Case 5:20-cv-08570 Document 1 Filed 12/03/20 Page 1 of 84
`
`Stephen A. Swedlow (pro hac vice forthcoming)
` stephenswedlow@quinnemanuel.com
`QUINN EMANUEL URQUHART & SULLIVAN, LLP
`191 N. Wacker Drive, Suite 2700
`Chicago, IL 60606-1881
`(312) 705-7400
`
`Kevin Y. Teruya (Bar No. 235916)
` kevinteruya@quinnemanuel.com
`Adam B. Wolfson (Bar No. 262125)
` adamwolfson@quinnemanuel.com
`Brantley I. Pepperman (Bar No. 322057)
` brantleypepperman@quinnemanuel.com
`QUINN EMANUEL URQUHART & SULLIVAN, LLP
`865 South Figueroa Street, 10th Floor
`Los Angeles, CA 90017-2543
`(213) 443-3000
`
`Attorneys for Plaintiffs
`
`Warren Postman (Bar No. 330869)
` wdp@kellerlenkner.com
`Jason Ethridge (pro hac vice forthcoming)
` jason.ethridge@kellerlenkner.com
`KELLER LENKNER LLC
`1300 I Street, N.W., Suite 400E
`Washington, DC 20005
`(202) 918-1123
`
`Ashley Keller (pro hac vice forthcoming)
` ack@kellerlenkner.com
`Benjamin Whiting (pro hac vice
`forthcoming)
` ben.whiting@kellerlenkner.com
`KELLER LENKNER LLC
`150 N. Riverside Plaza, Suite 4270
`Chicago, IL 60606
`(312) 741-5220
`
`
`
`
`
`UNITED STATES DISTRICT COURT
`NORTHERN DISTRICT OF CALIFORNIA
`SAN JOSE DIVISION
`Case No. 20-8570
`MAXIMILIAN KLEIN and SARAH
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`GRABERT, individually and on behalf of all
`CLASS ACTION COMPLAINT
`others similarly situated,
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`FACEBOOK, INC., a Delaware corporation
`headquartered in California,
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`
`
`Plaintiffs,
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`vs.
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`Defendant.
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`(1) MONOPOLIZATION OF SOCIAL
`NETWORK MARKET
`Violation of the Sherman Act
`(15 U.S.C. § 2)
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`(2) ATTEMPTED
`MONOPOLIZATION OF SOCIAL
`NETWORK MARKET
`Violation of the Sherman Act
`(15 U.S.C. § 2)
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`(3) MONOPOLIZATION OF SOCIAL
`MEDIA MARKET
`Violation of the Sherman Act
`(15 U.S.C. § 2)
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`(4) ATTEMPTED
`MONOPOLIZATION OF SOCIAL
`MEDIA MARKET
`Violation of the Sherman Act
`(15 U.S.C. § 2)
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`(5) UNJUST ENRICHMENT
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`DEMAND FOR JURY TRIAL
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`CLASS ACTION COMPLAINT
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`Case 5:20-cv-08570 Document 1 Filed 12/03/20 Page 2 of 84
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`
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`TABLE OF CONTENTS
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`Page
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`PRELIMINARY STATEMENT .......................................................................................................1
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`PARTIES ..........................................................................................................................................5
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`Defendant ..............................................................................................................................5
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`Plaintiffs ................................................................................................................................6
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`JURISDICTION, VENUE, AND CHOICE OF LAW .....................................................................7
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`INTRADISTRICT ASSIGNMENT ..................................................................................................8
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`FACTUAL ALLEGATIONS............................................................................................................8
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`General Background on the Social Media Industry ..............................................................8
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`General Background on Facebook ......................................................................................10
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`Facebook is Dominant in the Social Network and Social Media Relevant Markets. .........14
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`The Social Network Market ....................................................................................14
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`The Social Media Market ........................................................................................20
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`Relevant Geographic Market ..................................................................................23
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`The Social Network and Social Media Markets Feature High Entry Barriers ........23
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`Facebook Has Attempted to Acquire Market Power (and Has Succeeded in
`Acquiring Market Power) by Deceiving Consumers about Its Privacy
`Practices. .................................................................................................................28
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`The Cambridge Analytica Scandal Partially Reveals the Extent of Facebook’s
`Deception. ...............................................................................................................39
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`Facebook is Attempting to Use (and Has Successfully Used) Anticompetitive
`Acquisitions and Threats to Destroy Competition in the Social Network
`and Social Media Markets. ......................................................................................43
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`Facebook’s Tracking of Consumers’ Personal Data Allowed it to Identify
`Competitors and then Eliminate Them Through a Strategy of Copy,
`Acquire, or Kill. ..........................................................................................43
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`Facebook Threatened Competitors with Discriminatory Practices to Help
`Drive its Anticompetitive Acquisition Strategy. .........................................46
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`Instagram .................................................................................................................51
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`Snapchat ..................................................................................................................54
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`WhatsApp ................................................................................................................56
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`CLASS ACTION COMPLAINT
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`Case 5:20-cv-08570 Document 1 Filed 12/03/20 Page 3 of 84
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`Other Examples of Facebook’s “Copy, Acquire, Kill” Strategy ............................57
