FTC Sues To Block Meta Virtual Reality Deal Because It Confronts Big Tech

WASHINGTON — The Federal Trade Commission on Wednesday filed for an injunction to block Meta, the company formerly known as Facebook, from buying a virtual reality company called Within, potentially limiting the company’s pressure in the so-called metaverse and indicating a shift in how the agency approaches technical deals.

The antitrust lawsuit is the first to be filed under Lina Khan, the committee chair and a leading progressive critic of corporate concentration, against one of the tech giants. Ms Khan has argued that regulators need to end violations of competition and consumer protection laws when it comes to the latest technology, including virtual and augmented reality, and not just in areas where the companies have already become behemoths.

The FTC’s request for a court order puts Ms. Khan on a collision course with Mark Zuckerberg, the CEO of Meta, who is also named as a defendant in the request. He’s spent billions of dollars building products for virtual and augmented reality, betting that the immersive world of the metaverse is the next technological frontier. The lawsuit could shrink those ambitions.

“Meta could have chosen to try to compete with Within on merit,” the FTC said in its lawsuit, which was filed in the United States District Court for the Northern District of California. Instead, it chose to “buy a top company in what the government called a “vital” category.

In a statement, Meta said the FTC’s case was “based on ideology and speculation, not evidence. The idea that this acquisition would lead to anticompetitive results in a dynamic space with as much entry and growth as online and connected fitness is simply not credible.” The company added that the lawsuit was an attack on innovation, with the agency “sending a chilling message to anyone looking to innovate in VR”

Meta said last year it would acquire Within, which produces the highly popular fitness app Supernatural, for an undisclosed amount. The company has been promoting its virtual reality headsets for fitness and health purposes.

The lawsuit is part of a wave of actions against Meta and other major tech companies such as Google, Apple and Amazon, which are increasingly under fire for their power and dominance. Under Ms Khan’s predecessor, the FTC has filed a lawsuit against Facebook alleging that the company is halting emerging competition through acquisitions. The Justice Department has also sued Google for abusing a monopoly on online search.

More cases could come. The FTC is investigating whether Amazon has violated antitrust laws, and the Justice Department is investigating Google’s dominance over ad technology and Apple’s App Store policies.

Mr. Zuckerberg is pushing Meta away from its social networking roots as the company’s apps, such as Facebook and Instagram, face increasing competition and issues such as privacy and misinformation.

To support the push into the metaverse, Mr. Zuckerberg has reassigned employees and appointed a top lieutenant to lead the effort. He has also authorized lieutenants to pursue some of the most popular games in the VR space. In 2019, Facebook bought Beat Games, makers of the hit title Beat Saber, one of the top VR games on the Oculus platform.

Meta will publish quarterly figures later on Wednesday. The company has recently reduced employee perks and limited spending in uncertain economic conditions.

The FTC’s move can be seen as an attempt to learn from history. The agency approved Facebook’s 2012 acquisition of Instagram, the photo-sharing app that has grown to more than a billion regular users. Instagram has helped Meta dominate the social photo sharing market, though other start-ups have sprung up since then.

John Newman, the deputy director of the FTC’s Bureau of Competition, said the agency traded the Within deal because Meta was “trying to buy his way to the top.” The company already had a best-selling virtual reality fitness app, he said, but then chose to buy Within’s Supernatural app “to gain market footing.” He called the deal “an illegal takeover and we will pursue all appropriate assistance”.

The FTC’s vote to approve the filing was split 3 to 2.

This is a news item in development and will be updated.

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