Facebook Accused of Abusing Monopoly by Federal and State Officials

US antitrust officials and a coalition of a states sued Facebook Inc. for allegedly abusing its dominance to crush competition, the second time in less than two months the government has brought a monopoly case against an American technology giant.

The Federal Trade Commission and state attorneys general led by New York filed antitrust complaints against Facebook Wednesday, alleging conduct that thwarted competition from rivals in order to protect its monopoly. The FTC lawsuit seeks a court order unwinding Facebook’s acquisition of Instagram and WhatsApp.

The case represents the biggest regulatory attack against Facebook in the company’s history. If the FTC and the states are ultimately successful in proving Facebook violated antitrust laws, a judge could order the breakup of the company, including separating its main social media platform from Instagram and WhatsApp.

Facebok shares fell as much as 3.7 percent on the news.

“Personal social networking is central to the lives of millions of Americans,” said Ian Conner, Director of the FTC’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.”

Facebook has squashed or hindered what the company saw as potential threats, said New York Attorney General Letitia James during an online press conference.

Facebook used “vast amounts of money” to acquire companies that could potentially threaten it’s dominance, particularly Instagram and WhatsApp, she said. The effort was meant to “squeeze every bit of oxygen out of the room.”

Facebook became a prime target for President Donald Trump in the last two months of his administration. Last week, he threatened to veto the annual US defense authorization bill unless Congress adds a rider to abolish the law that protects technology companies, including Facebook, from liability over most content posted by users. The demand followed months of attacks by Trump and other Republicans, who claim the technology platforms suppress conservative views.

Facebook and its tech peers are facing a groundswell of bipartisan antagonism over their control of digital commerce and their ability to influence what users watch and read.

The Facebook case comes on the heels of the Justice Department’s October complaint against Alphabet Inc.’s Google for allegedly abusing its monopoly in internet search by using exclusive distribution agreements with phone manufacturers and wireless carriers to lock out competitors from the market. Together, the Google and Facebook actions mark the most significant monopoly cases filed in the U.S. since the Justice Department sued Microsoft Corp. in 1998.

It will be up to Biden’s Justice Department to carry the Google case forward, while the Facebook case will fall to whomever Biden picks as FTC chairman if Joe Simons, who was appointed by Trump, leaves the agency.

The investigations into the companies began in the summer of 2019 after the FTC and the Justice Department agreed on a plan to divide up scrutiny of Facebook, Google, Amazon.com Inc. and Apple Inc. A House report released in October following a 16-month investigation determined the four companies are abusing their market power as gatekeepers over the digital economy.

Their dominance is showing no signs of letting up. At the end of October, Facebook reported better-than-projected sales in the third quarter of $21.5 billion. The results showed that an advertising boycott over the summer had little impact and that Facebook remains the primary place for small and medium-sized business owners to reach customers.

The FTC said Facebook violated antitrust laws by buying Instagram in 2012 and WhatsApp in 2014, two acquisitions that the agency said were intended to eliminate emerging competition against the company. The FTC investigated and approved both deals when they were announced.

According to the House antitrust report, Facebook Chief Executive Officer Mark Zuckerberg said in a message to a colleague that “Instagram can hurt us meaningfully without becoming a huge business.” When Facebook’s chief financial officer asked if the goal of buying Instagram was to “neutralize a potential competitor,” Zuckerberg responded that was a motivation for the deal.

Facebook has long denied it’s a threat to competition. Zuckerberg told Congress in July that the company faces intense competition around the world and is constantly innovating to develop products users will like and to avoid falling behind.

Instagram’s success was far from guaranteed, he told lawmakers. It was Facebook’s investments in the company that made it successful, he said.

“With hindsight it probably looks like obvious that Instagram would have reached the scale that it has today, but at the time it was far from obvious,” he told Representative Jerrold Nadler, the New York Democrat who chairs the Judiciary Committee. “This has been an American success story.”

The Facebook complaint is the most significant antitrust action under Simons’s tenure since he took over the agency in 2018. Last year, Simons reached a $5 billion settlement with Facebook for privacy infractions, an agreement that was widely criticized by privacy advocates, Democratic lawmakers and the agency’s two Democratic commissioners for not securing changes in the way Facebook operates.

The FTC is taking on Facebook just as it’s coming off a stinging loss in a monopoly case brought against Qualcomm Inc. A federal appeals court in August ruled in favor of the chipmaker and reversed a lower-court decision that the company abused its dominant position in the market for cellphone chips.

By David McLaughlin and Erik Larson