SAN JOSE, Calif. – Facebook parent Meta is sparring with government regulators in federal court over its pending acquisition of a virtual reality fitness company Within Unlimited
CEO Mark Zuckerberg is expected to testify as a witness at the trial in San Jose, California.
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At issue is whether Meta's acquisition of the small company that makes a VR fitness app called Supernatural will hurt competition in the emerging virtual reality market. If the deal is allowed to go through, the Federal Trade Commission argues, it would violate antitrust laws and dampen innovation, hurting consumers who may face higher prices and fewer options outside of Meta-controlled platforms.
Meta, the FTC argued in court this week, scrapped its own plans to enter the nascent VR fitness market in the summer of 2021 when it decided to buy Within. Without the competitive threat of the tech giant's entry into the market, the agency asserts, innovation stalls, hurting end users.
“The threat is what keeps firms going,” testified economist Hal Singer, a witness for the FTC. “If I know there is a chance that someone could come in and steal my lunch,” he said, companies will innovate and constrain pricing.
But Meta says it had no concrete plans to create a competing app beyond the initial discussion stage, where it concluded it had no ability to do so. Mark Rabkin, a vice president at Meta who leads its VR efforts, testified that while Meta could definitely build a VR fitness app, its chances of success would be “very low.”
“Achieving what Supernatural has achieved is remarkable and it would be very difficult for us to replicate that,” Rabkin said during a Zoom hearing Friday.
Meta, in fact, has a history of trying — and often failing — to copy rival platforms or their features, sometimes when it's not able to purchase a company or product outright. Meta owns Instagram, which has a Stories feature, for instance, that is very similar to the Story feature on Snapchat. Meta also briefly redesigned Instagram this year to make it look more like rival TikTok, but scrapped the change after an outcry from users, including celebrities.
The agency and Meta also disagree on how to define the market that Within's popular app falls into. The FTC defines it narrowly as “VR dedicated fitness apps,” while Meta's definition includes a wider swath of competitors, many of which don't need VR goggles to work — such as Peloton, for instance.
“Meta has talked about how they want to make virtual reality as ubiquitous as your cellphone,” said Lee Hepner, legal counsel, American Economic Liberties Project, an organization that advocates for government action against business consolidation. "It’s the next platform for widespread communication in Meta's eyes.”
If the FTC can preserve and boost competition at this stage, Hepner said, there are “different paths that this market could take instead of Meta controlling the whole path, the whole forward trajectory of this market in the next several years.”
The FTC's challenge to Meta's acquisition reflects agency chair Lina Khan's aggressive stance on Big Tech and antitrust.
The case, expected to wrap up Tuesday, is being heard by U.S. District Judge Edward Davila, who also oversaw the trial of disgraced Theranos founder Elizabeth Holmes and her partner Ramesh “Sunny” Balwani. Both were sentenced to over a decade in prison for their roles in the company’s blood-testing hoax.
The FTC also sued this month to block Microsoft’s planned $69 billion takeover of video game company Activision Blizzard, saying it could suppress competition for Microsoft’s Xbox game console and its growing games subscription business.
In 2020 the agency sued Meta, then called Facebook, over its acquisitions of Instagram and WhatsApp that could force a spinoff of Instagram and WhatsApp. Unraveling those deals, which were made 10 and nine years ago, respectively — and previously approved by the FTC — may be more difficult than blocking the Within purchase, which Meta and Within want to close by the end of this year.
Under Zuckerberg’s, Meta moved aggressively into virtual reality in 2014 with its acquisition of headset maker Oculus VR. Since then, Meta’s VR headsets have become the cornerstone of its growth in the virtual reality space, the FTC noted in its suit. Fueled by the popularity of its top-selling Quest headsets, Meta’s Quest Store has become a leading U.S. app platform with more than 500 apps available to download, according to the agency.
Meta bought seven of the most successful virtual-reality development studios, and now has one of the largest virtual-reality content catalogs in the world, the FTC says.
“It may be true that Meta has become more effective at acquisitions than they are at product innovation,” Hepner said. “But just because they’re better at acquiring and innovating doesn’t mean that it’s legal to do that. The entire tech industry ... for the past 20 years has gotten so effective at acquisitions, knowing that they won’t be challenged on it.”
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This story has been updated to correct the spelling of the FTC chair's last name. It's Khan, not Kahn.