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'The Wrath Of Mark': 4 Takeaways From The Government's Case Against Facebook
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This week, the Federal Trade Commission and 48 attorneys general unveiled blockbuster lawsuits accusing Facebook of crushing competition and calling for the tech giant to be broken up.
The twin complaints together run to nearly 200 pages documenting how Facebook became so powerful — and how, according to the government, it broke the law along the way.
They accuse Facebook of, as the FTC puts it, "suppressing, neutralizing, and deterring serious competitive threats" to its own dominance in social media.
The company did so, the authorities allege, by swallowing some rivals — most notably photo-sharing app Instagram and messaging service WhatsApp — and suffocating others by cutting off valuable access to Facebook's data and systems.
Here are four key takeaways:
In Facebook's words: "It is better to buy than compete"
Both suits tell the story of Facebook's alleged misdeeds largely though the words of the company's own employees and executives, including CEO Mark Zuckerberg, thanks to troves of internal correspondence obtained by investigators.
"It is better to buy than compete," Zuckerberg wrote in a June 2008 email that the FTC complaint quotes to sum up Facebook's approach to up-and-coming rivals.
According to the lawsuits, Facebook officials repeatedly documented their concerns that the growing popularity of competitors Instagram and WhatsApp could break the company's hold on social media — a fear the government says motivated Facebook to spend lavishly to acquire the two companies.
Instagram "could be very disruptive to us" if it continued to grow independently, Zuckerberg warned in early 2012, as he was pitching the startup's founder on selling to Facebook, according to the attorneys general's lawsuit. He also discussed with another executive that one motivation for buying the app was to "neutralize a potential competitor."
(Zuckerberg sent a follow-up email less than an hour later saying, "I didn't mean to imply that we'd be buying them to prevent them from competing with us in any way," according to documents released in a separate congressional investigation of the company.)
The word "threat" came up again and again when Facebook officials discussed WhatsApp and the rise of mobile messaging, according to internal communications quoted in the FTC suit.
"I personally think companies like WhatsApp are Facebook's biggest threat," a director of engineering wrote in July 2013.
"I don't think we've seen anything like the detail with which that story was told, backed up by records that come from Facebook," said Bill Kovacic, a former FTC chairman who now directs George Washington University's Competition Law Center.
"Even to a jaded reader of antitrust-like documents over time, [this] opens your eyes and causes your jaw to drop," he said.
Facebook disputed the accusations in both lawsuits and said it would "vigorously defend" itself.
In a blog post on Wednesday addressing the complaint, Facebook said the success of Instagram and WhatsApp is due in large part to the fact that Facebook bought them, in 2012 and 2014 respectively, and invested so much in them.
"When we acquired Instagram and WhatsApp, we believed these companies would be a great benefit to our Facebook users and that we could help transform them into something even better. And we did," wrote Jennifer Newstead, Facebook's general counsel.
Prosecutors: Facebook 'buried' prospective rivals it didn't buy
While the most eye-grabbing parts of the lawsuits are the calls for Facebook to sell off Instagram and WhatsApp, those deals do not tell the whole story.
Facebook "engaged in a program of what we call 'buy and bury,' where they either buy up their competitors or, if they don't play ball and sell, they crush their competitors," Connecticut Attorney General William Tong, one of the state prosecutors involved in the suit, told NPR's Morning Edition.
The government is basically accusing Facebook of a bait-and-switch. The social network offered valuable access to outside developers — letting them put "like" buttons on their apps or websites, for example. That helped the other companies by promoting those "likes" to Facebook users' friends, drawing traffic, and it helped Facebook vacuum up more information about what its users were doing online, the government says.
But once a company appeared to pose a threat to Facebook, it pulled the plug, the lawsuits allege.
Facebook allegedly did that with a local social network app called Circle. According to the FTC's complaint, Facebook noticed Circle's recent strong growth in December 2013. Internal communications warned that Circle was "very directly creating a competing social network" — and Facebook cut off Circle's access to its systems. The FTC says Circle went from gaining 600,000 new users a day to zero.
The attorneys general in their suit accuse Facebook of wielding its heft to bully companies it wanted to buy.
