A few weeks before Facebook’s now infamous IPO landed with a thud, a California-based tech company – Sambreel Holdings, which operates PageRage, Yontoo LLC and Theme Your World LLC – filed an antitrust claim against the now publicly traded, lawsuit-laden social networking company.
While the PageRage v. Facebook showdown has been months in the making, in the midst of insider-trading rumblings and a tumbling stock, you can bet the Menlo Park media giant ain’t happy about this added legal headache. (Not to mentionthe potential revenue loss Facebook may see in the near future if apps like LilyJade continue to gain popularity).
Regardless, the outcome of this lawsuit – which has both antitrust and online marketing legal implications – has the potential to significantly shape the Internet advertising and app development market.
PageRage and Facebook: The Background
An add-on for Facebook, PageRage is an app/toolbar that allows users to customize the look of their Facebook walls. PageRage first launched in 2008, and by 2010, the company was pulling in nearly $1 million a month. A station-specific program, PageRage does not interact with Facebook servers and computers, but instead only affects the computer on which it’s installed.
At first, Facebook and PageRage folks enjoyed a cordial relationship. PageRage responded to requests made by Facebook with regards to the program, and everyone was happy.
But according to Sambreel’s claim, things began to change when PageRage climbed the online advertising charts and threatened Facebook’s revenue model. After all, the plugin offered advertisers a low-cost marketing alternative. The lawsuit avers that “Rather than compete with Sambreel on the merits, Facebook pursued an anticompetitive scheme designed to eliminate Sambreel as a competitive threat.”
What PageRage’s Anti-Trust Lawsuit Alleges
PageRage’s lawsuit reads like a scene out of the movie “Weapons of Mass Distraction.” According to PageRage’s claim, Facebook:
1) Pressured developers not to do business with PageRage or their advertising partners and black-balled those who did;
2) Organized a group boycott in an illegal effort to maintain their monopoly of the online advertising marketplace;
3) Unlawfully scanned users’ computers, and then denied access to Facebook to those who had the Yontoo platform on their system
In addition, Sambreel avers they’ve suffered considerable financial loss since Facebook began their alleged market assault, forcing executives to lay-off half the staff and halt new projects in development.
PageRage is suing for per se illegal group boycott, per se illegal tying, monopolization, attempted monopolization, unfair business practices, intentional interference with contract, and intentional interference with prospective economic advantage. The lawsuit also demands a jury trial.
PageRage v. Facebook Lawsuit: The AntiTrust Claims
Anti-competitive laws in the United States aim to protect both market competition and consumers. Sambreel argued antitrust statutes in their claim against Facebook since the app company believes the social networking company’s actions unfairly prevented and reduced market competition.
The choice to go the anti-trust route, however, could be PageRage’s ruin. Why? Quite simply, there has been a philosophical shift in the way many legislators and decision makers view monopolistic enterprises and anti-competitive complaints.
PageRage v. Facebook Lawsuit: What Is All This “Illegal Per Se” Stuff About?
Illegal per se is a legal concept which means a given act is inherently illegal. As such, circumstantial defense arguments have no bearing on the claim. For example, many states have drunk driving laws with per se elements – so no matter the circumstances, if you get caught driving with a blood alcohol content over a certain limit, that’s that. Another example is defamation per se.
Many anti-trust lawsuits deal with “per se” claims since various methods used to maintain a monopoly – like price fixing, price maintenance, group boycotts, tying and geographic market division – can philosophically be considered inherently illegal and thereby present unreasonable restraints on trade.
Over the past several decades, however, a new attitudes toward antitrust restrictions have changed. In line with Rand’s Objectivist philosophy (which really is the basis for the current-day, ultra-pro-capitalist movement), many law- and opinion-makers feel antitrust laws discourage businesspeople from “activities that might be socially useful out of fear their business actions will be determined illegal and dismantled by government.”
As such, certain standards must be met for a plaintiff to emerge victorious in an antitrust lawsuit. Namely, two legal standards are almost always applied to monopolistic claims:
- The action in which the claim is based must “facially appear to be one that would always or almost always tend to restrict competition and decrease output.”
- The action or practice in question is not designed to “increase economic efficiency and render markets more, rather than less, competitive.”
Moreover, market conditions are carefully examined during antitrust deliberations, and judges usually ere on the side of defendants — especially if they’re engaging in a “new or innovative business relationship” with either the public or another company.
However, Sambreel did make “per se” claims — so I guess we’ll just have to see if a judge rules them legitimate and moves forward on the basis of inherent illegality.
Arie Trouw, CEO and president of Sambreel kicked off the legal battle with a statement: “In addition to violating the law, we think Facebook’s actions – particularly its gating – violate its own first guiding principle: ‘People should have the freedom to share whatever information they want, in any medium and any format, and have the right to connect online with anyone – any person, organization or service – as long as they both consent to the connection.’”
In other words: PageRage v. Facebook = Internet anti-trust lawsuit, battle royal.