`
`IN THE UNITED STATES DISTRICT COURT
`FOR THE EASTERN DISTRICT OF NEW YORK
`
`
`Case No. 1:21-cv-06159-KAM-RLM
`
`
`
`
`
`
`PHHHOTO Inc.
`
` Plaintiff,
`
` v.
`
`Meta Platforms, Inc. f/k/a Facebook, Inc.
`and DOES Nos. 1-7,
`
` Defendants.
`
`
`
`
`
`AMENDED COMPLAINT
`
`1.
`
`In 2012, a group of entrepreneurs and engineers—Champ Bennett (“Bennett”),
`
`Omar Elsayed, and Russell Armand (collectively, the “founders”)—set out to build an app that
`
`would create opportunities to capture moments in a format as expressive as video but as easy as a
`
`point-and-shoot camera. The result was Phhhoto, launched in 2014, which went beyond
`
`photography and aimed to create a social network that would give people opportunities to share
`
`their lives in ways they had never seen before. No format such as Phhhoto had ever existed. The
`
`Phhhoto app captured five frames in a single point-and-shoot burst and linked them together into
`
`a looping video, animating a still picture and making the subject come alive. The burst created a
`
`short video called a “phhhoto.” Users could post their phhhotos on Phhhoto’s internal social
`
`network or share phhhotos on Instagram.
`
`2.
`
`As described by TechCrunch (a leading online publication for startup and
`
`technology news), “with quick app-switching to Instagram and integration with other social
`
`
`
`Case 1:21-cv-06159-KAM-RLM Document 22 Filed 03/21/22 Page 2 of 69 PageID #: 121
`
`media, the [Phhhoto] app seems like one of the many natural successors to our ingrained
`
`Instagram behavior.”
`
`3.
`
`Phhhoto’s technology formed the kernel for a new social network. Phhhoto could
`
`be described as an “instant animated camera.” It was billed as “quicker than video, better than
`
`stills,” and it offered users the ability to add filters to their phhhotos. The resulting short video
`
`allowed users to take and exhibit photography in a completely new way. Phhhoto was free to
`
`download, simple and easy to use, and available for both iOS and, by late 2015, Android devices.
`
`And Phhhoto provided a platform for social networking by enabling users to share their phhhotos
`
`to their social media accounts.
`
`4.
`
` One early adopter of Phhhoto was Mark Zuckerberg (“Zuckerberg”), the CEO of
`
`defendant Meta Platforms, Inc, then known as Facebook, Inc. (“Meta”). On or about August 8,
`
`2014, Zuckerberg downloaded and installed the app onto his phone, entered the phone number of
`
`his device into the Phhhoto app, created a personal account, and posted a profile picture of
`
`himself (reproduced below) to his new Phhhoto account.
`
`
`
`2
`
`
`
`Case 1:21-cv-06159-KAM-RLM Document 22 Filed 03/21/22 Page 3 of 69 PageID #: 122
`
`5.
`
`Zuckerberg was not the only Meta executive to take notice of Phhhoto, create an
`
`account (as reflected in the profiles below), and do reconnaissance. On or about December 20,
`
`2014, Kevin Systrom, formerly the co-founder and CEO of Instagram, and at that time the head
`
`of Meta’s Instagram business, followed Zuckerberg’s lead, downloading the Phhhoto app from
`
`the Apple App Store and creating an account. Thereafter, Meta employees Bryan Hurren
`
`(“Hurren”), John Barnett, and Christine Choi, among others, followed suit, all creating Phhhoto
`
`accounts, with several posting their pictures, and exploring Phhhoto’s features.
`
`
`
`
`
`6.
`
`The new Phhhoto application soared in popularity. Phhhoto had fewer than
`
`500,000 Monthly Average Users (“MAUs”) in early 2015, but that number grew to
`
`approximately 3.7 million MAUs at its peak.
`
`7.
`
`Users increasingly posted photographic content made with the Phhhoto app onto
`
`Meta’s Instagram and Facebook platforms so that their followers could see that content in their
`
`“feeds.” Early on, the well-known songwriter and record producer staged-named Diplo contacted
`
`the fledgling company, unsolicited, to make an investment. Indeed, famous celebrities including
`
`Beyonce, Katy Perry, Miley Cyrus, Joe Jonas, Crissy Teigen, Bella Hadid, and Shawn Mendes
`
`
`
`3
`
`
`
`Case 1:21-cv-06159-KAM-RLM Document 22 Filed 03/21/22 Page 4 of 69 PageID #: 123
`
`began to use Phhhoto without being solicited or compensated. They created their own content
`
`using the app and posted that content to their accounts associated with Meta’s Instagram product.
