Facebook Lawsuits Take Aim at Data-Sharing Tool Key to Digital Economy

The suits filed Wednesday by the Federal Trade Commission and 46 state attorneys general argue Facebook leveraged its trove of user information both to entice third-party developers onto the platform and to bend them toward its will.

The mechanism for such data sharing—application programming interfaces—is a crucial tool for software engineers and a key element of digital industries such as advertising and financial technology.

“[The case] could set precedents for any platform that creates a service, shares data through an API and has conditions on that data sharing,” said Sinan Aral, director of the MIT Initiative on the Digital Economy. An API is a set of functions that enables two applications to communicate.

The lawsuits come as the coronavirus pandemic has accelerated companies’ use of data analytics to better understand their customers and transform their businesses.

State and federal officials’ focus on APIs, meanwhile, illustrates how regulators increasingly are probing the data sharing and processing that drive such changes.

Many tech platforms use APIs, giving third-party developers access to their users in exchange for the improved distribution that can come with closely integrated apps.

FTC officials allege Facebook encouraged developers to make games, e-marketing tools and other apps by hooking into the platform through various APIs. The dynamic gave Facebook “immense power over apps’ developmental trajectories, competitive decision making and investment strategies,” FTC officials wrote.

The lawsuits claim that Facebook eventually curtailed or denied access to such partners, which numbered in the millions, as they began to export user data to Facebook competitors or challenge Facebook for user engagement.

The policy change, the attorneys general wrote, “told developers in no uncertain terms that valuable access to Facebook’s APIs was conditioned on their staying away from Facebook’s turf.”

The looming legal battle will shed light on whether the access restrictions are emblematic of a structural problem within platforms such as Facebook, said Robert Atkinson, president of the Information Technology and Innovation Foundation, a Washington think tank.

“At one level, it’s their data and it’s their interface,” he said. “At another level, when you’re that big, there are some limits on what you can do to negatively affect a competitor.”

How that argument plays out could affect the way established companies and upstart challengers share information in other industries. Mr. Atkinson pointed to the financial sector, where big banks and fintech startups have similarly sparred over API access and data security.

Facebook previously cited user privacy in limiting developers’ access to user data. In a blog post addressing the lawsuits, Facebook Vice President and General Counsel Jennifer Newstead said such restrictions are standard in the tech industry.

“Facebook told these apps that they could not use Facebook’s platform to essentially replicate Facebook,” she wrote. “Significantly, Facebook did nothing to prevent any apps from offering their services on their own sites or anywhere else on the internet.”

The antitrust actions, which could take years to play out in court, may also have downstream effects on deal making amid an economic shake-up, analysts say.

Tech consolidation has accelerated over the past six months, as larger, well-capitalized companies bought competitors, taking advantage of low interest rates and the economic uncertainty sparked by the pandemic, according to a report Thursday by PricewaterhouseCoopers LLP.

Greater regulatory scrutiny in the year ahead could slow the pace of high-end deal making, the report said, citing broad policy proposals by President-elect Joe Biden to clampdown on large tech firms and raise the corporate tax rate.

Mr. Atkinson, of the Information Technology and Innovation Foundation, said retroactive policing of mergers could chill future acquisitions. Federal regulators previously approved Facebook’s deals for Instagram and WhatsApp.

“You could see interventions in more areas like cloud computing, maybe certain types of cloud services,” he said. “Why stop at consumer-facing applications?”

—Angus Loten contributed to this article.

Write to David Uberti at [email protected]