Facebook Hit With Antitrust Lawsuits by FTC, State Attorneys General

The FTC, on a 3-2 vote, filed the case in a Washington, D.C., federal court after an investigation that stretched more than a year. Commission staffers had been preparing the lawsuit for months and recommended that the FTC vote to bring a case.

“Personal social networking is central to the lives of millions of Americans,” said Ian Conner, director of the FTC’s Bureau of Competition. “Facebook’s actions to entrench and maintain its monopoly deny consumers the benefits of competition. Our aim is to roll back Facebook’s anticompetitive conduct and restore competition so that innovation and free competition can thrive.”

New York Democratic Attorney General Letitia James announced the states’ lawsuit, which includes the District of Columbia and Guam. It was also filed in Washington, D.C.

“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,” Ms. James said at a press conference Wednesday. “Instead of competing on the merits, Facebook used its power to suppress competition so it could take advantage of users and make billions by converting personal data into a cash cow.”

Facebook said the lawsuits amounted to regulatory revisionism, noting that the FTC previously approved its Instagram and WhatsApp transactions.

“The government now wants a do-over, sending a chilling warning to American business that no sale is ever final,” said Facebook Vice President and General Counsel Jennifer Newstead. “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. We are going to vigorously defend people’s ability to continue making that choice.”

The federal-state coordination signals the intensity of legal pressures Facebook is facing, as well as the leading role state law-enforcement officials are playing in antitrust battles with the nation’s most powerful tech companies. Some states also have joined the Justice Department in suing Google, and two other coalitions of states are weighing additional cases against the search giant, a unit of Alphabet Inc.

For Facebook, Wednesday’s filings introduce a confrontation with the government that founder and Chief Executive Mark Zuckerberg has described in the past as “existential.” Mr. Zuckerberg, who personally engineered many of the actions being targeted by the lawsuits, has previously vowed to counter government antitrust complaints in court, while expressing confidence that Facebook would prevail.

The FTC allowed the tech giant to acquire Instagram and WhatsApp in 2012 and 2014, respectively. Of the dozens of companies Facebook has acquired over the past decade, some required government clearance while other smaller deals didn’t.

The cases present Facebook with one of its biggest challenges in its 16-year evolution from college startup to social-media giant. The Facebook app alone has 196 million daily active users in the U.S. and Canada, and more than 2.5 billion people use its products every day world-wide.

In Facebook’s early stages, public attention centered on the platform’s ability to grow and make money while minting cultural touchpoints and viral trends. But in more recent years the focus has turned to Facebook’s power: its extensive collection of data and its ability to shape users’ emotional states, accelerate the spread of hateful conspiracy theories and potentially influence democratic processes including elections. The company’s sway in business has come in for scrutiny, too, over its ability to blackball particular apps, cut preferential deals and use its financial power to acquire promising startups.

Facebook argues that its critics have no valid basis for claiming the companies it bought would have emerged as major competitors had they remained independent. Platforms such as Instagram have become enormously successful precisely because Facebook purchased them and invested heavily in their development, Mr. Zuckerberg has said.

Facebook has been building its legal arguments for months against a likely FTC lawsuit and plans to argue that the commission’s efforts targeting its past acquisitions would defy established law, harm consumers and cost billions of dollars if the government pursues a breakup.

The lawsuit comes two months after a U.S. House antitrust subcommittee published a report on Big Tech dominance that concluded Facebook held a monopoly insulated from competitive threats because any potential rivals faced high barriers trying to challenge the tech giant with competing products. The panel found that Facebook also maintained and expanded its dominance by buying companies that might be threats and by selectively excluding other apps from building services on its platform.

Mr. Zuckerberg said in House testimony in July that Facebook continues to face intense competition.

Facebook reached a record $5 billion settlement with the FTC last year to resolve a non-antitrust probe involving consumer-privacy violations. The commission in that matter said Facebook had deceived users about their ability to control access to their private information. Facebook said that it had made big strides on privacy and that the settlement was part of rebuilding public trust.

Some lawmakers, antitrust experts and consumer advocates have criticized the FTC as not doing enough to address the growing dominance of large tech companies. The Facebook lawsuit marks a departure from the commission’s reputation for being risk averse in its enforcement actions. It famously decided in early 2013 not to bring an antitrust case against Google after spending more than a year investigating the company. The search giant made a handful of voluntary changes to its practices but escaped with no binding legal requirements.

The FTC shares antitrust enforcement authority with the Justice Department, but the five-member bipartisan commission has a different structure for bringing cases, in which a majority vote is needed to file a lawsuit. FTC Chairman Joseph Simons, a Republican appointed by President Trump, cobbled together that majority at a time of shifting politics because of the victory of President-elect Joe Biden, who will have an opportunity to shape the commission after he takes office. Mr. Simons was joined in the majority by Democratic Commissioners Rohit Chopra and Rebecca Slaughter. Republican commissioners Noah Joshua Phillips and Christine S. Wilson voted no.

The lawsuits against Facebook are likely to take years to resolve. The commission and the states can’t impose changes on the company’s business; they first must prove in legal proceedings Facebook it violated federal antitrust law and that such changes are needed.

Facebook already has moved to integrate different services it has acquired, and it will likely emphasize that the commission previously blessed some of its acquisitions.

Some commissioners have harbored concerns about Facebook in the past. During the 2012 review of the Instagram deal, some at the FTC were worried about the competitive implications of the transaction but weren’t sure they could win a case, The Wall Street Journal has reported.

Facebook is also under increased antitrust scrutiny in Europe. The European Commission—the European Union’s top antitrust enforcement body—has been conducting a preliminary investigation into the company’s control over and use of user data, including for advertising purposes. The probe could turn into a formal investigation or end up being dropped.

“It’s a huge investigation, a lot of data coming in,” European Commission Executive Vice-President Margrethe Vestager said at a press conference last week, adding that “it’s very early days.”

Facebook has said it is committed to cooperating with the probe.

—Jeff Horwitz and Sam Schechner contributed to this article.

Write to Brent Kendall at [email protected] and John D. McKinnon at [email protected]