`
`The press took notice of Phhhoto’s early success and adoption.
`
`8.
`
`So compelling was Phhhoto’s technology and content, and so popular was its
`
`application, that Hurren, then Strategic Partnerships Manager for Meta’s Facebook business,
`
`reached out to Phhhoto, asserting that Phhhoto was “really awesome.” Hurren first offered to
`
`incorporate Phhhoto’s technology into the Messenger service on Meta’s Facebook platform.
`
`When Phhhoto declined, Hurren offered to incorporate Phhhoto’s content into the Newsfeed for
`
`Meta’s Facebook platform users. Phhhoto invested heavily in this project, but ultimately Hurren
`
`did not move forward, citing internal “legal conversations” that “hung” the project up.
`
`9.
`
`Instead, Meta had embarked on a scheme to crush Phhhoto and drive it out of
`
`business. Among other anticompetitive acts directed against Phhhoto, Meta first withdrew
`
`aspects of interoperability with its Instagram platform that it had previously provided to Phhhoto.
`
`Then, as described above, Hurren surreptitiously terminated the project that he had initiated for
`
`integrating Phhhoto’s content into the Newsfeed of Meta’s Facebook platform. The scheme
`
`continued with Meta changing longstanding third party content attribution rules of its Instagram
`
`business to Phhhoto’s detriment and introducing—with the anticompetitive intent and effect of
`
`harming Phhhoto rather than otherwise benefiting Meta—a market clone that copied feature-by-
`
`feature the Phhhoto product. The injurious intent and effect of these actions was not known to,
`
`and indeed affirmatively concealed from, Phhhoto at the time.
`
`10.
`
`The anticompetitive campaign culminated in Meta’s change to the way that the
`
`Instagram platform displayed content in its own users’ feeds, which had the intent and effect of
`
`suppressing Phhhoto content. In October 2017, by pure chance, Phhhoto was able to discover
`
`
`
`4
`
`
`
`Case 1:21-cv-06159-KAM-RLM Document 22 Filed 03/21/22 Page 5 of 69 PageID #: 124
`
`that Meta was not, contrary to its express representations, displaying content on its Instagram
`
`platform of most interest to a user. And only thereafter did further information emerge to reveal
`
`that Meta—through a closely guarded secret algorithm impenetrable to the outside world—had
`
`in fact been purposely suppressing Instagram users’ posts that contained Phhhoto content. Meta
`
`affirmatively concealed the nature of Instagram’s algorithm and published misleading statements
`
`about the change in the manner users would view posts on its Instagram platform.
`
`11.
`
`Although Phhhoto undertook diligent efforts to understand its declining metrics
`
`prior to October 2017, there was no reason to investigate (and based on Meta’s purposeful
`
`misrepresentations, specific reason to reject) whether Meta’s algorithm was designed to penalize
`
`posts with Phhhoto content. Indeed, Phhhoto did not become aware of Meta’s overall campaign
`
`against competitors, nor of Mark Zuckerberg’s personal involvement in and direction of that
`
`campaign, until the release of internal Meta documents by the UK Parliament in December of
`
`2018.
`
`12. Meta employed this anticompetitive campaign against competitors, including
`
`Phhhoto, in order to maintain its monopoly in the market for personal social networking services.
`
`Meta secured that monopoly position by acquiring Instagram in 2012, thus controlling the two
`
`most significant platforms—Facebook and Instagram—in that relevant market. And Meta
`
`unlawfully used that power and engaged in exclusionary conduct to eliminate Phhhoto and others
`
`as competitive threats to Meta’s monopoly.
`
`13. Meta’s actions destroyed Phhhoto as a viable business and ruined the company’s
`
`prospects for investment. Lacking investment or any other means to remain viable, the company
`
`shut down its operations in June 2017, while Meta continued to affirmatively conceal its
`
`anticompetitive conduct. Phhhoto failed as a direct result of that conduct. But for Meta’s
`
`
`
`5
`
`
`
`Case 1:21-cv-06159-KAM-RLM Document 22 Filed 03/21/22 Page 6 of 69 PageID #: 125
`
`conduct, Phhhoto was positioned to grow into a social networking giant, similar in size,
`
`scope, and shareholder value to other social networking and media companies with which Meta
`
`did not interfere.
