Facebook defies antitrust warnings with ‘startup deal’

Bloomberg

Facebook Inc sent a clear signal with its agreement to buy a brain computing startup: heightened regulatory scrutiny and intensifying antitrust probes won’t slow down its pace of acquisitions.
With its announcement of plans to purchase CTRL-Labs for at least $500 million, Facebook continued its pattern of snapping up promising startups in new markets, the
very behaviour that the US Federal Trade Commission (FTC) is already investigating at the company.
The social-networking giant, which is sitting on an almost $50 billion cash hoard, is under fire from all sides. It’s drawing federal, state and congressional antitrust scrutiny.
It just got hit with a record $5 billion fine to settle US claims that it repeatedly violated users’ privacy. It’s also facing antitrust and privacy probes in Europe. And President Donald Trump is raising the stakes in his anti-big-tech crusade, calling on other countries not to let social-media platforms “silence the voices of the people” in a United Nations address that sent internet stocks tumbling.
Antitrust experts said the deal will undergo heightened regulatory review amid growing concern that dominant tech companies are shutting down emerging competitive threats by buying smaller firms.
“This deal is certainly likely to get closer scrutiny than it otherwise would have if it occurred a year or two or three ago,” said Joel Mitnick, an antitrust lawyer at Cadwalader, Wickersham & Taft LLP.
“It’s not because of the nature of the deal so much.
It’s because big tech, including Facebook, is under microscopic scrutiny.”
The acquisition of CTRL-Labs, which is developing software that lets people control computers with their minds, comes as US lawmakers held a hearing on the competitive effects of digital platforms acquiring nascent competitors.
Senator Amy Klobuchar of Minnesota, who is a candidate for the 2020 Democratic presidential nomination, said at the opening of the hearing that she expects US antitrust officials to examine the CTRL-Labs deal.
“If digital giants use strategic acquisitions to snuff out emerging or potential future competitors the harm may not be as immediately obvious but those harms are no less damaging or enduring in the long run,” she said.
US antitrust enforcers are under increasing pressure to look harder at whether tech companies have relied on acquisitions to cement their dominance.
Facebook’s takeovers of photo-sharing app Instagram and messaging service WhatsApp are frequently held up as examples of acquisitions that shouldn’t have been allowed.
FTC Chairman Joe Simons announced earlier this month that the agency is developing guidelines for how it will analyse acquisitions of nascent competitors.
The agency is conducting a broad investigation of Facebook, including whether it acquired upstarts to thwart competition. It will probably review the CTRL-Labs deal, instead of the Justice Department, which shares antitrust enforcement. Facebook dismissed antitrust concerns over the CTRL-Labs deal.
“CTRL-Labs and Facebook are not competitors. Facebook does not currently have or make this technology,” Facebook said. It also promised to work with regulators to answer questions and secure any necessary approvals.
Facebook wasn’t the only big tech company keeping tabs on CTRL-Labs and the company’s futuristic technology. Among the startup’s list of investors: Amazon.com Inc’s Alexa Fund and Google’s GV.
Facebook has good reason to invest in such technology. In its early days, the company was so busy getting the social network up and running that it missed out on the rise of mobile devices. Facebook watched as Apple Inc and Alphabet Inc’s Google created the software necessary to deliver its apps to billions of users around the world.
Facebook now seems motivated to create the next great hardware device — and the software that powers it. It’s building virtual reality headsets (Oculus) and in-home video devices (Portal). CEO Mark Zuckerberg has said the company is also building augmented reality glasses.