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`Dennis J. Stewart (SBN 99152)
`GUSTAFSON GLUEK PLLC
`600 B Street
`17th Floor
`San Diego, CA 92101
`Telephone: (619) 595-3299
`dstewart@gustafsongluek.com
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`Additional Plaintiff’s Counsel Appear on the Signature Page
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE NORTHERN DISTRICT OF CALIFORNIA
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`behalf of all others similarly situated,
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`Plaintiff,
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`JOE KOVACEVICH, individually and on
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`CLASS ACTION COMPLAINT
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`JURY TRIAL DEMANDED
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`vs.
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`FACEBOOK, INC., a Delaware corporation
`headquartered in California,
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`Defendant.
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`Case 5:21-cv-01117 Document 1 Filed 02/15/21 Page 2 of 75
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`Plaintiff Kovacevich brings this action against Defendant Facebook, Inc. (“Facebook”),
`individually and as a class action, pursuant to Rule 23 of the Federal Rules of Civil Procedure, on
`behalf of himself and similarly situated individuals who maintained a Facebook social media profile
`since 2007. Plaintiff seeks treble damages and injunctive relief for Facebook’s longstanding and
`continuing violations of section 2 of the Sherman Act, 15 U.S.C. § 2 and violations of California
`state statutory and common law. Plaintiff alleges as follows based on personal knowledge, the
`investigation of Plaintiff’s counsel, and on information and belief.
`NATURE OF THE ACTION
`Facebook is now the largest social media platform in the United States and in the
`1.
`world. As of July 2020, Facebook reported having 2.7 billion monthly active users for its main
`Facebook product. Facebook also has a number of other product offerings: Instagram, Facebook
`Messenger, WhatsApp, and Oculus. When all of these product offerings are combined, Facebook
`boasts 2.47 billion daily active users and 3.14 billion monthly active users worldwide. In the United
`States, Facebook accounts for over 45 percent of monthly social media visits. Moreover, the
`Facebook Messenger standalone chat app is one of the most popular mobile messenger apps
`worldwide.
`Rather than achieving market dominance through fair competition and
`2.
`innovation, Facebook reached its status through a systematic pattern of anticompetitive
`conduct. Facebook repeatedly misled its consumers about the privacy protections it
`provided for its users’ data and leveraged its dominant market power to “acquire, copy or
`kill” any actual or potential competitors.
`Instead of paying money to use Facebook, users exchange their time, attention, and
`3.
`personal data, for access to Facebook’s services. Facebook’s business is focused on selling its users’
`information and attention, in quantifiable units, for money. In other words, Facebook profits by
`selling targeted ads based on the rich set of data about users’ activities, interests, and affiliations.
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`Facebook collected over $70 billion in revenue in 2019,1 almost all of which was for selling
`companies the opportunity to display targeted ads to Facebook’s users.
` Recognizing the utmost importance early on, Facebook promised stringent privacy
`4.
`protection in its efforts to win the race for market dominance. Due to these promises, many users
`ultimately chose Facebook over other competitors. When users sign up for a Facebook account,
`they agree to certain terms. As Part of Facebook’s Terms of Service, users give Facebook
`“[p]ermission to use [their] name, profile picture, and information about your actions with ads and
`sponsored content.” The Terms also state that protecting user “privacy is central to how we have
`designed our ad system.” Essentially, users provide personal information in exchange for access to
`Facebook’s social media network and for a commitment from Facebook to protect user privacy
`while agreeing to receive targeted advertisements on the Facebook platform.
`5. Despite Facebook’s claims about protecting user privacy, it concealed both the actual
`scope of the data it collected from its users and the ways in which it used that data to eliminate
`competition. Through these deceptions, Facebook eliminated potential competition from other
`social media firms and was able to gain and illegally maintain its control over the Social Network.
`Far from being trivial, the data Facebook collects from its users has enormous
`6.
