In July 2022, the Federal Trade Commission filed a complaint to block Meta’s proposed merger with Within Unlimited, an independent virtual reality development studio that designed and built Supernatural, a VR fitness app. From day one, Meta has opposed the action, saying the FTC misunderstood the facts and the law. The fight continues and Meta fights back. Last week, Meta filed a motion to dismiss the amended complaint in the US District Court for the Northern District of California, San Jose Division.
Here is a chronology of previous actions:
July 27, 2022: FTC attempts to block Fusion
The FTC filed a complaint to block the merger between Meta and Within Unlimited, calling Meta’s proposal to acquire Within Unlimited an illegal attempt to expand Meta’s virtual reality empire. The FTC said the merger would allow Meta to acquire Within’s Supernatural app, a specialty fitness app.
“Rather than compete on merit, Meta is trying to buy its way to the top,” said John Newman, associate director of the FTC Bureau of Competition, in a July 27, 2022 press release. “Meta already owns a best-selling virtual reality fitness app, and it had the ability to compete even more closely with Within’s popular Supernatural app. But Meta chose to buy the market position instead of earning it based on merit. This is an illegal acquisition and we will take all reasonable remedial action.”
July 27, 2022: Meta argues that the FTC is wrong on fact and law.
After receiving news of the FTC’s complaint, Nikhil Shanbhag, Vice President and General Counsel of Competition and Regulatory at Meta, wrote a blog post to argue against the FTC’s case.
“The FTC’s case is based on ideology and speculation, not evidence. The notion that this acquisition would lead to anti-competitive outcomes in a dynamic space with as much market entry and growth as online and connected fitness is simply not believable. By attacking this deal 3-2, the FTC is sending a chilling message to anyone looking to innovate in VR. We are confident that our acquisition of Within will be good for people, developers and the VR space,” wrote Shanbhag.
“It has always been clear that our acquisition of Within will bring new investments into VR fitness, enhance the Quest platform to better support all fitness apps, and expand the VR ecosystem as a whole – all to the benefit of people and developers alike. The FTC bases its arguments on a set of flawed premises and unsupported assumptions that do not stand up to scrutiny,” continued Shanghag.
Shanbhag argued point-for-point against the FTC, saying Meta spent nine months responding to FTC requests for documents and data to allow the FTC to evaluate the merger. Meta also postponed the closing of the merger to August 1, 2022.
October 7, 2022: FTC amends complaint against Meta’s proposed merger with Within
In the amended complaint, the FTC removed the claims of “probable anti-competitive effects in the VR fitness app market” and based that decision on information obtained during the discovery phase of its investigation. They also amended the complaint to remove related claims. Respondents (Meta) did not object to this change.
October 4, 2022: Meta says FTC’s amended complaint is insufficient
In a blog post, Meta explains that the amended complaint does not address the shortcomings contained in the first complaint. First and foremost, the FTC has failed to prove that Meta holds a monopoly in the personal social networking services market.
“The FTC’s fictional market ignores the competitive reality: Facebook fiercely competes with TikTok, iMessage, Twitter, Snapchat, LinkedIn, YouTube, and countless others to help people interact, connect, communicate, or just be entertained. The FTC cannot credibly claim that Facebook has monopoly power because such power does not exist. We continually innovate and improve our products and services to win people’s time and attention because we need to compete with competitors like TikTok, which recently announced it has reached 1 billion monthly active users,” wrote Meta.
October 13, 2022 (Filing Date): Meta Files Motion to Dismiss Amended Complaint
Meta and Within have filed a motion to dismiss the FTC’s amended complaint, stating that the FTC has no legal basis for the complaint.
“This change leaves only the FTC’s contention that ‘potential competition’ in a supported market limited to ‘dedicated’ VR fitness apps would be reduced, either because Within may have believed that Meta with its own product could materialise, or because Meta would actually have offered a VR fitness app designed to compete with Supernatural,” Meta’s attorney said in the motion to dismiss.
“Because the FTC’s amended complaint clarifies that the FTC has no legal remedy here, the defendants will proceed immediately to dismiss the sole remaining claim with prejudice,” the motion to dismiss states.
They continued to cite case law, saying that the FTC perceives potential competition, not actual competition, as the VR market is constantly evolving.
That’s an interesting development. By amending its complaint, the FTC made it clear that its original complaint was erroneous and not fully valid. This opened the door for Meta to pounce and dissect the federal agency’s remaining arguments. We don’t know how that will pan out, but in the current antitrust litigation era, the outcome will set an important precedent for future proposed mergers where there is evidence of competition or dominant market power.