Facebook’s Zuckerberg is central figure in virtual-currency antitrust violations, Social Ranger tells judge

By Mike Swift. First published by MLex 10 November 2016.

Facebook CEO Mark Zuckerberg finds himself at the center of allegations in an antitrust lawsuit that could trigger more than $300 million in antitrust damages.

A virtual-currency service provider, now owned by claimant Social Ranger, is trying to force a resistant Facebook to produce Zuckerberg for a deposition, in a lawsuit alleging the social network abused its dominance on the market for in-game purchases over its platform.

News of the deposition broke in July, but the extent of the allegations against Zuckerberg has only now come to light.

Newly produced documents show that Zuckerberg made public statements that induced others to create that market, generating several billion dollars in revenue for Facebook, Social Ranger lawyer Kenneth Dorsney said in a letter this week to US District Judge Leonard Stark.

Zuckerberg “single-handedly made the decision to forever foreclose competition in the relevant market. Mr. Zuckerberg may be a household name, but he is also the key witness for each of the central issues in this case,” Dorsney said, asking Stark to order Zuckerberg to testify. Zuckerberg also personally negotiated contracts that restricted competition in the virtual-currency market, he told Stark.

Social Ranger alleged in a suit filed in late 2014 that Facebook violated Section 1 and Section 2 of the Sherman Act, abusing its dominance as an online platform for social games. The lawsuit says Facebook “destroyed” competition for the virtual currency that people bought in order to play those games, when it started requiring in 2011 that game developers accept only its “Facebook Credits” virtual currency.

Long before a smartphone app became the primary way people interacted on Facebook, social games were a big draw for the social network, as well as being an important source of revenue through the purchase of virtual currency to play those games.

Social Ranger’s letter suggests that the Silicon Valley slugfest between Google and Facebook — which broke out in June 2011 when Google launched its Google+ social network — will be a centerpiece of the antitrust case. At the time, Google was seeking to attract an audience for its nascent social network by grabbing a piece of the social-gaming-app audience that Facebook had built up for then-popular games such as FarmVille.

While Zuckerberg had promised game developers they could keep the revenue from applications they built for Facebook’s online platform, he later went back on that pledge, Social Ranger claims. Zuckerberg decided to monopolize the market for virtual currency as he blocked Google+ from providing a competing platform for game developers and virtual-currency providers, according to Social Ranger.

“Mr. Zuckerberg personally promised developers that they could ‘keep all the revenue’ from applications built on the platform,” Dorsney wrote in the partially redacted public version of a Nov. 8 letter filed with the court. “A year later, Mr. Zuckerberg came up with a plan to monopolize the virtual-currency market.”

Zuckerberg “personally issued a company-wide ‘lockdown,’ or period of intense focus at the company, to ensure the quick death of Google’s recently announced Google+ social game network,” Dorsney wrote.

“Policy changes made during Mr. Zuckerberg’s lockdown, such as prohibiting developers from ‘link[ing] to’ or ‘promot[ing]’ applications on ‘competing social platforms’ and prohibiting cross-application virtual currency, guaranteed that Google+ could not emerge as a viable competitor to Facebook’s platform. All of this is central to Social Ranger’s case,” Dorsney added.

Facebook has denied in court filings that Social Ranger has any valid claims, but has declined to respond to requests for comment on the case in the past.

Zuckerberg, the subject of a hit Hollywood movie in 2010, has emerged as the iconic face of Silicon Valley since the death of Apple founder Steve Jobs, granting audiences to heads of state. But Social Ranger told Stark that Zuckerberg’s fame and the demands of his job as Facebook’s CEO cannot excuse him from being deposed in the case.

While Facebook’s arguments against Zuckerberg’s deposition have been sealed by the court, Social Ranger’s letter said it is arguing that Zuckerberg’s schedule prevents him from testifying.

“Facebook has not claimed any burden or potential harm related to his deposition, other than Mr. Zuckerberg being an important person,” Dorsney wrote. “On the other hand, Social Ranger’s ability to gather essential evidence and to try its case, in which it is claiming more than $300 million in damages, would be materially prejudiced if it were prevented from taking the deposition of such an important witness.”

Social Ranger is the successor in interest to Super Rewards, a company that attempted to enter the virtual-currency market in 2007, when Facebook had only about 50 million users, a tiny fraction of the 1.1 billion that it has now. Facebook and Social Ranger have been battling over Zuckerberg’s deposition since last July.

While social games are no longer central to Facebook’s business, social games published on Facebook.com fueled the company’s growth after 2007, generating nearly $3 billion in revenue from fees charged to social-game developers between July 2011 and the end of 2014, according to court documents.

“Testimony from Mr. Zuckerberg is critical for Social Ranger to prove — among other things — the facts underlying its core antitrust claims, Facebook’s intent in monopolizing the relevant market, and that Facebook’s justifications for its conduct are pretextual,” the company told Stark.

The case is scheduled to go to trial in Wilmington, Delaware on June 12, 2017.

	Eliot Gao