`economic value. A recent majority staff report from the United States House of Representatives
`Antitrust Subcommittee explained that “[o]nline platforms rarely charge consumers a monetary
`price—products appear to be ‘free’ but are monetized through people’s attention or with their
`data.”2 In public filings, Facebook describes its massive advertising earnings in terms of average
`revenue per user (“ARPU”). In the final quarter of 2019, Facebook’s ARPU was $41.41 per user in
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`1 Investigation of Competition in Digital Markets, Majority Staff Report and Recommendations,
`Subcommittee on Antitrust, Commercial and Administrative Law of the Committee on the
`Judiciary, at 170 (“House Report”), Oct. 6, 2020, available at
`https://judiciary.house.gov/uploadedfiles/competition_in_digital_markets.pdf.
`2 See House Report at 18.
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`the United States and Canada.3
`7. With so much value at stake, for fear of losing its market dominance to new
`competitors and innovations, Facebook engaged in an illegal pattern of conduct including an
`“acquire, copy, or kill” strategy which, while extremely successful for Facebook, has been very
`detrimental to users. Facebook’s anticompetitive scheme has drastically lessened, if not eliminated,
`competition and harmed users. Facebook founder and CEO Mark Zuckerberg observed, “[o]ne
`thing about startups though is you can often acquire them,”4 reflecting his understanding that such
`acquisitions would enable Facebook to shield itself from competition.
`Rather than competing on the merits of its products, Facebook misuses valuable user
`8.
`data to identify and eliminate emerging competitors. Using its dominant power, Facebook
`discriminatorily shut off emerging competitors’ access to Facebook’s valuable user data if they
`refused to sell their businesses to Facebook. Two of Facebook’s largest acquisitions, the mobile
`social photo app Instagram, and the mobile messaging service WhatsApp, are examples of
`Facebook executing its plan. Each posed a unique and dire threat to Facebook’s monopoly, each
`had enormous and rapidly growing user networks, and each was well positioned to encroach on
`Facebook’s dominant market position.
`Consumers have suffered substantial economic injury as a result of Facebook’s
`9.
`destruction of competition. If Facebook had to contend with rivals, fair competition would have
`required Facebook to provide consumers greater value in return for their data, but Facebook instead
`took that data without providing adequate compensation. Through its deception and the acquisitions
`enabled by its deception, Facebook prevented competition on the merits, and as a result of that
`reduction in competition, users received less value for their data than they would have otherwise
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`3 Facebook Q4 2019 Results at 4, available at
`https://s21.q4cdn.com/399680738/files/doc_financials/2019/q4/Q4-2019-Earnings-Presentation-
`_final.pdf.
`4 House Report at 153.
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`received.
`10. Facebook’s acquisition and maintenance of monopoly power continues to harm
`consumers. Prior to Facebook’s consolidation of the social media competitors that may threaten the
`Social Network Market, several firms vigorously competed to win over consumers by offering
`competing products which differed in quality and other non-price attributes. Early social media
`companies, including Facebook, competed for market share by offering privacy features to
`consumer alongside their competing products. Absent Facebook’s anticompetitive scheme, which
`has allowed Facebook to place consumers under its monopolistic thumb, competition from
`Facebook’s rivals would require Facebook to offer products of quality superior to those it thrusts
`upon consumers today. Instead, Facebook’s anticompetitive conduct has allowed Facebook to
`artificially stifle innovation and deprive consumers of any meaningful alternative to Facebook’s
`social media empire. As such, consumers are faced with a “take it or leave it choice” that provides
`no choice at all: accept a Facebook of lesser quality or forgo use of the only social media platform
`used by most consumers’ friends and family members.
` Facebook’s monopolistic conduct violates the antitrust laws and harms consumers.
`11.
`Facebook is dominant in the Social Network Market and has engaged in predatory and exclusionary
`conduct in order to monopolize, causing Plaintiff and Class members to suffer substantial economic
`injury as a result of Facebook’s competition-reducing violations of law. This action seeks recovery
`for consumers’ losses and Facebook’s unlawful gains, and it seeks other appropriate equitable relief
`to prevent Facebook from continuing to destroy competition and harm consumers.
`JURISDICTION, VENUE, AND CHOICE OF LAW
`12. This action arises under Section 2 of the Sherman Antitrust Act, 15 U.S.C. § 2, and
`Section 4 of the Clayton Act, 15 U.S.C. § 15. The action seeks to recover treble damages or
`disgorgement of profits, interest, costs of suit, equitable relief, and reasonable attorneys’ fees for
`damages to Plaintiff and members of the Class resulting from Defendant’s restraints of trade and
`monopolization of the Social Network Market described herein.
