FTC's Evidence 'Insufficient' to Block Meta's Within Buy, Says Judge

Denying the FTC’s preliminary injunction to block Meta’s Within Unlimited buy (see 2302010003), U.S. District Judge Edward Davila for Northern California in San Jose said the agency failed “to establish a likelihood that it would ultimately succeed on the merits” of its Clayton Act Section 7 antitrust claims, said his heavily redacted order (docket 5:22-cv-04325) unsealed and released Friday. He rejected for lack of evidence the FTC’s core actual and perceived potential competition arguments that Meta’s Within acquisition would lessen competition in the “relevant market” for dedicated virtual-reality fitness apps.

Under the temporary restraining order Davila extended Jan. 31 after the FTC’s emergency motion, Meta was free to consummate the Within buy after 11:50 p.m. PST Monday, the first business day after Davila’s injunction ruling. However, Davila’s decision Friday said he would address the emergency TRO motion in a separate order.

On the current potential competition claim, the court said it's not “reasonably probable” Meta would enter the market for VR dedicated fitness apps if it couldn't consummate the Within acquisition, said Davila’s order. “Though Meta boasts considerable financial and VR engineering resources, it did not possess the capabilities unique to VR dedicated fitness apps, specifically fitness content creation and studio production facilities,” it said.

As a VR platform developer, Meta “can enjoy many of the promising benefits of VR fitness growth without itself intervening in the VR fitness app market,” said Davila’s order. One proposal for Meta to enter the market by expanding its popular Beat Saber franchise into fitness, through a partnership with Peloton, also wasn't “reasonably probable” for a whole host of reasons, in addition to the multiple “obstacles” to Meta’s de novo entry, said Davila’s order.

The judge appeared to give significant weight to the Dec. 16 testimony of Mark Rabkin, vice president of Meta Reality Labs and third in Meta's VR chain of command from CEO Mark Zuckerberg and Chief Technology Officer Andrew Bosworth. Rabkin told the court he was negatively disposed toward a Beat Saber co-branding fitness alliance with Peloton because “partnerships are hard” (see 2212180001). He also was fearful about toying with Beat Saber, the “crown jewel” in Meta’s Oculus Store, because a VR fitness app was “not what Beat Saber is about,” he told the court.

Under its perceived potential competition claim, the FTC argued the Within buy “would eliminate the competitive influence that Meta exerts on firms within the relevant market by virtue of its presence on the fringes of the market,” said Davila’s order. A claim for actual potential competition “may consider the potential entrant’s intent to enter the market,” it said. A perceived potential competition claim, by comparison, “ignores the potential entrant’s subjective intent to enter the market and instead focuses on the subjective perceptions of the in-market firms,” it said.

The “objective evidence” in the record is “insufficient to support a finding” it was “reasonably probable” Meta would enter the relevant market for purposes of the perceived potential competition doctrine, said Davila’s order. “Nor does the subjective evidence of the in-market firms’ perceptions move the needle on this point,” it said. Though the FTC produced some evidence that Within’s co-founders and employees had expressed concern that Beat Saber or its fans could create a fitness version to compete with Within’s Supernatural VR fitness app, “these statements are mostly stale with some significantly preceding the relevant time period,” it said.

The “overall absence” of testimony from other in-market firms, would suggest the FTC failed to demonstrate that it was “reasonably probable” that Meta was perceived as a potential competitor into the relevant market, said Davila’s order. Even if the FTC had prevailed on this element, the court is convinced “it did not satisfy the second required showing" for a perceived potential competition claim, the “tempering effect,” it said.

The FTC needed to produce at least circumstantial evidence that Meta’s premerger presence on the fringe of the target market tempered “oligopolistic behavior” by existing participants in that market, including Within, said Davila’s order. “Under this standard, the FTC’s evidence on this element is insufficient,” it said.

The FTC declined comment Monday on the newly unsealed order, and Meta didn't respond to requests for comment. Davila scheduled a virtual status conference for Tuesday at 10 a.m. PST.