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FTC, states sue Facebook for breaking antitrust laws

The antitrust lawsuits allege Facebook impeded competition by buying up rivals to control the market.

Antitrust lawsuits filed against Facebook Inc. by attorneys general from 46 states, the District of Columbia and Guam as well as the Federal Trade Commission allege that the social media powerhouse stifled competition and sidestepped consumer privacy protections to maintain its dominance in 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," New York Attorney General Letitia James said in a statement. James, the lead attorney general, filed the lawsuit Wednesday.

The Federal Trade Commission (FTC) also filed a lawsuit Wednesday alleging Facebook broke antitrust laws and engaged in anticompetitive behavior. Both lawsuits detailed arguments that Facebook took deliberate, aggressive steps to level its competition through acquisition or "anticompetitive conditions" it placed on third-party application developers, as well as depriving consumers of choice among social networks through "predatory" competition consumption.

The antitrust filings are the latest steps taken by state and federal government agencies to rein in big tech.

What the lawsuits say

The lawsuits allege that Facebook illegally maintains its dominance in the market through a strategy the lawsuit by the attorneys general calls "buy-or-bury," illustrated through its acquisition of the mobile-first social networking app Instagram in 2012 for $1 billion and its acquisition of the messaging service WhatsApp in 2014 for $19 billion.

The lawsuits go on to claim that Facebook allows third-party developers to use the platform to grow Facebook's user base and enhance its data insights but cuts off access if the third-party application becomes a competitive threat by changing its policies and practices.

Facebook's dominance in the market also negatively affects consumers, according to the lawsuits. Facebook has been able to set the terms for how consumer data is collected, stored and used to fuel its business interests. By gobbling up the competition, Facebook has also gobbled up a consumer's choice to leave the social networking business behind, according to the lawsuits.

Facebook is charged with violating Section 2 of the Sherman Act, which makes it unlawful for a person to monopolize trade among several U.S. states. Facebook is also charged with violating Section 7 of the Clayton Act, which prohibits acquisitions that significantly reduce competition and lead to creating a business monopoly.

Both lawsuits ask that the court stop Facebook from making further mergers and acquisitions without prior notice and approval, as well as potentially selling Instagram and WhatsApp. 

Facebook issued a statement claiming the FTC wants a "do-over." The FTC approved both the Instagram and WhatsApp acquisitions when they were made.

"This lawsuit risks sowing doubt and uncertainty about the U.S. government's own merger review process and whether acquiring businesses can actually rely on the outcomes of the legal process," according to the statement Wednesday from Jennifer Newstead, vice president and general counsel at Facebook.

Jessica Liu, senior analyst at Forrester, wrote in a blog post Wednesday that, while the lawsuits against Facebook could eventually deflate the social media giant's bubble if the company is broken up, it won't "burst" as the company will likely continue its method of copying and building its own versions of competitive products.

"Facebook Inc.'s social network effect is insurmountable, even after a breakup that could take years as the lawsuit plays out," Liu wrote. "In the meantime, the one-fourth of the global population, 1.8 billion people, already using the Facebook app and Messenger alone will carry on as usual, oblivious to any legal implications."

Big tech remains in the crosshairs

Facebook isn't the only big tech company the federal government is scrutinizing in its hunt to end industry monopolization.

In October, the House Judiciary Committee's antitrust subcommittee released a sweeping report that called for breaking up Google, Facebook, Apple and Amazon. A few weeks later, the U.S. Department of Justice and 11 state attorneys general sued Google for violating antitrust laws, alleging the company monopolized the search industry, as well as search advertising. 

Ray Wang, principal analyst and founder of Constellation Research Inc., said, while regulation is needed, he doesn't believe the Facebook antitrust lawsuits have good footing to stand on.

Wang said it will be difficult for the states and the U.S. government to prove there is injury to consumers who choose to engage with free social networking platforms. He believes the FTC will also struggle to walk back its approval of the Instagram and WhatsApp mergers.

"The angle I probably would've come after here is what we need to do is make sure that this personal data that's being captured and mined by any digital company is the property right of the individual," Wang said. "Every state defines what property rights are, there is an existing framework. All the federal government has to do is say that your personal information, your privacy data, your genomics, are personal data, and in order for a company to use that information, even if a service is free, they need to achieve consent with the user."

Alan Pelz-Sharpe, founder and analyst at Deep Analysis, echoed Wang's focus on consumer data. Facebook, Instagram and WhatsApp are free to use, but consumers do give something up in return -- their data, which should be viewed as not just digital exhaust but as a commodity, he said.

"When you track users both on your site and once they leave it, that accumulated data becomes very valuable indeed," Pelz-Sharpe said. "Therefore, there is an argument that the services are not free at all, you pay through your loss of privacy. … We all know that when we join social networking platforms, we are giving up something in return. Few understand how much they are giving up or the extent to which they are tracked."

Pelz-Sharpe said that while the lawsuits may be too late to make the market more competitive, they may raise awareness among consumers and create increased calls from the public for big tech companies to change their business models. 

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