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`Facebook‘s Use of Onavo Comes to Light. ............................................................58
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`Facebook’s Anticompetitive Practices Have Harmed and Continue to Harm
`Competition in the Social Network and Social Media Markets. .............................60
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`Facebook’s Anticompetitive Conduct Has Damaged Consumers in Direct and
`Quantifiable Ways. ..................................................................................................62
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`ACCRUAL OF CLAIM, EQUITABLE TOLLING, FRAUDULENT CONCEALMENT,
`CONTINUING VIOLATION, AND ASCERTAINMENT OF DAMAGES ....................63
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`CLASS ACTION ALLEGATIONS ...............................................................................................67
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`INTERSTATE TRADE AND COMMERCE .................................................................................70
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`CLAIMS FOR RELIEF ..................................................................................................................71
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`PRAYER FOR RELIEF ..................................................................................................................80
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`DEMAND FOR JURY TRIAL .......................................................................................................81
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`CLASS ACTION COMPLAINT
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`1.
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`Plaintiff(s), by their undersigned counsel, hereby bring(s) this action against
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`Defendant Facebook, Inc. (“Facebook”), individually and on behalf of a class of similarly situated
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`persons, and allege(s) as follows:
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`PRELIMINARY STATEMENT
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`2.
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`Founded originally as a website that allowed college students to connect with
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`friends on campus, Facebook has since expanded exponentially and today is the largest social
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`network and also the largest social media platform in the world. In July 2020, for example,
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`Facebook reported 1.78 billion daily active users and 2.7 billion monthly active users for its
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`Facebook social network alone. Including all of Facebook’s primary product offerings—e.g.,
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`Facebook, Instagram, Facebook Messenger, WhatsApp, and Oculus—Facebook commands 2.47
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`billion daily active users and 3.14 billion monthly active users. But Facebook did not, as it would
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`have the public believe, obtain market dominance based on innovation and fair competition.
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`Instead, Facebook has used its behemoth-status as a weapon to clear the field of any and all
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`competitors that threaten to take away market share. Facebook has done so by engaging in a two-
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`part anticompetitive scheme that originated many years ago but continues to this day, and which
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`has the net effect of destroying competition and harming consumers.
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`3.
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`First, set on utter domination, Facebook consistently and intentionally deceived
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`consumers about the data privacy protections it provided to its users. During the early days of
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`social media and social networks, Facebook recognized that promising users stringent privacy
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`protections was necessary for it to win the race for market dominance. Accordingly, many users
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`chose Facebook over other competing platforms due to Facebook’s stated commitment to its
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`users’ privacy. In reality, however, Facebook concealed the scope of the data it harvested from
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`consumers and the ways in which it used that data to squash competition. By the time
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`Facebook’s deception began to come to light in 2018, it was too late—Facebook had cheated its
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`way to market dominance. Facebook’s deceptions allowed the company to gain and then, over
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`the years, illegally maintain a stranglehold on the Social Network and Social Media Markets
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`(defined and discussed further below). And high barriers to entry, including strong network
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`effects and high switching costs, bolstered Facebook’s efforts to prevent actual and would-be
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`competitors alike from challenging its monopolistic grip.
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`4.
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`Second, Facebook exploited the rich data it deceptively extracted from its users to
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`identify nascent competitors and then “acquire, copy, or kill” these firms. Rather than competing
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`on the merits, Facebook used the valuable consumer data that it was harvesting to identify
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`incipient competitors with the most likely path to meaningful market share gains. Equipped with
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`the valuable user data it led consumers to believe it was not gathering and would not use in this
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`way, Facebook targeted its users’ preferred alternatives for destruction. Facebook made clear that
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`it would copy incipient competitors’ innovations and discriminatorily shut off these firms’ access
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`to Facebook’s valuable user data if they did not sell their businesses to Facebook first. The
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`message to its competitors was explicit: sell at a bargain, or Facebook will go into “destroy
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`mode.” All of this was enabled by Facebook’s deception.
