Experts told Recode it’s possible that Facebook will be forced to sell both apps, but not anytime soon.
On Wednesday, the US Federal Trade Commission and 48 US state attorneys general filed major lawsuits against Facebook that argue the social media giant is a monopoly whose anti-competitive practices harm Americans.
The two lawsuits, which follow more than a year of investigations, are the biggest antitrust challenge Facebook has faced. They both essentially call for Facebook to be broken up by forcing it to undo its acquisitions of Instagram and WhatsApp, which together have billions of users.
The lawsuits allege that such action may be necessary because Facebook has crushed its competitors and achieved dominance by buying potential rivals, and that this limits American consumers’ choices and reduces their access to privacy protections.
“They stifled innovation, and they degraded privacy protections for millions of Americans,” New York Attorney General Letitia James, who led the states’ lawsuit (which includes 46 states plus Washington, DC, and Guam), told reporters on Wednesday. “No company should have this much unchecked power over our personal information and our social interactions.”
Facebook did not immediately respond to a request for comment. But a blog post published by the company on Wednesday called the lawsuits “revisionist history.” The company emphasized that its acquisitions of WhatsApp and Instagram were approved by the FTC years ago, and said allowing a “do-over” would raise a concerning precedent that “no sale will ever be final.”
Their cases focus in particular on Facebook’s acquisitions of Instagram, a photo-sharing app it purchased for $1 billion in 2012, and the global messaging app WhatsApp, which it bought for $19 billion in 2014. The suits claim Facebook depended on these acquisitions to become the monopoly it is today, giving it the power to crush competitors it does not acquire.
“For almost a decade, Facebook has had monopoly power in the personal social networking market in the United States,” the AG suit argues. “Facebook illegally maintains that monopoly power by deploying a buy-or-bury strategy that thwarts competition and harms both users and advertisers.”
The FTC’s case comes to the same conclusion. “Not content with attracting and retaining users through competition on the merits, Facebook has maintained its monopoly position by buying up companies that present competitive threats and by imposing restrictive policies that unjustifiably hinder actual or potential rivals that Facebook does not or cannot acquire,” says the suit.
It’s a compelling argument, William Kovacic, a former FTC member and a professor of law and policy at George Washington University, told Recode. “Both of them are premised on the idea that the main source of dominance for Facebook was the acquisitions of Instagram and WhatsApp in particular, and that those are the key pillars of the company’s current market position. And the only way to repair that is to create a new enterprise.”
The lawsuits come at a pivotal time for Big Tech, as the public, regulators, and lawmakers on both sides of the aisle are scrutinizing these companies and their impacts on society and the economy. In October, the House Antitrust Committee concluded a 16-month investigation by releasing a wide-ranging report that found that Facebook and its fellow tech giants Amazon, Apple, and Google have antitrust practices and need to be better regulated. A still unresolved question is whether antitrust laws written decades ago are up to the task of regulating companies in the age of the internet.
Though the findings are similar, Wednesday’s lawsuits are different from the lawmakers’ report, which makes recommendations but can’t do much to enforce those suggestions. These suits, however, could lead to Facebook being forced to take certain actions, like paying fines or selling off WhatsApp and Instagram based on existing laws. Still, it’s too soon to say what the impact of these lawsuits will be.
Why the US government says Facebook is bad for Americans
Though the cases from the FTC and attorneys general aren’t exactly the same, the parties collaborated, and their cases lay out similar claims about why Facebook is anti-competitive.
Essentially, they find that Facebook is a powerful social media monopoly that collects a massive amount of data on American users that the company uses to sell advertisements. While the lawsuits zero in on the Instagram and WhatsApp acquisitions, both say Facebook’s anticompetitive behavior is part of a broader pattern.
Much of the evidence in the cases cite commentary from the company’s top executives, including CEO Mark Zuckerberg, as proof that Facebook is intentionally anti-competitive. For instance, the FTC’s case cites an email Zuckerberg sent to a colleague on the day Facebook announced it was buying Instagram. “I remember your internal post about how Instagram was our threat and not Google+. You were basically right. One thing about startups though is you can often acquire them,” the lawsuit quotes Zuckerberg.
“What the lawsuit means is that Facebook’s monopoly power and personal social networking was not just a result of innovation or being the best product or service out there, but rather that Facebook has broken the antitrust laws in order to ensure that it doesn’t face any meaningful competition,” Sally Hubbard, of the Open Markets Institute, told Recode.
The cases also call out Facebook’s treatment of developers. They accuse the company of allowing producers of other software to use Facebook’s data to develop their own apps and connect them to its service, which benefited Facebook because it incentivized more people to join and use Facebook more often. But Facebook would then shut out those apps if it eventually deemed them to be a threat to its own business.
“You’re not allowed to offer something to every company that’s kind of a critical input for competing,” Hubbard explains, “but then cut it off when a company dares to compete against you, which is what Facebook did.”
“Users of personal social networking services have suffered and continue to suffer a variety of harms as a consequence of Facebook’s illegal conduct, including degraded quality of users’ experiences, less choice in personal social networks, suppressed innovation, and reduced investment in potentially competing services,” the AG lawsuit states. It argues that another consequence of all this was to harm Americans’ right to privacy because Facebook stifled competitors that might have offered better privacy protections. (In 2019, Facebook agreed to pay a record-breaking $5 billion fine as part of a settlement with the FTC over allegations of privacy violations.)
Any potential breakup of Facebook is a long way off
So what’s the solution for undoing some of the harm these lawsuits say Facebook is causing its users and the market?
The suits both argue that the social media giant should basically have to break itself up. But getting there will be difficult, and if it happens, it will take time. The Open Market Institute’s Hubbard told Recode that litigation over Facebook being forced to divest from Instagram and WhatsApp would likely take years; other experts told Recode that a trial likely wouldn’t even start until next year, or as late as 2022.
Another complication: Facebook is continuing to intertwine its apps, which would presumably make them harder to separate if it gets to that point. In 2019, Facebook announced that it would start merging the technical infrastructure of the direct messaging systems used by WhatsApp, Instagram, and Facebook. The company also has more ambitious hopes for WhatsApp, and it has signaled it may link its Facebook and Instagram advertising business with the messaging platform.
In a tweet on Wednesday after the lawsuits were announced, Facebook pushed back against their claims, emphasizing that the FTC had approved the acquisitions of WhatsApp and Instagram years ago.
“We’re reviewing the complaints & will have more to say soon,” the company tweeted just after the lawsuits were announced. “Years after the FTC cleared our acquisitions, the government now wants a do-over with no regard for the impact that precedent would have on the broader business community or the people who choose our products every day.”
In a blog post published subsequently, the company also argued that it faces competition for advertising spending from other platforms like Google and TikTok.
But those aren’t the only defenses at Facebook’s disposal. “Facebook’s core answer is, ‘Look what we did with the firms we acquired. Did we just put them on the shelf? Did we stick them in the deep freeze? We took relatively small — promising enterprises but small enterprises — in a fragile, uncertain part of their development, and we turned them into something special,’’ said Kovacic.
Still, he said the cases “create a very serious possibility that the firm will be restructured.” Now, the groundwork will likely be laid for the case to go to a trial.
It’s too early to say how this will all play out, but experts told Recode that a forced sale is certainly a possibility.
So while accusations that Facebook engages in anticompetitive behavior aren’t new, the new lawsuits give the company’s critics even more to work with. They also signal that the push to more strictly regulate Big Tech won’t go away when President-elect Joe Biden takes office in 2021.
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