A number of companies allege in a sprawling proposed class action that Facebook has overtly attempted to extinguish what it perceives as threats from rival app developers in “the most brazen, willful anticompetitive scheme in a generation.”
Across a 110-page complaint, the plaintiffs allege that as smartphones emerged, Facebook weaponized its platform to “crush or co-opt competition.” To do this, the lawsuit says, Facebook has wielded user data from its competitors to keep the growth of rivals in check while shutting out those with their own social media networks. Facebook has also relied upon what the lawsuit calls “targeted acquisition,” among other competition-squashing tactics, to surveil and “forcibly” buy up any company it perceived as a threat to its empire.
“The net effect of Facebook’s anticompetitive scheme is one of the largest unlawful monopolies ever seen in the United States—one protected by a far-reaching and effectively impenetrable barrier to entry arising from feedback loops and powerful network effects,” the lawsuit claims. “Facebook not only has the power to raise prices and keep them high, it can do so without suffering any decrease in demand, and without having to provide more value to users to obtain their data. This is the very definition of market power.”
The Old Days
It’s easy to forget that there was once a time where Facebook did not dominate the news cycle (or have a hand in politics) or maintain one of the largest troves of social data ever collected. In Facebook’s early days, the company was not at the center of a debate over whether a company so large and influential is in fact too large and too powerful. Back then, the social media upstart was just trying to get its footing.
After its founding in 2004 in CEO Mark Zuckerberg’s dorm room, Facebook grew steadily through 2010, going from a niche platform for American college students to a network that eventually allowed a much broader audience to partake in all the sharing, liking, commenting and friend requesting that they desired. Though Facebook faced competition from rivals such as MySpace and Friendster during its youth, the company, the case says, “vanquished” a number of such properties on its way to emerging as “the dominant social network.”
The honeymoon period in which Facebook was at the top of the social media mountain would prove, however, to be short-lived. While the defendant looked to be riding high heading into the second decade of the 2000s, the company, the plaintiffs say, was caught flat-footed with the proliferation of smartphones and apps. From the lawsuit:
By 2011, Facebook realized that it had fallen behind. Facebook had just debuted its new ‘Timeline’ product, a controversial modification of the Facebook feed that generated dynamic content for each user rather than a static series of posts visible to the user. Facebook had spent the last eight months prioritizing its desktop experience and its new Timeline product. But while it did so, mobile applications continued their meteoric rise.”
“An Existential Threat”
As the plaintiffs tell it, the dawn of Facebook’s mission to eliminate any party that might threaten its market dominance overlapped with the rise of smartphones and the ability of consumers to access the internet from any location and without a desktop computer. With the increasing prominence of smartphones and the emergence of special-purpose apps vacuuming up consumer information, Facebook, around 2011, found that its failure to keep up with the Joneses had birthed an existential threat to its social data and advertising monopoly, according to the case.
With an initial public offering (IPO) looming, the lawsuit continues, Facebook began to realize just how far behind it was in the mobile-app arena based on the information it garnered from third parties using its developer platform. These third-party developers—who helped drive engagement and increase Facebook’s revenue in exchange for access to its social data—were using the social media platform “in more novel and creative ways” than Facebook itself, the case claims. The company realized on the cusp of its IPO that “its position was eroding,” the complaint says, and that it was in danger of becoming a public company during a period of real flux.
At this precipice, Facebook, Zuckerberg and its most senior executives allegedly hatched what the plaintiffs claim is “an anticompetitive scheme of unprecedented scale.”