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`5.
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`While Facebook’s scheme—bolstered by its deception and its serial acquisitions—
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`has allowed Facebook to evolve since Mark Zuckerberg founded the company in 2004, the
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`economic relationship between Facebook and its users has not. When users sign up for a
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`Facebook account, they agree to certain terms. Those terms lay out the economic exchange
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`between Facebook and its users. Consumers give Facebook personal data about themselves;
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`Facebook allows users to access its social media network and pledges to protect users’ privacy.
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`Facebook’s current Terms of Service state:
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`Instead of paying to use Facebook and the other products and services we offer, by
`using the Facebook Products covered by these Terms, you agree that we can show
`you ads that businesses and organizations pay us to promote on and off the
`Facebook Company Products. We use your personal data, such as information
`about your activity and interests, to show you ads that are more relevant to you.1
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`Notably, Facebook suggests to the user (even to this day) that the extent to which it utilizes their
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`data is limited, and that the extent of the data collection is limited to Facebook’s services
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`themselves.
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`1 Facebook Terms of Service, https://www.facebook.com/terms.php (last accessed
`December 3, 2020).
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`6.
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`The Terms of Service further state that “In exchange [for access to Facebook’s
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`services] we need you to make [certain] commitments.” Among those “commitments” is
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`“[p]ermission to use your name, profile picture, and information about your actions with ads and
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`sponsored content.” The Terms then state that protecting user “privacy is central to how
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`[Facebook has] designed [its] ad system.” In other words, consumers give up personal
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`information and agree to receive targeted advertisements on the Facebook platform in exchange
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`for access to Facebook’s social media network and for a commitment from Facebook to protect
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`user privacy. They do not agree to anything beyond that.
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`7.
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`Facebook derives enormous economic value from the data it harvests from
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`consumers on its platform. A recent majority staff report from the United States House of
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`Representatives Antitrust Subcommittee explained that “[o]nline platforms rarely charge
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`consumers a monetary price—products appear to be ‘free’ but are monetized through people’s
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`attention or with their data.”2 The same House Report recognizes the monstrous monetary value
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`that Facebook reaps from the data that it extracts from its users.3
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`8.
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`In fact, Facebook itself touts the economic value of the data it harvests from
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`consumers. For example, Facebook describes its massive advertising earnings in terms of
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`average revenue per user (“ARPU”) in its public filings. For 2019, Facebook’s ARPU was over
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`$41 per user in the United States and Canada.4
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`9.
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`Facebook’s weaponization of user data and its strategy to “acquire, copy, or kill”
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`competitors has been wildly successful at the expense of consumers. Facebook’s anticompetitive
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`scheme has lessened, if not eliminated, competition and harmed consumers.
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`10.
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`Facebook’s destruction of competition has caused consumers to suffer substantial
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`economic injury. Consumers give up something of material value when agreeing to Facebook’s
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`2 See Investigation of Competition in Digital Markets, Majority Staff Report and
`Recommendations (“House Report”), Subcommittee on Antitrust, Commercial, and
`Administrative Law of the Committee on the Judiciary, at 18 (emphasis added), October 6, 2020,
`available at https://kl.link/3jGISfK.
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`3 Id. at 18.
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`4 Facebook Q4 2019 Results at 4, available at https://kl.link/36yIY5J.
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`CLASS ACTION COMPLAINT
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`Terms of Service: their personal information and their attention. User information and attention
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`is then sold in measurable units to advertisers in exchange for money. Consumers thus give up
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`valuable consideration in using Facebook pursuant to Facebook’s Terms of Service. As
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`Facebook’s co-founder explained, “[Facebook] is not actually free, and it certainly isn’t harmless.
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`. . . We pay for Facebook with our data and our attention, and by either measure it doesn’t come
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`cheap.”5
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`11.
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`Absent Facebook’s anticompetitive scheme, fair competition would have required
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`Facebook to provide consumers greater value in return for consumers’ data, but Facebook instead
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`took that data without providing adequate compensation to its users (i.e., the members of the
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`putative class in this action). That constitutes antitrust injury. Through its deception and the
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`acquisitions enabled by its deception, Facebook prevented competition on the merits, and as a
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`result of that reduction in competition, users received less value for their data than they would
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`have received in some form absent the reduction.
