December 9, 2020
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Bipartisan Coalition of 48 Attorneys General Charge
Anticompetitive Conduct Facebook Thwarted Competition, Reduced Consumer Privacy
for Profits.
Carson
City, NV –
Today, Nevada Attorney General Aaron D. Ford joined a bipartisan coalition of 48
attorneys general in filing a lawsuit against Facebook Inc., alleging that the
company has and continues to illegally stifle competition to protect its
monopoly power. The lawsuit alleges that, over the last decade, the social
networking giant illegally acquired competitors in a predatory manner and cut
services to smaller competitors. These
actions deprived users of the benefits of competition and reduced privacy
protections and services. All of these actions were taken in an effort to boost
Facebook’s bottom line through increased advertising revenue.
AG
Ford and the coalition of attorneys general asks the court to halt Facebook’s
illegal, anticompetitive conduct and block the company from continuing this
behavior in the future. Additionally, the coalition asks the court to restrain
Facebook from making further acquisitions valued at or in excess of $10 million
without advance notice to the plaintiff states for review. Finally, the court
is asked to provide any additional relief it determines is appropriate,
including the divestiture or restructuring of illegally acquired companies, or
current Facebook assets or business lines.
“Facebook
is the most popular social networking platform in the world, with nearly 1.82
billion hits daily,” said AG Ford. “While it is a great tool to connect
with people around the world and advertise products and businesses, Facebook's
conduct has violated antitrust laws and gained too much power in the market
through legally improper tactics. One aspect of the law is to protect against
the restraint of trade by individuals and businesses in the marketplace, and
that’s exactly what my office is doing today—protecting Nevadans from legally
improper actions that unlawfully restrict trade in this arena.”
Since
2004, Facebook has operated as a personal social networking service that
facilitates sharing content online without charging users a monetary fee. Instead, provides these services in exchange
for a user’s time, attention and personal data. Facebook then monetizes user
engagement and data regarding users, their friends, family and interests by
selling advertising to firms which are then able to deliver targeted
advertising to users based on their data characteristics. As Chairman and
controlling shareholder Mark Zuckerberg has stated, Facebook builds a
“competitive moat” around the company. This is accomplished through a buy or
bury strategy where Facebook will crush or purchase smaller rivals before they
can become large enough to threaten Facebook’s dominance and to stifle
third-party developers that Facebook invites to utilize its platform. These tactics have allowed Facebook to
maintain its monopoly over the social networking market and make billions from
advertising.
As
one market participant noted, if an application (app) encroached on Facebook’s space
or would not consider selling, Zuckerberg would go into “destroy mode,”
subjecting small businesses to the “wrath of Mark.” Facebook’s unlawful
monopoly gives it broad discretion to set the terms for how users’ private
information is collected and used to further its business interests. When
Facebook cuts off integration to third-party developers, users cannot easily
move their own information, such as their lists of friends to other social
networking services. This decision forces users to either stay put or start their
online lives from scratch.
When
Facebook users have limited options, the company is able to make decisions
about how to curate content on the platform and use the personal information it
collects from users to further its business interests, even if those choices
conflict with the interests and preferences of Facebook users. Additionally,
while consumers initially turned to Facebook and other apps now owned by the
company seeking privacy protection and control over their data, many of those
protections are now gone.
Facebook’s “Buy”
Strategy
The
harm to consumers over the last decade comes as a direct result of Facebook’s
acquisition of smaller firms that pose competitive threats. Facebook employs
unique data-gathering tools to monitor new apps all in an effort to see what is
gaining traction with users. That data helps Facebook select acquisition
targets that pose the greatest threats to Facebook’s dominance. Once selected,
Zuckerberg and Facebook offer the heads of these companies’ vast amounts of money,
that greatly inflate the values of the apps — all in hopes of avoiding any
competition for Facebook in the future.
When
it comes to startups, Zuckerberg has observed that these companies would “have
to consider it” if Facebook offered a “high enough price.” The elimination of
competitive alternatives fuels Facebook’s unfettered growth without competition
and further entrenches its position. The two most obvious examples of this
successful strategy were Instagram and WhatsApp — both which posed a unique and
dire threat to Facebook’s monopoly.
Purchase of Instagram
Facebook
and Zuckerberg saw Instagram as a direct threat soon after the company
launched. After initially trying to build its own version of Instagram that
gained no traction, Zuckerberg admitted, in early 2012, that Facebook was “very
behind” Instagram and a better strategy would be “to consider paying a lot of money”
for the photo-sharing app in an effort to “neutralize a potential competitor.”