`
`14. Meta thus violated Section 2 of the Sherman Antitrust Act by unlawfully
`
`maintaining a monopoly. 15 U.S.C. § 2. Meta engaged in a course of exclusionary conduct aimed
`
`to eliminate a horizontal competitor from the market. Meta also engaged in an unlawful refusal
`
`to deal with Phhhoto, by first inviting Phhhoto to interoperate on its platforms and then
`
`withdrawing that interoperability and suppressing Phhhoto users’ posts—by which Meta
`
`curtailed a profitable relationship for anticompetitive reasons.
`
`15. Meta also engaged in common-law fraud and unfair competition under New York
`
`law.
`
`
`
`
`
`6
`
`
`
`Case 1:21-cv-06159-KAM-RLM Document 22 Filed 03/21/22 Page 7 of 69 PageID #: 126
`
`CONTENTS
`
`I. PARTIES ............................................................................................................................... 9
`
`A. Plaintiff ............................................................................................................................... 9
`
`B. Defendants .......................................................................................................................... 9
`
`II. JURISDICTION & VENUE .............................................................................................. 10
`
`III. ANTICOMPETITIVE CONDUCT .................................................................................. 11
`
`A. How Meta achieved market domination through its initially “open” platform. ............... 11
`
`B. Phhhoto launches an innovative platform for photo-taking, photo-sharing, and social
`networking. ............................................................................................................................... 15
`
`C. Meta targets, and ultimately crushes, Phhhoto. ................................................................ 19
`1. Meta surreptitiously terminates efforts to integrate Phhhoto with the Facebook
`newsfeed. .............................................................................................................................. 19
`2. Meta cuts off Phhhoto’s access to Instagram’s API. .................................................... 23
`3. Meta blocks #Phhhoto from being pre-populated in Instagram posts. ......................... 24
`4. Meta clones Phhhoto and releases the copy as Boomerang. ......................................... 26
`5. Meta updates Instagram’s newsfeed algorithm – and suppresses Phhhoto’s posts. ..... 28
`6. Meta attempts to poach Phhhoto employees ................................................................. 32
`7. Phhhoto discovers Meta’s fraud.................................................................................... 33
`
`D. As a result of Meta’s fraudulent and anticompetitive conduct, Phhhoto could not survive.
`
`........................................................................................................................................... 38
`1. Meta’s anticompetitive conduct rendered Phhhoto unfundable. ................................... 38
`
`E. Phhhoto learns that Meta’s conduct was part of an anti-competitive scheme to crush
`competitors. ............................................................................................................................... 42
`
`IV. RELEVANT MARKET ..................................................................................................... 44
`
`A. Product Market.................................................................................................................. 44
`
`B. Geographic market ............................................................................................................ 48
`
`V. MARKET POWER ............................................................................................................ 48
`
`A. Meta’s market share demonstrates its monopoly power. .................................................. 49
`
`B. Direct evidence demonstrates Meta’s monopoly power. .................................................. 51
`
`C. Meta’s network has developed strong and durable network effects. ................................ 53
`1. Meta’s network effects constitute significant barriers to entry. .................................... 53
`2. Market entrants lack the data necessary to attract advertisers. ..................................... 55
`3. Meta also benefits from cross-side network effects. ..................................................... 55
`
`VI. INJURY AND COMPETITIVE HARM .......................................................................... 56
`
`A.
`
`Injury to Phhhoto .............................................................................................................. 56
`
`B. Harm to Competition ........................................................................................................ 57
`1. Harm to Consumers ...................................................................................................... 58
`
`
`
`7
`
`
`
`Case 1:21-cv-06159-KAM-RLM Document 22 Filed 03/21/22 Page 8 of 69 PageID #: 127
`
`2. Harm to Advertisers ...................................................................................................... 59
`
`VII. ACCRUAL OF CLAIMS ................................................................................................... 59
`
`A. Summary of Claim Accrual .............................................................................................. 59
`
`B. Fraudulent Concealment ................................................................................................... 60
`
`C. Continuing Violations and Ascertainment of Damages.................................................... 63
`
`VIII.