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`13. This Court has subject matter jurisdiction under 28 U.S.C. §§ 1331 (federal question),
`1332 (class action diversity jurisdiction, and 1337(a)(antitrust); and under 15 U.S.C. § 15 (antitrust).
`The Court also has subject matter jurisdiction over the state law unjust enrichment claims presented
`in this action under 28 U.S.C. 1367 (supplemental jurisdiction).
`14. This Court has personal jurisdiction over Facebook because it is subject to general
`jurisdiction in the State of California, where it maintains its headquarters and its principal place of
`business, and Facebook’s Terms provide that consumers must bring these claims in this Court. The
`scheme to monopolize alleged in this Complaint caused injury to persons throughout the United
`States, including in this District. Moreover, Facebook also conducted substantial business from
`which the claims in this case arise in California and has agreed to personal jurisdiction in this Court.
`15. Venue is appropriate in this District under 15 U.S.C. § 15(a) (Clayton Act), 15 U.S.C.
`§ 22 (nationwide venue for antitrust matters), and 28 U.S.C. § 1391(b) (general venue provision).
`Facebook transacts business within this District, and it transacts its affairs and carries out interstate
`trade and commerce, in substantial part, in this District.
`16. Facebook’s “Terms of Service” provide that “the laws of the State of California,”
`which includes the federal antitrust laws, govern the Terms and “any claim” between Facebook and
`its users.5
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`INTRADISTRICT ASSIGNMENT
`17. Under Civil Local Rule 3-2(c) and (e), this action is properly assigned to the San Jose
`Division of this District because Facebook is headquartered here, and a substantial part of the events
`or omissions that give rise to the claim occurred in San Mateo County.
`PARTIES
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`Plaintiff
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`5 Facebook, Terms of Service, https://www.facebook.com/terms.php (last accessed Feb. 11, 2021).
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`18. Plaintiff Joe Kovacevich is a natural person and citizen of the State of Wisconsin.
`Plaintiff created a Facebook account in approximately 2008, maintains an active account, and
`regularly uses Facebook. Plaintiff actively uses the Facebook Messenger feature and also maintains
`and uses a WhatsApp account.
`Defendant
`19. Defendant Facebook is a Delaware corporation with its principal place of business
`located in Menlo Park, California.
`20. Facebook is a social media company that provides online services to more than 3.14
`billion users. Facebook owns and operates several business divisions, including:
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`•
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`•
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`Facebook. Facebook’s core social media application, which bears the company’s
`name, is, according to Facebook’s filings with shareholders, designed to “enable
`people to connect, share, discover, and communicate with each other on mobile
`devices and personal computers.” The Facebook core product contains a “News
`Feed” that displays an algorithmically-ranked series of content and advertisements
`individualized for each person.
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`Instagram. Instagram is a social media photo-sharing application that allows users to
`share photos, videos, and messages on mobile devices. Facebook acquired Instagram
`in April 2012.
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`• Messenger. Facebook’s Messenger application is a multimedia messaging application,
`allowing messages that include photos and videos to be sent from person to person
`across platforms and devices.
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`• WhatsApp. WhatsApp is a secure messaging application used by individuals and
`businesses. Facebook acquired WhatsApp in 2014.
`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 from
`targeted social media advertising that it provides to advertisers as a data broker. In 2019, Facebook
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`collected $70.7 billion in revenue, almost entirely from allowing companies to serve ads to its users.
`22. Facebook has over 50,000 employees and offices worldwide.
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`FACTUAL ALLEGATIONS
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`General Background
`Social Media Industry
`23. At a high level, the various participants in the social media industry include the
`following: social media platforms, consumers, advertisers, and content providers (which can be any
`of the previous three types of market participants, or can be third parties).
`24. Social media platforms provide social networking, messaging, and/or media tools to
`consumers “designed to engage people by facilitating sharing, creating, and communicating content
`and information online.”6 Social media platforms typically allow users on their networks to interact
`with people the users know, participate in “groups” which join users with a particular background
`or common interest, and display content.
