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Judge said to reject FTC effort to block Meta’s VR acquisition

The ruling, which was issued late Tuesday under seal, is a blow to the FTC’s agenda

A Meta employee demonstrates the Meta Quest Pro VR Headset in Las Vegas on Jan. 4. (Robyn Beck/AFP/Getty Images)
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A federal judge in California ruled late Tuesday that Facebook parent company Meta can proceed with its acquisition of a virtual reality company, in a blow to Democrats’ efforts to dismantle the power of Silicon Valley tech companies, according to a person familiar with the matter.

The ruling by Judge Edward Davila of the Northern District of California rejected the Federal Trade Commission’s request to block Meta’s acquisition of the popular app developer Within, best known for a buzzy fitness app called Supernatural, said the person, who spoke on the condition of anonymity because the order was sealed by the court. The judge did grant the FTC’s request to block the deal from closing until Feb. 7, giving the agency time to figure out next steps.

Though the judge did not find that this particular deal was anticompetitive, the order did affirm some of the arguments that the FTC made in its case, including that acquisitions of nascent companies can hurt competition and that companies not currently in a marketplace can still have influence over the marketplace, the person said. This is the first time since the 198os that a court has affirmed such theories, the person said.

The court also provided a road map for future cases involving potential competition in rapidly changing and digital markets, where new businesses are being created all the time, the person said. The court accepted the FTC’s definition of the market in the case, the person said. That has historically been a pain point in bringing antitrust cases against tech companies.

The Washington Post has not seen a copy of the ruling, and those claims could not be confirmed. Bloomberg first reported the judge’s ruling.

The decision is widely viewed as a test of FTC Chair Lina Khan’s agenda to rein in the market power of Silicon Valley, in part by bringing long-shot cases against digital mergers. The new competition movement embraced by Khan — sometimes derisively called “hipster antitrust” — argues that antitrust laws apply to future competition, not just the current market. Tech giants including Apple, Google, Facebook and Amazon amassed much of their technological power and talent by gobbling up smaller rivals. A shift in enforcement to consider future competition could create impediments to one of their key business strategies.

The Federal Trade Commission and Meta declined to comment.

“Out of respect for the Court’s orders, the FTC is not in a position to comment at this time,” FTC spokesman Peter Kaplan said in a statement.

The FTC’s case mirrors one it filed against Microsoft in December to block the company’s $69 billion acquisition of the video game publisher Activision Blizzard, charging that the deal would allow the Redmond, Wash., tech giant to suppress its competitors in gaming. Federal regulators have also sought to unwind past acquisitions. The FTC has an ongoing lawsuit that would force Meta to divest from Instagram and WhatsApp, and the Justice Department brought a case that could force Google to sell off its ad business.

Yet these efforts face an uphill battle in U.S. courts, which have traditionally held a more narrow view of what constitutes an antitrust harm.

While federal agencies have filed antitrust lawsuits against tech companies, congressional efforts to pass new laws that would bolster anti-competition standards have languished amid political gridlock. That effort was thrust into the spotlight last month when the Justice Department and eight state attorneys general brought the antitrust lawsuit against Google, alleging that the company’s core ad business should be broken up.

The FTC sued in July to block Meta from buying Within. The buzzy virtual reality app made by the Los Angeles-based Within studio offers its users daily exercise routines in seemingly extravagant environments such as a snowy mountain or futuristic setting.

The FTC argued that Meta probably would have created its own VR fitness app if it hadn’t made the acquisition, which means consumers were subsequently deprived of that competition and choice. FTC lawyers pointed to testimony of Meta executives who said the company — with explicit support from Meta chief executive Mark Zuckerberg — wanted to invest in the fitness market to expand the audience of virtual reality beyond its young male base. Fitness apps, they testified, had the potential to bring in more women and older users and make using Meta’s Quest VR headsets part of users’ routines.

Meta CEO Mark Zuckerberg snubs fitness as key to metaverse growth

During the trial, testimony from Meta executives and exhibits showed that employees debated how to get into the fitness app business, including by retooling its popular dance app Beat Saber for that purpose. There was even some discussion about forming a relationship with Peloton — an idea that Zuckerberg supported at one point, according to Michael Verdu, the social media giant’s former vice president of augmented reality and virtual reality.

But Meta’s lawyers argued that the FTC’s claims that the company probably would have entered the fitness VR market with its own app were simply speculation. While there were some employees who favored creating an in-house fitness app, the company dismissed the idea pretty early on, Meta argued. The company also argued that Meta faces and will continue to face a robust pool of competitors in virtual reality.

Zuckerberg said in court that under current economic conditions, Meta would be unlikely to take on developing a fitness app of its own. When Meta was exploring expanding into the VR fitness market in 2021, the company was trying to figure out how to invest higher-than-expected revenue. Now that Meta is experiencing an economic downturn, the company is cutting back on expenses and not spinning up new projects.

Since buying the small virtual reality start-up Oculus nine years ago, Meta has become the dominant headset maker in the nascent market, claiming 78 percent of all virtual reality headset sales in 2021, according to the lawsuit.

Meta’s dominance in the space might not last long. PlayStation is planning to release a new virtual reality headset this year. Apple is also expected to release a competing headset this year, according to Bloomberg News. Taiwan-based High Tech Computer Corp. and Pico — owned by China’s ByteDance, which also owns TikTok — are also rivals in the space.

FTC case shows just how badly Mark Zuckerberg wanted a VR fitness app