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`12.
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`Facebook’s acquisition and maintenance of monopoly power continues to harm
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`consumers. Prior to Facebook’s consolidation of the Social Network and Social Media Markets,
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`a number of firms vigorously competed to win over consumers by offering competing products
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`which differed in non-price attributes such as quality. For instance, early social media
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`companies, including Facebook, competed for market share by offering competing products to
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`consumers which highlighted particular privacy features. Absent Facebook’s anticompetitive
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`scheme, which has allowed Facebook to place consumers under its monopolistic thumb,
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`competition from Facebook’s rivals would require Facebook to offer products of quality superior
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`to those it thrusts upon consumers today. Instead, Facebook’s anticompetitive conduct has
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`allowed Facebook to artificially stifle innovation and deprive consumers of any meaningful
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`alternative to Facebook’s social media empire. As such, consumers are faced with a “take it or
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`leave it choice” that provides no choice at all: accept a Facebook of lesser quality or forgo use of
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`the only social media platform used by most consumers’ friends and family members.
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`5 Chris Hughes, It’s Time to Break Up Facebook, NY Times, May 9, 2019, available at
`https://kl.link/3dUTshC.
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`CLASS ACTION COMPLAINT
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`13.
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`Facebook’s monopolistic conduct violates the antitrust laws and harms consumers.
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`Facebook is dominant in the Social Network Market and the Social Media Market, and has
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`engaged in predatory and exclusionary conduct in order to monopolize, causing Plaintiffs and
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`Class members to suffer substantial economic injury as a result of Facebook’s competition-
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`reducing violations of law. This action seeks recovery for consumers’ losses and Facebook’s
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`unlawful gains, and it seeks other appropriate equitable relief to prevent Facebook from
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`continuing to destroy competition and harm consumers.
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`PARTIES
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`Defendant
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`14.
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`Defendant Facebook, Inc. is a publicly traded corporation, incorporated under the
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`laws of Delaware. Facebook’s principal place of business and headquarters are located at 1601
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`Willow Road in Menlo Park, California.
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`15.
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`Founded in 2004 by Mark Zuckerberg, Facebook is a social media company that
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`provides online services to more than 3.14 billion users. Facebook owns and operates several
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`business divisions, such as:
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`• Facebook. Facebook’s core social media application, which bears the company’s
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`name, is, according to Facebook’s filings with shareholders, designed to enable
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`“people to connect, share, discover, and communicate with each other on mobile
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`devices and personal computers.” The Facebook core product contains a “News
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`Feed” that displays an algorithmically ranked series of content and advertisements
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`individualized for each person.
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`•
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`Instagram. Instagram is a social media photo-sharing application that allows users
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`to share photos, videos, and messages on mobile devices. Facebook acquired
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`Instagram in April 2012.
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`• Messenger. Facebook’s Messenger application is a multimedia messaging
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`application, allowing messages that include photos and videos to be sent from
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`person to person across platforms and devices.
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`CLASS ACTION COMPLAINT
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`• WhatsApp. WhatsApp is a secure messaging application used by individuals and
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`businesses. Facebook acquired WhatsApp in 2014.
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`16.
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`In exchange for providing services, Facebook collects user data, which it allows
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`advertisers to use for targeted advertising to Facebook users. Facebook’s principal revenue is
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`from targeted social media advertising that it provides to advertisers as a data broker. In 2019,
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`Facebook collected $70.7 billion in revenue, almost entirely from allowing companies to serve
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`ads to its users.
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`17.
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`Facebook has over 50,000 employees and offices worldwide.
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`Plaintiffs
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`18.
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`Plaintiff Maximilian Klein is a natural person and citizen of the State of Vermont
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`and a resident of Chittenden County.
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`Plaintiff Klein created a Facebook account in 2006, maintains an active account,
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`and regularly uses Facebook. Plaintiff Klein has an active Instagram account and has maintained
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`that account since 2016. Plaintiff Klein uses Facebook’s Messenger feature and actively uses a
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`WhatsApp account.
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`20.
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`Plaintiff Klein cares about his online privacy and trusted Facebook to protect his
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`privacy. But since the Cambridge Analytica scandal broke in 2018 and exposed Facebook’s lack
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`of privacy protections and low-quality data privacy practices, he now does not trust Facebook to
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`protect his online privacy. Plaintiff Klein now does not like the invasiveness of Facebook and its
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`products. Despite this, Plaintiff Klein continues to use Facebook and its products because
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`virtually everyone he knows uses them and there are no other suitable alternatives to connect with
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`his friends and family.
