This, I believe, is why everybody is in an uproar over this decision. You put it very succinctly.
Your competition should read the EULA and if they were purchasing it with the intent of reverse engineering it then they should abort that purchase.
Not unless they bought your product and agreed to your EULA.
But what if I’m a new social network - do I have to hire engineers who aren’t on Facebook if they have no reverse engineering in their EULA? I’m worrried about it being yet another legal tool to bludgeon small companies with.
That's a good point. For products that "everyone" uses, it seems to give the companies behind those products more power. And further empowering larger companies to go after smaller ones doesn't seem like a good change.