Facebook Sued for Shutting Out Competition

On January 16, plaintiffs Reveal Chat Holdco LLC, et al filed a class action complaint against defendant Facebook alleging antitrust violations. Plaintiffs are represented by Pierce Bainbridge. The complaint was filed in the California Northern District Court. Magistrate Judge Kandis A. Westmore will preside over the case.

Reveal Chat Holdco owns Reveal Chat, an anonymous chatting app that was formerly the dating site LikeBright. It launched in 2011, and unlike other dating platforms, it incorporated users’ social media accounts and data to improve matchmaking. LikeBright thus relied on Facebook data and APIs to operate. USA Technology and Management Services is a financial tech company. Lenddo is an alternative credit scoring and identity verification provider and it helps people improve their digital footprints, including social media. Lenddo created the first “Facebook-only loan origination process.”  Cir.cl is a peer-to-peer marketplace transaction management platform. It used and incorporated users’ social media data. Beehive Biometric created a system to verify identities by pulling from social media data through trademarked and proprietary Social Authentication Technology (SAT). Beehive used social media data, including data from Facebook and its APIs. Each of the plaintiffs alleges they have been impacted by Facebook’s anticompetitive practices.

The complaint seeks to stop Facebook’s anticompetitive practices. In addition to its status as the dominant social platform, the complaint notes that Facebook also owns other social platforms, including Instagram and WhatsApp.  The complaint stated, “[a]s 2020 begins in earnest, Facebook has no serious rivals in its key markets – nor any prospect of one.” Smartphones threaten Facebook’s dominance. Facebook’s control has led to large masses of user data collection, which has attracted advertisers to the platform. Consequently, Facebook’s business was protected by a social data barrier to entry (SDBE), which allowed Facebook to fight off Google’s Google+, which users did not find attractive. Smartphones and apps created another obstacle and competition for Facebook according to the complaint.

As Facebook moved into the social data and social advertising markets it allegedly acted in an anticompetitive manner. Facebook cut off existing third-parties from its API, harming their growth. Meanwhile, Facebook collected user data from the competition and used it to grow Facebook, while constricting the competition’s growth by using data-sharing agreements with its competition or apps that generated data from engagement.  Pinterest and Tinder were mentioned specifically. The agreements meant other companies gave Facebook their data or they risked being cut off from Facebook’s API; additionally, by joining, these companies obtained access to social data and the data of other companies that joined the agreement. Essentially, Facebook acted as the gatekeeper to exchange user data among rival companies and platforms.

Facebook attempted to shut down competitors that built social networks without relying on Facebook for data. Facebook searched for threats from the competition and would act anticompetitively towards those competitors or acquire them. According to the complaint, Facebook hired Onavo, a company that shielded spyware to appear like legitimate utility apps, in order to surveil competitors. It was through this surveillance that Facebook discovered that Instagram and WhatsApp were potential threats to its business. Facebook tactfully acquired both competitors, while increasing its share in social data and advertising markets.

Facebook has been working to integrate WhatsApp and Instagram more closely into Facebook’s platform and business, including via back-end integration. This has caused regulatory and anticompetition concerns, especially for its potential dominance of social data and social advertising markets.

Plaintiffs are concerned about Facebook’s potential monopoly. The complaint stated, the “net effect of Facebook’s anticompetitive scheme is one of the largest unlawful monopolies ever seen in the United States—one protected by a far-reaching and effectively impenetrable barrier to entry arising from feedback loops and powerful network effects. Facebook not only has the power to raise prices and keep them high, it can do so without suffering any decrease in demand, and without having to provide more value to users to obtain their data. This is the very definition of market power.”

The complaint alleges violations of the Sherman and Clayton Acts and seeks injunctive relief and divestiture. As a result, Plaintiffs have sought that the action is maintained as a class action, judgment in their favor, award for damages, compensation for damages and other monetary relief, as well as injunctive relief and for Facebook to cover suit costs.

The initial case management conference is scheduled for the end of April.