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Monday, March 8, 2021

Delaware joins massive coalition in suing Facebook

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Delaware, 45 other states, one territory and Washington, D.C., today filed a lawsuit accusing Facebook of being a predatory and anticompetitive monopoly. The Federal Trade Commission today filed a similar lawsuit.

The company’s stock was down almost 4% following the news of the lawsuits, CNBC reported.

The moves had long been expected, following hearings in Washington and lots of complaints by political leaders.

The coalition asks the court to halt Facebook’s anticompetitive conduct and block the company from continuing this behavior in the future. It asks for Facebook to restrained from making further acquisitions valued of at least $10 million without advance notice to plaintiff states. And it asks for any additional relief the court determines is appropriate, including the divestiture or restructuring of illegally acquired companies and current Facebook assets.

“Whether it’s railroads, telecom, or social media, monopolies undermine our economy’s foundation of consumer choice,” Attorney General Kathy Jennings said in a statement. “Facebook knowingly, openly and illegally made digital hostages of its users and developers over a decade of unfair acquisitions and mistreatment of developers. We are suing not just to hold this company accountable for its conduct, but to release consumers from a monopoly and to allow Delawareans the choice and freedom they deserve.”

“In a damning report in October accusing Facebook, Google, Apple and Amazon of abusing their market dominance, House Democrats zeroed in on Facebook’s acquisition strategy. The report quoted messages between [CEO Mark] Zuckerberg and a top deputy discussing “neutralizing” a potential competitor as a reason to pursue Instagram,” NPR reported.

“Facebook did not immediately respond to a request for comment, though the company is sure to fiercely defend its business in a legal war that could take years to resolve,” The Washington Post reported.

The lawsuit asserts that Facebook illegally acquired established competitors, cut services to smaller threats, deprived users from the benefits of competition and reduced privacy protections and services along the way.

This monopoly gives Facebook even broader discretion over how content is curated on the platform, how its users’ private information is collected. Indeed, many privacy protections have been eroded or eliminated in order to expand the tech giant’s dominion over user data. Facebook’s anticompetitive strategy was showcased most obviously in its two highest-profile acquisitions: Instagram and WhatsApp.

Facebook viewed Instagram as a threat shortly after the app took off in the early 2010s. After an attempt to develop a competing version failed to gain traction, Zuckerberg admitted that a better strategy would be “paying a lot of money” for Instagram in an effort to “neutralize a potential competitor.” At the time, Instagram had zero revenue but valued itself at $500 million, a sum that Zuckerberg called “crazy.” Despite that, Facebook acquired Instagram for $1 billion in April 2012.

Similarly, Facebook viewed WhatsApp as a unique threat to its growth. With over 400 million active users worldwide in 2014, WhatsApp was the leader among emerging mobile messaging services. Facebook considered WhatsApp and similar products “the biggest competitive threat we face as a business.” In 2014 – just two years after another competitor offered the app $100 million – Facebook acquired WhatsApp for roughly $19 billion. 

Today’s complaint further describes an aggressive “buy or bury” strategy against Facebook competitors who refuse to be bought out. 

Facebook opened its platform to apps created by third-party and drove traffic to third-party sites by providing an easy sign-in mechanism on external sites and apps. This in turn allowed Facebook to capture valuable data about its users’ off-Facebook activity, enhance its ability to target advertising, and expand the site’s functionality. In 2011, Facebook began to rescind access to apps that the company viewed as competition. 

The abrupt termination of Facebook access can devastate an app: some companies experienced an almost overnight drop-off in user engagement and downloads. Removing Facebook access deprives an app of a major online market and triggers a sudden loss of functionality that can create broken or buggy features and suggest to users that the app is unstable. Facebook’s actions against perceived threats to its growth and profit serve as a territorial warning to developers and also deter venture capitalists from investing in companies that Facebook might in the future see as competitors.

The elimination of competition large and small, and a sprawling business model that includes social networking, advertising, messaging, payments, and third party log-ins, exacerbates a dilemma for Facebook users: nobody wishing to leave the site has a simple way to transfer information or functionality to other services. Regardless of consumer preferences or Facebook’s actions, users are effectively forced to stay put or to start their online lives from scratch.

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