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`21.
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`Facebook lied about its data privacy practices and the scope of the data it collected
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`and made available to third parties. If Plaintiff Klein had known the truth about Facebook’s
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`privacy practices years ago, he would not have agreed to give Facebook access to as much
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`personal data about himself.
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`22.
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`Plaintiff Sarah Grabert is a natural person and citizen of the State of Illinois and a
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`resident of Cook County.
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`CLASS ACTION COMPLAINT
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`23.
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`Plaintiff Grabert created a Facebook account prior to 2007, maintains an active
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`account, and regularly uses Facebook. Plaintiff Grabert has an active Instagram account and has
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`maintained that account since at least 2010. Plaintiff Grabert uses Facebook’s Messenger feature
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`and has used a WhatsApp account.
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`24.
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`Plaintiff Grabert cares about her online privacy and trusted Facebook to protect her
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`privacy. But since the Cambridge Analytica scandal broke in 2018 and exposed Facebook’s lack
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`of privacy protections and low-quality data privacy practices, she now does not trust Facebook to
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`protect her online privacy. Plaintiff Grabert now does not like the invasiveness of Facebook and
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`its products. Despite this, Plaintiff Grabert continues to use Facebook and its products because
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`virtually everyone she knows uses them and there are no other suitable alternatives to connect
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`Facebook lied about its data privacy practices and the scope of the data it collected
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`and made available to third parties. If Plaintiff Grabert had known the truth about Facebook’s
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`privacy practices years ago, she would not have agreed to give Facebook to as much personal data
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`about herself.
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`JURISDICTION, VENUE, AND CHOICE OF LAW
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`26.
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`This action arises under Section 2 of the Sherman Antitrust Act, 15 U.S.C. § 2, and
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`Section 4 of the Clayton Act, 15 U.S.C. § 15. The action seeks to recover treble damages or
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`disgorgement of profits, interest, costs of suit, equitable relief, and reasonable attorneys’ fees for
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`damages to Plaintiffs and members of the Class resulting from Defendant’s restraints of trade and
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`monopolization of the Social Network and Social Media Markets described herein.
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`27.
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`This Court has subject matter jurisdiction under 28 U.S.C. §§ 1331 (federal
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`question), 1332 (class action diversity jurisdiction), and 1337(a) (antitrust); and under 15 U.S.C. §
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`15 (antitrust). The Court also has subject matter jurisdiction over the state-law unjust enrichment
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`claims presented in this action under 28 U.S.C. 1367 (supplemental jurisdiction).
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`28.
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`This Court has personal jurisdiction over Facebook because it is subject to general
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`jurisdiction in the State of California, where it maintains its headquarters and its principal place of
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`business, and Facebook’s Terms provide that consumers must bring these claims in this Court.
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`CLASS ACTION COMPLAINT
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`The scheme to monopolize alleged in this Complaint caused injury to persons throughout the
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`United States, including in this District. Moreover, Facebook also conducted substantial business
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`from which the claims in this case arise in California and has agreed to personal jurisdiction in
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`this Court.
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`29.
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`Venue is appropriate in this District under 15 U.S.C. § 15(a) (Clayton Act), 15
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`U.S.C. § 22 (nationwide venue for antitrust matters), and 28 U.S.C. § 1391(b) (general venue
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`provision). Facebook transacts business within this District, and it transacts its affairs and carries
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`out interstate trade and commerce, in substantial part, in this District.
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`30.
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`Facebook’s “Terms of Service” provide that “the laws of the State of California,”
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`which includes the federal antitrust laws, govern the Terms and “any claim” between Facebook
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`and its users.6
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`INTRADISTRICT ASSIGNMENT
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`31.
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`This action is properly assigned to the San Jose Division of this District, pursuant
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`to Civil Local Rule 3-2(c) and (e), because Facebook is headquartered, and a substantial part of
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`the events or omissions that give rise to the claim occurred, in San Mateo County, which is served
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`by the San Jose Division.
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`FACTUAL ALLEGATIONS
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`General Background on the Social Media Industry
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`32.
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`At a high level, the various participants in the social media industry include the
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`following: social media platforms, consumers, advertisers, and content providers (which can be
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`any of the previous three types of market participants, or can be third parties).
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`33.