`
`CAUSES OF ACTION ............................................................................................... 64
`
`A. Count One: Unlawful Monopolization (Monopoly Maintenance) in the Personal Social
`Networking Services Market – Section 2 of the Sherman Act, 15 U.S.C. § 2 ......................... 64
`
`B. Count Two: Fraud ............................................................................................................. 65
`
`C. Count Three: Unfair Competition ..................................................................................... 66
`
`IX. PRAYER FOR RELIEF..................................................................................................... 67
`
`X. DEMAND FOR JURY TRIAL .......................................................................................... 68
`
`
`
`
`
`
`
`
`
`
`8
`
`
`
`Case 1:21-cv-06159-KAM-RLM Document 22 Filed 03/21/22 Page 9 of 69 PageID #: 128
`
`PARTIES
`
`A.
`
`Plaintiff
`
`I.
`
`
`
`
`16.
`
`Plaintiff PHHHOTO Inc. (“Phhhoto”) is a Delaware corporation with its principal
`
`place of business in Brooklyn, New York. Phhhoto was launched in 2014 by Omar Elsayed,
`
`Champ Bennett, and Russell Armand as a social networking application built around
`
`pathbreaking camera phone technology that permitted users to photograph a series of integrated
`
`photos in a single point-and-shoot burst, and then share those “phhhotos” on the Phhhoto
`
`platform or other social networking applications. At the height of Phhhoto’s popularity, the
`
`application engaged 3.7 million monthly and 1.3 million daily active users.
`
`B.
`
`Defendants
`
`
`
`17.
`
`Founded by Mark Zuckerberg in 2004, Defendant Meta Platforms, Inc. (“Meta”)
`
`is a publicly traded company, incorporated in Delaware, with its principal place of business at
`
`One Hacker Way in Menlo Park, California. Prior to changing its name on October 28, 2021,
`
`Meta was known as Facebook, Inc. For ease of reference, Defendant Meta is referred to
`
`throughout this Complaint as “Meta,” and the social networking platform businesses it operates
`
`are referred to by their platform names—Facebook and Instagram.
`
`18. Meta is a social media company that provides online services to an estimated 3
`
`billion users worldwide. Meta operates two platforms wherein third-party applications and
`
`hardware interoperate with its main social media applications—Facebook and Instagram. Meta
`
`owns and operates several business divisions, including:
`
`a. Facebook. Facebook is Meta’s core application for personal social networking
`
`service according to Meta’s filings with shareholders, designed to enable “people to
`
`connect, share, discover, and communicate with each other” and contains a “News
`
`Feed” that displays an algorithmically ranked series of content, including a wide
`
`
`
`9
`
`
`
`Case 1:21-cv-06159-KAM-RLM Document 22 Filed 03/21/22 Page 10 of 69 PageID #: 129
`
`range of media and updates regarding the activities of the user’s social connections
`
`and individually targeted advertisements.
`
`b. Instagram. Instagram is an application for personal social networking services that
`
`allows users to share photos, videos, and messages on mobile devices. Meta
`
`acquired Instagram in April 2012.
`
`c. Messenger. Messenger is a multimedia messaging application, allowing users to
`
`send messages that include photos, videos, and file attachments from person to
`
`person across platforms and devices.
`
`19.
`
`In exchange for providing services, Meta collects user data, which it uses to create
`
`and provide targeted advertising services. Meta’s principal revenue is from the targeted
`
`advertising that it sells to advertisers. In 2019, Meta collected $70.7 billion in revenue, almost
`
`entirely from allowing companies to serve ads to its users.
`
`20. Meta has over 50,000 employees and maintains offices worldwide.
`
`21.
`
`Doe Defendants 1–7 are other individuals or entities who acted in concert and
`
`conspiracy with, or who engaged in or abetted the unlawful conduct by Meta that is set forth in
`
`this Complaint. Plaintiff intends to amend or seek leave to amend this Complaint upon learning
`
`the identities of these Doe Defendants.
`
`JURISDICTION & VENUE
`
`II.
`
`
`22.
`
`This action arises under Section 2 of the Sherman Antitrust Act (15 U.S.C. § 2)
`
`and New York common law.
`
`23. Meta is engaged in activities that substantially affect interstate commerce. It
`
`provides personal social networking services throughout the United States and sells advertising
`
`in connection with these services throughout the United States. The conduct involved in this
`
`
`
`10
`
`
`
`Case 1:21-cv-06159-KAM-RLM Document 22 Filed 03/21/22 Page 11 of 69 PageID #: 130
`
`action took place in interstate commerce.
`
`24.
