By Brent Kendall, John D. McKinnon and Deepa Seetharaman
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (August 2, 2019).
The Federal Trade Commission is examining Facebook Inc.'s
acquisitions as part of its antitrust investigation into the
social-media giant, seeking to determine if they were part of a
campaign to snap up potential rivals to head off competitive
threats, according to people familiar with the matter.
The company's acquisition practices are a central component of
the FTC probe, the people said. Facebook disclosed the FTC's
investigation in its earnings announcement last week but provided
few details.
FTC investigators are examining whether the company and its CEO,
Mark Zuckerberg, purchased technology startups to keep them from
challenging Facebook's empire, the people said, some of whom added
that the FTC has begun reaching out to the founders of such
companies.
The tech giant has acquired about 90 companies over roughly the
last 15 years, according to data compiled by S&P Global. Among
those companies are the photo-sharing app Instagram and the
messaging service WhatsApp, which bolstered Facebook as a dominant
force in social media and messaging.
Facebook didn't immediately respond to a request for comment.
The company said last week that the FTC was investigating "in the
areas of social networking or social media services, digital
advertising, and/or mobile or online applications."
In congressional testimony last month, Matt Perault, director of
public policy at Facebook, told a House antitrust subcommittee that
the company's acquisitions have fueled innovation and brought
together firms of complementary strengths.
Companies purchased by Facebook "have had more opportunity to
innovate as part of Facebook than they would have on their own --
enhancing users' experience and resulting in more choice for more
people overall, not less," Mr. Perault said.
An FTC spokeswoman declined to comment. The investigation comes
on the heels of a separate case in which the commission fined
Facebook $5 billion for alleged privacy missteps.
One acquisition that could come under scrutiny was the 2013
takeover of Onavo Mobile Ltd. Facebook used Onavo's
behavior-tracking technology to identify and target fast-growing
companies as potential purchases or to scope out new product
categories, The Wall Street Journal reported in 2017. Facebook used
data from Onavo in deciding to buy WhatsApp. Documents U.K.
lawmakers released late last year confirmed Onavo's importance to
Facebook's strategy. Facebook eventually shut down the
controversial app.
Other tech giants, such as Alphabet Inc.'s Google, also have
been on buying sprees. The top five tech firms have made more than
400 acquisitions over the last decade, a U.K. blue-ribbon antitrust
panel said in March.
The FTC has for months signaled its interest in whether tech
companies are squelching competition by systematically buying
startups that could one day challenge them. When the commission
formed a task force in February to examine potential antitrust
violations in the tech industry, Bruce Hoffman, director of the
FTC's bureau of competition, said the issue was ripe for
exploration.
"This is a completely legitimate and real theory of competitive
harm," he said last year, while stressing that the FTC would need
"an evidentiary and economic basis" for determining that an
acquired startup really could have become a significant
competitor.
Mr. Hoffman acknowledged the potential negative consequences of
cracking down on such acquisitions: Large tech firms may be able to
move startup technologies to market more quickly, and capital
markets for startups could shrink if the opportunity to be
purchased by a big tech company is constrained, he said.
If the FTC were to identify antitrust issues with any of
Facebook's past acquisitions, the commission could pursue a range
of remedies, from seeking a spinoff of certain acquisitions to
restricting Facebook's conduct with some of the assets it has
acquired. Any such effort could lead to litigation.
The FTC's investigation isn't the only antitrust scrutiny the
company faces. The Justice Department said last week that it was
launching a broad review of whether and how online platforms have
engaged in practices that reduce competition, stifle innovation or
otherwise harm consumers. That includes social media, the
department said.
The reviews by both U.S. antitrust agencies signal the federal
government is training significant firepower on Facebook, whose
recent $5 billion FTC fine represented an unprecedented privacy
settlement. State attorneys general and European regulators also
are looking into competition issues around Facebook.
U.S. antitrust enforcers typically challenge mergers and
acquisitions that propose to combine major head-to-head
competitors. But some critics argue the government has focused too
much on the current size of tech takeover targets and failed to
consider how they could grow. Some critics also say regulators are
too sympathetic to the idea that any dominance by today's tech
giants is tenuous because high-tech markets change so rapidly.
When the FTC allowed Facebook to acquire Instagram in 2012,
there was discomfort within the commission about possible antitrust
implications, according to people familiar with the matter. But FTC
officials were concerned they might not win an antitrust case in
court, the people added. The FTC blessed the WhatsApp purchase in
2014.
Some tech acquisitions by Facebook and other firms wouldn't
necessarily have been subject to federal scrutiny at the time the
deals were reached, because they were smaller in monetary value and
didn't require government approval.
Policy makers' calls for greater antitrust examination have been
growing world-wide. In March, Rep. David Cicilline (D., R.I.), who
heads the House antitrust subcommittee, said in a letter to the FTC
that Facebook's Instagram and WhatsApp purchases warranted
particular scrutiny.
The U.K. panel on online competition recently found that the
largest digital companies have made extensive use of mergers,
concluding that "a minority of acquisitions are likely to have been
anticompetitive."
Write to Brent Kendall at brent.kendall@wsj.com, John D.
McKinnon at john.mckinnon@wsj.com and Deepa Seetharaman at
Deepa.Seetharaman@wsj.com
(END) Dow Jones Newswires
August 02, 2019 02:47 ET (06:47 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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