Facebook sued by US federal and state government coalition over competition practices

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Facebook Inc (NASDAQ:FB) is facing legal action by the US government and a group of 48 states in a collection of lawsuits alleging that the social media giant has engaged in anticompetitive behaviour and abused its market position to crush potential rivals.

The antitrust lawsuits also contain requests by officials for the courts to consider breaking up the company, which also owns photo sharing app Instagram and messaging platform WhatsApp, although Facebook has said the acquisitions were previously approved by regulators.

READ: UK competition watchdog to tailor rules for big tech companies

The government alleges that the firm blocked smaller competitors from gaining market share, with the Federal Trade Commission (FTC) saying on Wednesday that Facebook is “illegally maintaining its personal social networking monopoly through a years-long course of anticompetitive conduct”.

“Facebook’s actions to entrench and maintain its monopoly deny consumers the benefits of competition. Our aim is to roll back Facebook’s anticompetitive conduct and restore competition so that innovation and free competition can thrive”, said Ian Conner, director of the FTC’s Bureau of Competition.

Responding to the filings, Facebook said the FTC was showing “seemingly no regard for settled law” and that the agency wanted a “do-over” of its previous decisions to approve the acquisitions.

“In addition to being revisionist history, this is simply not how the antitrust laws are supposed to work. No American antitrust enforcer has ever brought a case like this before, and for good reason. The FTC and states stood by for years while Facebook invested billions of dollars and millions of hours to make Instagram and WhatsApp into the apps that users enjoy today”, said Jennifer Newstead, Facebook’s vice president and general counsel.

“This lawsuit risks sowing doubt and uncertainty about the US government’s own merger review process and whether acquiring businesses can actually rely on the outcomes of the legal process. It would also punish companies for protecting their investment and technology from free-riding by those who did not pay for the innovation, making those companies less likely over the long term to make their platforms available to spur the growth of new products and services”, she added.

The lawsuits follow a year-long investigation by the FTC into the company’s potential violation of antitrust laws.

“The thrust of the current suit against Facebook is that it bought Instagram and WhatsApp with the intent of reducing competition against it. It does not help their position that Facebook founder Mr Zuckerberg has allegedly written emails referring to the purchase of competitors as building a ‘moat’ around Facebook to prevent competition”, said Jonathan Compton, partner at law firm DMH Stallard.

“In July 2020 Facebook offered $650million to settle facial recognition claims brought in a class action. However, this may pale into insignificance when compared to the remedies the FTC can ask of a court in relation to Anti-Trust. The US FTC has powers under the Sherman Act 1890, the Clayton Act 1914 and the FTCA of 1914 to regulate market abuses. In the 1980s, AT&T was broken up. In earlier years we saw Standard Oil, American Tobacco and Microsoft all broken up (the last- Microsoft- reversed on appeal). It is suspected by this writer that the FTC will request the court to order the divestment of Whatsapp and Instagram from the Facebook stable”, he added.

Facebook’s woes also form the latest chapter on what has been a difficult year for Big Tech’s relationship with regulators.

In November, fellow tech behemoth Amazon Inc (NASDAQ:AMZN) was hit with new antitrust charges from EU regulators over the treatment of third-party merchants on its website.

Google parent company Alphabet Inc (NASDAQ:GOOG) is also in hot water after the US Department of Justice filed a lawsuit against the firm in October accusing it of abusing its market position and maintaining an illegal monopoly over internet searches.

Shares in Facebook were down 1.1% at US$275 in pre-market trading in New York on Thursday.

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