Has Facebook Gotten Too Good at Capitalism?

Facebook Capitalism

The US government and 48 states have sued Facebook for anticompetitive conduct and are seeking to break up the company by overturning its acquisitions of Instagram and WhatsApp. The complaint, filed on December 9th, 2020, in the United States District Court for the District of Columbia, seeks to unwind Facebook’s $1 billion acquisition of photo-sharing social networking service Instagram, purchased in 2012, and its $19 billion acquisition of messaging service WhatsApp, purchased in 2014, among other remedies. 

Why is Facebook in trouble?

The Federal Trade Commission (FTC)’s lawsuit accuses Facebook of eliminating competition through these acquisitions, even though the FTC originally approved the deals. However, the action challenges more than just the acquisitions. It is challenging a multi-year course of conduct that, according to the agency, constituted monopolization of the personal social networking market. Currently, Facebook operates the world’s largest family of social networking websites, including Facebook, Instagram, Messenger, and WhatsApp. It is the largest and most profitable social network in the world, with a dominant share of the U.S. personal social networking market in excess of 60%. The FTC finds this amount of market presence, coupled with deliberate anticompetitive actions, quite troubling. 

What law did Facebook allegedly break?

The Complaint, filed under Section 2 of the Sherman Act, which prohibits companies from using anti-competitive means to acquire or maintain a monopoly, and pursuant to Sections 5(a) and 13(b) of the FTC Act, alleges that Facebook holds monopoly power in the market for personal social networking services, and that it suppresses, deters, hinders, and eliminates personal social networking competition, and maintains its monopoly power through means other than merits competition. By monopolizing personal social networking, the Complaint alleges, Facebook also deprives advertisers of the benefits of competition, such as lower advertising prices and increased choice, quality, and innovation related to advertising. The alleged anticompetitive conduct is further supported by Facebook’s failed attempts to buy other companies that have drawn its competitive attention, including Twitter and Snapchat.  

The course of conduct cited in the Complaint has three main elements: the acquisition of (1) Instagram and (2) WhatsApp, as well as the (3) conditioning of access to third party developers on its platform. According to the FTC, Facebook has enforced anti-competitive conditions on access to its valuable platform interconnections, such as the application programming interfaces known as “APIs”, that it makes available to third-party software applications. Facebook has made key APIs available to third-party apps only on the condition that they refrain from providing the same core functions that Facebook offers, deterring them from including features and functionalities that might compete with Facebook. 

Why is the FTC’s lawsuit important?

In general, antitrust lawsuits are used to stop practices that restrain trade and the free market, with an aim to keep the market open and competitive. In order for the FTC to prevail in this case, it will need to prove that Facebook is a monopoly, despite the presence of formidable competitors like Google and Amazon, as well other smaller social networking upstarts including Twitter, Snapchat, YouTube, TikTok and LinkedIn.  If the FTC prevails, Facebook might be forced to sell Instagram and WhatsApp, among other remedies. 

Though the suit will likely take years to play out, many analysts are already predicting that it is no slam dunk, claiming that a spinoff of Instagram and WhatsApp is unlikely to happen. Experts say that what the lawsuit really represents is a larger series of governmental actions signaling the broader consensus that the tech industry needs more oversight. The suit underscores Facebook’s bipartisan unpopularity among U.S. politicians, among rising antitrust scrutiny, accusations surrounding the proliferation of misinformation and hate speech on the platform, election interference, and other issues currently assailing the company. Industry-wide, questions are being asked about whether “Big Tech” is making the right decisions around things like elections, harmful content and privacy.

EPGD Business Law is located in beautiful Coral Gables, West Palm Beach and historic Washington D.C. Call us at (786) 837-6787, or contact us through the website to schedule a consultation.

*Disclaimer: this blog post is not intended to be legal advice. We highly recommend speaking to an attorney if you have any legal concerns. Contacting us through our website does not establish an attorney-client relationship.*

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