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48 AGs, FTC Sue Facebook, Alleging Illegal Power Grabs To 'Neutralize' Rivals

Facebook CEO Mark Zuckerberg testifies before a House Financial Services Committee hearing in 2019.
Andrew Harnik
Facebook CEO Mark Zuckerberg testifies before a House Financial Services Committee hearing in 2019.

Updated at 9:30 p.m. ET

The Federal Trade Commission and 48 attorneys general across the nation filed much-anticipated lawsuits against Facebook on Wednesday, accusing the social media giant of gobbling up competitive threats in a way that has entrenched its popular apps so deeply into the lives of billions of people that rivals can no longer put up a fight.

"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 Letitia James, who led the states' investigation. "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."

The suits are the latest salvo against Big Tech and come less than two months after the U.S. Justice Department and 11 states sued Google, alleging the company violated competition law. Together, the efforts to rein in the power of the tech giants mark a new era for U.S. regulators, who for decades allowed the technology sector to grow rapidly with few restraints.

Lawsuits take aim at Facebook's alleged 'buy-or-bury' strategy

Wednesday's lawsuits take particular aim at Facebook's blockbuster acquisitions of photo-sharing app Instagram, for $1 billion in 2012, and messaging app WhatsApp, for $19 billion in 2014. Thanks in large part to the growth of the two hugely popular properties, more than 2.5 billion people use one of Facebook's apps every day.

The attorneys general allegethat the deals for Instagram and WhatsApp broke competition law. Prosecutors are asking a federal court to intervene by possibly forcing a sale or spinoff of those apps.

In addition, authorities are asking the court to prevent Facebook from making any acquisitions worth more than $10 million while the case proceeds.

In its separate suit, the FTC is also pushing to have Facebook unwind its purchases of Instagram and WhatsApp.

"Today's enforcement action aims to restore competition to this important industry and provide a foundation for future competitors to grow and innovate without the threat of being crushed by Facebook," said Ian Conner, director of the FTC's competition bureau.

Facebook, according to the lawsuits, cut off other apps viewed as potential competitors from critical access to its data and systems.

"In an effort to maintain its market dominance in social networking, Facebook has employed a buy-or-bury strategy to impede competing services," James said. "They also sent a clear message to the industry: Don't step on Facebook's turf. Or as one industry executive put it, 'You will face the wrath of Mark,'" she said, referring to CEO Mark Zuckerberg.

Facebook's general counsel, Jennifer Newstead, dismissed the legal challenges as "revisionist history." In a statement, she said the company's takeover of Instagram and WhatsApp had been approved by federal regulators at the time of the acquisitions.

"Now, many years later, with seemingly no regard for settled law or the consequences to innovation and investment, the agency is saying it got it wrong and wants a do-over," she said.

Facebook said it faces plenty of competition from other social media companies, including messaging platform Snapchat and video-sharing app TikTok.

Big Tech is in the regulatory spotlight after years of a laissez-faire approach

The 48 attorneys general — representing 46 states, the District of Columbia and Guam — involved in the lawsuit and federal investigators have been conducting probes into Facebook for more than a year.

Attorneys general from Alabama, Georgia, South Carolina and South Dakota did not join the states' suit, which legal experts say could turn into a landmark case against one of the most powerful companies in the world.

After years of taking a laissez-faire approach to the tech giants, regulators and lawmakers on both sides of the aisle have grown increasingly concerned about the influence that the biggest tech companies wield over how people live, work, shop and receive information about the most vital topics of the day, such as presidential elections and the coronavirus pandemic.

Sally Hubbard, a former antitrust lawyer in New York's Office of the Attorney General and author of the new book Monopolies Suck, said industry onlookers have long criticized Facebook's aggressive tactics.

"Facebook has ensured that any company that is innovating is just destroyed. Copy, killed or acquired — that's the modus operandi of Facebook," Hubbard said. "This is a big deal. I think we're finally turning the tide and reinvigorating our antitrust laws. Everybody is going to benefit when we have markets that are competitive and functioning."

Facebook and Google are not the only tech behemoths under intense government scrutiny. Others, including Apple and Amazon, are under examination by the Justice Department and the FTC, as part of a wide-ranging review.

"There was a long period where antitrust enforcers and regulators were saying, 'We need to stay hands off Big Tech,' and it's really becoming clear with cases like this that that time is over," said Charlotte Slaiman, a former FTC lawyer who now leads competition policy at the Washington-based advocacy group Public Knowledge.

Lawmakers on Capitol Hill are circling the companies, too. In a damning report in October accusing Facebook, Google, Apple and Amazon of abusing their market dominance, House Democrats zeroed in on Facebook's acquisition strategy. The report quoted messages between Zuckerberg and a top deputy in which they discussed "neutraliz[ing]" a potential competitor as a reason to pursue Instagram.

The report concluded that Facebook's lack of competition has led to lower quality, harming users' privacy and fueling the spread of online misinformation. It cited internal documents showing that Facebook is now more worried about competition among its own products than the threat of rivals.

On Wednesday, House Judiciary Committee Chairman Jerrold Nadler, D-N.Y., said he welcomed the lawsuits. "Facebook has illegally maintained its monopoly, allowing it to engage in other abusive conduct," he said in a statement. "This should never have happened."

Courts could pursue a range of remedies to address claims against Facebook

In the most extreme outcome, the lawsuits could result in Facebook being forced to spin off parts of its business or face far-reaching restrictions on how it operates.

But experts say other outcomes remain possible. Among them, forcing Facebook to allow people to post simultaneously across platforms not owned by Facebook, letting users view posts from competing social networks within Facebook and permitting friend lists and other data to be exported to rival platforms.

"So it's easier for people to leave Facebook if they're not happy with how Facebook is running things," Slaiman, the former FTC lawyer, said.

This idea, known in tech circles as "interoperability," could help introduce more competition into social media and give people more choices, state and federal investigators say.

"When Facebook doesn't have competition, it can abuse us all. It doesn't have a competitor that is requiring it to do better. People don't have an option," said Hubbard, the former New York antitrust enforcer.

Facebook has already faced questions over how it handles user privacy and data. Last year, the company agreed to pay the FTC $5 billion for failing to protect data from being shared with third-party apps.

Experts say from dominating online advertising, which has a cost that can be passed off to consumers, to harvesting vast amounts of data that can be used to target users with ads or other content, Facebook exerts an unfathomable amount of power that has gone virtually unchecked since the company was founded in a Harvard University dorm room in 2004.

"People are used to having been abused by monopoly by having prices jacked up on them. People understand when their cable bill is high and they only have a choice in one or maybe two providers," Hubbard said. "People have a harder time understanding how Facebook's monopoly power makes their life worse."

Editor's note: Facebook is among NPR's financial supporters.

Copyright 2021 NPR. To see more, visit https://www.npr.org.

Shannon Bond is a business correspondent at NPR, covering technology and how Silicon Valley's biggest companies are transforming how we live, work and communicate.
Bobby Allyn is a business reporter at NPR based in San Francisco. He covers technology and how Silicon Valley's largest companies are transforming how we live and reshaping society.