The Federal Trade Commission (FTC), one of the US antitrust agencies, has reportedly sued social networking giant Meta to block its acquisition of virtual reality software maker “Within Unlimited”, the agency’s first “pre-emptive strike” against an outside acquisition of Meta. This was the agency’s first “pre-emptive strike” against an outside acquisition of Meta. However, the FTC has recently amended its complaint, which is a rare occurrence in the agency’s history.
On 27 July, the FTC filed the above antitrust complaint in court, but on Friday, the FTC asked Presiding Judge Edward Davila to amend some of its allegations against Meta, mainly regarding the anti-competitive effects of the acquisition on the virtual reality fitness software market.
Meta said the FTC’s allegations were based on purely subjective imagery rather than objective evidence. The company says that the FTC’s newly amended complaint removes a statement that Meta’s most popular virtual reality game, Beat Saber, and the acquired company Within’s fitness software, Supernatural, are direct competitors. “a direct competitor.
Meta spokesman Stephen Peters said in a statement that the Federal Trade Commission had previously described Meta and Supernatural as direct competitors in its complaint, but now says that they are not direct competitors. Regardless, Meta continues to believe that the FTC’s complaint is false and unsupported by objective facts and the letter of the law.
Meta denies the FTC’s allegations regarding the M&A transaction and counters that the FTC is engaged in selective antitrust enforcement.
In its original complaint, the FTC alleged that Meta’s acquisition of Within would create a monopolist in a particular market.
Meta’s Beat Saber game, in which users can tap targets to the beat of the music, was acquired in 2019 with the acquisition of game software maker Beat Games. Beat Saber is the most profitable game in the virtual reality software shop of Meta’s Oculus Quest devices, with total revenues of over $100 million as of October 2021.
Within’s Supernatural is a membership-based fitness software that allows users of virtual reality devices to perform fitness activities or meditate in an immersive musical environment.
The FTC’s complaint initially alleged that the two software products were in direct competition with each other and were stealing users. But in the new complaint, Beat Saber is referred to as “intermittent fitness software”, and the FTC also said that prior to the acquisition deal, Meta was likely to develop a separate virtual reality fitness software to compete with Supernatural.
Lena Khan chaired the FTC after the Biden administration took office. The antitrust lawsuit against the Meta acquisition was seen as a signal that the FTC would step up its antitrust oversight of the technology industry. Over the years, the FTC has faced criticism from Congress and the community that it has failed in its antitrust oversight by failing to prevent US tech giants from buying up startups that could become their future competitors.
Prior to this, Meta had made numerous acquisitions, the vast majority of which was to strengthen its product line in the virtual and augmented reality space. According to CEO Zuckerberg’s vision, Meta Universe will become a kind of mainstream social platform of the future, where people can shop, work and meet up with friends in a virtual world called Meta Universe.
The Within lawsuit comes on the heels of another antitrust lawsuit filed by the FTC against Meta for its historic acquisitions of Instagram and WhatsApp. Recently, a Republican member of the US Congress raised questions about the FTC’s two lawsuits, arguing that they may be contradictory in their use of legalese.
At a hearing on 20 September, Republican Senator Mike Lee of Utah told FTC chief Khan that the FTC’s two lawsuits against Meta were contradictory and could affect the FTC’s ability to regulate US technology platforms. At the time, Khan said that the lawsuit against Within was ongoing and therefore did not directly address Mike Lee’s challenge.
In this action, the FTC is seeking an injunction against Meta’s acquisition of Witin, and a separate, largely similar action has been filed against Meta in an administrative court within the FTC.
In San Jose, California, Judge Davila has scheduled a two-week court hearing for December, and he plans to issue a ruling before the end of the year (which is when Meta was scheduled to close its acquisition deal), while the FTC’s internal court will begin hearing the case next January.
Stephen Calkins, an antitrust professor at Wayne State University School of Law, said the FTC’s reworking of the complaint was unusual because in past merger litigation, regulators have often wanted to move the case forward to an early trial.
Calkins said that in acquisition lawsuits, litigation moves quickly and amendments to pleadings are rare. It is even more unusual for a complaint to be amended two months after it has been filed. Calkins is known to have served as counsel for the FTC during the Clinton administration in the United States.
In 2009, the FTC filed a lawsuit against the acquisition of Whole Foods Market and its counterpart Wild Oats Markets, and the FTC amended its brief in the case. However, Calkins said that, unlike the Meta lawsuit, the FTC first lost in federal court and then amended its pleadings in internal court to reduce the allegations.
The FTC reported that the FTC’s top-level vote to amend the complaint was 4-0 (one of the five commissioners, a Republican FTC committee whose term is soon to end, did not vote). In addition, Republican Commissioner Christine Wilson, who had previously voted against the Within transaction, supported the amendment of the complaint, stating that she remained opposed to the lawsuit overall.