"Will he go into destroy mode if I say no?" Instagram founder Kevin Systrom asked an investor while weighing Zuckerberg's $1 billion offer. "Bottom line I don't think we'll ever escape the wrath of Mark ... it just depends how long we avoid it."
Facebook said restrictions that prevent other apps from "us[ing] Facebook's platform to essentially replicate Facebook" are "standard in the industry." It said the policy "had no impact on competition," citing the success of YouTube, Twitter and WeChat, which "have done just fine without our platform."
How have consumers been hurt by Facebook's alleged wrongdoing?
So Facebook bought up some other companies — what's the big deal? After all, Facebook, Instagram and WhatsApp are all free, so classic antitrust arguments about raising prices for consumers don't seem to apply here, right?
Not true, says New York Attorney General Letitia James, who led the states' investigation.
"Ultimately, at some point in time, you are paying for their use of your personal data and your privacy. Facebook's monopoly means that users can't pick up and go to another platform because they have no other meaningful alternatives," James told NPR's Here & Now.
Both lawsuits spell out the same harm to consumers: People who want to use social media have fewer options and weaker privacy controls because of Facebook's actions.
"When [users] first signed up for Facebook, they were promised that they would have privacy protections. That all changed as Facebook grew larger and larger and larger," James said.
The states' suit says Facebook had competed with rival social networks — first MySpace and later Google+ — by pledging better privacy.
But, the attorneys general allege, after seeing off those threats, Facebook reversed course. For example, the suit says the company abandoned promises to get consent before collecting payment details and to anonymize user data shared with advertisers.
In the case of WhatsApp, the company told regulators in the U.S. and Europe who were reviewing the acquisition that it would not mix WhatsApp user data with Facebook's and that it didn't see the messaging app's data as useful for its ad-targeting business.
But after the deal closed, the attorneys general allege, "Facebook changed WhatsApp's terms of service and privacy policy and eroded the pre-acquisition promises it had made."
The suit says Facebook also pumped more ads into people's Facebook and Instagram feeds over time. "Internally, Facebook executives have referred to ads as a 'tax' on consumers," the complaint says.
Facebook lawyer Newstead said the company has plenty of competition. "People around the world choose to use our products not because they have to, but because we make their lives better," she wrote.
The FTC looked at these deals years ago. What's different now?
In its defense, Facebook points out that the government had a chance to object to its purchases of WhatsApp and Instagram, both of which the FTC reviewed at the time.
"Now, many years later, with seemingly no regard for settled law or the consequences to innovation and investment, the agency is saying it got it wrong and wants a do-over," Newstead wrote. "In addition to being revisionist history, this is simply not how the antitrust laws are supposed to work."
But the FTC's decisions not to block the deals years ago do not prevent it from objecting now, said antitrust experts Tim Wu and Scott Hemphill, who briefed regulators and state attorneys general last year on a potential antitrust case against Facebook.
"In 2012, the durability of Facebook's monopoly was unclear, and it was widely thought that Google+ would emerge as a major competitor to Facebook. But here in 2020 we know that the monopoly was durable, and that Google+ was not significant," they wrote in a Medium post on Thursday. "Beyond that, more emails have come out, more third party testimony, and more evidence of a general, serial campaign to eliminate competitive threats, large and small. And the anticompetitive effects — less privacy, more ads, and so on — are now matters of fact rather than prediction."
Legally, the federal agency has every right to take another look at the deals, said Kovacic, the former FTC chair, who left the agency in 2011, before it reviewed either transaction.
But he expects that if the case goes to trial, the FTC will have to explain what has changed in the last six to eight years.
"I can imagine the judge [asking] ... 'Why did you decide to stand down?' " he said. " 'What's happened since? Did you misjudge the significance of what you were looking at? Did you make a prediction about the future that turned out not to be right?' "
Another key question, he added, is whether the FTC back in 2012 and 2014 reviewed the same internal Facebook communications about Instagram and WhatsApp that it's using to make its case today.
"If the FTC had those materials at the time, I am intrigued. Why did you turn them aside? What persuaded you to walk away?" he said. "Part of what we don't know is, did you use good technique in doing the investigation? And when the records were provided, did you read them all? And when you read them, did you connect the dots to put together this picture?"
Editor's note: Facebook is among NPR's financial supporters.
Copyright 2020 NPR. To see more, visit https://www.npr.org.
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