U.S., states sue Facebook as an illegal monopoly, setting stage for potential breakup

The twin lawsuits filed in federal district court allege that Facebook and its chief executive, Mark Zuckerberg, had behaved as an unlawful monopoly for years - one that repeatedly had 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 state and federal complaints chiefly challenge Facebook's past acquisition of two companies: Instagram, a photo-sharing tool, and WhatsApp, a messaging service. Investigators said the purchases ultimately helped Facebook remove potential 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.

The lawsuits together represent the most significant political and legal threats to Facebook in its roughly 17-year history, setting up a high-profile clash between U.S. regulators and one of Silicon Valley's most profitable firms that could take years to resolve. Antitrust regulators explicitly asked a court to consider forcing Facebook to sell off Instagram and WhatsApp to remedy their competition concerns, seeking a punishment that could severely constrain Facebook's ambitions.

The Federal Trade Commission, led by Republican Chairman Joe Simons, brought its lawsuit in a D.C. district court. Ian Conner, the director of the agency's Bureau of Competition, said in a statement the FTC seeks to "provide a foundation for future competitors to grow and innovate without the threat of being crushed by Facebook."

Letitia James, the Democratic attorney general of New York, led her Democratic and Republican counterparts from dozens of states and territories in filing their complaint in the same venue. Appearing at a news conference, James sharply rebuked Facebook for having put "profits ahead of consumers' welfare and privacy."

"Today, we are sending a clear and strong message to Facebook and every other company that any efforts to stifle competition, hurt small business, reduce innovation and creativity, [and] cut privacy protections, will be met with the full force of our offices," James said.

State, federal antitrust charges against Facebook could come as soon as November, sources say

The lawsuits drew rebuke from Facebook, which pledged to "vigorously defend" its business practices in a sign of conflict to come.

"People and small businesses don't choose to use Facebook's free services and advertising because they have to, they use them because our apps and services deliver the most value," Jennifer Newstead, the company's vice president and general counsel, said in a statement.

Zuckerberg, appearing frequently on Capitol Hill in recent years similarly has argued that the Web remains sufficiently competitive, bolstered by new companies including TikTok that did not exist years ago. Privately, he has told employees he would "go to the mat" to defend against an antitrust lawsuit he saw as an "existential" threat to the company, according to audio unearthed last year.

The lawsuit reflects the vast dissatisfaction with Silicon Valley that has come to pervade all levels of government in the United States. For years, state and federal regulators had maintained a hands-off approach to the tech industry, even as watchdogs in Europe and around the world began to probe and penalize Facebook and its digital peers for their practices. But a series of high-profile scandals and missteps have brought Democrats and Republicans into rare accord as they seek anew to challenge Silicon Valley over its ever-expanding footprint - and the consequences it poses to corporate rivals and consumers alike.

Last month, the Justice Department filed a similarly sweeping antitrust lawsuit against Google, saying the company struck special deals and engaged in other wrongful tactics to expand the reach of its search and advertising empires. Antitrust watchdogs similarly have set their eyes on Apple and Amazon, raising the potential for additional antitrust action to come. (Amazon CEO Jeff Bezos owns the Washington Post.)

U.S. investigators initiated antitrust probes targeting Facebook last year. Dozens of attorneys general led by James in New York promised a broad review of Facebook's business, aiming to explore the nexus between its digital dominance and ever-growing efforts to siphon users' data. The FTC, meanwhile, took aim at Facebook almost immediately after concluding an investigation into the company over its entanglement with Cambridge Analytica, a political consultancy, that forced the tech giant to pay a $5 billion penalty.

Facebook will have to pay a record-breaking fine for violating users' privacy. But the FTC wanted more.

Immediately, regulators turned their attention to Facebook's purchase of Instagram for $1 billion in 2012 and WhatsApp for $19 billion in 2014, two deals that the government could have blocked at the time but did not. For Facebook, the two transactions reflected its aggressive attempts at the time to pivot to smartphone devices as millions of users began to spend more time on iPhone and Android apps than desktop computers and traditional websites.

State and federal investigators, however, found that the two acquisitions reflected a troubling strategy at Facebook dating back more than a decade - an aggressive ploy to buy or kill competitive threats, large or small, before they could sap away the social-networking giant's popularity.

The government lawsuits at times point to correspondence from Zuckerberg himself, who acknowledged in 2012 - before purchasing Instagram - that Facebook had fallen "very behind" in photo sharing and needed to make the critical acquisition to catch up, according to the FTC complaint. In making its move, Facebook sought to wield its "power as a sword," the state attorneys general said, threatening negative repercussions if Instagram did not agree to a sale.

State and federal investigators detailed a similar troubling pattern with WhatsApp, highlighting additional emails from Zuckerberg, who saw the company and other messaging services at the time as "the next biggest consumer risk" for his social-networking empire. In 2013, a year before the acquisition, the once-independent WhatsApp even had outpaced Facebook's own messenger product globally as measured by the number of messages sent daily.

In acquiring the company, Facebook initially promised users that it would preserve WhatsApp's independence and strong privacy protections, state investigators said. But Facebook reversed course years later, frustrating regulators, who said the bait-and-switch had the effect of eliminating a privacy-protective competitor from the digital marketplace.

Facebook on Wednesday sought to rebut the charges: Newstead, the company's general counsel, stressed that WhatsApp and Instagram became successful precisely because of the tech giant's massive investments in them.

"This is revisionist history. Antitrust laws exist to protect consumers and promote innovation, not to punish successful businesses," she said, arguing that federal regulators could have stopped the Instagram and WhatsApp deals but ultimately did not at the time.

"The government now wants a do-over, sending a chilling warning to American business that no sale is ever final," she said.

The argument has hardly dissuaded the company's critics, including those in Congress, who found reason for suspicion after concluding their own antitrust investigation this year. The review unearthed a trove of emails from Zuckerberg and his lieutenants apparently plotting against competitors in a series of discussions in which they referenced making a "land grab" for rival apps. Legal experts also said that the government was well within its rights to challenge those transactions on grounds that it ultimately enabled Facebook to act anti-competitively.

Investigators on Wednesday also faulted Facebook for the way in which the company manages its vast trove of user data and the policies that govern when and how third-party app developers and other companies can access it. Such tactics allowed Facebook to stamp out potential rivals before they could become too popular, investigators found.

In 2013, for example, Facebook sought to stop the rise of Vine, a short-video service launched by Twitter, the FTC complaint says. Facebook that January cut Vine off from accessing Facebook's features, such as users' friend lists, restricting its growth, according to the federal agency.

"Facebook has hindered, suppressed, and deterred the emergence and growth of rival personal social networking providers, and unlawfully maintained its monopoly in the U.S. personal social networking market, other than through merits competition," the FTC said.