`25. A common feature of the social media industry is that social media platforms typically
`offer their services to consumers for non-cash consideration.7 In consideration for providing this
`service, social media platforms obtain valuable personal data from their users. The extent of the
`information obtained from users varies by social media platform, as does the disclosures about what
`data is obtained and the use(s) to which it is subsequently put.
`26. Social media platforms monetize the data they obtain from users by selling the data to
`third parties. As an example, advertisers often pay social media platforms for certain aspects of the
`platform’s user data, in order to learn more about the demographics that are most interested in
`certain products. Advertisers, product manufacturers, and service providers also often pay a social
`
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`6 House Report, supra, at 88.
`7 House Report, supra, at 88.
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`media platform to direct curated ads specifically towards particular user segments. Similarly,
`application developers (“app developers”) purchase users’ data from social media platforms to
`attract users that, in turn, brings profit to the developers in the forms of application purchases and
`ad-revenue.
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`27. Facebook began as a website that allowed college students to connect with their
`friends on campus. Today, through its website (www.facebook.com) and smartphone
`application(“app”), Facebook has grown into the largest social media platform in the world.
`Facebook’s core offering to consumers is access to its social media network, which contains the
`individualized profiles of well over 200 million users in the United States and billions of users
`worldwide. In exchange for access to the only social media network that allows consumers to
`connect online with most of their family, friends, and acquaintances, Facebook requires users to
`provide their personal data and receive targeted advertisements.
`28. The personal data and user attention that Facebook obtains from consumers in this
`exchange is not just the users’ consideration paid to use Facebook products; they are what provides
`significant monetary value to Facebook’s enterprise. Facebook uses the data obtained from its
`massive user base to generate its largest source of income: selling targeted advertisements to its
`users.
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`29. Facebook’s machine learning algorithms mine patterns in the data for advertisers,
`which allows advertisers to reach precisely the right audience to convert into sales, user signups, or
`the generation of sales leads. To protect its exclusive control over user data and attention, Facebook
`has brought legal action against actors that have copied publicly available user data and made it
`available outside of Facebook.8
`
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`8 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/.
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`30. The data is also monetized by commercializing access—for example, by providing
`application developers, content generators, and advertisers with direct access to the information
`embedded in Facebook’s network, such as the interconnection between users, user attributes, and
`user behavior. That data can then be mined by these third parties.
`31. Prior to founding Facebook, Mark Zuckerberg learned the importance of privacy to
`consumer preference early on. While a student at Harvard University, Mr. Zuckerberg created
`“Facemash,” which “juxtaposed the pictures of two random Harvard undergraduates and asked
`users to judge their physical attractiveness.”9 Notably, Facemash obtained the students’ photos
`without their permission, “dr[a]w[ing] the ire of students and administrators alike[.]”10 While
`promoting “thefacebook.com,” Facebook’s predecessor, Zuckerberg vowed that he had learned
`from his experience with Facemash building into “thefacebook.com” “intensive privacy options,”
`which “he hoped would help to restore his reputation[.]”11 In reality, thefacebook.com’s—and later
`Facebook’s—representations regarding privacy were part of an orchestrated scheme, designed to
`secure and prolong its monopoly status.
`32. From the beginning, Facebook has sought to entice consumers based on its supposed
`commitment to maintaining the privacy of its users’ data. Unlike earlier competing social media
`platforms that allowed anyone interested to join anonymously or by using unverified usernames,
`Facebook required that those interested in joining to use their real-world identities.
`33. This qualitative distinction had clear privacy implications. Ironically, early platforms
`that allowed users to register anonymously or with pseudonyms caused more privacy problems for
`
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`9 Alan J. Tabak, Hundreds Register for New Facebook Website, The Harvard Crimson, Feb.
`9, 2004, available at https://www.thecrimson.com/article/2004/2/9/hundreds-register-for-new-
`facebook-website/.
`10 Id.
`11 Id.
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`users because wrongdoers that obtained and/or used fellow users’ personal information could hide
`behind their online (anonymous or unverified) identities.
`In contrast, Facebook claimed that it created a level of accountability, because users
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`ostensibly knew who was on the other side of the screen from them and were connected to them in
`some way in real life. Indeed, Facebook’s website “was one of the first social networks where users
`actually identified themselves using their real names.”12 By making users “real,” Facebook claimed
`(and users agreed by voting with their feet) that their social interactions online were better protected
`and more meaningful. But all of this required Facebook to promise privacy protection in order to
`induce users to provide their real-world identities and data.
