WASHINGTON -- The U.S. government and 48 states and districts including Arkansas sued Facebook on Wednesday, accusing it of abusing its market power in social networking to crush smaller competitors.
The antitrust lawsuits, announced by the Federal Trade Commission and New York Attorney General Letitia James, mark the second major government offensive this year against tech behemoths.
The two lawsuits filed in federal district court allege that Facebook and its chief executive officer, Mark Zuckerberg, behaved as an unlawful monopoly for years -- one that repeatedly weaponized its vast stores of data, seemingly limitless wealth and savvy corporate muscle to ascend into one of the most widely used services around the world. The lawsuits seek remedies that could include a forced spinoff of the social network's Instagram and WhatsApp messaging services.
The state and federal complaints chiefly challenge Facebook's past acquisitions of Instagram and WhatsApp. Investigators said the purchases ultimately helped Facebook remove potentially potent rivals from the digital marketplace, allowing the tech giant to enrich itself on advertising dollars at the cost of users, who had fewer social-networking options at their disposal.
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Arkansas Attorney General Leslie Rutledge joined in filing the lawsuit brought by the bipartisan group of attorneys general.
"Many Americans rely on Facebook to connect with family and friends we may not see on a regular basis and the social media giant must be held accountable when it keeps other competitors from entering into the marketplace which keeps Arkansans from having the best option when they chose to share information online," Rutledge said Wednesday. "I am bringing this lawsuit to ensure that Arkansans have a choice in the marketplace and to remedy Facebook's anti-competitive practices."
The cases represent the biggest regulatory attack against Facebook in the company's history. They follow the Justice Department's October lawsuit against Alphabet Inc.'s Google. 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. Unlike the Google case, the Facebook complaints seek a court order breaking up the company.
Facebook shares fell 2% to close at $277.92 on Wednesday after falling more than 4% earlier.
James said at a news conference that "it's really critically important that we block this predatory acquisition of companies and that we restore confidence to the market."
The FTC fined Facebook $5 billion in 2019 for privacy violations and instituted new oversight and restrictions on its business. The fine was the largest the agency has ever levied on a tech company, although it had no visible effect on Facebook's business.
Facebook called Wednesday's move "revisionist history" that punishes successful businesses and noted that the FTC cleared the Instagram and WhatsApp acquisitions years ago. "The government now wants a do-over, sending a chilling warning to American business that no sale is ever final," Facebook general counsel Jennifer Newstead said in a statement that echoed the company's response to a recent congressional antitrust investigation.
Facebook is the world's biggest social network, with 2.7 billion users. It has a market value of nearly $800 billion and a CEO who is the world's fifth-richest individual and the most public face of the big technology companies.
The FTC also alleges that Facebook maintained its dominance by threatening to cut off third-party software developers from plugging into the social network if they made competing products.
"Our aim," said Ian Conner, who oversees antitrust enforcement at the agency, "is to roll back Facebook's anti-competitive conduct and restore competition so that innovation and free competition can thrive."
North Carolina Attorney General Josh Stein, who was on the executive committee of attorneys general conducting the investigation, said the litigation has the potential to alter the communications landscape the way the breakup of AT&T's local phone service monopoly in the early 1980s did.
"Our hope is to restructure the social networking marketplace in the United States, and right now there's one player," Stein told reporters. James said the coalition worked collaboratively with the FTC but noted the attorneys general conducted their investigation separately.
Antitrust expert Rebecca Allensworth, a law professor at Vanderbilt University, said it is "hard to win any antitrust lawsuit, and this one is not any different." But as far as antitrust cases go, she added, the government has a strong one.
The Justice Department's suit against Google, announced just two weeks before Election Day, brought accusations of political motivation from some quarters. It was filed by a Cabinet agency headed by an attorney general seen as a close ally of President Donald Trump, who has often publicly criticized Google.
The FTC, by contrast, is an independent regulatory agency with three Republican commissioners and two Democrats.
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 after a 16-month investigation determined the four companies are abusing their market power as gatekeepers over the digital economy.
WHAT'S NEXT
It will be up to President-elect Joe 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. Simons, a Republican, voted with the agency's two Democrats to approve the Facebook complaint.
Biden has singled out Zuckerberg for scorn, calling him "a real problem."
Instagram and WhatsApp are among some 70 companies that Facebook has acquired over the past 15 years. Facebook paid $1 billion for Instagram, bolstering the social network's business a month before its stock went public. At the time, the photo-sharing app had about 30 million users and wasn't producing any revenue. A few years later, Facebook acquired WhatsApp for $19 billion.
Zuckerberg vowed that both companies would be run independently, but over the years the services have become increasingly integrated. Users are now able to link accounts and share content across the platforms. Instagram now has more than 1 billion users worldwide. Such integration could make it more difficult to break off the companies.
NetChoice, a Washington trade association that includes Facebook as a member, quickly panned the lawsuits. The case for antitrust enforcement against Facebook "has never been weaker," NetChoice Vice President Carl Szabo said in a statement, pointing to newer social media services such as TikTok and Snapchat as rivals that could "overtake" older platforms.
Information for this article was contributed by Marcy Gordon, Michael R. Sisak, Barbara Ortutay and Gary D. Robertson of The Associated Press; by Tony Romm of The Washington Post; by David McLaughlin, Erik Larson, Sarah Frier and Kurt Wagner of Bloomberg News; and by Cecilia Kang and Mike Isaac of The New York Times.
