By: Aleksandra Conway Silina
The Federal Trade Commission (“FTC”) started aggressively enforcing antitrust policy in 2021. The reforms, which took place in 2021, broadened the authority of the commission to investigate alleged anticompetitive conduct, as well as mergers in digital markets, pharmaceuticals, and other specific markets. Prior to the FTC’s lawsuit against Meta (Facebook and Instagram’s parent company) over its acquisition of virtual reality company Within, the FTC had already sued Facebook for its years of anticompetitive conduct, which included the acquisitions of Instagram and WhatsApp.
Facebook has rebranded itself into Meta and has been proactive in the Virtual Reality Community through another acquisition, Oculus. Even after all the antitrust lawsuits, Meta has still decided to acquire Within, a company which develops apps for virtual reality devices like the popular fitness app Supernatural. Within’s Supernatural app is designed so that users can exercise through a structured physical workout in their own homes. Virtual Reality technology allows users to exercise from the comfort, privacy, and safety of home while visually experiencing somewhere else—atop a mountain, on a tropical island, in a futuristic world, virtually anywhere. In its complaint, the FTC alleges that the proposed acquisition is just another step toward Meta’s dominance. Instead of competing on the merits through its own virtual reality dedicated fitness app, Meta has resorted to proposing this unlawful acquisition. The FTC has also sued Mark Zuckerberg along with Meta but has recently agreed to drop him from the lawsuit in exchangeMeta’s chief executive agreeing not to purchase the startup, Within Unlimited Inc., and its fitness app in his personal capacity or through any other entities he controls.
Under Section 13(b) of the FTC Act, 15 USC § 53(b), in order to block the deal, the FTC is required to show the likelihood of success on the merits and the weight of the equities. In addition, to succeed on the merits, the FTC must prove that the acquisition violates Section 7 of the Clayton Act, which prohibits mergers, the effect of which “may be substantially to lessen competition or tend to create a monopoly.”
The FTC has provided multiple reasons as to why the proposed acquisitions might have anticompetitive effects: 1) it is reasonably probable that Meta would have entered the virtual reality dedicated fitness app market through alternative means absent this acquisition; 2) it is reasonably probable that alternative entry by Meta would substantially deconcentrate the market and have other procompetitive effects; 3) Within reasonably perceived Meta as a potential entrant to the virtual reality dedicated fitness app market; and 4) Meta’s presence as a perceived potential entrant likely influences competition in the virtual reality dedicated fitness app market. Hearings on the FTC’s move to block the deal are expected to begin in December.
There is a reasonable concern that the FTC is overstepping its powers since neither Meta nor Within have any market power in virtual reality, fitness apps, or fitness areas generally. The FTC focuses on the competition problems which could arise in the future rather than the current market situation. The problem is that the virtual reality market is so new and unpredictable that no one really knows what it is going to be like in the future. The vast majority of the companies producing virtual reality apps fail to satisfy the consumer. While the FTC might be right about trying to control the emerging VR market early on, the agency has departed from traditional concepts of market power and consumer harm and opened the gate to challenge any private conduct, by any company, as a threat to “potential future competition.” There is also a concern that the FTC’s leadership overruled the agency’s career staff in filing the complaint. The disagreements of this nature tend to give the political elites far more power in deciding what types of cases to bring and against whom to bring them. We can only wonder whether the rule of law will devolve into the rule of policy and political preferences.
If the court freezes the acquisition, it can create a threat to startups and smaller companies to raise capital, secure technical help and get a return. If the court agrees with the FTC’s complaint, then any acquisition, regardless of size, scale, market, or efficiency, could become the subject of an enforcement challenge from antitrust regulators. Therefore, we might be getting to an era of a much-regulated market.
Student bio: Aleksandra Conway Silina is a second-year student at Suffolk University Law School. She is a staff writer on the Journal of High Technology Law. Aleksandra has received her first law degree with a concentration in corporate and business law from Higher School of Economics in Russia.
Disclaimer: The views expressed in this blog are the views of the author alone and do not represent the views of JHTL or Suffolk University Law School.