`
`This Court has subject matter jurisdiction over Plaintiff’s federal claims pursuant
`
`to 28 U.S.C. §§ 1331 and 1337(a). This Court has supplemental jurisdiction over the state claims
`
`presented in this action under 28 U.S.C. § 1367.
`
`25.
`
`Venue is appropriate in this judicial district under 15 U.S.C. § 22 and 28
`
`U.S.C.§ 1391(b) and (c). Meta transacts business within this judicial district, and it transacts its
`
`affairs and carries out interstate trade and commerce, in substantial part, in this district.
`
`26.
`
`This Court has personal jurisdiction over Meta because the unfair competition,
`
`fraud, and unlawful maintenance of monopoly power alleged in this Complaint caused injury to
`
`persons throughout the United States, including to Phhhoto in this district. Meta also transacts
`
`substantial business in this district.
`
`III. ANTICOMPETITIVE CONDUCT
`
`
`A.
`
`How Meta achieved market domination through its initially “open” platform.
`
`
`
`27. Meta’s history is a prelude to its anticompetitive scheme. Meta began in 2004
`
`with Facebook as its social networking desktop application. The first Apple smartphone was not
`
`released until 2007, so for the first several years of its existence, Facebook had no efficient way
`
`to present and promote itself to potential users, and potential users had no efficient way to access
`
`and use the Facebook application other than through the desktop browser, a market dominated by
`
`Microsoft. Microsoft could have cut off user access to Facebook at any time and killed the
`
`nascent company “in the cradle.” In recognition of his need to curry and maintain favor with
`
`Microsoft, Zuckerberg in 2007 sold Microsoft $240 million of Meta (then Facebook) stock.
`
`28.
`
`In 2007, Zuckerberg also decided to transform Facebook from a simple
`
`application into a “platform” by releasing services, tools, and products for third-party developers
`
`
`
`11
`
`
`
`Case 1:21-cv-06159-KAM-RLM Document 22 Filed 03/21/22 Page 12 of 69 PageID #: 131
`
`to create their own applications and services that interoperated with Facebook. According to
`
`Zuckerberg, the platform approach was designed to increase Facebook’s usage, so that people
`
`would “share everything they want, and do it on Facebook,” while recognizing that “[s]ometimes
`
`the best way to enable people to share something is to have a developer build a special purpose
`
`app or network for that type of content and to make that app social by having Facebook plug into
`
`it.”
`
`29.
`
`In 2010, Instagram launched as a photo-sharing (and later video-sharing)
`
`application on the Apple iPhone, and in 2011, Instagram’s management turned the Instagram
`
`application into a platform by adopting a feature known as iPhone Hooks so that other
`
`applications could interoperate and share content with it.
`
`30.
`
`On or about April 9, 2012, Meta bought Instagram for $1 billion, meaning that
`
`Meta would ultimately own and control the two largest platforms for personal social networking
`
`services, Instagram and Facebook.
`
`31. While Instagram was always centered around photography, and later videos, over
`
`time, Meta’s Facebook business transitioned from largely text-based to photo- and then video-
`
`related content. In May 2012, Meta launched “Facebook Camera” which allowed users to take
`
`photos on their phone that could be shared to Facebook immediately—a functionality Instagram
`
`always possessed. Then, in April 2016, Meta moved Facebook to a “video-first” strategy,
`
`encouraging users to create and share more photos and videos. Shortly thereafter, in July 2016
`
`Zuckerberg noted on an earnings call that he and his team “see a world where video is first, with
`
`video at the heart of all of our apps and services.” The following year, Facebook Camera added
`
`support for GIFs, text, and live video, and Meta launched “Facebook Stories” for users to create
`
`short photo or video collections.
`
`
`
`12
`
`
`
`Case 1:21-cv-06159-KAM-RLM Document 22 Filed 03/21/22 Page 13 of 69 PageID #: 132
`
`32. Meta implemented a series of innovations that fomented interconnectivity
`
`between and among itself, users, third parties, and advertisers. Meta’s launch of the “Facebook
`
`Platform” in 2007 allowed open “APIs” (or “application programming interfaces”): digital tools
`
`that allow different applications to share data and functionality with one another. The Facebook
`
`Platform allowed third parties and app developers to create apps that interoperated with
`
`Facebook. By enticing app developers toward interoperability, Meta advanced its platform
`
`growth to its benefit. By May 2013, over 10 million apps and websites were integrated with
`
`Meta’s Facebook platform through APIs.
