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Federal Trade Commission sues to block Meta’s acquisition of VR company

The agency argues the deal would put Facebook’s parent company one step closer "to its ultimate goal of owning the entire ‘Metaverse’”

Lina Khan, chair of the Federal Trade Commission, speaks during a Senate confirmation hearing on April 21, 2021. (Saul Loeb/Reuters)
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The Federal Trade Commission on Wednesday sued to block Facebook parent company Meta from buying the maker of popular virtual reality games, setting up a regulatory roadblock for the company’s ambitions to remake itself as the creator of a new digital world called the “metaverse.”

The deal would give Meta control of Within, which created the popular VR workout game “Supernatural.” The lawsuit is emblematic of FTC Chair Lina Khan’s strategy to address deals in the fast-changing tech sector, following mounting criticism from Khan and allies that regulators have not been aggressive in limiting tech companies from building power by buying up their smaller rivals.

“That lessening of competition may result in reduced innovation, quality, and choice, less pressure to compete for the most talented app developers, and potentially higher prices for VR fitness apps,” the FTC argued in a legal complaint. “And Meta would be one step closer to its ultimate goal of owning the entire ‘Metaverse.’ ”

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The action is the first new lawsuit brought against a major tech giant since Khan took helm of the FTC last year, following increased regulatory scrutiny of the businesses of Facebook, Google, Apple and Amazon. The lawsuit marks a key test of the Biden administration’s commitments to usher in a new era of antitrust enforcement, especially in the tech sector where a handful of companies have amassed wealth and influence. (Amazon founder Jeff Bezos owns The Washington Post.)

Parallel efforts in Congress to overhaul competition laws — including proposals to put new limits on acquisitions in the tech industry — have largely stalled on Capitol Hill. The agency’s lawsuit could face obstacles in U.S. courts, which have traditionally held a narrow interpretation of antitrust laws.

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Meta is grappling with financial head winds that have cut its stock in half this year, and on Wednesday it reported its first quarterly revenue decline in a decade. The company also warned that it expects advertisers to spend less due to broader concerns about the economy.

The company has staked its future on the Metaverse, immersive digital worlds accessed through VR devices. Meta Chief Executive Officer Mark Zuckerberg has described a future in which its users adopt avatars to work with colleagues in virtual board rooms, attend digital events with friends and shop in virtual stores accessed through virtual and augmented reality-powered services.

Facebook changed its corporate name to Meta last October in an effort to shift its brand from a social media business, embroiled in controversy, to a company that was again on the cusp of reinventing the way people communicate.

But VR is a growing industry, and there is intense competition to bring apps to market that have mass appeal. “Fitness is the killer use case for VR,” Within’s CEO and co-founder Chris Milk argued, according to the lawsuit. Meta competes in VR fitness through its “Beat Saber” app. If the companies are kept separate, they’ll keep pushing each other to develop more features and attract more users, the FTC argues in the suit.

“Supernatural” has been regularly featured in ads for Meta’s virtual reality headset, the Meta Quest 2. In the game, which was released in 2020, users swat or punch floating orbs hurled at them during workouts while being encouraged by trainers and listening to popular music from artists like Billie Eilish, Bob Marley, Dua Lipa and the Jackson 5. The workouts take advantage of VR by placing users in the middle of exotic, 3D locations like the caldera of a volcano, the surface of the moon, the top of China’s Great Wall or the steps of pyramids in Egypt.

The lawsuit sends a “chilling message” to innovators, Meta spokesman Stephen Peters said in a statement, arguing that the deal is “good for people, developers and the VR space.”

“The FTC’s case is based on ideology and speculation, not evidence,” he said. “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.”

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In an internal email to Facebook executives in 2015, Zuckerberg said his vision for “the next wave of computing” was to control both the apps and the platform on which those apps were distributed. In the same email, he said the company should “us[e] acquisitions opportunistically,” the lawsuit alleges.

This strategy has touched a nerve with Democrats on the Federal Trade Commission, who voted 3-2 to bring the lawsuit against the company.

“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.

The lawsuit mirrors a separate FTC complaint against Meta, which seeks to unwind the company’s acquisitions of WhatsApp and Instagram and was refiled last year. The judge allowed the suit to move forward earlier this year. The original complaint, filed under the Trump administration, was dismissed by a judge who said the agency had failed to provide enough facts to prove Facebook held a monopoly in social networking.

The complaint argues that Meta’s recent acquisitions have allowed it to buy up “seven of the most successful VR development studios in the world.” Over the last few years, the company bought BigBox VR, Beat Games, and Ready at Dawn Studios, among others. In April, Meta announced it was opening its first physical retail store to help customers test out its growing line of smart hardware devices including its virtual reality headset Meta Quest 2 and its smart glasses Ray-Ban Stories.

Mike Hume contributed to this report.