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Facebook Hit with Anti-Trust Lawsuit

Updated: Mar 11

Four mobile application developers have filed an anti-trust class action lawsuit against Facebook, alleging “the most brazen, willful anticompetitive scheme in a generation” and asking the court to order founder Mark Zuckerberg to divest himself of his controlling interest in the company. It’s the latest legal challenge for the social networking giant.


Four Tech Companies Cry Foul


The suit was filed late last month by four tech companies (two are defunct; the others are Reveal Chat, a messaging service, and Lenddo, a creditworthiness assessment company). They allege that early in the last decade, just as Facebook was getting ready to go public, it was caught flat-footed by the sudden, explosive growth of smart phones. Developers began to churn out thousands of innovative mobile apps that provided overlapping functionality such as messaging, photo-sharing, dating, and payment processing - all functions that Facebook wanted to capture for its own platform. Zuckerberg later told Fortunethat Facebook’s slow response to the rise of smart phones was “one of the biggest mistakes we’ve ever made.” He promised rapid action, but Facebook’s inaugural mobile app was widely considered to be clunky and unresponsive.


Did Facebook Crush Competing Mobile Apps?


Facing a mortal threat to its dominance of social networking, and acting under direct orders from Zuckerberg, the lawsuit alleges that Facebook hatched a four-pronged “anticompetitive scheme of unprecedented scale” to crush competing mobile apps.


First, Facebook moved to crush independent mobile apps that could integrate with the Facebook platform by cutting them off from critical “data graphs,” key application program interfaces. This move deprived those apps of “functionality that provided social applications with user data that fueled their growth.” Next, it coerced competitors such as Pinterest, Foursquare, and Tinder into handing over their user data by threatening them with exclusion from the Facebook platform, and used that data to constrain the growth of rivals and grow its own mobile app footprint. Then, it “moved aggressively to shut out entirely direct competitors that had built independent social networks of their own and did not rely on Facebook for their social data and user base” - including WeChat and Line, a voice over IP app - banning them from Facebook and refusing to sell them user data, even at a profit. Finally, Facebook pursued an aggressive strategy of acquiring companies that had developed popular mobile apps, especially Instagram and WhatsApp, further accumulating its overwhelming market power in mobile applications.


Tough Time for Facebook


The suit comes at a tough time for Facebook. The company has been the focus of attacks from critics who accuse of it not cracking down onRussian disinformation bots during the 2016 election; it’s been caught receiving sensitive user data from apps that integrate to its platform (even if the user didn’t have a Facebook account); was embarrassed by revelations that the political analysis firm Cambridge Analytica was illegally scraping data from its user profiles; and just last month settled a lawsuit over its facial recognition technology for $550 million. Like in many of these episodes, the collection and leveraging of user data is a constant theme in this current complaint: over and over, the plaintiffs claim, Facebook diverted or choked off the flow of user data that developers relied on, to reward the company’s friends and drive its enemies from the market.

The allegations of this new lawsuit also dovetail with the recent, embarrassing leak of thousands of pages of internal Facebook emails that were produced as discovery in a lawsuit filed by Six4Three, the developer of a now-shuttered bikini photo app. In those documents, Facebook executives muse on dividing the world of apps into competitors and non-competitors and implement a policy dubbed “PS12N,” to cut off potential competitors from Facebook data graphs - essentially, a death sentence for a social networking app. The emails show that Zuckerberg was personally involved in the decision to cut off Vine, a now-defunct video sharing app developed by Twitter. The similarity between the allegations in that case and the newly filed case are striking, though the plaintiffs insist their suit is based solely on public information.


Will Facebook Settle Like Microsoft Did?


So is Facebook in trouble? It’s never wise to bet against Zuckerberg and company. But this lawsuit could have legs. Especially in its central allegation - that Facebook used data access to leverage concessions, build market share, and drive competitors into surrender or bankruptcy - this lawsuit has a clear model: the successful antitrust suit brought against Microsoft for anticompetitive tactics.


In that case, Microsoft was accused of giving away its Internet Explorer browser for free to crush the competing Netscape Navigator browser, relying on the overwhelming market position of its Windows operating system, and also withholding certain software interfaces and protocols that software developers relied on to develop third party applications. Microsoft eventually settled the case after losing in the trial court. This case seems conceptually similar to United States v. Microsoft: an industry giant using its control of data to shape the market by rewarding its friends and punishing enemies. Some legal observers think Facebook could be looking at a similar outcome.


Facebook issued a statement calling the lawsuit was “without merit” and financially motivated.


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