`
`33. Meta was explicit in its initial desire to integrate with other app developers,
`
`stating that it “welcome[d] developers with competing applications” to build on its Facebook
`
`platform.1 Meta designed the platform specifically so that third-party applications could
`
`interoperate with Facebook, or, as Meta described it, “third-party developers are on a level
`
`playing field with applications built by Facebook.”2
`
`34.
`
`Even prior to its acquisition by Meta, in 2011, Instagram had adopted iPhone
`
`Hooks, which gave users the ability to share photos taken on their iPhones and through other
`
`third-party applications directly to Instagram. Developers could “hook” their applications into
`
`Instagram seamlessly, so that users could share photos instantly from the third-party app directly
`
`to Instagram’s “publish” screen for posting. When linked to Instagram, the user would be
`
`directed to the “filter” page, and the image would be pre-loaded and resized to fit Instagram’s
`
`
`1 Six4Three, LLC, Written Statement for the Record, Online Platforms and Market Power,
`Part II: Innovation and Entrepreneurship, Hearing Before the House Judiciary Subcommittee on
`Antitrust, Commercial and Administrative Law (July 16, 2019),
`https://docs.house.gov/meetings/JU/JU05/20190716/109793/HHRG-116-JU05-20190716-
`SD003.pdf.
`2 Six4Three, LLC, supra note 1.
`
`
`
`13
`
`
`
`Case 1:21-cv-06159-KAM-RLM Document 22 Filed 03/21/22 Page 14 of 69 PageID #: 133
`
`specifications. Developers could pre-populate the photo caption to include a hashtag identifying
`
`the developer of the content. Meta continued these policies and practices for its Instagram
`
`platform after it acquired Instagram.
`
`35. With the app developer thus identified in the hashtag, users could find the
`
`developer’s app in the app store and download it for their own use. By adopting these features,
`
`Instagram helped prevent the platform’s loss of developers to competitors who had adopted
`
`them. As a senior Instagram executive told the press in 2011, Instagram “wanted to make it
`
`easier for other iPhone-apps (and iPhone web-apps) to hook into Instagram to open a particular
`
`item or post a photo through our app.”3 Market observers noted that Instagram’s adoption of
`
`iPhone Hooks positioned Instagram as a hub for other apps and as a key platform in the market
`
`for personal social networking services.4
`
`36. Meta’s decision to run Facebook and Instagram as platforms that interoperated
`
`with third party apps was intentional, as interoperability would spawn creative development by
`
`third parties and increase engagement with both apps. And third-party developers including
`
`Phhhoto relied on Meta’s promises of interoperability when developing new apps, knowing its
`
`Facebook and Instagram platforms would be primary ones for sharing content.
`
`37.
`
`As third-party apps integrated with Meta’s Facebook and Instagram platforms, the
`
`platforms became critical infrastructure for applications like Phhhoto. When Meta withdrew
`
`Phhhoto’s access to this critical infrastructure, Meta intended to prevent Phhhoto from gaining
`
`the scale it needed to grow, attract and engage users, and attract investments.
`
`
`3 MG Siegler, Instagram Unveils “iPhone Hooks” so Other Apps Can Play Nicely with
`Them” TC (June 1, 2011, 4:05PM) https://techcrunch.com/2011/06/01/instagram-iphone-hooks/.
`4 Om Malik, Why Instagram Can Become the Mobile Social Hub, GIGAOM (May 30, 2011),
`https://gigaom.com/2011/05/30/instagram-100-cameras-and-1/.
`
`
`
`14
`
`
`
`Case 1:21-cv-06159-KAM-RLM Document 22 Filed 03/21/22 Page 15 of 69 PageID #: 134
`
`38. Meta’s strategy of promising interoperability to encourage third-party app
`
`development for its platforms enabled it to acquire and maintain substantial monopoly power.
`
`Meta bragged to its advertising clients about its dominance, noting that Facebook itself was
`
`“now 95% of all social media in the U.S.” A 2016 survey would confirm that Facebook was the
`
`most widely used social network in the U.S., with 78% of respondents using the platform at least
`
`once per month.
`
`B.
`
`Phhhoto launches an innovative platform for photo-taking, photo-sharing,
`and social networking.
`
`
`
`39.
