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Facebook Credits may break U.S. antitrust laws

Facebook Credits may break U.S. antitrust laws

February 28, 2012 | By Eric Caoili

Facebook's mandated Facebook Credits system may be irritating to game developers now stuck with only one option, and third-party currency companies now struggling to stay afloat, but according to at least two law firms, they may also break U.S. antitrust laws.

The investigation comes as Facebook prepares to launch its $5 billion IPO this spring, and several weeks after the social network's Credits system came under fire from some developers for causing lowered conversion rates (from free to paying users) and average revenues per user than expected.

Social game developers could previously use third-party virtual currencies in their titles, but last July Facebook began requiring developers to offer Credits for buying in-game goods -- the company takes a 30 percent cut on all user purchases of Credits, similar to Apple's arrangement with developers on its App Store.

Attorneys Derek Newman and Brian Strange say that making Credits mandatory is likely a violation of antitrust laws that forbid companies from tying two products in that manner. Companies cannot force customers to purchase a product they do not want in order to receive an unrelated item they actually want.

On the "Stop Facebook Credits" site that Newman and Strange have set up, the lawyers accuse Facebook of using its market dominance to leave developers no choice but to use Credits, and of blocking virtual currency competitors, some of which charge developers a much lower processing fee than Facebook's 30 percent.

And because Facebook prohibits developers on its service from charging lower prices for virtual goods on non-Facebook sites -- even if those other platforms have lower fees -- the attorneys claim that the social network has made fewer options and discounts available to users both on and off its site.

"Virtual-currency companies, game developers, and the entire social gaming community are paying higher prices and receiving fewer services," said Strange. The two lawyers are urging consumers to ask judges to punish Facebook for instituting credits and to make the site allow for virtual currency competitors again.

Both Strange and Newman have taken part in high-profile class action cases, with the former serving as lead counsel in suits that have received a total of more than $300 million in settlements since 2000. Newman specializes in Internet law, and was lead counsel for Smiley vs. ICANN, which resulted in a multi-million dollar settlement.

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