On July 27, 2022, the U.S. Federal Trade Commission (FTC) filed a complaint and request for preliminary injunction in the U.S. District Court for the Northern District of California to halt Meta’s acquisition of Within Unlimited. The companies had originally agreed to the acquisition on October 21, 2021, the day after Facebook changed its name to Meta.
Within is a virtual reality development studio that designed and built the popular virtual reality fitness app Supernatural.
The FTC’s effort to stop this acquisition is widely seen as a risky attempt to push the envelope of antitrust merger enforcement, because antitrust agencies typically seek to block mergers and acquisitions in well-developed markets where a company looking to merge already has a dominant position.
“It’s a riskier case, but one they think is worth bringing because if they succeed it will help bring the frontier of enforcement outward,” said William E. Kovacic, a former chairman of the FTC and an antitrust specialist.
The FTC claims that Meta’s acquisition is anticompetitive because rather than acquiring another company, it could have developed a fitness app to compete with Supernatural. This hypothetical app would have provided another alternative to users and spurred other developers to improve their own apps. “Instead of competing on the merits, Meta is trying to buy its way to the top,” said John Newman, the FTC’s Deputy Director of its Bureau of Competition.
Meta, of course, sees the situation differently. After all, even after the acquisition, Meta would not have a strong VR app market position, not even in the smaller “relevant market for VR dedicated fitness apps.” Meta also argues that the potential to be acquired by larger companies such as itself gives VR app start-ups a greater incentive to develop innovative VR apps, knowing that they have a possible off-ramp in the form of a sale to these larger companies.
It's hard to define the rule or principle that the FTC seems to be implicitly adopting. Should big companies just not be allowed to grow at all into adjacent markets through acquisition?
While it may be unclear just what precedent the FTC is trying to set, it has at least recognized the importance of early action to shape the development of emerging tech markets—in this case the VR market. Tech markets are subject to special economic forces that tend to create concentration and winner-take-all markets, such as network effects that can make popular products disproportionately more valuable.
The FTC recognizes that a market leader will likely emerge in the VR space and wants to ensure that the competitive fight takes place “on the merits.” In other words, it wants companies to find success on the basis of their independent development efforts, rather than on the basis of Meta’s large pocketbook.