By Tony Romm, Elizabeth Dwoskin
State and federal investigators were putting the finishing touches on two landmark antitrust lawsuits against Facebook when the tech giant came to them with an early peace offering: It would help stand up its next competitor.
For months, watchdogs in Washington and around the country had been probing Facebook and its chief executive, Mark Zuckerberg, over allegations that the company had become an illegal monopoly. Regulators had grown increasingly convinced that the social-networking behemoth over its nearly 17-year history systematically had sought to acquire or eliminate all of its rivals, engaging in unlawful tactics to become one of the most profitable digital services in the world.
Facebook had long disputed the claims. In an attempt to illustrate its commitment to competition, the company's top lawyers signaled that they would be open to changing some of its business practices, according to three people familiar with the matter. One of the ideas Facebook floated would have allowed another firm or developer to license access to its powerful code - and its users' intricate web of relationships - so that they could more easily create their own version of a social network, said the individuals, who spoke on the condition of anonymity to describe a nonpublic law-enforcement inquiry.
But the investigators ultimately rejected the idea, believing Facebook's proposal - part of a vague early menu of remedies the tech giant presented this year - failed to fully address their competition concerns. In the end, the Federal Trade Commission and nearly every state's attorney general, led by New York's Letitia James, filed twin lawsuits this month that seek to break Facebook apart.
Facebook's tense last-minute negotiations in the final days of the state and federal probes illustrate the urgency with which the company has sought to rebuff the government's charges - and foreshadow the aggressive tactics it is expected to deploy in the fight to come. Over the more than 18-month inquiry, Facebook ramped up its lobbying, hired high-powered former government antitrust lawyers and launched a slew of internal initiatives focused on competition issues, according to a dozen individuals, who spoke on the condition of anonymity to discuss a matter in active litigation.
Facebook's efforts now set the stage for one of the most consequential legal clashes in the digital age: a courtroom showdown between the roughly $800 billion technology behemoth and some of the most powerful regulators in the United States. The result could shape not only the future of Facebook but the whole of Silicon Valley - and the government's ability to police it.
"The enforcers are shaking off decades of complacency that have given these companies a free pass," said Democratic Sen. Richard Blumenthal, who served as Connecticut's attorney general for 20 years before arriving in Congress a decade ago.
The antitrust lawsuits chiefly take aim at Facebook's acquisition of two then-nascent social services: Instagram, a photo-sharing app, and WhatsApp, a messaging tool. Facebook bought the companies in 2012 and 2014, respectively, in multibillion-dollar deals that the FTC reviewed and did not block at the time.
Since then, state and federal antitrust enforcers contend that these transactions ultimately became part of a pattern of troubling, illegal behavior by Facebook to buy, bully or kill its rivals before they could siphon users and profits from the company's core social service. In doing so, Facebook essentially has left users with few viable, privacy-protective social-networking alternatives, according to government watchdogs, who repeatedly cite Zuckerberg's own threats to quash competitors in their complaints.
Facebook, for its part, objects to the charges and maintains that the Internet remains competitive. The company declined to make executives available for this story, but Chris Sgro, a spokesman for Facebook, said in a statement: "We will continue to vigorously defend the ability of people and businesses to choose our free services, advertising, and apps because of the value they bring."
The case bears at least symbolic resemblance to the government's last major antitrust salvo against a technology giant: its bid to break apart Microsoft in the 1990s. State and federal officials sought to penalize Microsoft at the time for acting anti-competitively to secure the dominance of its Windows operating system and its then-fledgling Internet Explorer Web browser in the lucrative market for personal computers.
Microsoft ultimately prevailed in preventing Washington and state attorneys general from disassembling its operations, but it emerged from the case a chastened, less aggressive digital player. The setback essentially allowed new Silicon Valley companies like Facebook to pull ahead - a fate that the social-networking giant, years later, now seeks to avoid for itself.
"The case turned Microsoft into a more cautious company, in terms of what they would say, particularly in writing, and how they would conduct business. I expect the same is already happening with Facebook," said Michael A. Cusumano, a top professor at the MIT Sloan School of Management and author of a book about Microsoft.
For Facebook, its battle preparations began long before state and federal watchdogs filed their lawsuits this month.
