Facebook could be forced to sell off Instagram and WhatsApp after United States officials sued the company for illegally crushing competition to maintain its monopoly.
The Federal Trade Commission (FTC) and a coalition of 48 US state and territory governments simultaneously filed two long-awaited lawsuits on Wednesday asking the court to block Facebook’s future mergers and potentially break up its business.
Both complaints focused on Facebook’s controversial acquisition of Instagram in 2012 for $1bn (£750m) and WhatsApp in 2014 for $19bn, as well as its hardball treatment of other companies seeking access to its data.
The FTC described those purchases as part of a “systematic strategy to eliminate threats to its monopoly", drawing on internal emails in which Facebook’s chief executive Mark Zuckerberg agreed that his main reason to buy Instagram was to "neutralise a competitor”.
Ian Conner, director of the FTC’s Bureau of Competition, said: “Our aim is to roll back Facebook’s anti-competitive conduct and restore competition so that innovation and free competition can thrive.”
New York state attorney general Letitia James said: “For nearly a decade, Facebook has used its dominance to crush smaller rivals and snuff out competition.
“Instead of competing on the merits, Facebook used its power to suppress competition so it could take advantage of users and make billions by converting personal data into a cash cow.”
She said the company had used a “buy or bury” strategy, using its vast trove of data to spot upstart rivals and exploiting its market power to sabotage any that it could not buy.
Facebook vowed to “vigorously defend” its corner, arguing that its stewardship of WhatsApp and Instagram had benefited consumers and that reversing the FTC’s previous approvals of the deals would “send a chilling warning” to other companies.
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Shares in Facebook fell by about 2pc over the course of the day.
The two cases are thought to represent the biggest competition action against an American tech company since the US government sued Microsoft in 1998. Google is fighting a similar lawsuit from the US Justice Department and 11 states.
Mr Zuckerberg has told employees that breaking up Facebook poses an “existential” threat to the company, and is attempting to integrate Whatsapp’s and Instagram’s internal plumbing more closely with that of its core Messenger app, which would make them harder for a court to entangle in future.
But he also expressed confidence that Facebook would win any such case, having long argued that the company competes fiercely with other tech giants such as Google, Apple, Microsoft and Amazon in areas such as private messaging, e-commerce, gaming and video.
Most experts believe that Facebook has little competition in its primary market of social media advertising, although the breakout growth of TikTok and the healthy performance of Snapchat have weakened that position in recent years.
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Jennifer Newstead, Facebook’s general counsel, said: “This is revisionist history. Antitrust laws exist to protect consumers and promote innovation, not to punish successful businesses.
“Instagram and WhatsApp became the incredible products that they are today because Facebook invested billions of dollars and years of innovation and expertise to develop new features and better experiences for the millions who enjoy those products.
“[The FTC] cleared these acquisitions years ago; the government now wants a do-over, sending a chilling warning to American business that no sale is ever final.”
William Kovavic, a former chairman of the FTC, told CNN that there was nothing in US law that prevented the FTC from changing its mind based on new evidence, saying: “Regulators, just like umpires, sometimes miss the call.”
The US states’ lawsuit was filed by the attorney generals of all US states except Alabama, Georgia, Missouri and South Carolina, plus those of Washington DC and the Pacific island territory of Guam.
More to follow…
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