Facebook Antitrust Lawsuit- The government of the United States has the authority and responsibility to prevent corporations from becoming monopolies. According to the government, Facebook Inc. (FB) is on its way to creating a monopoly in the social media space.
The Federal Trade Commission (FTC) and 46 states sued Facebook in December 2020, claiming the company of acquiring competitors—most notably WhatsApp and Instagram—in order to eliminate competition in the social media market. The antitrust case filed by the Federal Trade Commission intended to compel Facebook to undo these two significant acquisitions.
A federal judge dismissed the complaint six months after it was filed, claiming that the FTC failed to produce sufficient evidence to support its allegation that Facebook is a monopoly and that it had waited too long to present the case. Analysts can’t seem to agree on whether this is a good or bad thing because the agency has 30 days to provide more information.
Facebook has earlier asked for the complaints to be dismissed, claiming that they were part of a campaign of “unrelentless criticism” of the business “for topics completely unconnected to antitrust concerns.”
The government’s case against Facebook will take years to wind its way through federal court if a revised lawsuit is accepted, and any appeal may take even longer. It’s not the only significant antitrust case making headlines: Alphabet, the parent company of Google, is also under an FTC investigation. Furthermore, with President Joe Biden’s appointment of Lina Khan to the Federal Trade Commission—a woman who has been described as a “antitrust crusader”—it wouldn’t be shocking if the government pursued these claims, as well as those of other Big Tech corporations.
Whatever happens in these cases, it will have a long-term influence on investors, the stock market, and, most importantly, how we all use social media.
What Is an Antitrust Lawsuit?
Congress enacted antitrust rules to maintain competition among firms and to prevent any one company from dominating a certain industry and establishing a monopoly. According to the FTC, when businesses compete and monopolies are limited, companies have significant incentives to “run effectively, keep prices low, and keep quality high.”
In the United States, antitrust laws constitute the bedrock of capitalism. In 1890, the Sherman Antitrust Act became the first antitrust statute. The Sherman Act, the Federal Trade Commission Act, and the Clayton Act all work together today to ensure that the economy is free of unfair competition. The antitrust responsibilities of these three laws are split as follows:
- The Sherman Antitrust Act. This law prohibits groups of businesses from working together or merging to create a monopoly to control pricing in a single market.
- The Federal Trade Commission Act. Passed in 1914, this law created the Federal Trade Commission (FTC) as an independent government agency tasked with enforcing consumer protection and antitrust laws.
- The Clayton Antitrust Act. Also passed in 1914, the Clayton Act regulates business activities and defines unethical business practices, including monopolies.
The federal government or state governments may file an antitrust lawsuit against a firm if it is suspected of violating any of these three statutes.
Why Has the FTC Sued Facebook for Antitrust Violations?
Before Facebook bought the company, Kustomer worked directly with the company to implement its chatbot features into Facebook Messenger. Kustomer will no longer forge its own path of innovation under Facebook’s ever-expanding umbrella. It’s simply another tool in Facebook’s giant of “social commerce.”
Facebook has bought over a dozen similar companies, including developer app Snaptu for $70 million in 2011, messaging company Beluga for around $30 million in 2011, which became the predecessor to its Facebook Messenger app today, facial recognition company Face.com for around $60 million in 2012, and mobile analytics company Onavo for $100 to $200 million in 2013.
According to the Washington Post, Facebook offered to license its code and user interactions to other corporations so that they may develop their own branded version of the social network in late December 2020. The offer was rejected by regulators because it did not go far enough to resolve competition concerns.
Whatsapp, Instagram and the Facebook Antitrust Lawsuit
The company’s two biggest acquisitions, Instagram and Whatsapp, are at the center of the antitrust complaint. These deals not only increased Facebook’s scale and dominance in the social media market, but they also permitted data sharing among the world’s top social media platforms.
After it became evident that the photo-sharing site would be a big competitor, Facebook paid $1 billion for Instagram in 2012. It paid $22 billion for Whatsapp in 2014, making it the company’s largest acquisition to date. At the time, the FTC reviewed but did not ban these acquisitions.
Facebook’s direct grip over a large chunk of the social media ecosystem was consolidated with these two massive acquisitions. While the Facebook, Instagram, and WhatsApp platforms appear to be different social media platforms to end users, Facebook has been steadily integrating data throughout the three networks in the background. And Facebook has been far from forthcoming about how it plans to exploit the massive amounts of user data it collects across the three sites.
The FTC’s complaint seeks, among other things, to have the court order Facebook to undo its purchases of Instagram and WhatsApp, leaving them as independent firms that may compete with Facebook.
The Microsoft Antitrust Precedent
Facebook is far from the first digital behemoth to be slapped with an antitrust case. The Microsoft antitrust case, for example, demonstrates how lengthy, arduous, and sometimes unsuccessful these litigation can be.
The US Department of Justice and 20 state attorneys general argued in 1998 that Microsoft was intentionally bundling free software on its dominant operating system, making it difficult for competitors to compete. Bill Gates, the CEO of Microsoft, spoke on Capitol Hill several times to defend his company, but federal judges eventually determined in April 2000 that Microsoft had broken the Sherman Act and needed to be split into two smaller corporations.
Although Microsoft accepted certain other accusations with the DOJ, it won an appeal to the court ruling in 2001, which helped keep the firm intact. The settlement deal limited the company’s commercial activities, but it did not limit the features it might put in its operating system.