`At first, Facebook was closed to all but those users who could validate their own
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`real-world identities, such as by verifying that he or she was legitimate via an e-mail address issued
`by an organization, such as a university or a firm:13
`It was this “realness” that became Facebook’s distinguishing feature—bringing along
`with it – and also depending on – a perceived degree of safety and comfort that
`enabled Facebook to become a true social utility and build out a solid social graph
`consisting of verified relationships. Since “friending” (which is a link between nodes
`in the social graph) required both users to approve the relationship, the network
`fostered an incredible amount of trust. Today, many Facebook users post their cell
`phone numbers and their birthdays, offer personal photos, and otherwise share
`information they’d never do outside their circle of friends.
`
`The data Facebook has since collected derives much of its value from the ability to
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`identify Facebook’s users by their real-world identity. Other platforms, such as Twitter, have only
`loosely enforced identity rules, and have never required users to disclose granular details about
`themselves.
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`12 See John Gallaugher, Getting the Most Out of Information Systems § 8.3, available at
`https://2012books.lardbucket.org/books/getting-the-most-out-of-information-systems-v1.4/s12-
`facebook-building-a-business-f.html.
`13 Gallaugher, supra, § 8.3.
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`Facebook characterizes each user’s disclosure of his or her identity as increasing the
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`value of the experience for all users, who are purportedly able to benefit from others’ disclosures by
`connecting with and following the activities of their real-world connections.14 Disclosure also
`increases the market value of the information Facebook obtains from its users. Knowing the internet
`habits of “YankeesFan123” is less valuable than knowing the browsing habits of a specific
`individual whose love of the Yankees can be linked with information about his shopping habits,
`income, family, friends, travel, dining, dating, and a myriad of other data points.
`In the years since its inception, Facebook has tracked trillions of data points about
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`consumers with a powerful data structure that it calls the “social graph.” The social graph concept
`“refers to Facebook’s ability to collect, express, and leverage the connections between the site’s
`users, or as some describe it, ‘the global mapping of everyone and how they’re related.’”15 All of
`the data on Facebook can be thought of as a “node” or “endpoint” that is connected to other data on
`Facebook:
`You’re connected to other users (your friends), photos about you are tagged,
`comments you’ve posted carry your name, you’re a member of groups, you’re
`connected to applications you’ve installed—Facebook links them all.16
`Given Facebook’s size and reach, as well as the extent of its surreptitious user data
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`collection (discussed further below) the social graph is a unique and uniquely valuable dataset, even
`among the giants of the tech world. Much of this value stems from the fact that the majority of
`
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`14 Apple’s Senior Director for Global Privacy recently expressed skepticism that social media
`platforms such as Facebook encourage disclosure of personal information solely to create a richer
`“personalized experience” for other users. See Apple Privacy Letter, Nov. 19, 2020, available at
`https://www.scribd.com/document/485006035/Apple-Privacy-Letter#from_embed (“What some
`companies call ‘personalized experiences’ are often veiled attempt to gather as much data as
`possible about individuals, build extensive profiles on them, and then monetize those profiles.”).
`15 Gallaugher, supra, (quoting Alex Iskold, Social Graph: Concepts and Issues, ReadWriteWeb,
`Sept. 11, 2007, available at https://readwrite.com/2007/09/11/social_graph_concepts_and_issues/).
`16 Id. (citing Alan Zeichick, How Facebook Works, MIT Technology Review, June 23, 2008,
`available at https://www.technologyreview.com/2008/06/23/219803/how-facebook-works/).
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`Case 5:21-cv-01117 Document 1 Filed 02/15/21 Page 13 of 75
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`Facebook’s social graph cannot be viewed by the public or search engines, and because it contains
`extraordinary amounts of data that users unwittingly provided Facebook regarding their most
`minute everyday habits.
`Facebook is a so-called “walled garden”—a closed ecosystem run by a single
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`operator. Advertisers must go through Facebook in order to reach Facebook users. And Facebook
`can decide how much of its social graph it allows app developers, including competitors, to access.
