ECONOMY / GOVERNANCE
Topic: General Studies 2,3:
- Indian Economy and issues relating to planning, mobilization, of resources.
- Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
Antitrust suit against Facebook
Context: Two lawsuits filed by the United States federal government and governments of 48 US states and territories have put under the scanner the acquisition by Facebook of Instagram and WhatsApp.
The US Federal Trade Commission (FTC)’s lawsuit accused Facebook of eliminating competition with the acquisitions — even though the FTC itself had approved the deals.
What does the FTC’s lawsuit say?
- The FTC has alleged that Facebook “is illegally maintaining its personal social networking monopoly through a years-long course of anticompetitive conduct”.
- The lawsuit followed a “lengthy investigation” by a “coalition of attorneys general of US States”.
- Facebook’s 2012 acquisition of Instagram for $1 billion and the 2014 acquisition of WhatsApp for $19 billion are being cited as attempts to illegally eliminate competition.
- The FTC has also accused Facebook of imposing “anti-competitive conditions on software developers”. It says Facebook’s practices have harmed competition and left “consumers with few choices for personal social networking, and deprives advertisers of the benefits of competition.”
- The lawsuit cites how Facebook restricted its “third-party software developers’ access to valuable interconnections to its platform” by exercising strict control over its application programming interfaces or APIs.
- It gives the example of Twitter’s short video app Vine, which was introduced in 2013. Facebook shut down API access for Vine, effectively restricting its ability to grow.
- Facebook’s monopoly over social media has resulted in “staggering profits” for the company, the lawsuit says.
What does the lawsuit say specifically about Facebook’s acquisition of Instagram and WhatsApp?
- The FTC has noted that the acquisition of Instagram came at a time when users were switching “from desktop computers to smartphones” and “increasingly embracing photo-sharing”.
- With WhatsApp, Facebook did the same, the FTC says. When it realised that WhatsApp was “clear global ‘category leader’ in mobile messaging,” it bought out the competition.
- According to the complaint, Facebook acquiring WhatsApp also meant that “any future threat will have a more difficult time gaining scale in mobile messaging”.
- This has largely been true. WhatsApp dominates the mobile messaging space, and currently has over 2 billion users globally; more than 400 million in India alone. No other messaging app comes even close
But FTC had approved the Instagram and WhatsApp deals.
- Yes – but it says its “action challenges more than just the acquisitions”. It is “challenging a multi-year course of conduct that constituted monopolization of the personal social networking market”.
- The FTC also says that it can – and often does – challenge approved transactions when they violate the law
And what does the FTC want?
- The lawsuit seeks “divestitures of assets, including Instagram and WhatsApp”.
- So if the FTC wins, Facebook might be forced to sell Instagram and WhatsApp, two products that are more appealing to younger users and in new geographies, and are therefore crucial to driving the company’s growth.
- The FTC also wants to “prohibit Facebook from imposing anti-competitive conditions on software developers”. This means Facebook will have to “seek prior notice and approval for future mergers and acquisitions”.
How has Facebook responded?
- Facebook has called the lawsuits “revisionist history.” The company has said it is not true that it has no competition, and named “Apple, Google, Twitter, Snap, Amazon, TikTok and Microsoft”.
- The lawsuits ignore the fact that users can and do move often to competing apps
- Facebook has also questioned the “attack” on its acquisitions, and recalled that the FTC had cleared the Instagram deal after an in-depth review.
- The WhatsApp transaction had been reviewed by the European Union as well.
- According to Facebook, “Those hard challenges are best solved by updating the rules of the Internet.”
- Regarding the API restrictions, Facebook argues that it is allowed to choose its business partners. YouTube, Twitter, and WeChat have done well despite these API policies, it says.
The unfolding of the lawsuit is being watched closely by the world as it has ramifications on the Big Tech Industry and also on the evolution of digital technologies.