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FTC and states sue Facebook, could force Facebook to divest Instagram and WhatsApp

Facebook founder and CEO Mark Zuckerberg arrives to testify following a break during a Senate Commerce, Science and Transportation Committee and Senate Judiciary Committee joint hearing about Facebook on Capitol Hill in Washington, DC.

Saul Loeb | AFP | Getty Images

Facebook now faces two legal challenges alleging it engaged in anticompetitive practices. The lawsuits come from the Federal Trade Commission and a coalition of 48 attorneys general led by New York AG Letitia James.

Both lawsuits target two of Facebook’s major acquisitions: Instagram and WhatsApp. Both are seeking remedies for the alleged anticompetitive conduct that could result in requiring Facebook to divest from the two apps.

The company’s stock was down almost 4% following the news of the lawsuits.

The FTC alleges that Facebook engaged in a systematic strategy to eliminate threats to its monopoly, including the 2012 and 2014 acquisitions of Instagram and WhatsApp. It alleges Facebook holds monopoly power in the U.S. personal social networking market.

The FTC alleges that Facebook engaged in a systematic strategy to eliminate threats to its monopoly, including the 2012 and 2014 acquisitions of Instagram and WhatsApp, which the FTC previously cleared. Facebook acquired Instagram for $1 billion and WhatsApp for $19 billion.

As part of the lawsuits, the FTC will seek a permanent injunction that could result in the divestitures of Instagram and WhatsApp, the agency said. Additionally, the FTC will seek to prohibit Facebook from imposing anticompetitive conditions against third-party software developers.

“Since toppling early rival Myspace and achieving monopoly power, Facebook has turned to playing defense through anticompetitive means,” the FTC states in its lawsuit. “After identifying two significant competitive threats to its dominant position — Instagram and WhatsApp — Facebook moved to squelch those threats by buying the companies, reflecting CEO Mark Zuckerberg’s view, expressed in a 2008 email, that ‘it is better to buy than compete.'”

James said at a press conference Wednesday the state lawsuit sent a message that “any efforts to stifle competition, hurt small business, reduce innovation and creativity, cut privacy protections, will be met with the full force of our offices.”

Facebook first disclosed it was being investigated on antitrust grounds by the Federal Trade Commission in July 2019. A coalition led by New York’s Letitia James announced a probe into the business shortly after.

Facebook has faced accelerating scrutiny around both its handling of user data and competition practices since 2017 when news investigations revealed its service had been used by political data firm Cambridge Analytica to gain information about users without their consent ahead of the 2016 U.S. presidential election. The FTC settled with Facebook for $5 billion last year after probing its data practices, which tech hawks in Congress criticized as a slap on the wrist for Facebook — it represented only about 9% of Facebook’s 2018 revenue.

On the competition side, lawmakers have criticized the FTC for failing to adequately scrutinize Facebook’s past acquisitions of Instagram and WhatsApp. The House Judiciary subcommittee on antitrust released internal Facebook documents from its own investigation into the company that showed Facebook executives worried about Instagram’s rise. In one correspondence between Instagram’s chief and an investor, he worried Facebook CEO Mark Zuckerberg would “go into destroy mode” if he refused to sell.

The Facebook suit follows another tech antitrust charge by the Department of Justice against Google. The DOJ claimed in its October filing that Google violated antitrust law by illegally maintaining a monopoly over online general search by tying up distribution channels for competitors. Eleven Republican state attorneys general joined the DOJ in its suit. Other states are continuing to investigate Google and could file their own charges and potentially join them with the DOJ’s complaint.

This story is developing. Check back for updates.

-CNBC’s Sal Rodriguez contributed to this report.

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