The US federal government and governments of 48 states and territories have sued Facebook for illegally crushing competition.
The lawsuits filed have put under the scanner the acquisition by Facebook of Instagram and WhatsApp.
What are the charges against Facebook?
The US Federal Trade Commission’s (FTC) lawsuit accused Facebook of eliminating competition with the acquisitions, even though the FTC itself had approved the deals.
The FTC has alleged that Facebook “is illegally maintaining its personal social networking monopoly through a years-long course of anticompetitive conduct”.
The case has been filed under Section 2 of the Sherman Act, which the FTC enforces through Section 5 of the FTC Act.
Section 2 of the Sherman Act prohibits companies from using anti-competitive means to acquire or maintain a monopoly.
Facebook’s 2012 acquisition of Instagram for $1 billion and the 2014 acquisition of WhatsApp for $19 billion are being cited as attempts to illegally eliminate competition.
The FTC has also accused Facebook of imposing “anti-competitive conditions on software developers”.
Facebook restricted its “third-party software developers’ access to valuable interconnections to its platform”.
It did this by exercising strict control over its application programming interfaces or APIs.
E.g. Facebook shut down API access for Twitter’s short video app Vine (introduced in 2013), effectively restricting its ability to grow.
In all, FTC says Facebook’s practices have -
harmed competition and left “consumers with few choices for personal social networking
deprived advertisers of the benefits of competition
What about Facebook’s acquisition of Instagram and WhatsApp?
Instagram - The FTC has noted that the acquisition of Instagram came at a time when users were switching “from desktop computers to smartphones”.
Users were thus “increasingly embracing photo-sharing”.
Facebook quickly recognized that Instagram would be an existential threat to Facebook’s monopoly power.
So, when Facebook was not able to compete with Instagram, it “ultimately chose to buy” the app to eliminate the threat.
Likewise, when a rising Snapchat was seen as a potential competitor to Facebook, the company made an unsuccessful attempt to buy it.
Later, it copied Snapchat’s most popular feature Stories in Instagram, followed by Facebook and WhatsApp.
Instagram now has more than a billion users; Snapchat has around 250 million daily active users.
WhatsApp - The FTC says that Facebook did the same with WhatsApp too.
When it realised that WhatsApp was “clear global ‘category leader’ in mobile messaging,” it bought out the competition.
FTC notes that Facebook acquiring WhatsApp also meant that “any future threat will have a more difficult time gaining scale in mobile messaging”.
This has largely been true.
WhatsApp dominates the mobile messaging space, and currently has over 2 billion users globally; more than 400 million in India alone.
No other messaging app comes even close, except perhaps Facebook’s own Messenger.
Notably, Instagram and WhatsApp are two products that are more appealing to younger users and in new geographies.
These are therefore crucial to driving Facebook company’s growth.
What does the FTC lawsuit aim for?
Notably, the FTC had approved the Instagram and WhatsApp deals.
It says that it can, and often does, challenge approved transactions when they violate the law.
But FTC says its “action challenges more than just the acquisitions”.
The aim now is to roll back Facebook’s anti-competitive conduct and restore competition.
The lawsuit seeks “divestitures of assets, including Instagram and WhatsApp”.
So if the FTC wins, Facebook might be forced to sell Instagram and WhatsApp.
FTC also wants to “prohibit Facebook from imposing anti-competitive conditions on software developers”.
This means Facebook will have to “seek prior notice and approval for future mergers and acquisitions”.
How has Facebook responded?
The company has said it is not true that it has no competition, and named “Apple, Google, Twitter, Snap, Amazon, TikTok and Microsoft”.
It said that the lawsuits ignored the fact that users could and did move often to competing apps.
Facebook has also questioned the “attack” on its acquisitions.
It recalled that the FTC had cleared the Instagram deal after an in-depth review.
The WhatsApp transaction had been reviewed by the European Union as well.
Regulators correctly allowed these deals to move forward because they did not threaten competition.
It said the FTC has “seemingly no regard for settled law or the consequences to innovation and investment”.
Facebook has thus called the lawsuits “revisionist history”.
According to Facebook, this is not how “antitrust laws are supposed to work” and “those hard challenges are best solved by updating the rules of the Internet.”
Regarding the API restrictions, Facebook argues that it is allowed to choose its business partners.
YouTube, Twitter, and WeChat have done well despite these API policies.
