FTC sues to block Meta’s VR deal as it opposes big tech

WASHINGTON — The Federal Trade Commission on Wednesday filed an injunction to block Meta, the company formerly known as Facebook, from buying virtual reality company Within, potentially limiting the company’s market penetration. the so-called metaverse and signals a change in the agency’s approach to technology deals.

The antitrust lawsuit was the first Lina Khancommittee chairman and moderator progressive critic of corporate concentration, against one of the technological giants. Mrs. Khan argued that regulators should stop competition and consumer protection violations when it comes to cutting-edge technologies, including virtual and augmented reality, and not just in areas where companies have already become giants.

The FTC’s request for an injunction puts Ms. Khan on his way to confront Mark Zuckerberg, the CEO of Meta, who also appears as a respondent in the request. He has invested billions of dollars in creating products for virtual and augmented reality, betting that immersive world of the metaverse is the next technological frontier. Litigation could undermine those ambitions.

“The meta could have tried to compete with Within on the merits,” the FTC said. in your claim, which was filed in the United States District Court for the Northern District of California. “Instead, he decided to buy” a leading company in what the government called a “vital” category.

The Meth said in a statement that the FTC’s case is “based on ideology and speculation, not evidence.” He added that the trial was attack on innovation and that the agency is “sending a chilling message to anyone looking to innovate in VR.”

Meta said last year that it would acquire Within, which makes the highly popular Supernatural fitness app, for an undisclosed sum. The company promoted its virtual reality headsets for fitness and health.

The FTC lawsuit is highly unusual and falls outside the scope of antitrust law. Regulators are mainly focusing on deals between large companies in large markets rather than their acquisition of small start-ups in emerging technology fields. The courts are also skeptical about applying antitrust law to block mergers, on the assumption that the two companies involved would later become competitors if the deal were blocked.

But critics say the government’s inaction allowed Meta and other giants to get rid of the services that have gone on to become huge. The agency approved the acquisition of Facebook in 2012. Instagram, a photo-sharing app that has since grown to over one billion regular users. Instagram helped Meta dominate the social media photo-sharing market, although other startups have since emerged.

“It’s a riskier business, but they think it’s worth it because if they succeed, it will help push the boundaries of enforcement,” said William Kovacic, former chairman of the Federal Trade Commission. “I think this is the first case of its kind. “.

The FTC lawsuit is part of a broader wave of action against Meta and other big tech companies like Google, Apple and Amazon, which are increasingly facing scrutiny for their power and dominance. Under Ms Khan’s predecessor, the FTC filed lawsuit against facebook it argued that the company closed out emerging competition through acquisitions. The Department of Justice also south google about whether the company was abusing its monopoly on online search.

New cases may appear. The FTC is investigating whether Amazon violated antitrust laws, and the Justice Department is investigating Google’s dominance of ad tech and Apple’s App Store policies.

For Mr. Zuckerberg, the FTC lawsuit is a setback. It pushes Meta away from its social media roots as its apps like Facebook and Instagram face more competition due to privacy and content moderation issues. Instead, he bet on the metaverse.

mr. Zuckerberg reassigned employees and appointed a first lieutenant in charge of work on the metaverse. He has also empowered executives to handle some of the most popular games in the virtual reality space. In 2019 Facebook bought Beat Games, creators of the popular Beat Saber, one of the best VR games on the Oculus platform. It has also authorized the purchase of about half a dozen other virtual reality or game studios in the last three years.

The FTC filed the lawsuit Wednesday hours before Meta reports first decline in quarterly revenue since it went public in 2012. The company recently cut employee benefits and cut costs amid uncertain economic conditions. John Newman, deputy director of the FTC’s Bureau of Competition, said the agency was acting on the deal with Within because Meta was “trying to buy its way to the top.” The company already owned the top-selling VR fitness app, he said, but then decided to acquire the Within Supernatural app “to buy a position in the market.” He said the deal was “an illegal acquisition and we will take all necessary action.”

The FTC’s vote to allow the filing was split 3 to 2. Kristin Wilson, the agency’s Republican spokesman, said she was one of two votes against the lawsuit. She declined to comment her reasoning.

The FTC said in its filing that the injunctive relief request was sometimes a prelude to filing a merger complaint, which could have embroiled Meta and the agency in a lengthy litigation and appeals process. An FTC spokeswoman said the agency had not filed such a complaint and declined to comment further on the agency’s strategy.

Mrs. Khan, 33, who was appointed by President Biden last year for the left’s endorsement, has tried to make good on sweeping promises to rein in corporate power. She rose to prominence after writing an article criticizing Amazon in 2017 at law school. As Chair of the FTC, she called on regulators to actively enforce antitrust laws and said she could develop sweeping online privacy rules that would target Silicon Valley companies.

The lawsuit drew praise from Mr. Khan’s allies. Sandeep Wahisan, legal director of the Open Market Institute, a liberal think tank, said in a statement that the lawsuit was “a step towards making creation, not purchase, the norm for Facebook.”

But allies from the tech industry attacked Ms. Khan’s actions. Adam Kovacevich, chief executive of Chamber of Progress, an industry group funded in part by Meta, said that with the new lawsuit, “the agency is more focused on getting headlines than results.” He said the Meta is “no closer than pickleball or synchronized swimming to capturing the fitness market.”

The Meta said in a blog post that the FTC would be unable to prove that the Within deal would “substantially reduce competition,” which is usually a barrier to blocking the deal under federal antitrust law.

In its lawsuit, the FTC said that if Meta bought Within’s Supernatural, it would no longer have an incentive to improve Beat Saber, a virtual reality fitness game it already owns. But Nikhil Shanbhag, Deputy General Counsel for Meta, stated in a blog post that the games weren’t competitors.

“Beat Saber is a game that people play for fun and it has a lot of competition,” he said. “The supernatural couldn’t be more different.”

Seamus Hughes contributed to research.