FTC seeks to break up Facebook, alleging illegal monopoly

The Federal Trade Commission today announced a new antitrust lawsuit against Facebook, alleging that the social network has used monopoly power “with the aim of suppressing, neutralizing, and deterring serious competitive threats,” and must be broken up. The suit is separate from, but was investigated in coordination with, one from 48 attorneys general also announced today.

Both suits allege that Facebook has engaged in illegal patterns of behavior, which the states and federal investigators worked together to characterize. But the state lawsuit is concerned with violations at the state law level, while the FTC alleges violation of federal law. Therefore the two lawsuits, while objecting to the same actions by Facebook, will be pursued and adjudicated separately.

The allegations of both are similar: that Facebook’s acquisitions of WhatsApp and Instagram both constituted illegal shutdowns of nascent competitors by a monopoly, and that Facebook has used access to its platform as leverage to prevent other competitors from emerging.

The FTC and state lawsuits both call for the acquisitions of Instagram and WhatsApp, perhaps among others, to be retroactively judged to be illegal, and for those companies to be split off from the main Facebook company.

In addition to this divestiture, Facebook would need to seek prior notice and approval for all future mergers and acquisitions, from both the FTC and state authorities; various behaviors would also be prohibited, such as tying API access to not offering competing features.

Facebook, in a Tweet, said it is looking into the lawsuits, but disparaged them, saying “the government now wants a do-over with no regard for the impact that precedent would have on the broader business community.”

Indeed it is a natural question: How can the government approve the purchases of Instagram and WhatsApp, then retroactively disapprove them, without calling into question the entire oversight mechanism of the FTC and other regulatory agencies?

As the FTC notes in its Q&A on the lawsuit, this is not actually unprecedented or even unexpected. The process of approving the purchase of one company by another may present no obvious illegal qualities at the time, but behind the scenes it may involve many. An approved and consummate merger might be unwound if, for example, it was found to have been executed on false pretenses after the fact — or, as in this case, if it is found later to be part of a pattern of illegal practices.

“Our enforcement action challenges more than just the acquisitions,” explains the FTC. “We are challenging a multi-year course of conduct that constituted monopolization of the personal social networking market… the FTC can—and often does—challenge consummated transactions when they violate the law. In fact, identifying anticompetitive consummated transactions has been a key part of the mandate of the Technology Enforcement Division since its formation in February 2019 as the Technology Task Force.”

These filings are only the very first part of what will almost certainly prove to be a multi-year process — and one spanning two administrations at that, which will only slow proceedings. The next step will likely be a PR push from Facebook explaining its innocence.