`The personal data of Facebook’s users takes many forms including data about the
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`information users share on their personal profile pages, the photos and profiles users have viewed,
`what information users share with others, and even what users put in messages to other users. This
`granular data all allows targeted advertising on a scale that has never before existed. Facebook’s
`platform allows advertisers to target Facebook’s user base by their attributes and behavior. Third
`party advertisers have been able to use Facebook’s advertising platform to track and target
`consumers all throughout the internet, even when Facebook users are “logged-out” of Facebook.
`Relevant Market
`The Social Network Market
`The Social Network Market is the product market consisting of social networks,
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`which are websites (and accompanying mobile applications) that: (1) facilitate users of a given
`network finding, interacting, and networking with other people either whom the users already have
`a personal connection to or to whom they are connected through others they already know online;
`and (2) provide users with additional substantive features beyond the ability to communicate with
`other users and share multimedia.
`The personal social networking service has three key elements: they (1) are built on a
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`social graph that maps the connections between users and their friends, family, and other personal
`connections; (2) include features that many users regularly employ to interact with personal
`connections and share their personal experiences in a shared social space, including in a one-to-
`many “broadcast” format of personal multimedia content such as news feed posts, photos, videos,
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`CLASS ACTION COMPLAINT
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`Case 5:21-cv-01117 Document 1 Filed 02/15/21 Page 14 of 75
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`etc.; and (3) include features that allow users to find and connect with other users, to make it easier
`for each user to build and expand their set of personal connections.
`Search engines, such as Google, Yahoo, or Bing, are not “social networks” because
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`they do not provide for interaction between platform members. Similarly, apps like Apple’s
`“iMessage,” which simply allow the sharing of messaging media, such as emails or text messages,
`are not social networks because, although they provide for interaction, they do so only in a device-
`to-device manner and focus solely on delivering messages rather than facilitating a broader online
`social experience. Facebook itself has noted this distinction, explaining in documents provided to
`the House Antitrust Subcommittee that whereas the growth of Apple’s iMessage is “limited by the
`adoption of iPhones, . . . Facebook’s products can be used across devices.”17
`Still other types of online networks, such as LinkedIn, are not “social networks,” as
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`that term is defined in this complaint, because they are used for a different purpose, and are used in
`parallel to—rather than instead of—Social Networks. Whereas LinkedIn is typically considered the
`dominant professional social network in the world, it is not a replacement for Facebook. This is
`because LinkedIn is used primarily for professional networking and employment-seeking purposes,
`while Facebook and its like are used primarily for non-professional, personal purposes.18 The
`European Commission explained this distinction during its review of the Microsoft/LinkedIn
`merger: “the reasons for using a [professional service network] are different from those for using a
`personal social network. While the former is used to ‘1. Maintain professional identity, 2. Make
`useful contacts, 3. Search for opportunities, 4. Stay in touch’, the latter is used to ‘1. Socialize, 2.
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`17 House Report, supra, at 136 n.752.
`18 Facebook has itself recognized this distinction in documents it provided to the House Antitrust
`Subcommittee. See id. at 133–34 n.733 (“Linkedin . . . coexist[s] in the US with similar user bases
`but orthogonal graphs: Facebook connects friends and family, LinkedIn connects coworkers[.]”)
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`CLASS ACTION COMPLAINT
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`Stay in touch, 3. Be entertained, 4. Kill time’.”19 Thus, users will have both a LinkedIn and
`Facebook account, not one or the other, and this other type of network is not viewed or treated as a
`substitute for a Social Network.20
`There are no reasonable substitutes for personal Social Networks. Social media
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`platforms, such as YouTube and TikTok, primarily exist to allow users to stream, share, and view
`content which overlaps with the significant social media element of personal Social Network.
`However, it lacks the element of an online community that brings together users who specifically
`choose to associate with one another. In addition, Social Networks, such as Facebook, provide a
`“rich social experience” to users through specific product features.21 Social media platforms, like
`YouTube and TikTok, do not provide or facilitate a similar use and instead offer only limited
`opportunities for social interaction, or interaction of a very different type that complements, rather
`than substitutes, for a social networking experience.
`Beyond the “rich social experience” that Social Networks provide to users,
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