Over 40 US states and FTC sue Facebook for antitrust conduct

The giant tech companies whose services are woven into the fabric of social life are now the targets of a widening assault by government competition enforcers. Regulators filed landmark antitrust lawsuits Wednesday against Facebook, the second major government offensive this year against once seemingly untouchable tech behemoths.

The Federal Trade Commission and 48 states and districts sued the social network giant, accusing it of abusing its market power to squash smaller competitors and seeking remedies that could include a forced spinoff of Facebook’s prized Instagram and WhatsApp messaging services. The company’s conduct has crimped consumers’ choices and harmed their data privacy, the regulators charged.

Once lionized as innovators and job creators – and largely left alone by Washington for nearly two decades – Big Tech companies have seen their political fortunes plummet. Facebook, Google, Amazon, and Apple have come under scrutiny from Congress, federal regulators, state attorneys general, and European authorities. Their once-considerable political support in Congress has eroded.

Lawmakers of both major parties are championing stronger oversight of the industry, arguing that its massive market power is out of control, crushing smaller competitors and endangering consumer privacy.

There’s little likelihood the pressure will ease up. President-elect Joe Biden has said the breakup of Big Tech giants should be seriously considered.

Lawmakers and consumer advocates have accused Facebook of anticompetitive behavior, most starkly in buying up aspiring smaller rivals like Instagram and WhatsApp and by copying features introduced by competitors. Critics say such tactics squash competition and could limit viable alternatives for consumers looking, for instance, for comparable services that do less tracking for targeted advertising. Businesses, including mom and pop shops, might have to pay more for ads if they have fewer choices to reach consumers online.

The new lawsuits were announced by the FTC and New York Attorney General Letitia James, culminating separate investigations over the past year and a half.

The FTC said Facebook has engaged in a “a systematic strategy” to eliminate its competition, including by purchasing smaller up-and-coming rivals like Instagram in 2012 and WhatsApp in 2014.

At a news conference, Ms. James said “it’s really critically important that we block this predatory acquisition of companies and that we restore confidence to the market.”

“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 Ms. James, a Democrat. “They reduced choices for consumers. They stifled innovation, and they degraded privacy protections for millions of Americans.”

Facebook called the government’s claims “revisionist history” that punishes successful businesses and noted that the FTC cleared the Instagram and WhatsApp acquisitions years ago. “The government now wants a do-over, sending a chilling warning to American business that no sale is ever final,” Facebook general counsel Jennifer Newstead said in a statement.

Antitrust skeptics point to newer social media services such as TikTok and Snapchat as rivals that could “overtake” older platforms like Facebook.

Facebook is the world’s biggest social network with 2.7 billion users and a company with a market value of nearly $800 billion. CEO Mark Zuckerberg is the world’s fifth-richest individual and the most public face of Big Tech swagger.

Ms. James alleged that Facebook had a practice of opening its site to third-party app developers, then abruptly cutting off developers that it saw as a threat. The lawsuit – which includes 46 states, Guam, and the District of Columbia – accuses Facebook of anti-competitive conduct and using its market dominance to harvest consumer data and reap a fortune in advertising revenues.

Online ads make up the bulk of the company’s revenue, which reached over $70 billion last year.

North Carolina Attorney General Josh Stein, who was on the executive committee of attorneys general conducting the investigation, said the litigation could alter the communications landscape much the way the breakup of AT&T’s local phone service monopoly did in the early 1980s.

“Our hope is to restructure the social networking marketplace in the United States, and right now there’s one player,” Mr. Stein told reporters.

Antitrust expert Rebecca Allensworth, a law professor at Vanderbilt University, said it is “hard to win any antitrust lawsuit and this one is not any different.” But as far as antitrust cases go, she added, the government has a strong one.

“These lawsuits mark an important turning point in the battle to rein in Big Tech monopolies and to reinvigorate antitrust enforcement,” said Alex Harman, competition policy advocate for Public Citizen, a nonprofit consumer advocacy group.

The Justice Department sued Google in October for abusing its dominance in online search and advertising – the government’s most significant attempt to buttress competition since its historic case against Microsoft two decades ago.

That suit, announced just two weeks before Election Day, brought accusations of political motivation from some quarters. It was filed by a cabinet agency headed by an attorney general seen as a close ally of President Donald Trump, who has often publicly criticized Google.

The FTC, by contrast, is an independent regulatory agency whose five commissioners currently include three Republicans and two Democrats. Two of the three Republicans, Noah Phillips and Christine Wilson, voted against the agency’s action against Facebook. And the coalition of 48 states and districts that sued Facebook is bipartisan.

Instagram and WhatsApp are among some 70 companies that Facebook has acquired over the past 15 years. But they are the ones most frequently held up by Facebook critics as properties that should be split off.

Facebook paid a mere $1 billion for Instagram – considered one of the cleverest deals ever in the industry – bolstering the social network’s business a month before its stock went public. At the time, the photo-sharing app had about 30 million users and wasn’t producing any revenue. A few years later, Facebook acquired WhatsApp, an encrypted messaging service, for $19 billion.

Mr. Zuckerberg vowed both companies would be run independently, but over the years the services have become increasingly integrated. Users are now able to link accounts and share content across the platforms. Instagram now has more than 1 billion users worldwide. Such integration could make it more difficult to break off the companies.

This story was reported by The Associated Press. AP journalists Barbara Ortutay in Oakland, California, and Gary D. Robertson in Raleigh, North Carolina, contributed to this report.