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Facebook lawsuit wants Mark Zuckerberg to give up control of social network

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A number of small Facebook rivals and defunct app developers say in an anti-trust lawsuit that Facebook is running "one of the largest monopolies ever seen in the United States." And they have a dramatic and unorthodox fix: Force Facebook founder and CEO Mark Zuckerberg to sell his controlling shares in social media giant.

The companies, which include the owners of now-defunct dating app LikeBright, say in a lawsuit filed Thursday that Facebook is carrying out the "most brazen, willful anticompetitive scheme in a generation" and its end game is nearly complete. They say the only way to stop Facebook's "unlawful monopoly" is for Zuckerberg to be forced to sell his majority Facebook stake.

"It's not a normal remedy," said New York University Law professor Eleanor Fox, who is an expert on anti-trust regulation. "It's not a remedy that I have heard of before, but [Facebook and others] are new forces of power in our economy and we may need to target new ways to curb that power."

More specifically the suit alleges that Facebook:

  • Identified outside apps on its own platform that it viewed as potential competitive threats and cut off the developers of those apps from Facebook's main interface.
  • "Coerced" apps on the Facebook platform to share the user data they were collecting or be cut off from receiving the user data Facebook was collecting from others.
  • Banned direct competitors from Facebook's platform or from buying Facebook's user data, which, the suit said, it was effectively selling to advertisers.

Other critics, including Facebook co-founder Chris Hughes, have said the sprawling social network needs to be broken up. And regulators have been investigating Facebook, Google and the other tech giants to see if they are engaged in anti-competitive behavior.

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Presidential candidate Joe Biden, in an interview with the New York Times published Friday, said he has never been "a big fan" of Zuckerberg. "He's a problem," Biden said.

Zuckerberg owns about 13% of Facebook's publicly traded stock, according to the company's most recent proxy statement, which are called "A shares." 

But Facebook, like some other tech and media companies, has another set of shares called "B shares." Those B shares aren't publicly traded and they have 10 votes per share when issues come up for shareholder votes. The A shares carry only one vote each. Zuckerberg owns 80% of Facebook's B shares, which is what gives him effective control over the company. 

Those B shares the what plantiffs in this week's suit are trying to force Zuckerberg to sell. Firms that serve major Wall Street investors like Standard & Poor's and others also have spoken out against dual-class share structures, saying they give too much power to founders or their family members.

The suit alleges that Facebook became more aggressive in its anti-competitive nature around 2011. At that time, many said that Facebook was falling behind on its mobile application and was vulnerable to rivals. The case also seeks unspecified monetary damages and asks the court to force Facebook to sell off Instagram and What'sApp.

Facebook, in a statement to CBS MoneyWatch, called the case against it "without merit." The company said it operates in "a competitive environment where people and advertisers have many choices."

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Oddly, the suit doesn't directly say how LikeBright and the other plantiffs, including the developers of credit-scoring app Lenddo and two other developers of defunct apps for financial payments and digital verification, were harmed by Facebook. 

In fact, the 107-page complaint mentions the four companies suing Facebook collectively less than a dozen times, and only in the section at the top of the suit that identifies the plantiffs. The companies are never mentioned in the body of the complaint, which details Facebook's alleged monopolistic behavior. 

Zuckerberg, on the other hand, is mentioned 60 times by name in the suit.

NYU legal expert Fox said that could be a problem for the case, as well as a growing number of others that seek to break up Facebook, Google or others. 

If the suits are asking for Facebook to be forced to sell off Instagram or What'sApp, the plantiffs are going to have to show how those acquisitions specifically harmed their businesses. The same goes for Zuckerberg's ownership. That could be hard, Fox said. 

"People are feeling that the government is not going to sue and that Facebook is gaining more power, so they are bringing private suits," Fox explained. "But the hurdles to getting structural relief are much higher for private suits."

Yavar Bathaee, a lawyer at Pierce Bainbridge Beck Price & Hecht who is representing the companies suing Facebook, said the case "addresses a common course of conduct that deliberately destroyed over 40,000 apps." That's why he said the suit was brought as a class action, without specifics about the anti-trust conduct directed only at his clients. 

"Facebook targeted certain developers for their user data and then indiscriminately destroyed the rest," he alleged.

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