Facebook hit with new federal antitrust class action

Facebook Inc., already facing intense scrutiny from lawmakers, tech companies and the public for its push to dominate the social data and advertising markets, was accused of federal antitrust violations in a class action filed in Oakland federal court.

A group of app developers are seeking to "halt the most brazen, willful anticompetitive scheme in a generation," committed by the social media behemoth that enjoys profits from the monetization of more than two billion users globally by dominating the social data markets, the complaint states. The complaint was filed by Pierce Bainbridge Beck Price & Hecht LLP. Reveal Chat HoldCo LLC, USA Technology and Management Services Inc., CR.CL., Inc., and Beehive Biometric, Inc. v. Facebook, Inc., 3:20-CV-00363 (N.D. Cal., filed Jan. 16, 2020)

The plaintiffs are a messaging app, a lending company, a web-based transactional marketplace and an identity verification company that relies heavily on social media data. They say Facebook is engaging in a scheme to violate the Sherman and Clayton acts to destroy competitors and weaponize its platform by refusing to sell social data to competing application developers.

The two relevant markets in this case are the social data and social advertising markets, which are protected by the Social Data Barrier to Entry, which kept competitors from gaining access and competing with Facebook, according to the complaint.

"Facebook faced an existential threat from mobile apps and while it could have responded by competing on the merits, it instead chose to use its might to intentionally eliminate its competition," said Yavar Bathaee, partner at Pierce Bainbridge. "Facebook deliberately leveraged its developer platform, an infrastructure of spyware and surveillance, and its economic power to destroy or acquire anyone that competed with them."

Representatives for Facebook could not be reached for comment Friday.

Pierce Bainbridge partner Brian J. Dunne said Friday the allegations in the complaint are derived purely via public documents and informations. Much of the information came from a document obtained by NBC News. Plaintiffs haven't viewed or obtained any access to internal documents at the time the suit was filed, he added.

While there have been no publicized statements from the government, Dunne said he hopes federal prosecutors or regulators might join in the class action or take a public position in the litigation.

Federal antitrust laws under the Clayton Act don't require parties to wait for or coordinate with the government to seek vindication for private parties that have been injured by anticompetitive behavior, Dunne said.

While he hesitated to predict if the government would get involved in the case, Dunne said he believes regulators should be concerned over Facebook's practices.

"Facebook's market power and its anticompetitive conduct to obtain and maintain that market power, is without obvious parallel over the past two decades," he said. "This should be very concerning to the government."

The company cut off third-party app developers from key application program interfaces on Facebook's platform, which the class action contends is a "functionality that provided social applications with user data that fueled their growth."

Facebook is also accused of scraping data from competitors through threats of blacklisting and non-consensual surveilling. The plaintiffs say Facebook forced competitors including Pinterest, Foursquare and dating app Tinder into entering agreements that required them to hand over social data.

That interface was later removed without any legitimate or technical justification, causing Facebook to "sacrifice massive amounts of additional social data or advertising it received from its platform to do so," even if it meant lost profits, the class action states.

"Facebook sacrificed profits in the social data and advertising markets for the sole purpose of executing its scheme in excluding competition. It would make no rational sense to exclude a competitor that would be a purchaser of social data or social advertising if they were permitted to exist," the complaint states. "Put simply, Facebook put anti-competitive conduct ahead of profits."

The complaint also accuses Facebook of acquiring other independent applications like Instagram and WhatsApp messenger and integrating them with Facebook because it had no leverage against either company as they grew from the mobile smartphone space.

Facebook's mobile app years prior wasn't popular and didn't function very well, the complaint added.

Facebook was the subject of an antitrust investigation last year launched by the New York attorney general with the support of 46 other attorneys general.