FTC Antitrust Probe of Facebook Scrutinizes Its Acquisitions--3rd Update

Date : 08/01/2019 @ 9:11PM
Source : Dow Jones News
Stock : Facebook Inc (FB)
Quote : 185.91  -0.31 (-0.17%) @ 6:06PM

FTC Antitrust Probe of Facebook Scrutinizes Its Acquisitions--3rd Update

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By Brent Kendall, John D. McKinnon and Deepa Seetharaman 

The Federal Trade Commission is examining Facebook Inc.'s acquisitions as part of its antitrust investigation into the social-media giant -- to determine if they were part of a campaign to snap up potential rivals before they could become a threat, 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 antitrust investigation in its earnings announcement last week, but provided few details.

FTC investigators are looking for evidence on whether Facebook and founder Mark Zuckerberg purchased startup technology firms to keep them from challenging Facebook's empire, the people said.

The FTC has begun reaching out to people who founded companies that Facebook purchased, some of the people said.

Facebook didn't immediately respond to a request for comment. In its announcement last week, Facebook said 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 in prepared testimony.

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.

The company has acquired about 90 companies over roughly the last 15 years, according to data compiled by S&P Global.

They include photo-sharing app Instagram and messaging service WhatsApp, which bolstered Facebook as a dominant force in social media and messaging.

Another acquisition that could be of interest was the 2013 takeover of Onavo Mobile Ltd. Facebook used Onavo 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 released by U.K. lawmakers late last year confirmed Onavo's importance to Facebook's strategy. Eventually Facebook shut down the controversial app.

Other big tech firms, such as Alphabet Inc.'s Google, also have been on a buying binge; a U.K. blue-ribbon antitrust panel said in March that the top five tech firms have made more than 400 acquisitions over the last decade.

The FTC has for months sent signals of 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," Mr. Hoffman said in a speech last year, though he stressed 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 also warned that there could be negative consequences from 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 find antitrust problems with any of Facebook's past acquisitions, the commission could have a range of potential remedies, from seeking a spinoff of certain acquisitions to placing restrictions on 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 announced 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 double-barreled review by both U.S. antitrust agencies signals the federal government is training significant antitrust firepower on the company, which only recently reached a historic privacy settlement with the FTC.

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 the government has placed too much faith in the idea that any dominance by today's tech giants is tenuous because high-tech markets change 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 didn't think they could 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.

The FTC action comes as the voices calling for greater antitrust examination have been growing.

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.

Also, the U.K. blue ribbon 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 01, 2019 15:56 ET (19:56 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.

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