November 28, 2022

WASHINGTON — On Wednesday, the Federal Trade Commission filed for an injunction preventing Meta (formerly Facebook) from acquiring a virtual reality company called Within, which could limit the company’s forays into the so-called Metaverse and signal that the agency is Approaching technical deals.

The antitrust lawsuit is the first brought against one of the tech giants by the committee’s chairperson, Lina Khan, a leading critic of corporate concentration. Ms Khan believes regulators must stop competition and breaches of consumer protections when it comes to the frontiers of technology, including virtual and augmented reality, not just in areas where these companies have become behemoths.

The FTC’s injunction request pits Ms. Khan against Meta’s CEO, Mark Zuckerberg, who is also named as a defendant in the request. He has poured billions of dollars into building virtual and augmented reality products, and believes that immersive worlds in virtual worlds are the next technological frontier. Lawsuits could dampen those ambitions.

“Meta may choose to try to compete with Within,” the FTC said. in its lawsuit, which was filed in the U.S. District Court for the Northern District of California. “Instead, it chose to buy” top companies 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.”It added that the lawsuit was attack innovation And the agency is “sending a chilling message to anyone looking to innovate in VR”

Meta has said it would acquire Within, which makes a popular fitness app called Supernatural, for an undisclosed sum last year. The company has promoted its virtual reality headset for fitness and wellness purposes.

The FTC lawsuit is unusual and pushes the boundaries of antitrust law. Regulators are mainly concerned with deals between big companies in large markets, rather than their acquisitions of small start-ups in emerging technology fields. Courts have also been skeptical about the application of antitrust laws to block the merger, on the assumption that if the deal were blocked, the two companies involved would later become rivals.

But critics say the government’s inaction has allowed Meta and other giants to siphon off services that have since become powerful. The agency approved Facebook’s 2012 acquisition of Instagram, a photo-sharing app that has since grown to more than 1 billion regular users. Instagram helped Meta dominate the social photo-sharing market, although other startups have sprung up since then.

“This is a riskier case, but they think it’s worth making because if they’re successful, it will help bring the front of law enforcement out,” said William E. Kovacic, former chairman of the FTC. .” “I think this is the first case.”

The FTC’s lawsuit is part of a broader wave of action against Meta and other big tech companies like Google, Apple and Amazon, which have faced increasing scrutiny for their power and dominance. Under Ms. Khan’s predecessor, the FTC filed a lawsuit against Facebook, saying the company shut down nascent competition through acquisitions. The Justice Department also sued Google over whether the company abused its monopoly over online search.

More cases are likely to emerge. The FTC is investigating whether Amazon violated antitrust laws, and the Justice Department is investigating Google’s dominance of ad tech and Apple’s App Store policies.

For Mr Zuckerberg, the FTC lawsuit is a setback. He has been pushing Meta away from its roots in the social network as its apps like Facebook and Instagram face more competition in privacy and content moderation. Instead, he bet on the metaverse.

Mr. Zuckerberg has reassigned staff and appointed a senior deputy to work on the Metaverse. He also empowers executives to develop some of VR’s most popular games. In 2019, Facebook acquires Beat Games, the makers of the hit game Beat Saber, one of the top VR games on the Oculus platform. He has also licensed about half a dozen other virtual reality or gaming studios over the past three years.

The FTC filed the lawsuit hours before Meta reported its first quarterly revenue drop since going public in 2012. The company recently cut employee benefits and reined in spending amid uncertain economic conditions. John Newman, deputy director of the FTC’s Bureau of Competition, said the agency took action against the Within deal because Meta was “trying to get to the top with a purchase.” The company already had a best-selling virtual reality fitness app, but then chose to acquire Within’s Supernatural app “to buy market position,” he said. He said the deal was an “illegal acquisition and we will seek all appropriate remedies.”

The FTC voted 3-2 to authorize the filing. The agency’s Republican commissioner, Christine Wilson, said she was one of two votes against the lawsuit.she declined to comment her reasoning.

In its request, the FTC said that sometimes asking for an injunction is a prelude to lawsuits against the merger, which could entangle Meta and the agency into a lengthy trial and appeals process. An FTC spokeswoman said the agency has not filed such complaints and declined to comment further on the agency’s strategy.

Ms Khan, 33, who was appointed to the left by President Biden last year, is trying to deliver on a broad promise of reining in corporate power. She rose to prominence in 2017 after she wrote an article critical of Amazon in law school. As FTC chair, she has called on regulators to vigorously enforce antitrust laws and said she could create sweeping online privacy rules involving Silicon Valley companies.

The lawsuit was praised by Khan’s allies. Sandeep Vaheesan, legal director of the Open Markets Institute, a liberal think tank, said in a statement that the lawsuit was “a step toward building, not buying, Facebook’s norms.”

But allies in the tech industry slammed Khan’s actions. In the new lawsuit, “the agency is more focused on getting headlines than results,” said Adam Kovacevich, chief executive of Chamber of Progress, an industry group that is partly funded by Meta. Meta, he said, “is no better than a pickle ball or synchronized swimming. Closer to locking down the fitness market.”

In a blog post, Meta said the FTC could not prove the deal would “substantially reduce competition,” which is often a criterion for blocking a deal under federal antitrust laws.

The FTC said in its lawsuit that if Meta acquired Withing’s Supernatural, it would no longer have an incentive to improve Beat Saber, the virtual reality fitness game it already owns. But Meta’s deputy general counsel, Nikhil Shanbhag, said in a blog post that the games are not competitors.

“Beat Saber is a game that people have fun playing, and it has a lot of competition,” he said. “The supernatural couldn’t be any different.”

Simon Hughes contributed research.

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