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FTC sues Facebook, seeks to undo WhatsApp and Instagram acquisitions

Peter Griffin, Contributor. 10 December 2020, 9:51 am

US regulators are ending the year as they intend to go on, with a flurry of anti-trust lawsuits that this time target social media giant Facebook.

The Federal Trade Commission, in conjunction with 47 state attorneys general, are suing Facebook alleging anti-competitive practices. It follows the Department of Justice's lawsuit filed against Google in October which alleged that the search giant was using its market dominance to lock competitors out.

The approach taken by the regulators is different but they ultimately seek the same result - structural separation of these Big Tech companies to break their allegedly monopolistic practices. 

In the case of Facebook, the lawsuits centre on its acquisition strategy, which involved the company paying US$1 billion for photo-sharing app Instagram in 2011 and the 2014 purchase of WhatsApp for US$19.3 billion.

Divestiture of assets

Those acquisitions, the FTC suit claims (which is well-written and worth a read), were designed to eliminate threats to Facebook's power. Whether that was the intention or not, the purchases have certainly helped Facebook retain its position as the world's dominant social network - at least in the English-speaking world anyway, with over 3 billion users.

The FTC is seeking an injunction against Facebook that would include the "divestiture of assets, divestiture or reconstruction of businesses (including, but not limited to, Instagram and/or WhatsApp), and such other relief sufficient to restore the competition that would exist absent the conduct alleged".

Another arm of the case takes aim at Facebook's policies around controlling which third parties have access to the network via APIs (application programming interfaces).  

Facebook disclosed over a year ago that it was being investigated by the FTC. It also had to fork out US$5 billion in fines to the FTC and tighten its privacy policies as a result of privacy breaches in the Cambridge Analytica scandal.

But that pay-out barely caused a ripple in the markets given Facebook's strong balance sheet and, yep, its market dominance. Fines aren't being demanded in this case, but a more structural solution aimed at getting to the heart of the perceived problem - Facebook's ability to crush any emerging competitors - or buy them outright.

Facebook for its part is considering the lawsuits and its next moves.  

"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," the company posted on Twitter.

CEO Mark Zuckerberg and his executives do have a point. Where was the considered scrutiny of the acquisitions by the FTC nearly a decade ago when Instagram was on the block and especially four years later when Facebook paid its eye-watering sum for Whatsapp?

What it means for us

As with the Google lawsuit, which also takes place in the context of US anti-trust law, the Sherman Act, Facebook's case will be complicated, costly and drawn out over years. In the meantime, Facebook and its other messaging apps will likely continue to be used as normal, however, any plans Facebook still had to further integrate its messaging platforms will now surely be on hold.

The suit has major implications for how Facebook uses data in future, how it interacts with other companies seeking to access its network with software interfaces, and ultimately its future shape as an advertising platform for New Zealand businesses.

Big is not necessarily bad in competition law. The issue is whether being big gives Google and Facebook the power to stop anyone else competing against them. That's the crux of the matter and the tech landscape could alter significantly based on the lawusit outcomes.

Who's next?

The question now is who is next? Will Apple and Amazon also find themselves fighting sweeping antitrust action? 

Apple's Tim Cook clearly sees his company as standing apart from the others.

"Some people see Silicon Valley as monolithic," he told The Outside Podcast this week.

"And so in particular, the larger companies they sort of put in one bucket, if you will. Some of the big issues that are surrounding tech today are the lack of responsibility taken on a platform about what happens. We clearly take responsibility. We make tough decisions."

US regulators may well beg to differ. One thing is for sure, President Biden's first term in office is likely to also see exhausting legal action rolling on in the background as Big Tech fights a long-anticipated rearguard action.


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