FTC Sues Meta To Block Acquisition Of VR Company Within

Topline

The Federal Trade Commission sued Meta in federal court Wednesday in an attempt to block the company’s acquisition of virtual reality app creator Within, the latest effort by the FTC to restrict the tech giant’s growing influence by targeting its practice of buying up competitors.

A sign with Meta’s name and logo is displayed in front of Facebook headquarters on October 28, 2021 … [+] in Menlo Park, California.

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Key Facts

The FTC filed a complaint in federal court in California asking for an injunction that would block Meta from completing its acquisition of Within, a virtual reality company best known for its fitness app Supernatural.

Meta and Within announced they were entering into a $400 million acquisition deal in October, as Meta seeks to expand its virtual reality offerings and concentrate on the “metaverse” beyond its suite of apps like Facebook, Instagram and WhatsApp.

The FTC argued Meta would have a monopoly in the market for VR fitness apps if it’s allowed to buy Within, which could have “multiple harmful outcomes, including less innovation, lower quality, higher prices, less incentive to attract and keep employees, and less consumer choice.”

Meta and CEO Mark Zuckerberg are trying to control the entire VR ecosystem and the company is buying up competitors rather than trying to compete with them, the FTC alleges, saying if Meta acquires Within, the company will “no longer have any incentive” to improve its products, since it won’t have any rivals to compete with “on the merits.”

That violates federal antitrust laws by eliminating the need to compete in the marketplace, the FTC argued.

Meta said in a statement the FTC’s complaint is “based on ideology and speculation, not evidence,” and that the company is “confident” that acquiring Within “will be good for people, developers and the VR space.”

What To Watch For

Meta’s second quarter earnings will be released later on Wednesday, and the company and Zuckerberg could address the FTC’s new legal challenge during its earnings call. Analysts predict the tech giant could report its first decline in revenue this quarter and a significant drop in daily users, amid a downturn in digital ad spending and increased competition from TikTok.

Crucial Quote

“Instead of competing on the merits, Meta is trying to buy its way to the top,” FTC Bureau of Competition Deputy Director John Newman said in a statement Wednesday.

Chief Critic

“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,” Meta said in a statement. “By attacking this deal in a 3-2 vote, the FTC is sending a chilling message to anyone who wishes to innovate in VR.”

Key Background

The FTC’s lawsuit comes after the Information previously reported in December that the agency had opened a probe into Meta’s Within deal just after Thanksgiving. Though Within isn’t the first VR company that Meta has tried to acquire, it is the biggest deal it’s made so far in that market, and the Information notes that previous deals were small enough to evade governmental scrutiny. The FTC, whose chair Lina Khan has been heavily critical of Meta and other tech giants’ power, has already sued Meta (then known as Facebook) in federal court for broader antitrust violations, arguing the company has engaged in “anticompetitive conduct and unfair methods of competition,” including by acquiring Instagram and WhatsApp. A federal judge initially dismissed the FTC’s challenge, finding the agency’s lawsuit was “legally insufficient” and “light on specific factual allegations.” The FTC then re-filed its complaint with more evidence, however, and the court has allowed the case to move forward, which could potentially result in Meta having to be broken up and WhatsApp and Instagram becoming separate companies again if the FTC succeeds. Meta has consistently denied any anticompetitive behavior and maintained its acquisitions are lawful.