US regulators and 48 attorneys general are limbering up for what promises to be the biggest legal battle against a US company in decades. Letitia James, the New York attorney general who is spearheading one of two lawsuits against Facebook, this week accused the social network of abusing its “dominance and monopoly power to crush smaller rivals, snuff out competition, all at the expense of everyday users.”
In a powerful speech, James said Facebook used its “vast troves of data and money” to fund a “buy or bury” scheme to quash competition. James said she would not rest until the courts ordered Facebook to sell off WhatsApp and Instagram, which she said the social network had acquired illegally.
The Federal Trade Commission (FTC) has also filed a lawsuit against Facebook accusing it of operating a “systematic strategy to eliminate threats to its monopoly”, and accused its co-founder, CEO and controlling shareholder, Mark Zuckerberg, of paying $1bn (£750,000,000) to buy Instagram in 2012 in order to “neutralise a competitor”.
If the lawsuit achieves the FTC’s goal of forcing Facebook to sell WhatsApp and Instagram, it will be the first time an antitrust lawsuit has succeeded in forcing the split of major corporation since 1984, when the telecoms network AT&T – then known colloquially as Ma Bell – was ordered to sell off a string of local telecommunications companies known as the Baby Bells.
Zuckerberg has assured staff he will fight to keep his empire intact. “We disagree with the government’s allegations and we plan to fight this in court,” he said. “We compete with many other services in everything we do, and we compete fairly.”
In a Facebook post, he said the lawsuits would not have “any impact on individual teams or roles” and he expected the case would take “years to play out in its entirety”. Comments were turned off on the post, and staff were advised not to talk about the lawsuits “except with our legal team”.
Antitrust lawyers and competition experts agree with Zuckerberg that the case will take years, and when it does finally conclude few expect James and the 47 other attorneys generals to emerge victorious with WhatsApp and Instagram in independent hands again.
Facebook’s ‘monopoly’ must be split up, US and states say in major lawsuits
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George Hay, a former member of the US Department of Justice’s antitrust division and now a professor of law at Cornell University, said: “I don’t think anything is going to happen in the short run. Facebook has no incentive to resolve this case. It is not like they are facing jail sentences or a big fine.”
Seth Bloom, formerly general counsel to the US Senate antitrust subcommittee and now the founder of Bloom Strategic Counsel, said he thought it would be difficult for the courts to force the sale of WhatsApp and Instagram, because the FTC had investigated competition concerns at the time of the purchases and approved the deals it was now asking to have reversed. “We’re talking about acquisitions that are six or eight years old and it will be difficult for a court to order divestitures of many years ago,” he said.
But Jonathan Compton, a specialist in regulatory, antitrust and competition law at the London law firm DMH Stallard, said the lawsuits represented the biggest threat ever posed to big technology companies.
“The thrust of the current suit against Facebook is that it bought Instagram and WhatsApp with the intent of reducing competition against it,” Compton said. “It is unlawful to take over a company with a view to stifling competition, and Zuckerberg has allegedly written an unfortunate email in which he said he intends to build an anti-competitive moat around Facebook to protect it from competition. I suspect a lot is going to be made of that email.”
In one of the emails in the FTC filing, Zuckerberg is alleged to have said in 2008 that “it is better to buy than compete”. In another email, in 2012, Zuckerberg is said to have told lieutenants that WhatsApp was “legitimately a better product for mobile messaging than even our standalone Messenger app” and “[u]nfortunately for us, I don’t think there’s any way to directly minimise the advantage which is their momentum and growth rate”.
After buying WhatsApp in 2014 for $19bn, Facebook employees were alleged to have celebrated the purchase of “probably the only company which could have grown into the next FB purely on mobile”.
The lawsuits claim these emails show that Facebook was operating a “systematic strategy to eliminate threats to its monopoly”. This would be a breach of the Sherman Act, one of the US’s oldest antitrust laws.
It was the Sherman Act of 1890 that was used in 1984 to break up AT&T, and in 1911 to force the breakup of John D Rockefeller’s Standard Oil and American Tobacco. However, Compton said the law was broad and difficult to interpret. Twenty years ago the US courts also ordered the breakup of Microsoft over allegations it had stifled Netscape, but the decision was reversed on appeal.
Margrethe Vestager, the European competition commissioner, who has regularly attempted to rein in big tech companies, has welcomed the US action. “It’s a sign that the debate on tech dominance has been shifting over the last couple of years,” Vestager said in a meeting with EU lawmakers. “You see that in almost every jurisdiction.”
The UK’s Competition and Markets Authority this week proposed that the UK’s planned new technology regulator should have the power to fine Facebook, Google and other large tech firms billions of pounds if they fail to stick to a new code of conduct.
Facebook, which has 2.7 billion users and a market value of nearly $800bn, strenuously denies the charges, which it describes as “revisionist history” that punishes success. “The government now wants a do-over, sending a chilling warning to American business that no sale is ever final,” Jennifer Newstead, Facebook’s head lawyer [general counsel], said a blogpost.
“The Instagram you see today is the Instagram that Facebook built, not the app it acquired,” she said. “When Facebook bought Instagram, it had about 2% of the users it has today, just 13 employees, no revenue and virtually no infrastructure of its own.”
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