The DOJ was more successful in a recent high-profile antitrust case. In November 2020, the Department of Justice filed a lawsuit against Visa to prevent it from acquiring Plaid, a fintech company that specializes in online payments processing, for $5.3 billion.
Visa is classified as a “monopolist in online debit services” by the DOJ, which claims it charges consumers and merchants billions of dollars each year to handle online payments. Plaid’s payment processing platform “might disrupt Visa’s monopoly,” according to the DOJ, which is why it filed a lawsuit to stop the acquisition. After being served with the complaint, Visa and Plaid decided to abandon their merger negotiations.
The DOJ and three dozen states have also filed antitrust complaints against Google. The company is accused of anti-competitive practices such as making itself the default search engine on browsers and cellphones (Google pays Apple $12 billion a year to be the default search engine on the Apple iPhone) and monopolizing the digital advertising space. Consumers can change their browser settings at any time, Google claims, but they “prefer” to use Google over other search engines.
Some Say Big Tech Is Too Powerful
In the digital age, the federal government is on track to strengthen antitrust enforcement. A slew of lawsuits against the major tech companies, including Facebook, Amazon, Google, and Apple, are beginning to carve out a way to limit Big Tech’s scope and power.
Despite the fact that the US government is just now focused on Facebook’s alleged potential to stifle competition, researchers have been warning about the major technology corporations’ grip for years.
GAFAM—Google, Apple, Facebook, Amazon, and Microsoft—has been described as both “progress and peril for society” by Jacques Fontanel, professor emeritus at the University of Grenoble-Alpes.
These corporations, according to Fontanel, have already become “quasi-monopolies” with a total financial value of over $4 trillion. He claims that the companies are “uncontrollable leaders at the heart of the new digital economy,” with enough political clout to avoid antitrust laws, avoid corporate taxes by strategically locating key subsidiaries in low-tax countries, and pose a threat through public opinion manipulation, such as the Cambridge Analytica scandal.
There are also a slew of ethical problems that constantly envelop Big Tech firms. Despite the fact that many of these companies advertise themselves as “free,” their profitability are mostly based on advertising and the collecting of data on its customers.
Big Tech’s Data Colonialism
In the third quarter of 2020, Facebook’s advertising division accounted for 99 percent of its overall revenue ($21.2 billion). The collection of user data, which is a gold mine for marketers seeking brand visibility, lead generation, and, ultimately, sales, is what makes Facebook such a powerful advertising platform for marketers. Nearly two billion people use Facebook each month, making it a gold mine for marketers seeking brand visibility, lead generation, and, ultimately, sales.
However, while Facebook makes a lot of money from the practice, the individuals who make it possible don’t get anything. Data colonization is a term used by some academics to describe the practice of major organizations extracting personal data for profit.
Researchers from the London School of Economics and Political Science and the State University of New York at Oswego write, “Data relations enact a new form of data colonialism, normalizing the exploitation of human beings through data, just as historic colonialism appropriated territory and resources and ruled subjects for profit.” “Data colonialism lays the way for a new stage of capitalism, the capitalization of life without bounds, whose contours we can only glimpse.”
Even if such arguments appear obtuse, exaggerated, or unjust, Big Tech executives have expressed concern about the power their platforms wield over society.
After opting to remove former President Donald Trump from the network following the Jan. 6 domestic terrorist assault at the nation’s Capitol, Twitter CEO Jack Dorsey openly expressed his concerns about Twitter’s potential as a social platform (Facebook also banned Trump from its platform).
Although Dorsey believes it was the “correct decision for Twitter,” he also believes it creates a dangerous precedent for individual or corporate influence over public discourse.
European leaders, including Angela Merkel, Germany’s chancellor, agreed. Merkel claimed that social media firms’ decision to remove Trump from their platforms breaches his right to free speech, and that governments, not the corporations themselves, should regulate them.
Successful Antitrust Lawsuits: Good for Consumers, Bad for Investors?
According to the FTC, there are significant benefits for consumers when antitrust laws are adequately implemented.
Antitrust laws assist in the development and maintenance of a competitive marketplace for products and services. Businesses will continue to compete for customers by maintaining competitive pricing, which typically means matching or beating a competitor’s price. In a free market, any company must fight to stay relevant by always upgrading their services and giving higher quality to their clients.
It’s difficult to predict whether or not the antitrust actions against Facebook and other Big Tech corporations will succeed, or how long the legal process will take. It’s also difficult to predict how investors would be affected. If the FTC wins in court, Facebook stockholders will certainly obtain significant shares in newly public Instagram and WhatsApp.
If the government loses the lawsuit, Facebook, like Microsoft two decades ago, may be harmed as a result. When Microsoft lost the first case and was found to have broken antitrust rules, its stock price plummeted by 14%, and it didn’t recover for another decade and a half.
After the antitrust lawsuits were filed in December, Facebook’s shares sank roughly 2%.
Some experts argue that because the company’s portfolio is broad and includes other developing technological goods like virtual reality, it is well-positioned to weather market volatility.
There’s also the ongoing ethical debate over how Big Tech firms obtain, use, and profit from your personal information. For years to come, that discussion will rage on. But if the antitrust complaint against Facebook indicates anything, it’s that the DOJ hasn’t given up on its purpose of avoiding monopoly power concentration in a single business, contrary to what Fontanel believes.
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