Why the FTC is combating Meta over a VR health app

Image: Sarah Grillo/Axios

The Federal Trade Commission began court proceedings Thursday to prevent Meta from acquiring Within, the maker of a virtual reality fitness app.

  • However, the case is likely to have spillover effects beyond Facebook’s embattled parent company.

Why it matters: Setting a precedent that prevents big tech companies from acquiring startups is bound to make waves across startup land, where selling to a bigger company is seen as a crucial part of what keeps the ecosystem running.

Catch up fast: Back in October 2021, the social media giant announced its intention to acquire Within, whose app Supernatural offers users immersive workouts.

  • But the FTC sued in July to block the acquisition, asking for an injunction to prevent the transaction from completing before it faces a full legal review.

What you say: “This case is about the competitive damage that occurs when one of the world’s largest technology companies decides to buy an innovator,” the FTC said in its opening statement Thursday in San Jose federal court.

  • The FTC said it has “reasons to believe the effect of the proposed acquisition is to reduce competition,” adding that without Within, Meta would likely enter the VR fitness game by developing its own app.
  • The agency also argues that an injunction will now allow for “effective enforcement of antitrust laws” and avoid the challenges of “unlocking the eggs” after the takeover.

The other side: In his opening remarks, Meta argued that the deal “is a beneficial acquisition — it’s good for competition, it’s good for everyone involved in this new technology… and it’s good for consumers.”

  • Not only that, but “the FTC is wrong about the law … and third, it’s wrong about the facts,” Meta added.
  • “What’s so backward about the FTC’s lawsuit is that the only company that Supernatural doesn’t compete with is Meta,” said Within’s attorney.

The Intrigue: Both sides also disagreed about the consequences of a temporary injunction.

  • While the FTC argued that the merger will only end if the companies choose to allow it, Meta and Within said there was no way it could survive that kind of delay.

  • “This isn’t a break — this is the ball game,” Meta said in court.

My thought bubble: It’s hard not to see the FTC’s aggressive crackdown on Meta’s acquisition of a relatively small app as an attempt to make up for what critics say was its failure a decade ago, when Meta took over Instagram and other smaller apps.

  • Now the agency wants to show it can be forward-thinking when it comes to anticipating how even a small acquisition can have anti-competitive effects across the line.

Between the lines: Experts critical of the FTC’s case believe it will be extremely difficult to win, Axios’ Ashley Gold notes.

  • Meanwhile, proponents argue that the only way the agency can advance its larger antitrust ambitions is by taking cases to court — and even a loss could help by spurring lawmakers to action.

What’s next: The two sides will present their arguments in the next 10 days or so.

  • Witnesses are expected to include Meta executives (and likely testimony from CEO Mark Zuckerberg), as well as various home fitness product manufacturers and legal experts.

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