FTC, Meta Spar Over ‘Anticompetitive Harm’ Possible From Within Buy
Meta’s Within Unlimited buy “is likely to result in anticompetitive harm by lessening competition” in the virtual reality dedicated fitness app market, “where Within’s Supernatural is the leading firm in a highly concentrated market,” said the FTC’s proposed findings of fact and conclusions of law Friday (docket 5:22-cv-04325) in its lawsuit in U.S. District Court for Northern California in San Jose for a preliminary injunction that would block the transaction.
Meta’s acquisition, as a VR platform owner, of a VR app developer, Within, is a vertical transaction, and such acquisitions “are generally pro-competitive and common in many industries,” countered Meta in its own proposed findings of fact. “Meta’s documents confirm that it is acquiring Within to help scale Supernatural and grow Meta’s VR platform, which faces intense competition,” said the company. The dual filings capped eight days of an evidentiary hearing that ended Dec. 20 on the FTC’s motion for injunctive relief.
The proposed acquisition “will preclude Meta’s reasonably probable entry” into VR dedicated fitness apps “through alternative means, thereby denying consumers the benefit of adding another effective competitor to the market,” argued the FTC. The proposed deal “will also eliminate the current procompetitive influence on existing competition that Meta’s threat of potential entry provides from the edge of the market,” it said.
Few firms are “comparably situated” to Meta with respect to entry into the VR dedicated fitness app market, “and new entry or expansion is unlikely to be sufficient to offset the competitive harm” of the proposed Within buy, said the FTC. That the market for VR dedicated fitness apps “may be an emerging one poised for rapid growth might make it particularly susceptible to antitrust harm,” it said.
Meta and Within “have failed to rebut” the FTC’s case, said the commission. They cannot demonstrate that entry by others “will be timely, likely, and sufficient,” or that there are “cognizable merger-specific efficiencies,” to prevent the acquisition’s anticompetitive effects, it said. “Courts have repeatedly found that capital and labor costs, time, software development resources, and required minimum scale can all constitute barriers to entry.”
If the court grants the FTC a preliminary injunction that prevents the transaction from closing, “one or both parties” will terminate the merger agreement because they cannot wait until the FTC’s administrative proceeding and subsequent appeals conclude, likely years down the road, said Meta. “There is doubt over the extent to which an alleged loss of potential competition,” as the FTC is alleging in its Meta lawsuit, “can support a Section 7 claim” under the Sherman Act. The FTC has not litigated a “perceived potential competition” claim in nearly 40 years, said the company, and the Supreme Court has twice expressly declined to endorse “actual potential competition” claims.
The FTC is “not likely to succeed” on the merits of its Section 7 potential competition claim, and so its motion for a preliminary injunction must be denied, said Meta. For both of its potential competition theories -- actual and perceived -- the FTC must prove, first, that the nine-app VR dedicated fitness market “is a properly defined relevant antitrust market,” it said. For both theories, the FTC also must prove that the properly defined relevant antitrust market is an oligopoly, Meta said. That means the agency must show that in-market participants “engage in parallel or coordinated anticompetitive conduct,” or that substantial entry barriers “protect the oligopoly’s anticompetitive behavior,” it said. “The FTC has not made either predicate showing in this case.”