Facebook sued by FTC, 48 attorneys general alleging it operates an illegal monopoly

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Facebook Chairman and CEO Mark Zuckerberg testifies at a House Financial Services Committee hearing in Washington, U.S., October 23, 2019. REUTERS/Erin Scott     TPX IMAGES OF THE DAY
Facebook Chairman and CEO Mark Zuckerberg testifies at a House Financial Services Committee hearing in Washington, U.S., October 23, 2019. REUTERS/Erin Scott TPX IMAGES OF THE DAY

A group of 48 U.S. attorneys general led by New York filed an antitrust lawsuit against Facebook (FB) on Wednesday, alleging the social media giant is violating antitrust law by buying up competitors and depriving consumers of alternatives that would be more protective of their privacy. The Federal Trade Commission (FTC) filed a separate suit alleging antitrust violations.

At the heart of the allegations are claims that Facebook’s acquisitions of Instagram in 2012 for $1 billion and WhatsApp in 2014 for $19 billion, as well as other smaller technology companies, were carried out in order to quash competition. As part of its lawsuit, the FTC wants to force Facebook to sell both Instagram and WhatsApp.

“After identifying two significant competitive threats to its dominant position—Instagram and WhatsApp—Facebook moved to squelch those threats by buying the companies, reflecting CEO Mark Zuckerberg’s view, expressed in a 2008 email, that ‘it is better to buy than compete,’” the FTC lawsuit stated.

Facebook is the largest social network in the world with 2.6 billion monthly active users across its four apps: Facebook, Messenger, Instagram, and WhatsApp.

“No company should have this much unchecked power over our personal information and our social interactions and that’s why we are taking action today and standing up for the millions of consumers and millions of small businesses that have been hurt by Facebook’s illegal behavior,” New York Attorney General Letitia James said on Wednesday.

The second major antitrust lawsuit in less than two months

The suits mark the second major action in the U.S. against a Silicon Valley tech giant in less than two months. In October, the Justice Department, joined by a coalition of state attorneys general, filed a lawsuit against Alphabet’s Google (GOOG) (GOOGL), accusing the firm of abusing its monopoly power by positioning itself as a default general search engine with de facto exclusivity on millions of users’ phones and tablets. Google, the DOJ said, violated the law by entering into exclusivity deals with mobile device makers and carriers, including Apple, Samsung, AT&T (T), T-Mobile, and Yahoo Finance’s parent Verizon (VZ), that mandated the device makers use Google’s services and apps.

Instagram Chief Executive Officer and co-founder Kevin Systrom attends the launch of a new service named Instagram Direct in New York December 12, 2013. Photo-sharing service Instagram unveiled a new feature on Thursday to let people send images and messages privately, as the Facebook-owned company seeks to bolster its appeal among younger consumers who are increasingly using mobile messaging applications. The new Instagram Direct feature allows users to send a photo or video to a single person or up to 15 people, and have a real-time text conversations. REUTERS/Lucas Jackson (UNITED STATES - Tags: SCIENCE TECHNOLOGY BUSINESS LOGO)
Instagram Chief Executive Officer and co-founder Kevin Systrom attends the launch of a new service named Instagram Direct in New York December 12, 2013.

The Facebook lawsuits focuses on the company’s history of acquisitions. States argue the company’s past business maneuvers are legally problematic because they’ve swelled Facebook’s overall user base so significantly that the company holds anticompetitive sway over the e-commerce market.

The states are asking the court to find that Facebook has violated antitrust law by acquiring WhatsApp and Instagram and to bar it from buying any other companies worth more than $10 million without notifying the states first. Speaking on Wednesday, Letitia James said, “Facebook sent a clear message to the industry. Don’t step on Facebook’s turf.”

Facebook and Google are not alone as targets of increasingly antitrust scrutiny.

Amazon (AMZN) and Apple (AAPL) are also under investigation for their business practices. Amazon is facing investigations, both in the U.S. and the European Union, for its treatment of third-party sellers on its e-commerce platform, while Apple is dealing with a probe into how it exerts control over its App Store.

Facebook’s complicated relationship with the FTC

Facebook’s acquisitions of Instagram and WhatsApp didn’t occur in a vacuum, though. The Federal Trade Commission approved the company’s takeover of both apps, with the commission giving its blessing to the Instagram takeover in 2012, and the WhatsApp deal in 2014.

Yet the commission has also taken Facebook to task. In 2012, the agency slapped the social media company with a $5 billion penalty for allowing Cambridge Analytica, a data firm conducting election research on behalf of then candidate Donald Trump’s campaign, to access private data of 87 million Facebook account holders. In a settlement agreement the agency also mandated that Facebook implement new privacy safeguards, including third party access to user information.

Critics of the FTC’s fine were underwhelmed. The $5 billion sum, they said, was nothing more than a slap on the wrist for the company that reported $70.7 billion in revenue in fiscal 2019.

As part of the FTC’s investigation, the agency in August held a two-day hearing to elicit testimony from Facebook CEO Mark Zuckerberg.

Facebook’s issues extend beyond the FTC

In July, Zuckerberg also testified before the House Judiciary Committee’s Subcommittee on Antitrust, Commercial, and Administrative Law, alongside the CEOs of Alphabet, Amazon, and Apple. Among other topics, the executives were asked to answer questions meant to clarify whether the firms were engaging in anticompetitive behavior.

Zuckerberg again testified before lawmakers in November, alongside Twitter CEO Jack Dorsey. During the hearing, members of the Senate Judiciary Committee questioned the CEOs about their methods for moderating user content under Section 230 of the Communications Decency Act. The law, which allows websites to moderate certain user-generated content without legal liability, adds another layer of potential legal battles for the company.

During that hearing, Zuckerberg downplayed Facebook’s acquisition of Instagram. “At the time, I don’t think we or anyone else viewed Instagram as a competitor as a kind of large multipurpose social platform,” Zuckerberg said. “In fact, people at the time kind of mocked our acquisition because they thought that we dramatically spent more money than we should have to acquire something that was viewed as primarily a camera and photo sharing app at the time.”

Yahoo Finance reached out to Facebook for comment and will update this story if any response is received.

Alexis Keenan is a legal reporter for Yahoo Finance and former litigation attorney. Follow Alexis Keenan on Twitter @alexiskweed. Daniel Howley is the tech editor for Yahoo Finance.

Got a tip? Email Daniel Howley at dhowley@yahoofinance.com over via encrypted mail at danielphowley@protonmail.com, and follow him on Twitter at @DanielHowley.

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