UPDATED: 27 JUL 2022 06:35 PM EST
The Federal Trade Commission on Wednesday filed suit to block Facebook owner Meta from buying the maker of a virtual reality fitness app, the latest signal of aggressive antitrust action from Chair Lina Khan just months after Congress restored the agency's Democratic majority.
The suit to block the acquisition of Within will hamper Meta CEO Mark Zuckerberg's much-touted, multibillion-dollar effort to build out the so-called metaverse, a technology for virtual social interaction. Within makes the Supernatural fitness app, in which users use Meta's Quest VR headset to box, stretch or do other workouts in virtual environments.
The case, which includes both Meta and Zuckerberg among its defendants, comes two months after the Senate confirmed FTC Commissioner Alvaro Bedoya, who like Khan is a progressive nominated by President Joe Biden. That action restored the commission's 3-2 Democratic majority after more than half a year of a partisan divide that had hobbled Khan's agenda.
The commission's Trump-era leadership had sued Facebook in late 2020, seeking to unwind the company's 2012 and 2014 acquisitions of Instagram and WhatsApp, in a case that is scheduled to go to trial late next year. Wednesday's lawsuit is the FTC's first new lawsuit against one of the tech giants during the Khan era — and it shows the legal boundaries she is willing to push.
For one thing, Meta is hardly buying another corporate giant.
While the FTC says Facebook is using the deal to build a virtual reality empire, the lawsuit is focused on the company's alleged intent to monopolize the market for virtual reality fitness apps, a category that excludes Pelotons, workout videos and other at-home exercise options. Facebook will almost certainly challenge the commission's decision to go after such a narrow market, arguing for a wider variety of fitness products and services in which it would be harder to prove a monopoly.
Khan has stressed the importance of keeping powerful companies from expanding into new markets, mentioning virtual reality by name. At a conference in October, Khan said that dominant technology companies often buy startups as part of an “ecosystem play, where the goal is to capture the ecosystem as a whole.” Critics have accused Facebook of doing just that when it bought Instagram, which at the time was a relatively small but rising competitor among photo-sharing platforms.
However, tech advocates say the case could chill investments in start-ups. Aaron Levie, CEO of file storage company Box, tweeted that if the FTC is successful, "all that will happen is there will be fewer startups over time because investors can’t underwrite the risk. This is bad for innovation, and ironically good for the big tech companies."
In its lawsuit, the FTC noted that Meta also owns Meta Quest, the dominant virtual reality hardware, which it acquired in 2014, along with a popular virtual reality app store and a number of popular games. Zuckerberg "has made clear that his aspiration for the VR space is control of the entire ecosystem,” the FTC said in the lawsuit. The deal “would be one more step along that path toward dominance,” the FTC said.
The American Economic Liberties Project, a nonprofit advocate of aggressive antitrust enforcement that is close with Khan, praised the lawsuit. "This is the agency’s first challenge to a big tech merger, and it represents its new commitment to protecting fair competition in nascent digital markets," the group said.
The FTC first began investigating the acquisition last fall, and its lawsuit says the companies plan to close the deal on Sunday if a court doesn’t intervene. It's asking for a restraining order blocking the deal before the end of the month while the suit proceeds.
The FTC commissioners voted 3-2 to bring the lawsuit, with Republicans Christine Wilson and Noah Phillips voting no. The timing of the vote isn't known, but there was a closed commissioner meeting on Monday, an event where the commissioners discuss confidential agency business such as whether to file cases.
Facebook said Wednesday that it had given the FTC extra time to review the deal.
Prior to its attempt to purchase Within, Meta has bought more than a half dozen virtual reality games, including Beat Saber, an interactive music game. The FTC says Within's Supernatural competes with Beat Saber, a fact Facebook denied in a blog post Wednesday criticizing the lawsuit.
“The FTC's case is based on ideology and speculation, not evidence,” Facebook spokesperson Stephen Peters said in a separate statement. "The idea that this acquisition would lead to anticompetitive outcomes in a dynamic space with as much entry and growth as online and connected fitness is simply not credible."
The deal is just one of several the FTC is scrutinizing in the video game market. A lengthy investigation is underway of Microsoft's $69 billion takeover of Call of Duty maker Activision Blizzard, and Sony's takeover of Bungie, maker of Halo, closed earlier this month following an in-depth FTC probe.