Shutting the Door for Rivals
In the lawsuit, the plaintiffs—Reveal Chat HoldCo, the company behind the LikeBright dating app; USA Technology and Management Services, which runs the Lenddo credit score and identity verification app; Cir.cl, a peer-to-peer transaction marketplace; and Beehive Biometric, an identity verification system—expand upon what they allege are four prongs that make up Facebook’s scheme to stamp out any potential market threats. According to the complaint, Facebook defeated a number of emerging rivals when it:
“…moved to crush or co-opt competition that existed on its own Platform.” The plaintiffs allege that the first phase of Facebook’s “scheme” was to identify and attract third-party developers to build apps on its platform only to “[cut] them off from key application program interfaces,” called APIs, on which their apps needed to function. Facebook’s removal of so-called rivals’ access to crucial APIs “lacked any legitimate or technical justification,” the lawsuit says, adding that the social media giant in fact “sacrificed massive amounts of additional social data, engagement, and advertising” on its own end in order to set competitors back. “…collected valuable user data from competing platforms,” thereby allowing it to grow its own footprint while restricting the growth of rivals, the suit continues. Referred to in the lawsuit as Facebook’s “social-data heist,” the company allegedly threatened to block those it considered rivals (such as Pinterest, Tinder and Four Square) from obtaining Facebook’s data if they didn’t provide “reciprocity” by handing over their own “central assets,” i.e. user data. Entities that tried to resist Facebook, the complaint alleges, were left out in the cold when it came to the valuable exchange of user data. “…moved aggressively to shut out entirely direct competitors” that had their own social networks and did not rely on Facebook for their social data and user base. According to the lawsuit, competitors such as the plaintiffs were banned from using Facebook’s developer platform and even from buying advertising. Facebook allegedly took such measures even though it would miss out on “significant profits.” “..monitored the market for nascent threats to its business, and then extinguished those threats…” through either “targeted acquisition” or conduct the plaintiffs describe as anticompetitive. Facebook allegedly used “mobile surveillance technology” it acquired from Onavo, which the lawsuit says “cloaked spyware in legitimate-looking utility apps.” The lawsuit claims that Facebook’s “surveillance” identified Instagram and WhatsApp as “imminent threats” that the company then “forcibly” scooped up. After acquiring Instagram and WhatsApp, the complaint says, Facebook “dramatically increased” its share in the social data and advertising markets while pulling into its own orbit the companies’ “staggering user bases and levels of engagement.”
With the above roadmap nearly traversed, Facebook is on the verge of “unrivaled global dominance,” the lawsuit says, calling the net effect of the defendant’s conduct “one of the largest unlawful monopolies ever seen in the United States.” The plaintiffs charge that all that’s left to do for Facebook is to integrate the backends—that is, the “brains”—of the Instagram and WhatsApp platforms. From the suit:
Today, Facebook is rapidly working to integrate the backends of its acquired WhatsApp and Instagram assets in the face of regulatory concern over Facebook’s unchecked market power and anticompetitive conduct. This is no coincidence. Facebook’s integration efforts are deliberately intended to avoid regulatory divestiture of assets, to consolidate the geographic regions it controls through its various apps, and to finally flex the market power it acquired through those mergers. This last piece of Facebook’s monopolization scheme is on the verge of completion—and once culminated, the backend integration will imbue Facebook with unrivaled global dominance…”
Facebook “Cannot Avoid the Truth,” Plaintiffs Say
The lawsuit stresses that Facebook and its executives for years “took great pains to hide the truth” about the API withdrawal from its developer platform, the reciprocity agreements, and every other facet of its competition-killing playbook. And Facebook indeed managed to keep its plan secret, the suit says, until a leak of thousands of pages of documents exposed the company’s true goals. From the lawsuit:
Through NDAs; through overbroad and/or improper assertions of privilege and confidentiality; through lies to regulators, to the press, to developers, and to the public; and through other means and mechanisms of intentionally suppressing and concealing from public view the true nature, motivation, mechanisms, and intent of Facebook’s actions, Defendant managed to hide the specific facts of its anticompetitive conduct from Plaintiffs until November 6, 2019, when NBC News published a trove of internal Facebook documents and communications that laid bare the truth about Defendants’ scheme.”
The suit charges that once Facebook integrates its products, its dominance of the social data and social advertising markets will be “virtually impossible to reverse.”
Who Does This Lawsuit Cover?
The lawsuit looks to certify a class of all persons, entities and corporations in the United States who were excluded from the social data market or injured by Facebook’s call to withdraw the Graph APIs from May 24, 2010 through April 30, 2015.