Now Facebook has a much bigger problem than the Australian media code

An extraordinary lawsuit against Facebook filed in an American court late on Wednesday has overshadowed any concerns the social media giants might have about the Australian news media code.

The US Federal Trade Commission (FTC), New York Attorney-General Letitia James, and a 48-strong coalition of states and territories are suing Facebook saying it broke antitrust law.

The FTC said it would seek an injunction that “could, among other things, require divestitures of assets, including Instagram and WhatsApp”.

“It’s really critically important that we block this predatory acquisition of companies and that we restore confidence to the market,” James said.

Tech stocks weakened after an early high and the Nasdaq lost more than 2% as the news spread.

By the close, the prices of Facebook, Apple, Alphabet (Google) and Amazon had all fallen by more than 2%. (Some of that weakness was the move out of techs and back to value stocks because of more hope about stimulus spending from a divided Congress.)

But the legal action — given its strong support from the federal government and Republican- and Democrat-controlled states — is considered the most serious of antitrust moves against these tech giants.

That tech-dominated states like California and Washington are part of the action says the power of the tech lobby is not as great as some might have thought.

The FTC’s involvement follows stuttering attempts by President Donald Trump to punish the social media companies for putting warnings on some of his tweet lies and Facebook postings by trying to remove their immunity to legal action over posts and tweets.

But the action from the FTC and the states is far more substantive and means it will continue under the Biden administration after January 20.

In its lawsuit the FTC is seeking the separation of the services from Facebook, saying it has engaged in “a systematic strategy” to eliminate its competition, including by purchasing smaller up-and-coming rivals like Instagram in 2012 and WhatsApp in 2014. 

James says Facebook “used its monopoly power to crush smaller rivals and snuff out competition, all at the expense of everyday users”.

Facebook is the world’s biggest social network with 2.7 billion users and a company with a market value of nearly US$800 billion whose chief executive Mark Zuckerberg is the world’s fifth-richest individual.

Facebook did not have immediate comment.

James alleges Facebook had a practice of opening its site to third-party app developers, then abruptly cutting off developers it saw as a threat.

The lawsuit — which includes 46 states, Guam and the District of Columbia — accuses Facebook of anti-competitive conduct and using its market dominance to harvest consumer data and reap a fortune in advertising revenues.

“For years, Facebook has used its monopoly power as a social networking website to stifle competition and innovation and to sell alarming amounts of user data to make money, all at the expense of the many people who use its platform,” said North Carolina Attorney-General Josh Stein, who was on the executive committee of attorneys-general conducting the investigation.

This action has long been mooted and is considered the most serious challenge to not only Facebook but other giants like Google (Alphabet), Amazon and Apple.