sherman Act makes it unlawful for a company to achieve monopoly power or keep such power via means that are anti-competition. Section 7 of the Clayton Act seeks to prevent mergers of companies that will lessen competition or lead to a monopoly.
In effect, the lawsuits seek a court order that would force Facebook to sell off Instagram and WhatsApp and prevent it from imposing anti-competitive platform conditions. There is also a reference to the Hart-Scott-Rodino Act, which “requires companies to file pre-merger notifications with the Federal Trade Commission and the Antitrust Division of the Justice Department for certain acquisitions”. The lawsuit invokes this to ask for an order to make Facebook seek prior approval for its acquisitions in future.
How has Facebook reacted to this?
In its blog, Facebook has said that the acquisitions of Instagram and WhatsApp “were intended to provide better products for the people who use them, and they unquestionably did”. Also, it has said that these acquisitions were reviewed, and “correctly allowed”, by the relevant anti-trust regulators then.
It also points to one of the big remedies sought — the break-up of Facebook — to say that “this lawsuit risks sowing doubt and uncertainty about the U.S. government’s own merger review process and whether acquiring businesses can actually rely on the outcomes of the legal process”.
Responding to the other big complaint that it unfairly shut off promising services from accessing its platform, it has said, “Facebook told these apps that they could not use Facebook’s platform to essentially replicate Facebook.” According to it, “This restriction is standard in the industry. Where platforms give access to other developers — and many do not provide access at all — they usually prohibit duplication of core functions.” It further said that LinkedIn, The New York Times, Pinterest, and Uber, among others, have similar policies.