`
`Phhhoto entered the market in 2014 as an innovative and creative platform, with
`
`more edge and room for creativity than Instagram. Phhhoto’s founders themselves risked nearly
`
`all of the proceeds that they had made from a prior successful venture—together, nearly $2
`
`million of their own money—into the Phhhoto app as a means for creating and sharing new
`
`video content. Phhhoto appealed directly to Generation Z, at the same time that Meta’s Instagram
`
`platform was becoming stale and younger users were losing interest in it. Phhhoto was more than
`
`just a camera; Phhhoto was described as a “powerful tool that makes your pics look more
`
`enhanced by providing lots of new filters and widgets.”
`
`40.
`
`And Phhhoto’s differentiation extended beyond its innovative camera to reflect
`
`the app’s human-centered design ideology. Phhhoto strove to, and did in fact, build communities
`
`that could fluidly transition between virtual reality and the real world. For example, Phhhoto
`
`featured an entirely human-powered discovery section, called WOW, which aimed to
`
`enfranchise its user community by inviting influential users to co-curate the WOW feed with
`
`Phhhoto staff. Together with Phhhoto staff, talented Phhhotographers would identify and
`
`highlight the best and most innovative phhhotos on Phhhoto’s WOW feed—creating community
`
`and spurring artistic expression.
`
`
`
`15
`
`
`
`Case 1:21-cv-06159-KAM-RLM Document 22 Filed 03/21/22 Page 16 of 69 PageID #: 135
`
`41.
`
`Phhhoto differentiated itself from Meta’s Instagram and Facebook platforms to
`
`become exactly what Zuckerberg feared in competitors, a new “mechanic”—that is, a new way
`
`to connect and interact with users in a manner sufficiently innovative from what already existed.
`
`By 2014 users were primed for social networking and photo-sharing, and Phhhoto offered a
`
`different take in a world that was increasingly dominated by photography.
`
`42.
`
`Almost as soon as it launched on July 7, 2014, Phhhoto’s popularity exploded. It
`
`garnered nearly 20,000 new user registrations per day by October of that year. For context,
`
`Looksery, a real-time face-filtering/modifying app founded in 2013 and launched in June 2014,
`
`had gained 3 million users as of September 2015 (an average of fewer than 7,000 new users per
`
`day) before it was acquired by Snapchat for $150 million.
`
`43.
`
`Additionally, Phhhoto’s DAU/MAU—the ratio of daily active users to monthly
`
`active users—was high at 40%. DAU/MAU is an indicator of a strong app because a high
`
`percentage of monthly active users returning on a daily basis suggests high “stickiness” of users
`
`who are regularly engaged with the app. This is particularly important to potential advertisers.
`
`DAU/MAU exceeding 30% is generally considered excellent, and by comparison to other
`
`applications at the time, Phhhoto’s 40% DAU/MAU was a strong indicator of success.
`
`44.
`
`Phhhoto grew large and fast—by 2016 reaching 10 million registered users and
`
`1.3 million daily active users, who created 400 million images using the app’s feature Phhhoto
`
`camera. Indeed, Phhhoto’s new-user growth rate exceeded that of Snapchat and even Instagram.
`
`Phhhoto’s cohort retention—a metric that considers retention for users who join in the same
`
`month—was increasing too. In January 2016, more recent Phhhoto users had greater user
`
`engagement after three months (43%) than their earlier cohorts (20-30%). Phhhoto was thus
`
`attracting increasingly engaged users of the platform.
`
`
`
`16
`
`
`
`Case 1:21-cv-06159-KAM-RLM Document 22 Filed 03/21/22 Page 17 of 69 PageID #: 136
`
`45.
`
`Phhhoto was distinguished by innovation, and users responded with continuing
`
`engagement. Phhhoto continued to introduce new features, including “filters,” which provided
`
`users with editing tools (in December 2014); a “people section” that allowed users to connect
`
`with their friends and discover new ones through the app (in January 2015); “daily filters,” by
`
`which Phhhoto’s editing tools began changing on a daily basis (starting in September 2015), to
`
`allow users to curate a personalized aesthetic by collecting the filters (for example, filters would
`
`have a theme pertaining to upcoming holidays and other special events); and “Party” (in
`
`December 2015), which allowed users to share messages and phhhotos in small groups.
`
`46.
`
`As shown in the slide below, taken from a Phhhoto presentation to potential
`
`investors, with new features came more frequent engagement by users with the app. The value
`
`that users obtained from Phhhoto grew, an