Group Files FTC Complaint Over Facebook Credits

Published on

SAN FRANCISCO (MarketWatch) — A consumer-advocacy group said Wednesday it has filed a complaint with the U.S. Federal Trade Commission over Facebook Inc.’s virtual currency, called Facebook Credits, arguing that the rules for its payments system are anticompetitive.

In communication addressed to FTC Secretary Donald Clark, Consumer Watchdog argues that Facebook is imposing unfair conditions on developers hoping to deploy games on the popular social network, which often involve exchanges of virtual currency.

Facebook announced in January that beginning July 1, all social-game developers must process payments on the service through Facebook Credits.

But Consumer Watchdog argues that the social network is stifling competition by requiring that developers use Facebook Credits for the trading of virtual goods within their games on Facebook; share 30% of the resulting revenue; and avoid offering lower prices for goods on external sites that do not use the Facebook platform.

“Antitrust laws protect users against unfair methods of competition and unfair practices that reduce competition, discourage innovation, limit consumer choices and increase prices,” the group wrote in its complaint. “That is precisely what will result if Facebook is permitted to enforce its new Facebook Credits terms.”

John Simpson, a consumer advocate at Santa Monica, Calif.-based Consumer Watchdog, also suggested that the FTC should examine the partnership between Facebook and Zynga Inc., the site’s most popular game developer, to examine issues of “price-fixing.”

Simpson said the group did not directly contact Facebook prior to filing its complaint with the FTC over Facebook Credits. A Facebook spokesman declined to comment; a Zynga spokeswoman also declined to comment.

Zynga, the publisher of games including Mafia Wars and FarmVille, is widely expected to file papers for an initial public offering of shares as soon as Wednesday.

In its complaint, Consumer Watchdog said Facebook’s agreement with Zynga may provide Zynga with a “special exemption” from some Facebook Credits terms.

“Facebook is engaging in anticompetitive and unfair business practices in the market for virtual goods purchased in social games through its Facebook Credits terms with game developers,” Consumer Watchdog wrote in its complaint. “Thus, Facebook exercises monopoly power in that market.”

Facebook has said that by migrating developers to its Facebook Credits program, it enables them to focus on building games, rather than payment systems. In addition, the company has drawn parallels to Apple Inc. , which processes payments for applications on its iPhone through its own payment system.

Consumer Watchdog estimates that Facebook, which now has more than 600 million users, controls more than 50% of the market for virtual goods offered in social games.

Virtual goods, and the currency used to buy them, are a key aspect of social games such as FarmVille — where players can use virtual money, backed by real currency, to buy virtual items such as tractors and advance through the game.

Games are one aspect of Facebook that have helped draw in increasing numbers of users worldwide. The Palo Alto, Calif.-based company is widely expected to undertake its own IPO early next year.

Consumer Watchdog has focused on a number of Internet-competition and privacy issues over the years, paying special attention to Google Inc.’s policies, as well as to proposed legislation that would limit online tracking of consumer behavior.

Latest Videos

Latest Releases

In The News

Latest Report

Support Consumer Watchdog

Subscribe to our newsletter

To be updated with all the latest news, press releases and special reports.

More Releases