Consumer Watchdog files antitrust complaint against Facebook

Group argues that new terms for Facebook Credits will create virtual goods monopoly

Facebook Credits.jpgPhoto credit: Yes!Online/Flickr

Consumer Watchdog has focused much of its efforts over the past couple of years on Google, arguing loud and often that the search giant is an emerging information monopoly, a chronic abuser of privacy and a recipient of favors from the Obama White House.

Now the public interest group is turning its antitrust attention to Google's main rival, Facebook.

(Also see: FTC's action over Google Buzz means Internet companies no longer will exploit personal data. Until they do.)

In a filing Tuesday with the Federal Trade Commission, Consumer Watchdog alleges that terms of use for Facebook Credits -- virtual currency that can be used to buy virtual goods offered in social games such as Zynga's FarmVille -- due to be enacted on Friday will ensure the social networking company a monopoly in "the market for virtual goods purchased in social games."

"While Facebook has not disclosed revenue data, it is estimated that Facebook controls well over 50% of the market for virtual goods offered in social gaming. Thus, Facebook exercises monopoly power in that market," Consumer Watchdog says in its complaint, which requests that the FTC investigate the "anticompetitive terms and impact of Facebook Credits."

The revised Facebook Credits terms will take effect on July 1, 2011. Under the new contractual arrangements, imposed as Facebook prepares to go public in 2012, game developers using the Facebook platform must exclusively utilize Facebook Credits in the operation of their games; such developers must agree not to charge lower prices to consumers outside of Facebook; and game developers must pay a 30% service fee for all Facebook Credits purchases.

What this means, Consumer Watchdog says in the complaint, is it will be "far more difficult, if not cost prohibitive, for smaller game developers to compete inside the Facebook platform against larger developers."

And when the public-policy group says "larger developers," it means companies such as Zynga, which makes wildly popular Facebook games such as FarmVille and CityVille.

"Facebook's apparent joint venture agreement with developer Zynga to provide it with a special exemption from some of the Facebook Credits terms that Facebook imposes on all other game developers would, if accurate, be an improper joint venture agreement between competitors and an unreasonable restraint on trade. Though Zynga is a game developer, Zynga has developed a large enough customer base that it is the single company in the market that could conceivably compete with Facebook if Zynga chose to leave the Facebook platform and/or establish a new social gaming site. The agreement between Facebook and Zynga, if published reports are correct, would therefore constitute a conspiracy between competitors and further extend Facebook's already overwhelming monopoly power.

Zynga, of course, is expected to file for a public offering as early as Wednesday (though as of 3:45 p.m. there was no sign of Zynga's S-1 on the SEC's website).

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