Investor Alert

Dec. 10, 2020, 2:56 p.m. EST

Facebook and antitrust: The effort to force spinoffs of Instagram and WhatsApp starts a long legal path

Watchlist Relevance

Want to see how this story relates to your watchlist?

Just add items to create a watchlist now:

  • X
    Facebook Inc. Cl A (FB)

or Cancel Already have a watchlist? Log In

By Jon Swartz

Facebook Inc. may have to pay a steep price for two of its most important corporate purchases, but that may depend on how long regulators are willing to fight in court to make it happen.

The Federal Trade Commission and 48 attorneys general are suing Facebook /zigman2/quotes/205064656/composite FB -0.53% over its mega-acquisitions of Instagram ($1 billion in 2012) and WhatsApp ($19 billion in 2014), and demanding that Facebook “unwind” the transactions. Federal and state officials are attempting to undo years-old deals that they claim violated antitrust laws even though the FTC investigated and approved them, a process that presages a very long legal fight.

For more: Big Tech’s antitrust woes will grow, but will it actually matter?

“The Facebook suit is difficult because it seeks to undo an acquisition approved by the Obama administration,” Shubha Ghosh, a law professor at Syracuse University. “The Facebook lawsuit will not be a simple one and will pose challenges for proving a violation and imposing a remedy.”

The FTC has authority to reconsider and unwind past transactions in court if it determines they were anticompetitive. However, it will be difficult for the government to explain how actions that Facebook took six to eight years ago are continuing to harm competition today, says Notre Dame Law School Professor Stephen Yelderman, a former trial attorney in the U.S. Department of Justice Antitrust Division.

“Reading the complaint, it’s hard to avoid the sense that the FTC is fighting a few wars back,” Yelderman said.

Facebook says both mega-acquisitions had plenty of competition when they were purchased, and it was Facebook’s billions of dollars in investments that made them both successful.

“This is revisionist history,” Facebook General Counsel Jennifer Newstead said in a statement. “Antitrust laws exist to protect consumers and promote innovation, not to punish successful businesses… The government now wants a do-over, sending a chilling warning to American business that no sale is ever final.”

In a Nov. 12 speech that foreshadowed antitrust action against Facebook, FTC Chairman Joseph Simons warned that antitrust regulators should be concerned about dominant companies scooping up startups that are competitive threats.

“A monopolist can squash a nascent competitor by buying it, not just by targeting it with anticompetitive actions,” Simons said at an American Bar Association conference. “It may be easier and more effective to buy the nascent threat, only if to keep it out of the hands of others.”

The acquisitions of Instagram and WhatsApp helped presage a “startup slump” because of the exclusionary conduct tech giants adopted in denying would-be competitors access to their massive digital platforms, Sen. Amy Klobuchar, D-Minn., said at a Senate Judiciary Committee hearing on Nov. 17 attended by Facebook CEO Mark Zuckerberg. She cited the example of Vine, Twitter’s defunct short-term video service, that withered because it could not update videos to Facebook.

Opinion: Don’t get too excited about Facebook spinning off Instagram or WhatsApp in antitrust flap

“An antitrust action by the Federal Trade Commission is long overdue,” Sen. Richard Blumenthal, D-Conn., told Zuckerberg during the same hearing. “Breaking up Facebook is a remedy, with divestment of Instagram and WhatsApp.”

There is a history and precedent here. In late July, Facebook reached a record $5 billion settlement with the FTC after it was determined Facebook violated an earlier consent degree when it failed to adequately protect user data as part of the social network’s 2018 Cambridge Analytica scandal.

Indeed, as Facebook continues to rely on monetizing data, it could face a raft of regulatory actions. Both major political parties are determined to revamp Section 230 of the Communications Decency Act, which spares social media sites from being held liable for the content posted by their users. While Republicans insist there is a bias against conservative values, Democrats counter that social media doesn’t go far enough to tamp down on hate speech and misinformation.

There is another regulatory headache on the horizon. Proposition 24, the Privacy Rights and Enforcement Act Initiative, was overwhelmingly passed by California voters in November and goes into effect in 2021. It is designed as an expansion of California’s previous voter-approved data-privacy law — the California Consumer Privacy Act, which passed in 2018 and is roughly similar to the European Union’s General Data Protection Regulations, or GDPR — and would authorize the California Attorney General to pursue actions against offending companies while creating an oversight agency.

Read more: A new watchdog for Big Tech is established in California

Concerns even extend to South Korea. In late November, that country’s new Personal Information Protection Commission, an agency for protecting personal information, fined Facebook $6.1 million after a probe revealed the personal information of least 3.3 million of the 18 million Facebook users in Korea were provided to operators other than Facebook without their knowledge, from May 2012 to June 2018.

“We have (been) cooperating as much as possible throughout the investigation process, we regret that the Personal Information Protection Commission has sought a criminal investigation,” a Facebook spokeswoman in Seoul said in a statement.

US : U.S.: Nasdaq
$ 306.18
-1.64 -0.53%
Volume: 13.06M
April 16, 2021 4:00p
P/E Ratio
Dividend Yield
Market Cap
$875.14 billion
Rev. per Employee

Get news alerts on Facebook Inc. Cl A — or create your own.
This Story has 0 Comments
Be the first to comment
More News In

Story Conversation

Commenting FAQs »

Partner Center

Link to MarketWatch's Slice.