Federal and State Antitrust Lawsuits Threaten to “Break Up” Facebook’s Social Media Empire
Written by AskTheLawyers.com™
On Wednesday, December 9th, Facebook was slapped with a myriad of antitrust lawsuits, courtesy of the Federal Trade Commission (FTC) and more than 40 states.
The social media titan with more than 3 billion users across its platforms is facing allegations including anticompetitive conduct, harm to competition, and violation of federal trade law. If the allegations stick, the federal lawsuit may require Facebook to sell off Instagram and WhatsApp, and the state lawsuit may require Facebook to notify officials of any future acquisitions valuing more than $10 million.
Facebook’s habit of buying up potentially competitive social media companies seems to have caught up to this industry giant.
It’s no secret that Facebook’s social media empire has been expanding exponentially since its conception. It’s also no secret that if a company has the resources, it’s easier to “buy than compete”. These were allegedly the words of Facebook CEO Mark Zuckerburg, according to a 2008 email quoted in the FTC complaint. After following the “better to buy than compete” philosophy for some time, it finally seems to have landed the social media platform in hot water.
The Sherman Antitrust Act of 1890 is designed to ensure free competition between businesses in the commerce industry.
When a company fails to abide by the rules and regulations laid out by the FTC and The Sherman Act, they are subject to corrective legal recourse. In these lawsuits, Facebook is facing allegations of violating Section 2 of The Sherman Act, among other things. Free and fair competition in the open mark is what in many ways sets apart the U.S. market from that of other countries. It’s unsurprising then that when a company—especially one as powerful as Facebook—is accused of violating the laws that make this competitive market possible, state and federal governments step in to investigate.
Facebook’s acquisition of Instagram and WhatsApp have been specifically called into question.
According to the official FTC complaint, “Since toppling early rival Myspace and achieving monopoly power, Facebook has turned to playing defense through anticompetitive means. After identifying two significant competitive threats to its dominant position—Instagram and WhatsApp—Facebook moved to squelch those threats by buying the companies...”
Although the FTC previously cleared Facebook’s acquisition of Instagram for $1 billion in 2012 and $19 billion for WhatsApp in 2014, the question of their right to go back and review past acquisitions has come into question. Utah Senator Mike Lee commented on this exact phenomenon, saying that while he is in favor of the lawsuit and is glad to see antitrust regulations being enforced, considering that the FTC was fully aware of and approved these acquisitions initially, this lawsuit is something of an attempt to “clean up its own mess.”
The FTC lawsuit goes on to allege that Facebook’s conduct has caused significant harm to other companies.
In addition to creating an environment where competition is questionably fierce, the suppression of other social media networks also inhibits the sale of advertising which Facebook itself relies on. According to the complaint, this deprives not only customers of the ability to shop around for the best advertising opportunities but makes it all but impossible for competitors to generate meaningful profit from this aspect of their business.
Between buying up competitors that threaten their monopoly and reducing the value of advertisements anywhere else, the FTC lawsuit claims that “...Facebook has hindered, suppressed, and deterred the emergence and growth of rival personal social networking providers, and unlawfully maintained its monopoly in the U.S. personal social networking market, other than through merits competition.”
The FTC lawsuit calls for a divestment of Instagram, WhatsApp, and any other assets which the court decides to be proper.
If the federal lawsuit is successful in establishing Facebook’s violation of anticompetitive trade laws, it will likely be required to break up its empire by selling off some of its most massively successful acquisitions, including Instagram and WhatsApp. Additionally, Facebook may be required to provide ongoing support or services to viable, independent businesses in order to help level the playing field. If successful, both the federal and state lawsuits will also require the company to seek prior approval before any future acquisitions or mergers.