FTC, States Sue Facebook Over 'Buy-Or-Bury' Monopoly Scheme

The Federal Trade Commission and 48 attorneys general sued Facebook on Wednesday for allegedly using a “buy-or-bury” strategy to monopolize social networking by squelching potential competition from Instagram and WhatsApp.

“For almost a decade, Facebook has had monopoly power in the personal social networking market in the United States,” New York Attorney General Letitia James and attorneys general in 45 other states, the District of Columbia and Guam allege in a 123-page complaint unveiled Wednesday afternoon. “Facebook illegally maintains that monopoly power by deploying a buy-or-bury strategy that thwarts competition and harms both users and advertisers.”

Facebook's practices allegedly resulted in “reductions in the quality and variety of privacy options and content” available to the service's users, the attorneys general allege in the case, brought in federal court in Washington, D.C. 

The FTC made similar claims in a separate antitrust lawsuit against the company, also in federal court in Washington, D.C. 

“Since toppling early rival Myspace and achieving monopoly power, Facebook has turned to playing defense through anticompetitive means,” the FTC alleges. “After identifying two significant competitive threats to its dominant position -- Instagram and WhatsApp -- Facebook moved to squelch those threats by buying the companies, reflecting CEO Mark Zuckerberg’s view, expressed in a 2008 email, that 'it is better to buy than compete.'”

The authorities are seeking to force Facebook to divest Instagram and WhatsApp.

The FTC decision to sue Facebook was opposed by Republican Commissioners Noah Joshua Phillips and Christine Wilson.

Facebook stated Wednesday evening that the lawsuits were "revisionist history," noting that the FTC approved of the purchases of both Instagram (acquired for $1 billion in 2012) and WhatsApp (bought for $19 billion in 2014).

“Now, many years later, with seemingly no regard for settled law or the consequences to innovation and investment, the agency is saying it got it wrong and wants a do-over,”Jennifer Newstead, Facebook vice-president and general counsel stated.

“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,” Newstead added. “Now the agency has announced that no sale will ever be final, no matter the resulting harm to consumers or the chilling effect on innovation.”

The lawsuits are coming at a time when Silicon Valley faces increased scrutiny on Capitol Hill.

Nearly two years ago, Sen. Elizabeth Warren called for the breakup of the largest tech companies, including Facebook, Amazon and Google.

She said at the time that big tech companies have “too much power over our economy, our society, and our democracy.”

Since then, a Democratic majority report from the House Subcommittee on Antitrust said Facebook used its “data advantage” to identify nascent competitors and then “acquire, copy, or kill” them.

In October the Justice Department sued Google for allegedly monopolizing the online search market.

News of the lawsuits against Facebook drew mixed reactions among industry observers.

Asheesh Agarwal, deputy general counsel of the libertarian group TechFreedom criticized the FTC's lawsuit, stating that it assumes Instagram and WhatsApp would have “grown into giants if left alone.”

TechFreedom added on Twitter that the FTC's prior decisions to approve Facebook's acquisition of Instagram and WhatsApp could prove problematic to its case.

“As a practical matter, the FTC will have to explain whether it made a mistake, ... what changed, and whether the lawsuit treats Facebook unfairly after all it invested so much money in growing and improving these companies,” the group tweeted.

Others, including the Open Markets Institute, a frequent critic of tech companies, praised the lawsuits.

Facebook, Google and Amazon pose “an immense and growing threat to our personal liberty and to some of our most essential democratic institutions and practices, including our free press and electoral systems,” Open Markets Institute executive director Barry Lynn stated Wednesday

Lynn added: “It is vital that we see this case through to the destruction of Facebook’s dangerous business model, which depends on spying on the most intimate aspects our lives, and then using that information to manipulate each and every one of us.”


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