Since the probes began, the company has relied on legal advice from Howard Shelanski, a former top official in the Obama administration and one of the country's leading thinkers on antitrust and digital markets. Shelanski, a partner at the law firm Davis Polk, previously served as an economist at the FTC while the agency opted not to block Facebook's purchase of Instagram in 2012. More recently, he has aided President-elect Joe Biden's 2020 campaign as an outside adviser on unrelated antitrust and regulatory issues.
This April, Facebook also hired Barbara Blank, a former top antitrust attorney at the FTC, as the company's associate general counsel. And the tech giant recently snagged two additional critical aides from Capitol Hill: Anant Raut, who aided Sen. Dianne Feinstein, D-Calif., on the Judiciary Committee, and Ritika Robertson, who had advised Rep. Ken Buck, R-Colo. Raut's now-former boss has played a pivotal role in grilling Zuckerberg and other tech executives. Robertson's past employer, Buck, is the top Republican on the House panel that investigated tech giants for their anticompetitive practices - and recommended sweeping changes to federal law.
Facebook matched its internal hires with a flurry of fresh spending, putting up significant sums to influence regulators over the life of the antitrust probe. The company has shelled out $32 million on federal lobbying alone, according to federal ethics disclosures, which reflect spending between Jan. 1, 2019, and the end of September 2020.
Facebook spent additional, unspecified amounts, which do not have to be disclosed under law, on advertising and other political initiatives. One new campaign, called American Edge, launched this year to defend the tech industry from regulatory scrutiny - modeling its structure after the advocacy efforts of the National Rifle Association. Days after the government filed its lawsuits, the Facebook-backed American Edge also commissioned new polling showing that U.S. regulators should "keep domestic tech companies strong."
The aggressive response reflects Facebook's learnings from its predecessors, said Harry First, an antitrust expert at New York University School of Law, who added that Microsoft in particular had lacked a political apparatus until it was "too late."
But, First said, the tech giant faces immense obstacles in trying to muscle in its preferred resolution. "Facebook's lobbying campaign will be tough because of the terrible press it and Zuckerberg have been getting for a number of years," he said. "At the end of the day, the person they will need to convince is a judge."
The FTC and its state counterparts jointly deposed Zuckerberg as well as his top deputy - Sheryl Sandberg, Facebook's chief operating officer - over videoconferencing software in late summer. The decision to depose him marked an important turn for the FTC after it faced immense criticism for failing to question him in connection with the privacy probe it concluded in 2019.
Publicly, Facebook executives in recent days have sought to downplay the threat to their workers, pledging that the company would not slow down even in the face of the greatest political and regulatory threat it has faced. Chris Cox, the company's affable chief product officer, rattled off some of Facebook's upcoming announcements when he gathered employees last week for a town hall sketching out the company's road map for the next 10 years.
The new offerings included an unreleased product that would pay creators to give personalized video messages, seemingly a copycat of the popular Cameo app. And Cox said Facebook is fully committed to its years-old plan to rewire its communications services - Facebook's own messaging app, as well as WhatsApp and Instagram - so that users on one app can talk to those on another, according to audio obtained by The Washington Post. By integrating these technologies, Facebook may make it harder on the government as it seeks to break the company apart.
Before the lawsuit, Facebook began to tinker with its internal structure, instituting a companywide reorganization to focus on competition issues. In October, it also introduced mandatory "competition" training that instructed employees about ways to avoid behaviors that regulators might consider problematic. Employees were told to avoid colluding to poach talent, for example, or deprecating the products and tools of Facebook's third-party developers in a way that might harm those rivals.
Employees also were warned not to cut off developers from access to critical Facebook software tools, known as APIs, without legal approval, according to documents reviewed by The Post. The new restriction appeared to be a specific response to state and federal allegations that Facebook had limited this data access to hurt or acquire potential competitors, essentially weaponizing its service to ensure its dominance.
And Facebook executives cautioned employees not to discuss sensitive issues in writing, in a subtle nod to the reams of emails and other correspondence from Zuckerberg himself that spoke openly about crushing his competition. The deadline for the training was Dec. 11, two days after state and federal officials would file their case, prompting Zuckerberg himself to pledge to "fight this in court."
"Today's news is one step in a process," he told employees in a message sent that Wednesday, "which could take years to play out in its entirety."
The Washington Post