Lina Khan took over as head of the US Federal Trade Commission on a promise to recast the debate about anti-competitive behavior in the age of Big Tech. His agency’s lawsuit this week to stop Meta from buying a small startup is the first major act to put that philosophy to the test.
The FTC on Wednesday asked a California court to stop Meta from acquiring Within, a Los Angeles-based creator of virtual reality experiences.
Its biggest hit, and the subject of Meta’s desire, is Supernatural – a fitness app that’s one of the most popular in Meta’s VR market.
The FTC said stopping the deal was necessary to prevent Meta from taking over a fledgling company and undoing a competitive threat.
The dispute, which Meta says is based on “ideology”, will be closely watched as tech companies increasingly meet to strike deals around the world, with similar efforts to review deals taken. by competition regulators in Europe.
But leading competition law experts said the FTC lawsuit was “high risk” and questioned whether it would really give Meta a huge boost to its dominance at the expense of consumers.
“I think if we gave the FTC’s truth serum leadership team, they would say this is definitely an experimental case,” former FTC Chairman William Kovacic said.
“It uses a relatively new theory of evil, or at least one that agencies haven’t tried in the past.”
A loss could generalize the FTC’s newly zealous approach and lend credence to claims that Khan’s impartiality on technology is compromised due to his previous academic work on the monopoly power of Big Tech. Meta and Amazon have both failed in their efforts to have Khan recuse cases involving the companies.
Others in the industry have warned that success in this case could have a chilling effect. If it became more difficult for large companies to acquire promising start-ups, they argue, it would rob early-stage investors of one of their main ways to cash in on their backing.
The Computer and Communications Industry Association, which lobbies on behalf of the tech industry, said more deals could be in jeopardy, pointing to Microsoft’s blockbuster $75 billion deal to buy video game giant Activision. Blizzard.
“Competition policy and regulatory decisions work best when they focus on market data, consumers and facts – not company names or politics,” said CCIA Chairman Matt Schruers.
In acting on the Meta-Within deal, the five FTC commissioners split 3-2 along party lines to authorize legal action. Both commissioners appointed by former President Donald Trump – Noah Phillips and Christine Wilson – voted against, although they did not share a written dissent. Phillips declined to comment, and Wilson did not immediately respond to requests for comment.
Part of Khan’s antitrust thesis argues that regulators have previously dropped the ball waiting for companies to become multibillion-dollar players before worrying about takeovers or mergers. Tech companies have proven adept at spotting cheap newcomers and making offers that almost can’t be refused.
Instagram, which Facebook acquired in April 2012 for $1 billion, is often cited as the prime example of this problem, which the FTC is seeking to retroactively challenge in court.
The FTC argued in its court filing that Within, although a minnow today, exists in a new market that could become a major new platform, following the same trajectory as the smartphone.
Others note that fitness games are a “killer” app, the term given to breakthrough uses that drive widespread adoption of a new technology platform.
The FTC argued that a company that enjoyed early success, such as Within, should remain independent because it would force Meta to create its own fitness products, increasing competition in the market.
Instead, acquiring the company would eliminate Within as a competitor and discourage others from entering the VR fitness space, the FTC said, noting that Meta has already acquired seven similar companies in the industry. of the metaverse.
In a lengthy statement outlining its goals, Meta claimed that its spending would actually stimulate competition by growing the market.
“The FTC sends a chilling message to anyone looking to innovate in virtual reality,” he said. “How might Meta’s acquisition of a single fitness app in a dynamic space with many existing and future players hurt competition?”
What makes Khan’s decision groundbreaking, said an antitrust scholar, is the extent to which the decision may well depend on a judge’s assessment of virtual reality. Its prospects for commercial success are far from certain, with adoption still lagging far behind that of traditional video games.
“Predicting the future is always difficult,” said University of Richmond law professor Carl Tobias. “It doesn’t seem big to us now, and it seems pretty limited, but maybe there’s a lot more to it than meets the eye. And maybe the FTC is trying to get ahead of the game. Game. “
More such cases could follow now that the agency’s top Democratic officials have consolidated their voting majority on the committee after the nomination of Alvaro Bedoya in May.
Antitrust experts are watching whether the FTC – bolstered by Bedoya’s arrival – will reverse Amazon’s $8.45 billion acquisition of movie studio MGM, which closed in March after competition regulators two sides of the Atlantic refused to block the agreement. The FTC, which at the time had a 2-2 voting stalemate between the Democratic and Republican commissioners, let a 30-day review period pass without opposition.
Win or lose, Kovacic, the former FTC chairman, speculates that the Meta case is muscle flexing on Khan’s part, especially as new tech competition legislation grinds to a halt in Congress.
“It’s the case she’s been waiting for. It shows that they’re willing to use new theories of evil, to address structural conditions that have been overlooked. To bring a level of courage to the process.
“They may be willing to lose business for a much bigger game. They promised, no one should be surprised. Here we are.”
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