A few months later, in April 2012, Facebook acquired Instagram for $1 billion,
despite the company not having a single cent of revenue and valuing itself at
only $500 million. Zuckerberg offered Instagram’s owners double the valuation
Instagram came up with even though Zuckerberg previously described the initial
$500 million value as “crazy.”
Purchase of WhatsApp
The
mobile messaging app WhatsApp also posed a unique threat to Facebook’s growth
giving users the ability to send messages on their mobile devices both
one-to-one and to groups. While Facebook focused on several emerging mobile
messaging services, WhatsApp was viewed as the “category leader” with over 400
million active users worldwide in 2014, and the one that could potentially
provide the greatest threat.
Facebook
feared WhatsApp eroding its monopoly power, stating WhatsApp or similar
products posed “the biggest competitive threat we face as a business.” Facebook
was also concerned that WhatsApp could ultimately be bought by a competing
behemoth that had previously shown interest in social networking — namely,
Google. This led Facebook, in February 2014, to acquire WhatsApp for nearly $19
billion — far more than the extravagant price Zuckerberg had recommended paying
a few months earlier and the $100 million another competitor offered to buy the
company two years earlier.
Facebook’s
“Bury Strategy” Cutting Competitors Off from Facebook Overnight
As
laid out in today’s complaint, the coalition alleges that Facebook competitors
who refused to be bought out would be competitively squashed by other means. Facebook
has used an “open first–closed later” strategy to stop competitive threats, or
deter them from competing, at the inception. Facebook opened its platform to
apps created by third-party developers in an effort to increase functionality
on the site and, subsequently, increase the number of users on Facebook.
Facebook also drove traffic to third-party sites by making it easier for users
to sign in, so that Facebook could capture valuable data about its users’
off-Facebook activity and enhance its ability to target advertising. Not only
did Facebook benefit monetarily through the third-party developers’ revenue,
but Facebook’s services were expanded, as Facebook did not have the capacity to
create and develop all the useful social features offered through third-party
developers.
In
2011, after years of promoting open access to its platform, Facebook began to
rescind and block access to apps that Facebook viewed as actual or potential
competitive threats. Facebook understood that an abrupt termination of
established access can be devastating to an app, especially one still
relatively new to the market. In the past, some of these companies experienced
almost overnight drop-off in user engagement and downloads, and their growth
stalled. This strategy also served as a warning to other apps that if they encroached
on Facebook’s territory, Facebook would end their access to crucial
integrations. Facebook’s actions also deter venture capitalists from investing
in companies that Facebook might in the future see as competitors.
As
a consequence of Facebook’s expansive user base and the vast trove of data it
collects from its users and users’ connections, Facebook has an unprecedented,
virtually 360-degree view of users and their contacts, interests, preferences,
and activities. The more users Facebook can acquire and convince to spend
additional time on its platforms, the more data Facebook can accumulate by
surveilling the activities of its users and thereby increase its revenues
through advertising — reaping the company billions every month.
Specific
Violations.
Facebook is specifically charged with violating Section 2 of the Sherman Act,
in addition to multiple violations of Section 7 of the Clayton Act.
The
complaint was filed in the U.S. District Court for the District of Columbia.
Separately, but in coordination with the multistate coalition, the Federal
Trade Commission (FTC) also filed a complaint against Facebook today in the
U.S. District Court for the District of Columbia. The coalition wishes to thank
the FTC for its close working relationship and collaboration during this
investigation.
In
addition to Nevada, other states participating in this lawsuit include: California,
Colorado, Florida, Iowa, Nebraska, North Carolina, Ohio, Tennessee, and the
District of Columbia. The executive committee is joined by the attorneys
general of Alaska, Arizona, Arkansas, Connecticut, Delaware, Hawaii, Idaho,
Illinois, Indiana, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts,
Michigan, Minnesota, Mississippi, Missouri, Montana, New Hampshire, New Jersey,
New Mexico, North Dakota, Oklahoma, Oregon, Pennsylvania, Rhode Island, Texas,
Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, Wyoming, and the
territory of Guam. California, Colorado, Florida, Iowa, Nebraska, New York, North
Carolina, Ohio, Tennessee and the District of Columbia.
The filed lawsuit is
attached.
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