Governments Allege Facebook Practices ‘Illegal Monopolization’, Take Legal Action

Governments Allege Facebook Practices ‘Illegal Monopolization’, Take Legal Action

Facebook is facing legal action from the governments of the United States and Germany, with allegations of “unlawful conduct” and an inquiry into the practice of linking Facebook accounts to the use of an Oculus headset.

The Federal Trade Commission in the United States sued Facebook, “alleging that the company is illegally maintaining its personal social networking monopoly through a years-long course of anticompetitive conduct.”

“The FTC is seeking a permanent injunction in federal court that could, among other things: require divestitures of assets, including Instagram and WhatsApp,” a statement released by the FTC reads.

While the lawsuits appear focused around Facebook’s broader competitive actions in areas other than virtual reality, we’ve confirmed with multiple sources that representatives from the United States Department of Justice have been interviewing developers of virtual reality applications on subjects related to Facebook’s actions.

Facebook just launched the Oculus Quest 2 headset at a jaw-dropping price alongside a new policy requiring owners sign in with an active Facebook account accurately representing their identity in the real world. Facebook will retire legacy Oculus accounts entirely in 2023. If you decide to delete your linked Facebook account, you’ll lose all of your purchased Oculus content.

Rift S and Quest were withdrawn from sale in Germany by Facebook in September, where the company says it was working to “educate regulators on our practices and to ensure our products comply with local laws.” A recent report delivered by a U.S. House subcommittee suggested Congress should view policies similar to Facebook’s as anticompetitive.

Linking virtual reality products and the group’s social network in this way could constitute a prohibited abuse of dominance by Facebook. With its social network Facebook holds a dominant position in Germany and is also already an important player in the emerging but growing VR (virtual reality) market. We intend to examine whether and to what extent this tying arrangement will affect competition in both areas of activity.” – Andreas Mundt, President of Germany’s competition regulator

When it comes to Facebook, the company claims a user base representing more people than any one nation on Earth. The tech giant controlled by CEO Mark Zuckerberg now employs more than 56,000 people and his organization’s recent policy of tying that Facebook account, and its vast network of connections, to the use of VR hardware may end up being a major point of contention with regulators in the coming years. Virtual reality headsets are still a drop in Facebook’s revenue ocean from targeted ad sales, but the company did announce that Quest 2 is selling 5 times quicker than its predecessor.

Loss-leading Hardware

We believe Facebook likely took a loss on each $399 Quest sold from May 2019 onward. A year and a half later, Quest 2 drops $100 off the price while also upgrading to a three generations newer processor. That combination may represent an unmatchable pricing-performance gap for competitors. HTC, for example, hasn’t come close to competitive pricing in both standalone and PC VR headsets, and Google already abandoned its Daydream VR project which was building toward a product similar to Quest.

US Federal Trade Commission Antitrust Case

The Wall Street Journal reported in October that “Federal Trade Commission staff members are recommending that the agency bring an antitrust case against Facebook Inc.” Federal antitrust laws are enforced by both the FTC and the U.S. Department of Justice (DOJ) Antitrust Division. A Washington Post article said state and federal investigators could file charges against Facebook as soon as November, while another WSJ piece reported that Facebook was considering a defense that would argue an effort to break up the company would be a “nonstarter” and that it would “defy established law, cost billions of dollars and harm consumers.”

Fear And Loathing In Virtual Reality

There’s a consistent theme in my communications with almost all VR developers. The vast majority of them either fear Facebook or strongly hope that a serious competitor will enter the market with a standalone product. Approval to Facebook’s Quest store represents a make or break moment for many VR developers and that means that speaking ill of the social media giant is not something most developers can afford to risk.

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