Dec 10, 2022 - Economy

Meta, FTC lock horns in court over VR

Illustration of a scale with a dollar bill in the background

Illustration: Sarah Grillo/Axios

The Federal Trade Commission kicked off a court effort on Thursday to prevent Meta from acquiring Within, the maker of a virtual reality fitness app.

  • However, the case is likely to have spillover effects beyond Facebook's embattled parent.

Why it matters: Setting any precedent that prevents large tech companies from acquiring startups is bound to send ripples through startup land, where selling to a bigger company is seen as a critical piece of what keeps the ecosystem going.

Catch up quick: Back in October 2021, the social media giant announced its intention to acquire Within, whose app Supernatural offers users immersive workouts.

  • But the FTC sued in July to block the acquisition and asked for a preliminary injunction to prevent the deal from closing before it went through a full legal review.

What they're saying: "This case is about the harm to competition that happens when one of the world's largest tech companies decides to buy an innovator," the FTC told a federal court in its opening statement on Thursday in San Jose.

  • The FTC said it "has reasons to believe that the effect of the proposed acquisition is to lessen competition," adding that without Within, Meta would probably get into the VR fitness game by building its own app.
  • The agency is also arguing that an injunction now will allow for "effective enforcement of the antirust laws" and avoid the challenges of "unscrambling the eggs" post-acquisition.

The other side: In its opening statement, Meta argued that the deal "is a beneficial acquisition — it's good for competition, it's good for everyone involved in this emerging technology… and good for consumers."

  • Not only that, but "the FTC is not right on the law... and third, it's wrong about the facts," Meta added.
  • "What's so backwards about the FTC's lawsuit is that the one company Supernatural doesn't compete with is Meta," said Within's lawyer.

The intrigue: The two sides also disagreed on the consequences of an injunction.

  • While the FTC argued that the merger only dies if the companies decide to let it, Meta and Within said there was no way it would survive this type of delay.
  • "This is not a pause — this is the ballgame," Meta said in court.

My thought bubble: It's hard not to see the FTC's aggressive action against Meta's acquisition of a relatively small app as an attempt to make up for what (critics say) was its failure to act a decade ago, when Meta absorbed Instagram and other smaller apps.

  • Now, the agency wants to show it can be forward-thinking when it comes to foreseeing how even a small acquisition can have anti-competitive implications down the line.

Between the lines: Experts critical of the FTC's case believe it will be extremely hard to win, as Axios' Ashley Gold notes.

  • Meanwhile, supporters argue that the agency can only advance its bigger ambitions for antitrust law by taking cases to court — and even a loss could help by spurring legislators to act.

What's next: The two sides will continue presenting their arguments over the next 10 days or so.

  • Witnesses are expected to include Meta executives (and likely testimony by CEO Mark Zuckerberg), as well as various makers of home fitness products and legal experts.
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