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`Social media platforms provide social networking, messaging, and/or media tools
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`to consumers “designed to engage people by facilitating sharing, creating, and communicating
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`content and information online.”7
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`6 Facebook Terms of Service, https://www.facebook.com/terms.php (last accessed:
`December 3, 2020).
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`7 House Report, supra, at 88.
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`Case 5:20-cv-08570 Document 1 Filed 12/03/20 Page 12 of 84
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`34.
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`Social media platforms typically allow users on their networks to interact with
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`people the users know, participate in “groups” which join together users with a particular
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`background or common interest, and display content through linear feeds.8 Facebook’s social
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`media platform—which allows users to interact with others, join and participate in groups, and
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`displays content linearly—is pictured below:9
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`35.
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`A common feature of the social media industry is that social media platforms
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`typically offer their services to consumers for non-cash consideration.10 In consideration for
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`providing this service, social media platforms obtain valuable personal data from their users. The
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`extent of the information obtained from users varies by social media platform, as does the
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`disclosures about what data is obtained and the use(s) to which it is subsequently put.
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`8 Id.
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`9 See Kessica Guynn, Facebook is making a big change to your news feed, USA TODAY,
`Jan. 11, 2018, available at https://www.usatoday.com/story/tech/2018/01/11/facebook-newsfeed-
`big-change/1023331001/ (last accessed Nov. 24, 2020).
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`10 House Report, supra, at 88.
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`36.
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`Social media platforms monetize the data they obtain from users by selling the
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`data to third-parties. As an example, advertisers often pay social media platforms for certain
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`aspects of the platform’s user data, in order to learn more about the demographics that are most
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`interested in certain products. Advertisers, product manufacturers, and service providers also
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`often pay a social media platform to direct curated ads specifically towards particular user
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`segments. Similarly, application developers (“app developers”) purchase users’ data from social
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`media platforms to attract users which, in turn, brings profit to the developers in the forms of
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`application purchases and ad-revenue.
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`General Background on Facebook
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`37.
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`Facebook’s core offering to consumers is access to its social media network, which
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`contains the individualized profiles of well over 200 million users in the United States and
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`billions of users worldwide. In exchange for access to the only social media network that allows
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`consumers to connect online with most of their family, friends, and acquaintances, Facebook
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`requires users to provide their personal data and receive targeted advertisements.
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`38.
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`The personal data and user attention that Facebook obtains from consumers in this
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`exchange is not just the users’ consideration paid to use Facebook products; they are what
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`provides significant monetary value to Facebook’s enterprise. Facebook uses the data obtained
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`from its massive user base to generate its largest source of income: selling targeted
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`advertisements to its users. In 2019, Facebook collected $70.7 billion in revenue, almost entirely
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`from allowing companies to serve targeted ads to its users.
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`39.
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`Facebook’s machine learning algorithms mine patterns in the data for advertisers,
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`which allows advertisers to reach precisely the right audience to convert into sales, user signups,
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`or the generation of sales leads. To protect its exclusive control over user data and attention,
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`Facebook has brought legal action against actors that have copied publicly available user data and
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`made it available outside of Facebook.11
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`11 Facebook brought one such suit as recently as November 19, 2020. See Jessica Romero,
`Combating Clone Sites, Facebook Newsroom, Nov. 19, 2020, available at
`https://about.fb.com/news/2020/11/combating-clone-sites/ (last accessed Nov. 24, 2020).
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`40.
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`The data is also monetized by commercializing access—for example, by providing
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`application developers, content generators, and advertisers with direct access to the information
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`embedded in Facebook’s network, such as the interconnection between users, user attributes, and
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`user behavior. That data can then be mined by these third parties.
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`41.
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`From the beginning, Facebook has sought to entice consumers based on its
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`supposed commitment to maintaining the privacy of its users’ data. Unlike earlier competing
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`social media platforms that allowed anyone interested to join anonymously or by using unverified
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`usernames, Facebook required that those interested in joining to use their real-world identities.
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`42.
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`This qualitative distinction had clear privacy implications. Ironically, early
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`platforms that allowed users to register anonymously or with pseudonyms caused more privacy
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`problems for users because wrongdoers that obtained and/or used fellow users’ personal
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`information could hide behind their online (anonymous or unverified) identities.
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`43.
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`In contrast, Facebook claimed that it created a level of accountability, because
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`users ostensibly knew who was on the other side of the screen from them and were connected to
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`them in some way in real life.