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Antitrust Hits Metaverse: FTC Sues to Stop Meta Platforms, Inc. From Acquiring VR Fitness App | JD Supra

Wilson Sonsini provides extensive and cutting-edge legal services to innovators, technology pioneers and disruptors. As part of our focus on emerging technologies, our lawyers are publishing a series on the application and adaptation of existing law in the Metaverse throughout 2022. This is the fifth article in our Metaverse series.

The Federal Trade Commission (FTC) has filed a lawsuit seeking to enjoin the acquisition of Within Unlimited, Inc. (Within) by Meta Platforms, Inc. (Meta, f/k/a Facebook).1 Republican Commissioners Christine Wilson and Noah Phillips voted against blocking the deal, making it the first 3-2 merger challenge since Commissioner Alvaro Bedoya joined the FTC in May 2022.

The FTC’s complaint alleges that by pairing Meta’s main platform with Within’s “killer app” Supernatural, the acquisition takes Meta “a step further [a] path to dominance” in the virtual reality (VR) space. The FTC’s challenge is significant in both the gaming industry and for mergers and acquisitions in the tech space, demonstrating that:

  • The current FTC is ready to promote aggressive theories, especially when it perceives that a large integrated company is making an acquisition as part of an “aspiration” to take “control of the entire ecosystem”, which, according to the FTC, may “tend to create a monopoly.”
  • The harm to consumers of a specific, narrow set of products (here, VR fitness apps) may be enough to invite a challenge.
  • Acquisitions by “big tech” companies are likely to come under scrutiny, even where conventional antitrust analysis would not raise concerns.

Meta owns the main VR ecosystem, with the Meta Quest 2 (headset), Quest Store (VR application distribution platform) and numerous proprietary and third-party applications. Meta’s Beat Saber, a dancing game, is one of the most popular VR apps. Within’s Supernatural, meanwhile, is one of the most popular fitness-focused apps for the Quest 2. A study found that playing Supernatural allows users to burn 12-13 calories per minute, more than any other app. VR. Meta agreed last October to acquire Within,2 in a deal worth around $400 million.3

The FTC alleges the transaction would violate Section 7 of the Clayton Act under two theories: a theory of potential competition for dedicated VR fitness apps and a traditional horizontal theory for VR fitness apps more broadly.

Fitness apps dedicated to virtual reality: First, the FTC alleges that the deal threatens “potential competition” between Meta and Within’s Supernatural in the market for “dedicated” VR fitness apps. The FTC says Meta, as a massive, well-capitalized company controlling many aspects of the VR ecosystem, should simply create its own dedicated fitness app to compete with Supernatural rather than buy Within.

The FTC has had mixed results in alleging potential competitive harm, and courts have treated such claims with skepticism, imposing high standards of proof. The doctrine of potential competition had fallen out of vogue since the defeat of the Department of Justice (DOJ) in the United States Supreme Court in Marine Bancorp. case of 1974.4 The FTC tried to revive it in 2015 by challenging the Steris Corp merger. and Synergy Health PLC, but a court cleared the merger.5 Since then, the FTC has challenged so-called “killful acquisitions” under Section 2 of the Sherman Act instead of using the potential competition doctrine,6 as it has done in its continued bid to unwind Meta’s acquisitions of Instagram and WhatsApp.seven

In this case, the FTC tries the potential competition theory again, alleging that Meta is a potential competitor in the “virtual reality fitness app market.” According to the FTC, Within is a top competitor in this market, which only includes fitness-specific VR apps, such as Supernatural, FitXR, Holofit, VZFit, and Les Mills Bodycombat. Other VR apps that allow users to burn calories as an “incidental” benefit, like Meta’s Beat Saber, aren’t in the same market. The FTC alleges that it is “reasonably probable” that Meta would have entered the VR fitness app market without the acquisition, to the benefit of users and that the perception that Meta would soon “probably” enter is creating pressure competitive advantage over incumbents that would be lost through the acquisition.

VR fitness apps: The FTC’s second theory argues that Meta and Within currently compete in a larger market for VR fitness apps (including dedicated fitness apps and accessories) and that the merger would reduce competition between Beat Saber and Supernatural on dimensions such as price, quality and innovation. The FTC admits there are at least several other competitors in the space, but alleges that Beat Saber and Supernatural are “close competitors in this larger market.” It will be interesting to see how the court grapples with two market definitions that are arguably in tension with each other.

Regardless of the outcome, this challenge shows that companies should be prepared for antitrust scrutiny in most transactions involving “big tech” platforms, even if the target is a relatively small company in a dynamic space.

The lawsuit is part of a broader push by antitrust agencies to oppose “killer” small acquisitions by so-called “big tech companies.” Additionally, the FTC and DOJ have both stated their intent to prevent “roll-up” strategies, whereby a large corporation or private equity firm makes a series of acquisitions of smaller companies in an industry. . According to FTC Chairman Lina Khan, roll-ups may violate Section 7 of the Clayton Act, which prohibits acquisitions that “tend to create a monopoly.”8


[1] Complaint for temporary restraining order and preliminary injunction, FTC v. Meta Platforms, Inc., Mark Zuckerberg and Within Unlimited, Inc., no. 3:22-cv-04325 (ND Cal. 2022).

[2] Brian Heater, Meta (Facebook) buys inside, creators of “supernatural” VR fitness appTechCrunch (October 29, 2021), https://techcrunch.com/2021/10/29/meta-facebook-is-buying-within-creators-of-the-supernatural-vr-fitness-app/.

[3] Josh Sisco, FTC slows metaverse meta-platform strategy by expanding VR deal antitrust probeThe Information (December 16, 2021), https://www.theinformation.com/articles/ftc-slows-meta-platforms-metaverse-strategy-by-extending-antitrust-probe-of-vr-deal.

[4] United States vs. Marine Bancorp.418 US 602 (1974).

[5] FTC v Steris Corp., 133 F. Supp. 3d 962 (ND Ohio 2015).

[6] See Scott A. Sher, Keith Klovers and John Ceccio, Emerging Competition, Section 2, and Agencies’ Quixotic Quest to Avoid the Doctrine of Potential Competition, ABA Antitrust Magazine (August 24, 2021), https://www.americanbar.org/groups/antitrust_law/resources/magazine/2021-august/nascent-competition/; Mike Moiseyev, Potential and Emerging Competition in FTC Enforcement of Mergers in Healthcare MarketsCompetition Policy International (May 11, 2020), https://www.competitionpolicyinternational.com/potential-and-nascent-competition-in-ftc-merger-enforcement-in-health-care-markets/.

[7] First Amended Complaint, FTC v. Facebook, Inc., No. 1:20-cv-03590 (DDC 2021).

[8] Remarks from Chairperson Lina M. Khan regarding request for information on merger enforcement, Dkt. No. FTC-2022-0003 (January 18, 2022), https://www.ftc.gov/system/files/documents/public_statements/1599783/statement_of_chair_lina_m_khan_regarding_the_request_for_information_on_merger_enforcement_final.pdf.

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