Law firms: Facebook Credits violates antitrust law

Summary:Facebook is once again being accused of violating U.S. antitrust laws by requiring that social game developers use Facebook Credits on its platform. This time two law firms are getting involved.

Law firms Newman Du Wors and Strange & Carpenter announced today they are investigating Facebook's requirement for social game developers to use Facebook Credits. They argue that the prerequisite means Facebook gamers don't have a choice when it comes to making payments and virtual currency providers cannot offer an alternative. As a result, the two law firms believe Facebook may be in violation of U.S. antitrust laws, which prohibit the tying two such services together.

Attorney Derek Newman and attorney Brian Strange have thus launched a website called Stop Facebook Credits to bring public attention to the issue. Their main argument is that prior to the Facebook Credits requirement, the virtual currency industry enjoyed a healthy competitive environment. Now it's next to non-existent.

In the video above, Newman explains the harm Facebook Credits has caused. If you prefer a lengthier explanation, here's an excerpt from the website:

Facebook is forcing game developers to use Facebook Credits in order to access its social-gaming platform. But Facebook originally told developers that this platform was completely free and that developers could keep the profits they earned. Facebook hasn't followed through on its promise to game developers. Instead, Facebook requires all game developers to use Facebook Credits and pay Facebook a mandatory 30% cut of all consumer revenue. Game developers must also promise not to charge gamers less on any non-Facebook platform than they do on Facebook. Because developers don't have a choice, Facebook can collect higher-than-normal fees for Facebook Credits and dictate the prices that developers charge gamers on and off Facebook. That's unfair, and probably illegal.

In short, everybody loses, according to the duo, since Facebook Credits:

  • Costs game developers tens of millions of dollars each month in excessive fees.
  • Prevents every other virtual-currency provider from offering a competitive service for games on Facebook.
  • Denies the gaming public a competitive marketplace.

So, what can you do about it? I'm sure Newman and Strange are glad you asked. Here's their answer:

You can take action: ask a judge to force Facebook to pay you for the harm you suffered and restore competition to the virtual-currency marketplace. We can help, and if you hire us you won't pay any fees unless we succeed.

"Illegal tying occurs when one company dominates an area of commerce with a product and then forces customers to accept another product in order to use the first," Newman said in a statement.

"Virtual-currency companies, game developers, and the entire social gaming community are paying higher prices and receiving fewer services," Strange said in a statement. "Concerned citizens can learn more and take action against this practice on our Stop Facebook Credits website."

Facebook Credits launched as an alpha in May 2009. The beta stage started in February 2010 and ended with a final version in January 2011. As of July 2011, all Facebook game developers have been required to only process payments through Facebook Credits. It is not (yet?) a mandatory payment option for Facebook apps.

Even before the requirement kicked in, in June 2011, a US public interest group Consumer Watchdog filed an antitrust complaint with the Federal Trade Commission (FTC) about Facebook Credits, arguing that the virtual currency used for purchases such as assets in online games is anticompetitive. When Facebook settled with the FTC three months ago, however, Facebook Credits was not mentioned.

Facebook takes a 30 percent cut of all revenue earned through Facebook Credits, leaving developers with the remaining 70 percent. Facebook's IPO numbers revealed that Facebook paid out $1.4 billion to developers in 2011 from transactions enabled by its Facebook's Payments infrastructure. Facebook Credits is growing as a percentage of Facebook's overall revenue, but the majority still comes from ads.

See also:

Topics: Security, Social Enterprise

About

Emil is a freelance journalist writing for CNET and ZDNet. Over the years, he has covered the tech industry for multiple publications, including Ars Technica, Neowin, and TechSpot.

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