Facebook Accused of Group Boycott

SAN DIEGO (CN) - A tech company from suburban Carlsbad claims in Federal Court that Facebook organized a group boycott to maintain its monopoly on online advertising on social media sites.

Plaintiff Sambreel Holdings claims it offered a product known as PageRage, which challenged Facebook for sale of Internet display ads through the web browser add-on platform Yontoo.

PageRage allows Facebook users to change the appearance of their pages, though the add-ons do not interact with Facebook computers, according to the complaint.

Sambreel claims that Facebook organized an illegal group boycott against PageRage after the product gained popularity.

It claims that Facebook scanned Facebook users' computers and denied access to the social network until they removed the entire Yontoo platform.

Sambreel subsidiaries Yontoo LLC and its PageRage operator Theme Your World LLC are also plaintiffs in the complaint.

"Facebook's scheme has restrained competition. Facebook's actions eliminated a low cost, direct substitute to Facebook for display advertising (PageRage), stopped Sambreel's growth in the sale of Internet display ads, and left Facebook as the only supplier of display advertising impressions experiencing meaningful growth," the complaint states. "Moreover, Facebook's conduct has devastated Sambreel. Since the start of 2012, Sambreel has terminated 124 employees and contractors in San Diego County (more than half its workforce), stopped the development of new products, and suffered significant financial losses." (Parentheses in complaint.)

PageRage was released in late 2008 and initially ran on the Facebook platform, Sambreel says. While Facebook asked it to run PageRage using an independent platform, Sambreel says, Facebook had no objections to the add-on.

"Facebook made clear that it did not object to the browser add-on and even offered suggestions on how Sambreel could operate PageRage without the application," the complaint states. "Sambreel agreed to Facebook's request and removed the application from the Platform."

But Sambreel says that Facebook's "attitude towards PageRage changed" after it began snapping at the tech giant's heels, and was behind only Facebook and Yahoo! in the market for ad impressions.

By late 2010, PageRage revenue exceeded $1 million per month, and in the second quarter of 2011 PageRage accounted for 89 billion ad impressions, according to the complaint.

"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," the complaint states.

Sambreel claims that in a two-prong attack, Facebook organized a boycott of Sambreel with third-party developers and advertisers,.

"The goal of the group boycott was simple - to minimize or eliminate Sambreel as a competitive threat in the advertising market," the complaint states. "To accomplish this goal, Facebook and the application developers - entities that compete with Facebook and Sambreel in the sale of advertising impressions - agreed not to deal with advertising partners who do business with PageRage."

As Sambreel was in ascendency, Facebook asked advertisers to sever ties with PageRage, and threatened to blacklist any company that didn't, according to the complaint.

"This boycott proved effective: Sambreel's largest PageRage advertising partners - accounting for roughly 80 percent of the PageRage advertising revenue - ceased doing business with PageRage. As a result, the rates for advertising on PageRage fell by more than 50 percent, as demand for PageRage ad impressions plummeted," the complaint states.

Facebook also blocked access to users who used PageRage and demanded that they remove the Yontoo platform before allowing them to log back on, Sambreel claims.

"Facebook's gating campaign worked. Within two weeks, Sambreel lost more than one million users of its products. Facebook agreed to stop gating only when Sambreel agreed that it would no longer advertise on PageRage, thereby eliminating PageRage as a competitive advertising alternative to Facebook. Thus, on December 22, 2011, Sambreel took down all PageRage ads and stopped generating any revenue through PageRage," the complaint states.

Arie Trouw, CEO and president of Sambreel said in a statement: "In addition to violating the law, we think Facebook's actions - particularly its gating - violate its own first guiding principle: 'People should have the freedom to share whatever information they want, in any medium and any format, and have the right to connect online with anyone - any person, organization or service - as long as they both consent to the connection.'"

Sambreel seeks an injunction and damages for per se illegal group boycott, per se illegal tying, monopolization, attempted monopolization, unfair business practices, intentional interference with contract, and intentional interference with prospective economic advantage. He is represented by Gregory Olson of San Diego.

Neither the law firm nor Facebook immediately responded to requests for comment.

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