Here Is What We Can Expect From Facebook After FTC Lawsuit

By Mariliana Fotopoulou Tuesday, January 5, 2021

A large number of states and the federal government have filed antitrust lawsuits against Facebook, accusing the social media behemoth of using monopolistic practices to gain dominance in the tech industry. Judging by Facebook’s previous experience with lawsuits, investors can expect a strong legal defense.

A Groundbreaking Lawsuit by States and Government

The US government antitrust law and consumer protection agency Federal Trade Commission (FTC) has requested a permanent injunction in federal court that could strip Facebook of its major assets such as Instagram and WhatsApp and break up the social media company.

"Personal social networking is central to the lives of millions of Americans," said Ian Conner, Director of the Federal Trade Commission’s Bureau of Competition.

"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."

The twin lawsuits are likely to bring huge challenges that Facebook will have to tackle. The lawsuits focus on Facebook’s acquisitions of Instagram and WhatsApp, two of the biggest app-based companies in the world.

Facebook acquired Instagram for $1 billion in 2012; only two years later, it bought WhatsApp in a $19 billion deal.

More than a year ago, Letitia James, New York Attorney General, said she and her team of attorneys were scrutinizing Facebook for possible monopolistic practices. On December 9, over 40 public prosecutors signed onto the lawsuit, while the FTC has been carrying out an independent investigation of Facebook for more than a year.

"For nearly a decade, Facebook has used its dominance and monopoly power to crush smaller rivals and snuff out competition," James said at a press conference yesterday.

"By using its vast troves of data and money, Facebook has squashed or hindered what the company perceived to be potential threats."

In the lawsuit, dozens of states requested a court order that would require Facebook to inform public officials of any future buyouts of more than $10 million.

Strong Legal Defense Expected

The state lawsuit alleges that Facebook’s monopolistic practices have brought harm to users. Consumers have a poor choice when it comes to social media platforms, the lawsuit said, and the tech sector has lacked “investment in potentially competing services."

"People and small businesses don't choose to use Facebook's free services and advertising because they have to, they use them because our apps and services deliver the most value," Jennifer Newstead, Vice President and General Counsel at Facebook, said in a statement.

"We are going to vigorously defend people's ability to continue making that choice."

Back in February, Facebook faced similar allegations from the federal regulators and the social media giant did not hold back in its response. Facebook argued it did not harm its users nor mismanaged users’ data.

On February 28, 2020, Facebook’s team of lawyers issued a white paper in which Mark Zuckerberg’s company tried to save itself from facing heavy penalties imposed by the Federal Trade Commission. At the time, the two sides settled the case with a record-breaking figure that some critics described as too soft.

In the whitepaper, Facebook said FTC’s initially proposed penalty was “excessive, arbitrary, and capricious,” adding it was contrary to the Constitution and the commission’s governing laws.

The “proposed penalty is unconstitutional, unlawful and unsupported by the allegations in the draft complaint,” Facebook’s lawyers wrote in the paper. “No court would entertain such a penalty, and neither will Facebook."

The case resulted in a $5 billion civil penalty, the highest federal privacy fine in history. Furthermore, the settlement forced the social media company to undergo federal oversight.

The settlement was announced in July, when Joe Simons, helm of FTC said it was “highly unlikely the Commission could have obtained this magnitude of injunctive relief if we had proceeded with litigation.”

Yet, some critics were not happy with the record-breaking settlement, arguing the penalties should have been tougher. Some of them even called for a court fight to fully compensate for damage consumers have experienced.

Summary

The federal government and a large group of states have filed an unprecedented lawsuit against Facebook, accusing the company of abusing its dominance through monopolistic practices. In the lawsuit, the Federal Trade Commission called for the breaking up of Facebook, requiring it to divest its biggest assets.

About the Author


Headshot for author Mariliana Fotopoulou

Mariliana has an MSC in consumer analytics and business strategy. She has a special interest in fast-moving industries and big data.

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