Should Facebook be broken up? FTC, 46 states sue tech giant for antitrust over Instagram, WhatsApp acquisitions

The Federal Trade Commission and more than 40 states are suing Facebook on antitrust grounds, taking direct aim at two prized acquisitions that broadened the company's global footprint and fueled its more than $70 billion advertising business. 

The two legal challenges, which follow a lengthy investigation by the federal government and 46 states, the District of Columbia and Guam, allege Facebook illegally used its dominance and deep coffers to take out rivals, creating a social media monopoly that ultimately harmed consumers, who have had fewer choices and privacy protections.

"For nearly a decade, Facebook has used its dominance and monopoly power to crush smaller rivals and snuff out competition, all at the expense of everyday users," New York Attorney General Letitia James said in a statement.

At issue are two megadeals, the $1 billion purchase of social media app Instagram in 2012 and the $19 billion purchase of messaging app WhatsApp in 2014, whose growing popularity positioned Facebook to rule the social media landscape.

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The FTC lawsuit seeks a permanent injunction that could, among other actions, unravel the acquisitions of Instagram and WhatsApp.

"Facebook’s actions to entrench and maintain its monopoly deny consumers the benefits of competition," Ian Conner, director of the FTC’s Bureau of Competition, said in a statement Wednesday. "Our aim is to roll back Facebook’s anticompetitive conduct and restore competition so that innovation and free competition can thrive."

Jennifer Newstead, vice president and general counsel of Facebook called the litigation "revisionist history."

"Antitrust laws exist to protect consumers and promote innovation, not to punish successful businesses," she said in a statement. "Instagram and WhatsApp became the incredible products they are today because Facebook invested billions of dollars, and years of innovation and expertise, to develop new features and better experiences for the millions who enjoy those products."President Donald Trump has railed against the unchecked influence of tech giants and President-elect Joe Biden has criticized them, too.

Bipartisan concerns that Facebook has grown too powerful come as Washington looks to rein in Silicon Valley. The Justice Department filed an antitrust lawsuit against Google earlier this year. 

Facebook and Google have argued that they offer free services that consumers flock to and operate in highly competitive markets.

A congressional investigation this year into the power of the tech industry focused on the Instagram and WhatsApp acquisitions and accused Facebook of snapping up competitive threats “to maintain and expand its dominance.”

The litigation filed in the U.S. District Court for the District of Columbia represents one of the most significant legal battles in its 16-year history.

Facebook CEO Mark Zuckerberg told employees he would fight back against any government intervention.

“I don’t want to have a major lawsuit against our own government,” Zuckerberg told employees in response to calls to break up the company, according to a transcript of an internal meeting obtained by The Verge. “But look, at the end of the day, if someone’s going to try to threaten something that existential, you go to the mat and you fight.”

The looming legal battles carry high stakes for Facebook, which could be forced to unwind the Instagram and WhatsApp deals, acquisitions the FTC previously reviewed and signed off on. 

"The most important fact in this case, which the Commission does not mention in its 53-page complaint, is that it cleared these acquisitions years ago," Newstead said. "The government now wants a do-over, sending a chilling warning to American business that no sale is ever final."

Zuckerberg appeared before Congress several times this year and made the case that Facebook’s success comes from building products that people want and that the acquisitions of Instagram and WhatsApp helped fuel their growth.

In November, he told the Senate Judiciary Committee that Facebook did not view Instagram as a direct competitor in 2012. 

“We had some competition with Instagram in the growing space of camera apps and photo-sharing apps, but at the time I don’t think we or anyone else viewed Instagram as a competitor as a large, multipurpose social platform," he said. "In fact, people at the time mocked our acquisition because they thought that we dramatically spent more money than we should have to acquire something that was viewed as primarily a camera and photo-sharing app at the time.”

Mark Patterson, a professor at Fordham Law School, said the Facebook litigation is significant because of the influence Facebook and Instagram have on American life, business and politics. 

"It's also significant because it will tell us whether the courts are still willing to take seriously divestiture as a remedy," he said in an email. "Given the increasing size of many firms in the market, that could have broader effects.”