In a showdown with Big Tech, the F.T.C. has filed suit to halt Meta’s virtual reality deal.

On Wednesday, the Federal Trade Commission (FTC) filed for an injunction to prevent Meta, formerly known as Facebook, from acquiring a virtual reality company called Within. This could limit Meta’s push into the so-called metaverse and signal a change in the FTC’s attitude toward tech deals.

For the first time under Lina Khan’s leadership, the Federal Trade Commission has filed an antitrust lawsuit against a major technology company. Khan is a prominent progressive critic of excessive corporate concentration. Ms. Khan has argued that regulators need to stop companies from violating competition and consumer protection laws in cutting-edge technologies like virtual and augmented reality as well as in more established markets.

Meta’s CEO and a named defendant in the F.T.C. injunction request is Ms. Khan. He has staked his company’s future on the immersive world of the metaverse by investing billions of dollars in developing products for virtual and augmented reality. This lawsuit may put an end to those plans.

The F.T.C. alleged in its lawsuit filed in the U.S. District Court for the Northern District of California that “Meta could have chosen to try to compete with Within on the merits.” Instead, it “chose to acquire” a leading firm in a sector deemed “vital” by the government.

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The F.T.C. case, Meta said in a statement, is “based on ideology and speculation, not evidence.” Further, the agency stated that the lawsuit was an assault on innovation and that it was “sending a chilling message to anyone who wishes to innovate in V.R.”

In a statement made last year, Meta announced that it would acquire Within, maker of the wildly successful fitness app Supernatural, for an undisclosed sum. The company has marketed their VR goggles as a means to improve one’s health and physical well-being.

This lawsuit by the F.T.C. is unprecedented and novel application of antitrust law. Acquisitions of small, innovative tech firms are often overlooked by regulators in favour of mergers and acquisitions between major corporations operating in mature markets. When considering whether or not to block a merger under the pretext that the merging companies might one day compete with one another, the courts have been hesitant to apply antitrust law.

Critics, however, argue that the government’s inaction has let Meta and other giants like them swoop in and monopolise services before they could mount a serious challenge. Facebook’s 2012 purchase of Instagram, a photo-sharing app with over a billion active users, was sanctioned by the agency. Meta’s lead in social photo-sharing is largely attributable to Instagram, but new competitors have since emerged.

According to William E. Kovacic, a former chairman of the F.T.C., “it’s a riskier case, but one they think is worth bringing because if they succeed it will help bring the frontier of enforcement outward.” To paraphrase, “I believe this to be a first of its kind.”

For an undisclosed sum, Meta announced last year that it would acquire Within, the company behind the wildly successful fitness app Supernatural. The firm has advertised the VR goggles for use in health and physical training.

This lawsuit from the F.T.C. is unprecedented and tests the limits of antitrust law in novel ways. Government agencies are more likely to scrutinise mergers and acquisitions between large corporations operating in mature markets than those of smaller businesses operating in emerging technological sectors. However, courts have been hesitant to use antitrust law to halt mergers on the grounds that the companies involved could eventually become competitors if the deal were not approved.

Others, however, argue that the government’s inertia has let formidable competitors like Meta and others gobble up previously niche markets. The photo-sharing app Instagram, which now has more than a billion regular users, was acquired by Facebook in 2012. Meta’s lead in social photo-sharing is largely attributable to Instagram, but new competitors have since emerged.

According to William E. Kovacic, a former chairman of the F.T.C., “it’s a riskier case, but one they think is worth bringing because if they succeed it will help bring the frontier of enforcement outward.” It’s the first time I’ve ever seen anything like this, so I’d say it’s unique.

The F.T.C. voted 3 to 2 in favour of approving the filing. She said she was one of the two people who voted against the lawsuit, a Republican commissioner. She refused to explain why she had made this decision.
An injunction request by the FTC might be a prelude to the filing of a complaint against a merger, according to the agency, which would place Meta and it in an extended trial and appeals process. A spokesperson for the Federal Trade Commission (F.T.C.) claimed the agency had not filed a complaint and refused to discuss the agency’s plan further.

President Biden chose Ms. Khan, a 33-year-old woman, last year and she’s been working hard to keep her pledge of reining in corporate dominance. A law school post she authored in 2017 condemning Amazon made her famous. During her time as FTC chair, she has advocated for antitrust enforcement and indicated she plans to create comprehensive online privacy rules that might affect Silicon Valley.

Some of Ms Khan’s closest friends applauded the action. Legal director of a liberal research organisation, Sandeep Vaheesan, described the action as “a step toward making developing, not purchasing, the standard for Facebook.”

Allies in the tech business, on the other hand, blasted Khan for her conduct. CEO Adam Kovacevich of industry organisation Chamber of Progress, which receives some funding from Meta, claimed that “the agency’s more interested on creating headlines than results” with the latest lawsuit Meta “isn’t any closer than pickleball or synchronised swimming are to locking up the fitness business,” he argued.

According to Meta’s blog, the FTC would fail to prove that the Within acquisition would “significantly decrease competition,” which is the bar normally imposed by federal antitrust law to prevent a purchase.

The Federal Trade Commission alleged in a lawsuit that if Meta bought Within’s Supernatural, the virtual reality fitness game Beat Saber, which it currently owns, would lose its incentive to be improved. According to Nikhil Shanbhag of Meta, an associate general counsel for the company, the games were not rivals.
Many individuals compete in the popular beat-’em-up game Beat Saber. In the words of one fan, “Supernatural is worlds apart.”

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