FTC sues Facebook for illegal monopolization - Instagram and WhatsApp at risk

Facebook is being sued by the US Federal Trade Commission along with dozens of states, alleging the social network of illegal monopolization and anticompetitive conduct. The allegations represent one of the most significant challenges Facebook has encountered, with the FTC seeking a permanent injunction that could see Mark Zuckerberg's company forced to sell off high-profile assets like Instagram and WhatsApp.

"Following a lengthy investigation in cooperation with a coalition of attorneys general of 46 states, the District of Columbia, and Guam, the complaint alleges that Facebook has engaged in a systematic strategy—including its 2012 acquisition of up-and-coming rival Instagram, its 2014 acquisition of the mobile messaging app WhatsApp, and the imposition of anticompetitive conditions on software developers—to eliminate threats to its monopoly," the US FTC said in a statement today about the lawsuit.

The FTC has highlighted several ways in which it believes Facebook has acted improperly. On the one hand, the Commission argues, it used its vast wealth to acquire potential rivals and in the process wipe out possible competition in its segments. Instagram is the first example of that, the FTC says, with Facebook purchasing the photo-centric social network for $1 billion in 2012 after its attempts to more traditionally compete with it failed.

WhatsApp, too, is cited as an example of those anticompetitive acquisitions. Facebook management, the FTC says, realized that mobile messaging apps could present "a serious threat" to its business. As a result, Facebook opted to spend $19 billion to buy WhatsApp in early 2014.

"Facebook's acquisition of WhatsApp allegedly both neutralizes the prospect that WhatsApp itself might threaten Facebook's personal social networking monopoly and ensures that any future threat will have a more difficult time gaining scale in mobile messaging," the FTC argues.

Meanwhile, Facebook's policies around how third-party developers could integrate with its platform have also been anticompetitive in nature, the FTC says. "In particular, Facebook allegedly has made key APIs available to third-party applications only on the condition that they refrain from developing competing functionalities, and from connecting with or promoting other social networking services." [Emphasis in original]

In addition to the FTC, the Commission is joined by participating Attorneys General from Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, the District of Columbia, Florida, Guam, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, and Wyoming.

Should the lawsuit be successful the potential repercussions for Facebook could be significant. The FTC is hoping that the federal court will rule that the company must divest some of its assets, including Instagram and WhatsApp. It also aims to force Facebook into giving prior notice of – and seeking approval for – any future mergers and acquisitions.

The FTC also wants the court to rule that Facebook must cease "imposing anticompetitive conditions on software developers" such as those aiming to use its APIs.

"Personal social networking is central to the lives of millions of Americans," Ian Conner, Director of the FTC's Bureau of Competition, said of today's lawsuit. "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."

Update: In a brief statement, Facebook has pushed back on the lawsuit:

"We're reviewing the complaints & will have more to say soon. Years after the FTC cleared our acquisitions, the government now wants a do-over with no regard for the impact that precedent would have on the broader business community or the people who choose our products every day."