Aug 2, 2022 - Technology

Khan's risky move on Meta

Photo illustration of FTC Chair Lina Khan and the scales of justice

Photo illustration: Annelise Capossela. Photo: Saul Loeb/AFP/Bloomberg via Getty Images

Federal Trade Commission chair Lina Khan's decision to challenge Meta's acquisition of a small VR gaming startup has cheered her supporters and left critics wondering what she was thinking.

The big picture: Critics see the case as a legal stretch the agency is unlikely to win. Supporters see it as a necessary first test of a bold new doctrine aimed at stopping tech monopolies before they take root.

Driving the news: The FTC sued Meta last week over its deal to buy Within Unlimited, alleging the social networking giant is "already a key player at each level of the virtual reality sector."

  • Khan has been setting the stage for this type of action since taking the helm of the FTC last summer. She told Axios in June the agency would aim to challenge anti-competitive acquisitions in court rather than negotiate settlements that ask companies to modify deal terms.
  • The new stance would apply particularly to deals involving next-generation technologies.

Khan's critics view the case against the Within deal as weak, with little evidence to prove the acquisition harms competition in the VR fitness market.

  • FTC staff recommended against bringing the case, and Khan overruled them, per a Bloomberg report. The vote was 3-2, with the two Republican commissioners voting against it.
  • "Case selection is critical, given the resource constraints, and the damage that a bad opinion can do. Every case you bring means there’s another case you can’t," a former FTC official told Axios.
  • Khan likely wants to do something aggressive to show FTC leadership is taking a new path, the official said.

The intrigue: Looming behind this case is the FTC's long history with Meta, whose acquisition of Instagram and WhatsApp the commission approved a decade ago. The commission regretted that decision enough that it opened a new case against the deal in 2020.

  • "The informing vision for [the FTC] is Instagram and WhatsApp. In their view, if the FTC had jumped in [on those acquisitions], the future of social networking would have been far different and better," former FTC commissioner William Kovacic told Axios.
  • "They come at this with a view that we were far too permissive before, and that a great blind spot in antitrust enforcement was the acquisition of these relatively small, interesting startups by the leading players," he said.

The other side: Those who support Khan's effort to challenge Big Tech power argue the FTC has to bring new cases, even if previous case law suggests they might fail.

  • "The FTC has concluded that Facebook has acted in a manner contrary to the public good for so long, and in so many different areas, that the government should not stand by and allow it to extend its reach into a new category," Roger McNamee, a venture capitalist and early investor in Facebook who's been working as an activist for tech industry reform, told Axios.
  • "The harm that comes from gobbling up nascent competitors is a novel argument under antitrust law," Alex Harman, director of government affairs at the Economic Security Project, told Axios. "It is good to push the bounds of the law rather than avoid challenges because they haven't traditionally been made on those grounds."

What's next: The FTC and Meta are negotiating over how the case should proceed, with Meta agreeing not to close the deal before Aug. 6, per court filings.

  • Should the FTC fail to secure a restraining order and preliminary injunction, the agency would have to challenge the acquisition after the fact in its own administrative court — which is akin to "trying to chase from behind," said Kovacic.
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