Watchdog: Facebook Credits Violate Antitrust Law

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A public interest group called Consumer Watchdog has filed an antitrust complaint with the Federal Trade Commission about Facebook Credits, arguing that the virtual currency used for purchases such as assets in online games is anticompetitive.

Specifically, the group objects to new terms for using the credits that go into effect Friday. The group argues in the 28-page complaint (PDF), "The new Facebook Credits terms will enable Facebook to maintain and extend its monopoly power over the market for virtual goods purchased in social games."

In addition, the complaint argues, the new terms prohibit game developers from charging lower prices for their games on a rival social network. Because of that," the complaint said, "Facebook is wielding its monopoly power to dictate prices; this term directly undermines competition outside the Facebook platform, i.e., in the market, and forces users to pay higher prices."

Sweeping remedies are needed, Consumer Watchdog said.

"FTC investigation and enforcement is necessary to prevent Facebook from destroying competition in the market for virtual goods purchased in social games, and eventually in other markets for purchasing goods or services on the Internet, to protect existing businesses from being unfairly boxed out of the market, and to allow new businesses to enter the relevant markets, and ultimately, to protect consumers from higher prices," the complaint said.

It's notable, for several reasons, that the group is targeting Facebook. First, Consumer Watchdog has been an outspoken Google critic–promoting prominent video ads of then-CEO Eric Schmidt being creepy, for example. Some of that motivation apparently was the result of a $100,000 Rose Foundation grant to monitor Google. But now the group seems to be expanding its scope.

Second, in an ironic twist, any success in restraining Facebook gives a shot in the arm to Google. That's because the Net giant just launched the Google+ social networking service, its most direct attempt so far to catch up with Facebook in an important part of people's online social lives.

Last, the group also takes some potshots at Zynga, the social gaming company whose Farmville is a fixture on Facebook. Zynga is likely to file its IPO papers as early as today, but Consumer Watchdog is including its partnership with Facebook in the complaint.

Facebook and Zynga's agreement, reported in May 2010, could be considered a conspiracy between competitors. Zynga's widespread popularity and established, loyal, player base currently exists primarily on Facebook. But unlike its competitors, Zynga is potentially the only social game developer powerful enough to draw its followers away from Facebook to a different social network, or to create its own platform for social games. Facebook and Zynga's agreement is confidential, but it calls for a five-year partnership and is said to include concessions on Facebook's part regarding Facebook Credits.

The complaint is embedded below.

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