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Facebook Broke Antitrust Law By Choking Ads Says Developer

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Facebook engaged in an illegal conspiracy to monopolize the market for display ads says the maker of PageRage, a product that lets users personalize their Facebook page with custom images.

PageRage gained popularity after launching in 2008 but also angered the social network because its designs included advertisements that papered over Facebook’s own ads.

In a lawsuit filed this week in San Diego federal court, PageRage says Facebook broke anti-trust law by pressuring advertisers to stop using PageRage. The suit also accuses Facebook of locking out users until they they removed PageRage from their web browsers.

Facebook has a history of working with outside developers who provide custom features for its users. PageRage says the social network itself said the product was “great” in 2009.

But Facebook allegedly changed its tune when it realized that PageRage’s owner, Sambreel, was emerging as a competitor in market for display ad dollars:

More troubling from Facebook’s perspective, Sambreel had grown into a legitimate competitor in the sale of online display advertising impressions. During the second quarter of 2011, for example, Sambreel served nearly 89 billion display advertising impressions – trailing only Facebook and Yahoo! (NSDQ: YHOO) among internet publishers. [..] PageRage represented a particular threat to Facebook because it offered advertisers a low-cost alternative to purchasing advertisements from Facebook. Rather than compete with Sambreel on the merits, Facebook pursued an anticompetitive scheme designed to eliminate Sambreel as a competitive threat.

To crush the alleged threat, PageRage says Facebook refused to do business with any advertiser who worked with the would-be rival. It also began requiring users to remove ad-supported versions of PageRage before they could log-in to Facebook.

PageRage says it has since lost most of its revenue and been forced to lay off 124 people.

A Facebook spokesman said by email, “We believe this complaint is without merit and we will fight it vigorously.”

The company has also described PageRage as “adware” and included it on a warning list of programs: “that claim to give you special Facebook powers, but actually cover your News Feed and profile (timeline) with ads.”

Other reports have portrayed programs like PageRage as opportunistic advertising ventures.

A report in the Wall Street Journal (NSDQ: NWS) in December quoted lawyers who stated that the legal status of programs like PageRage is “murky.”

The timing of the lawsuit, which accuses Facebook of breaching California law and Sections 1 and 2 of the Sherman Act, may be strategic as the social network is gearing up for a reported $100 billion IPO.

Here’s a copy of the complaint:

Facebook Class Action
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