FTC Looks into Facebook Purchases of Promising Startups

The Federal Trade Commission is investigating whether Facebook and its chief executive Mark Zuckerberg purchased startups to forestall the competition they might pose. Sources said that the FTC is already reaching out to the founders of some of these startups. S&P Global estimates that Facebook has purchased about 90 companies over the past 15 years. Facebook isn’t alone in this behavior. A U.K. antitrust panel reported that the top five tech companies have acquired more than 400 companies over the last decade.

The Wall Street Journal notes that Instagram and WhatsApp are among the startups that Facebook purchased, in 2012 and 2014, respectively. The FTC allowed both deals to go through, but WSJ adds that, “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.”

In 2013, however, Facebook acquired Israeli analytics firm Onavo Mobile and its behavior-tracking technology. Facebook used the technology to “identify and target fast-growing companies as potential purchases or to scope out new product categories.” Facebook used Onavo data “in deciding to buy WhatsApp,” and U.K. legislators released documents that “confirmed Onavo’s importance to Facebook’s strategy.”

The FTC’s Bureau of Competition director Bruce Hoffman said that, “this is a completely legitimate and real theory of competitive harm,” although he added that the FTC would need “an evidentiary and economic basis” to determine if “an acquired startup really could have become a significant competitor.” Hoffman also suggested that, “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.”

Facebook director of public policy Matt Perault, testifying to the House Subcommittee on Antitrust, concurred when he said, “the company’s acquisitions have fueled innovation and brought together firms of complementary strengths … [and that the purchased companies] have had more opportunity to innovate as part of Facebook than they would have on their own.”

If the FTC finds any “antitrust issues” with Facebook’s startup purchases, potential remedies could be “seeking a spinoff of certain acquisitions to restricting Facebook’s conduct with some of the assets it has acquired,” either of which could lead to litigation. The Justice Department is also “launching a broad review of whether and how online platforms have engaged in practices that reduce competition, stifle innovation or otherwise harm consumers,” and European regulators and state attorneys general “also are looking into competition issues around Facebook.”