Antitrust Suit Against Facebook by FTC
FTC SUES FACEBOOK FOR MONOPOLIZATION IN SOCIAL MEDIA MARKET
On December 9, 2020, The Federal Trade Commission filed an antitrust suit against Facebook for creating monopolization in the social media market. The attorney generals of 46 countries had submitted the investigation report regarding the acquisition of rival companies by Facebook.
Why FTC filed an antitrust lawsuit on Facebook?
On 9th of December, 2020, The Federal Government of the United States and State Governments of 48 US states filed two antitrust suits against Facebook. The Regulators of the United States alleges Facebook for acquiring the budding companies in the Personal Social Networking Media. They also highlighted that this act of Facebook is controversial to Sec.2 and Sec.3 of the Clayton Act.
In the United States, personal social networking is a social medium through which people contact each other socially. Many people started their businesses in this network recently. Since 2010 Facebook is one of the top Social networking sites in many countries. The FTC had raised issues on the acquisition of newcomers businesses in the social market. It specifically highlighted that the purchase of Instagram, Whats app is illegal. The FTC submitted certain reports in association with 48 countries of the United States. It alleges Facebook for involving in anti-competitive practices.
The act of Facebook adversely affects competition in the market. The main issues are it restricts the competition and leads a monopoly. This monopoly suppresses the benefits of the customer. The anti-competitive conduct of Facebook affects innovations as well as thrives away healthy competitions.
According to FTC, Facebook targets the potential new coming competitors in the market. Facebook entered into the anti-competitive agreement by acquiring the competitor business. The FTC mentioned the purchase of Instagram and whats app is an anti-competitive act.
What are the allegations made?
The Suits were alleging Facebook on two main issues:
- The first allegation is the acquisition of rival companies is illegal.
- The Federal Trade Commission of The United States alleged Facebook for its anticompetitive conduct.
- The FTC thirdly alleged Facebook for maintaining a monopoly on personal social networking.
- The FTC fourthly Facebook for entering into an anticompetitive agreement with the Third-party software developers.
- The FTC lastly alleged The CEO of Facebook for involved in Cartel activities.
What is the Background of the suit?
Facebook is an application developed by the roommates in their dorms. The application has introduced to an internet powerhouse in the year 2004. Later, it turns into a business endeavor. The enhancement of E-commerce created an entry to many competitors with advanced techniques. In 2012, Facebook purchased the competitor company Instagram for 1 billion dollars in cash. In 2014, It purchased whats app for 16 billion dollars in cash and 12 billion dollars in the form of Facebook shares. Facebook Inc., acquired 82 other companies in the personal social networking market.
The attorney generals of the United States and 48 other States investigated Facebook Incorporation. After 18 months of investigation, the FTC files two anti-trust suits against Facebook. The complain is mainly for grudging the competitiveness in the market and restricting the newcomers. The United States follows the Clayton Act and Sherman Act for Regulations. The regulator’s suggestions are annexed. Facebook considers the suits as revisionist history.
The FTC claims to sell the instagram and whats app. In addition to it, FTC claims diversification of assets of Facebook.
What is the Facebook’s response for the suit?
Facebook has responded by saying the lawsuits are “revisionist history”. The company has denied the allegations of not having any competitors. Facebook considers Amazon, Apple, Google, Microsoft, Snap, TikTok, Twitter as its competitors.
Facebook has termed these acquisitions as an “attack” on its two acquisitions. The company has contended that FTC gave its clearance to the Instagram Acquisition deal only after deeply reviewing the said deal. Talking about the Whatsapp deal, Facebook has put this on record that both the European Union and the FTC has reviewd it and gave clearance.
Regulatory authorities gave clearance to these deals because they did not consider these deals to be anti-competitive. After so many years, the authorities are contending that it took a wrong decision and wants to correct it now. This is not the way in which the anti-trust laws are supposed to function.
Questions are being raised as to whether the Facebook and its competitor companies are right in making decisions about the privacy, elections and harmful content. To this, Facebook has responded by saying that it has taken appropriate actions for resolving such issues. Facebook further said these issues are not concerned with anti-trust laws and the FTC’s suit is not addressing them in any manner whatsoever.
Whether the claim made by FTC is acceptable?
Victory in the suit against Facebook is a great challenge since the standards of proof are unmatchable.
Prosecutors must prove that Facebook bought competitors like Instagram and Whatsapp with the explicit intention of curbing the competition. They must also prove that consumers and the social media market would have been in a better situation, had the merger did not happen.
Also, the regulatory authorities gave clearance to the acquisitions after reviewing them properly. One major challenge before FTC is to justify why it did not prevent Facebook from acquiring Instagram in 2021 and Whatsapp in 2014. They will have to give an explanation as to why they have changed their minds now. Courts are reluctant to undo mergers because often, it can lead to more harm to consumers.
Regulators are seeking burdensome penalties against Facebook. They have contended that Courts should block mergers in the future and should compel the Facebook to sell Whatsapp and Instagram. Such remedies would result into restoring the competition. This would work as a foundation for other competitiors of Facebook to grow, invest and innovate without the apprehension of Facebook crushing them.
Even if the states and FTC are able to prove their case, the question whether the Facebook can separate Instagram and Whatsapp completely from its business is unanswered.
Why FTC has included acquisition of Whatsappa and Instagram in their suit?
FTC in its suit contended that acquisitions of Whatsapp and Instagram by Facebook have resulted into Facebook’s monopoly in the social networking market. FTC has claimed that Facebook acquired Insgtagram at a time when there was a switch “from desktop computers to smartphones” and consumers embraced photo sharing increasingly.
Facebook identified Instagram as a threat to the monopoly of Facebook. Facebook tried its best to compete with the rising popularity of Instagram, but it failed to do so. As a result, Facebook opted to buy the competitor Instgram app in 2012 bringing the competition to an end. Similarly, in 2014, Facebook acquired the Whatsapp, which was a growing app in smartphone messaging. Acquisition of Whatsapp meant that any other future company will take a longer time to take hold of the mobile messaging market. Facebook achieved its aim of eliminating the competition. Facebook’s Messenger is the only messaging app which is nearly as popular as Whatsapp.
Though FTC had approved the Instagram and WhatsApp deals, the FTC’s suit challenges more than just the acquisitions. It challenges the “multi-year course of conduct” that is an essential feature of monopolisation of the social networking business.
Further, FTC also said that legally, it has the authority to challenge its earlier approved transactions if such transactions are violative of the law.