Facebook is currently in hot waters and could be forced to sell off its prized assets which includes both WhatsApp and Instagram after the U.S. Federal Trade Commission and U.S. state filed lawsuits against the social media giant stating it used the “Buy or bury” strategy to snap up rivals and keeping the smaller ones at bay.
The massive lawsuit against Facebook on Wednesday makes it the second big tech company to face such a major legal challenge this year after Alphabet got sued by the U.S. Justice Department back in October accusing the company of using its market power to fend off its rivals.
The lawsuit explains the growing bipartisan consensus meant to hold big tech companies accountable for their business practices as well as mark a rare moment of agreement between the Trump Administration and Joe Biden’s democrats which had been an advocate of breaking up big tech companies such as Facebook and Google.
Facebook was accused of buying up rival social media companies. Though not new ones as this involves the acquisition of the photo sharing platform Instagram which was acquired for US$1 billion back in 2012 as well as WhatsApp which was bought for US$19 billion in 2014.
According to the federal and state regulators, the acquisition is said to be anti-competitive.
“For nearly a decade, Facebook has used its dominance and monopoly power to crush smaller rivals, snuff out competition, all at the expense of everyday users,” said New York Attorney General Letitia James on behalf of the coalition of 46 states, Washington, D.C. and Guam. Alabama, Georgia, South Carolina and South Dakota did not participate in the lawsuit.
James stated that the acquisition were made before these companies ever become big basically as Facebook projects their growth to likely dominate the social media platform over time.
Meanwhile the social network giant counsel Jennifer Newstead called the lawsuits “revisionist history” and also said the antitrust law do not exist to punish “successful companies”.
She said WhatsApp and Instagram have succeeded after Facebook invested billions of dollars in growing the apps.
“The government now wants a do-over, sending a chilling warning to American business that no sale is ever final,” Newstead said.
She also raised doubts about alleged harms caused by Facebook arguing that consumers benefited from the decisions to make WhatsApp free.
In a post on Facebook’s internal discussion platform, Chief Executive Mark Zuckerberg told employees he did not anticipate “any impact on individual teams or roles” as a result of the lawsuits, which he said were “one step in a process which could take years to play out in its entirety.”
Comments were turned off for Zuckerberg’s post, as well as for other posts on the lawsuits shared by Newstead and Chief Privacy Officer for Product Michel Protti, according to copies viewed by Reuters. Newstead also warned employees not to post about the cases.
Facebook did not immediately respond to questions about the posts.
Zuckerberg also told employees in July that the company would “go to the mat” in order to fight a legal challenge aimed at braking up the company which he called ”existential” threat according to an internal meetings which The Verge got a hold of.
Antitrust experts believes that the case was unusually strong considering the statements made by the company’s CEO which was gotten from the company’s own documents such as the 2008 email in which Zuckerberg said “It is better to buy than compete.”
Other experts such as Seth Bloom of Bloom Strategic Counsel said the FTC complaint was “significantly weaker” than the DOJ’s lawsuit against Google.
“We’re talking about acquisitions that are six or eight years old and it will be difficult for a court to order divestitures of many years ago,” Bloom said.
Investors echoed similar concerns.
“I do not know if the FTC or DOJ will be successful in breaking Facebook up. I’m assuming this will be dragged out in the courts as FB defends itself,” said Daniel Morgan, a portfolio manager at Synovus Trust in Atlanta, Georgia.
This lawsuit is the biggest antitrust suit against a big tech company in a long time with the previous being against Microsoft Corp back in 1998 and the case was settled but the legal battle prevented the company from thwarting competitors and is credited with clearing the way for the explosive growth of the internet.
Last month, Facebook said it was buying customer service start-up Kustomer, in an acquisition that the Wall Street Journal said valued Kustomer at $1 billion.
And do not forget another big purchase Facebook made when it purchased the Image and GIF sharing service Giphy back in May but the acquisition further brought scrutiny from the UK’s competition watchdog.
Facebook shares fell as much as 3% after the news before paring losses to close down 1.9%.
