Facebook Credits may be illegal in the US

By Patricio Robles, Technology Reporter, Econsultancy

In the run-up to the Facebook IPO, some observers in the US are casting a skeptical eye towards the social network’s advertising business. Ads, not surprisingly, account for much of the company’s revenue, and there are certainly some areas of concern.

But if two lawyers in the US have their way, Facebook’s virtual currency business, which many believe is also crucial to the company’s future, could be facing major challenges.

According to attorneys Derek Newman and Brian Strange, Facebook’s requirement that game developers on its platform use Facebook Credits exclusively is not only harmful to Facebook users, it’s potentially illegal.

They’ve launched a website, Stop Facebook Credits, which explains:

“United States antitrust laws prohibit a company with dominant market power (like Facebook) from “tying” one service to another. An illegal tying arrangement means the supplier is exploiting its control over the tying product (here, the social-media game platform) to force the customer (the game developer) into accepting a tied product (Facebook Credits) that the customer either did not want, or might have preferred to purchase elsewhere.”

The website claims Facebook Credits:

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

The solution? Newman Du Wors LLP and Strange & Carpenter, the law firms run by Newman and Strange, are looking for plaintiffs who are interested in pursuing “the damages you suffered because of the Facebook Credits monopoly.” In other words, it appears they’re looking to file a class action based on antitrust claims.

To be sure, the legal arguments are interesting. Even if Facebook thinks they have no real merit, a class action that could impede the development of one of its most important revenue streams probably isn’t what the company wants right now. Unfortunately for Facebook, with an IPO potentially worth $100bn on the way, it should expect that this won’t be the last lawyerly attack on its business.

This blog was re-posted from the Econsultancy Blog and was written by their technology reporter, Patricio Robles

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