In a major groundbreaking lawsuit, the Federal Trade Commission (FTC), in conjunction with 46 states, the District of Columbia, and the territory of Guam, accused Facebook (FB) Wednesday in the U.S. District Court for the District of Columbia of being an illegal monopoly, by buying up its rivals in order to quell competition.
Bipartisan federal and state regulators have been investigating Facebook for over 18 months. In two separate, parallel lawsuits, the parties call for Facebook to be broken up and its assets divested, including forcing the company to sell off the popular social networking apps of Instagram and WhatsApp.
The lawsuit is just one of many in recent days, further emphasizing the bipartisan consensus that Big Tech is too powerful. This is the first major antitrust lawsuit since the U.S. government’s landmark lawsuit against Microsoft back in the 1990s. Two months ago, the Department of Justice sued Google for being an illegal monopoly but didn’t ask for the company to be broken up.
The lawsuits focus on two of Facebook’s largest acquisitions: the acquisition of Instagram in 2012 for $1 billion, and the acquisition of WhatsApp in 2014 for $19 billion.
Since those acquisitions, the combined apps have a user base of well over three billion, propelling Facebook into a social media giant with a market cap of over $800 billion.
New York’s Attorney General, Letitia James, a Democrat, leads the states’ lawsuits along with the FTC’s lawsuit, led by a Republican. James said that “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.”
This lawsuit comes 14 months after James announced that she would be leading a group of attorneys general into investigating Facebook’s potentially anticompetitive practices. In total, 46 state attorneys general have now signed onto the lawsuit. (Only Alabama, Georgia, South Carolina, and South Dakota didn’t join.) The FTC has been investigating Facebook since mid-2019, and two Democrats along with the Republican chair (appointed by President Trump) voted, in a five-person commission of two Democrats and three Republicans, voted “yes” to proceed with the lawsuit.
The states’ lawsuit also demands Facebook to notify state officials of any future acquisition valued at $10 million or above.
Although regulatory bodies did not object to Facebook’s acquisitions years ago, mostly because of insufficient antitrust law and due to that industry being very new, a former chairman of the FTC, William Kovacic, has said that “there’s nothing in U.S. merger law that says an agency’s decision not to challenge a proposed deal immunizes that deal from future review.”
As the wave against Big Tech has kicked off in Washington, Facebook has sought to integrate its apps more tightly, for instance, by merging Facebook Messenger and Instagram direct messages. This is likely to be one of Facebook’s defenses to try and complicate breakups. The company has also hired lots more lawyers with experience in this field, and this, along with a claim that cracking down hard on American tech companies could give China a competitive edge, will likely be Facebook’s defenses. The company will also likely point to the rise in apps like Snapchat (SNAP), Twitter (TWTR), Pinterest (PINS), Discord, TikTok, and Parler (a conservative social media platform), to defend their view that the social media market is, in fact, competitive and Facebook isn’t a monopoly.
The company has also complained that “the government now wants a do-over, sending a chilling warning to American business that no sale is ever final.
Prosecutors will have to prove, in court, that Facebook’s alleged anticompetitive behavior has led to harm to consumers or competition. The states’ suit claimed that Facebook’s behavior has resulted in fewer choices among social media platforms and worse experiences, and that Facebook opened its platform to third-party access to attract developers, only to cut them off from using the service if deemed to be a competitive threat.
Facebook stock closed two percent down on Wednesday after the suits were announced.
Antitrust lawsuits can take many years to come to fruition, as demonstrated by the U.S. government’s case against Microsoft in the 1990s. The result of this lawsuit could have far-fetching implications in the tech sector, as well as for American business going forward. The lawsuit by the FTC is expected to continue even when President-Elect Biden takes over in January.