Accused of illegal actions to stifle competition and buy up rivals, Facebook is being sued by U.S. officials wanting to eliminate threats of its monopoly by breaking it up.
In a battle that may take years to resolve there are two issues at stake. The first is the future of Facebook, and the second is the ability of the state and federal enforcers to hold businesses accountable. The task ahead for the Federal Trade Commission (FTC) and over 40 state officials is difficult and carries high stakes for Facebook and its astronomical global advertising business.
It is up to these officials to prove that Facebook has completely stifled the competition to hold a monopoly. It must also show how it has abused its dominance to hurt competitors and consumers. Speaking to CNN Business, Michael Kades from the Washington Center for Equitable Growth held that if the case succeeds, competition within the social network space would change considerably.
The last time an antitrust lawsuit succeeded in splitting a major corporation was in 1984. AT&T, the telecommunications company was ordered to sell a string of local acquisitions.
Allegations against Facebook
In its lawsuit against Facebook, the FTC has made several allegations including its buying strategy against potential rivals. In 2012, Facebook bought Instagram for $1 billion to neutralize them as a competitor.
At the time, Instagram had a remarkable number of users for a company with just a few employees and no revenue. Facebook purchased Onavo the following year and followed that with the purchase of WhatsApp for $19 million in 2014.
Other allegations against Facebook are that it entices new companies that don’t compete with it or its Messenger onto its platform, essentially using then to make itself more appealing to its users.
The FTC is asking the courts to remedy this situation by forcing Facebook to remove the conditions on how small companies can compete on the social media platform. It has also requested the breakup of Facebook.
Zuckerberg intends keeping his empire intact
Facebook is massive and has over one billion monthly users, and when combined with WhatsApp, the number reaches over 2 billion.
In a Facebook post, Zuckerberg assured the company’s staff that he disagrees with the allegations because they compete fairly. The company will fight in court to keep itself intact. Zuckerberg’s belief that the case will go on for years with a victorious conclusion for Facebook is also held by others.
U.S. officials have ample evidence from communications among Facebook’s executives into the alleged misconduct. These communications reveal how the social media empire planned to stifle competition. It is also alleged that Facebook employees celebrated after buying WhatsApp because it was “the only company which would grow into the next Facebook purely on mobile”.
However, the complainants need to also show what would have happened if Facebook had not made these acquisitions. Facebook insists there was nothing pre-ordained about the success of Instagram or WhatsApp when it purchased them as they were very small at the time.
Another question the court may ask the FTC is why it is reversing its decision to allow Facebook to acquire Instagram and WhatsApp. A former general counsel to the U.S. Senate antitrust committee and founder of Bloom Strategic Counsel, Seth Bloom, recently spoke to The Guardian about how FTC had investigated competition concerns and approved both deals at the time. He stressed the acquisitions are from six or eight years ago, and he believes this makes it difficult for a court to order a reversal.
The FTC has expanded its efforts into looking at past mergers, and its chairman Joe Simons argues it is something it is legally entitled to do to gauge its performance as a law enforcement agency.
Is a breakup inevitable?
In 1911, the Sherman Act of 1890 was used to break up Standard Oil and American Tobacco. The same act was used to break up AT&T, but experts agree the law is broad and difficult to interpret. When the breakup of Microsoft was ordered by the courts 20 years ago, an appeal reversed the decision.
If the courts find that Facebook acted illegally, they may not necessarily decide that Facebook must divest its assets. Also, a forced divestment does not necessarily mean a clean break of companies like WhatsApp and Instagram from Facebook. This is because the FTC is asking the courts to mandate Facebook to supply support services for these companies to ensure their independent survival. This will defeat the purpose of such a decision because it will allow Facebook to continue exercising power over them.
Finally, a breakup would mean that the user interfaces and underlying technology of these platforms will change, impacting their users.