In a landmark anti-trust action headlined by bipartisan support, the US federal government and 48 states led by the New York Attorney General have sued Facebook in two separate lawsuits, accusing it of abusing its market power to “neutralize” competition and going into “destroy mode” against smaller players.
The lawsuits are now seeking action that could include a spinoff of Facebook-owned Instagram and WhatsApp services.
The case against Facebook was announced on Wednesday by the Federal Trade Commission and New York Attorney General Letitia James.
The led lawsuit runs into more than 100 pages, the FTC lawsuit is 53 pages long and both the documents align on the big themes of “predatory” conduct.
Anti-trust legislation is something both Republicans and Democrats support.
In previous years, it has been used to break up tobacco companies and AT&T. Microsoft was almost split up after losing an anti-trust case in the 1990s. The latest backlash comes 16 years after Mark Zuckerberg started Facebook from his Harvard dorm.
From that time, Facebook has grown to become the world’s biggest social network with 2.7 billion users and a market value of nearly $800 billion, while Zuckerberg has become the world’s fifth-richest person.
Facebook’s user base in America is among its lowest across geographies. But its average revenue per user (ARPU) in the US, Canada and Europe is relatively higher because of what Facebook calls the “maturity of these online and mobile advertising markets”.
According to Facebook’s latest annual stock market filing, “ARPU in 2019 in the US and Canada region was more than 11 times higher than in the Asia-Pacific region”. The same document lists Bharat, Indonesia, and the Philippines as “key sources of growth” in daily active users. Bharat is Facebook’s largest market with more than 328 million users. WhatsApp accounts for more than 400 million users in Bharat.
Wednesday’s lawsuits against Facebook comprise the second big US government-led offensive against Big Tech this year.
The first was when the Justice Department sued Google in October, just before the November 3 presidential election, accusing the search giant of capturing the entire online search and advertising market.
Within the first two pages, the 48 states make the case that “Facebook has had monopoly power in the personal social networking market in the US” for more than a decade and “illegally maintains that monopoly power by deploying a buy-or-bury strategy that thwarts competition and harms both users and advertisers”.
Facebook’s illegal course of conduct has been driven, in part, by fear that the company has fallen behind in important new segments and that emerging firms were “building networks that were competitive with” the social media giant and could be “very disruptive to” the company’s dominance”, an excerpt from the states’-led lawsuit said.
As Facebook’s founder and CEO, Mark Zuckerberg observed, “(o)nething about start-ups is you can often acquire them”, indicating at other times that such acquisitions would enable Facebook to “build a competitive moat” or “neutralize a competitor”, it added.
“It’s really critically important that we block this predatory acquisition of companies and that we restore confidence to the market,” James said at a briefing on Wednesday.
“Personal social networking is central to the lives of millions of Americans,” said Ian Conner, Director of the FTC’s Bureau of Competition.
“Facebook’s actions to entrench and maintain its monopoly deny consumers the benefits of competition. Our aim is to roll back Facebook’s anti-competitive conduct and restore competition so that innovation and free competition can thrive.”
“When Facebook started in 2004, I was one of its earliest users. Since then, Facebook has broken the privacy promises that initially made it popular and has become infamous for a business model prone to abuse. Facebook must understand that it is not above the law,” FTC Commissioner Rohit Chopra tweeted.
The FTC fined Facebook $5 billion in 2019 for privacy violations, the largest fine the agency had ever slapped on a tech company but it did little to dent Facebook’s business.
“The FTC’s anti-trust suit to break up Facebook will change the whole dimension of tech regulation. But we need more: An acknowledgement that these companies are not just monopolies, but natural monopolies that require utility regulation,” Dipayan Ghosh, a Facebook defector who now co-directs the Digital Platforms and Democracy Project at Harvard University, posted on Twitter.
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