FTC Abandons Challenge to Meta’s Acquisition of Virtual-Reality Startup

U.S. antitrust enforcers have often abandoned such administrative litigation once a federal judge denies a request for an injunction.

An FTC spokesman declined to comment. A Meta spokesman said, “We’re excited that the Within team has joined Meta, and we’re eager to partner with this talented group in bringing the future of VR fitness to life.”

Both the administrative case and the federal court litigation have been closely watched because the FTC adopted an unusual theory of competitive harm focusing on potential future competition in a nascent industry. The case is also widely seen as emblematic of FTC Chair Lina Khan’s opposition to the expansion of big technology companies.

Within makes a popular game called Supernatural, which lets users take virtual-reality fitness classes. Meta announced in 2021 that it was acquiring Within—the latest in a string of acquisitions that have made Meta a dominant player in the virtual-reality space.

Meta CEO

Mark Zuckerberg

has made a big bet on immersive virtual worlds, or metaverses, a strategic shift that led to the 2021 rebranding of Facebook as Meta.

In July, the FTC sued to block the Meta-Within deal, saying it would lessen competition in the market for virtual-reality fitness products. The antitrust lawsuit was the first under Ms. Khan against one of the “big four” technology companies: Meta,

Alphabet Inc.,

Apple Inc.,

and

Amazon.com Inc.

Historically, the FTC and Justice Department have challenged mergers by two major players in established industries. So the FTC’s challenge to Meta buying a startup in a relatively new market was seen as an unusual approach and an important test case.

The FTC alleged Meta had the resources to build a rival to Within’s Supernatural, but instead of competing on the merits opted to buy its way to the top of the industry.

The agency said blocking the Meta-Within deal would ultimately lead to more competition, which in turn would foster innovation and benefit consumers. Even the perceived threat of Meta launching a rival to Within’s Supernatural was leading to a more competitive industry, the FTC said.

Judge Davila poked holes in those theories in his Jan. 31 ruling, which was made public on Feb. 3. The judge said that, while Met undoubtedly has vast resources, there were many obstacles to it launching its own virtual-reality fitness product.

The judge ultimately concluded “that Meta did not have the available feasible means to enter the relevant market other than by acquisition.” 

The ruling wasn’t a total defeat for the FTC. While the judge disagreed with the FTC on its view of the facts of the case, he said it was premised on a valid legal theory—namely, that the transaction could lessen competition because the industry would benefit from Meta’s independent entry into the market. Meta’s lawyers had argued that this theory, known as the “actual potential competition” doctrine and which has never been explicitly endorsed by the Supreme Court, is invalid.

The FTC has said it won’t be appealing Judge Davila’s ruling to the Ninth U.S. Circuit Court of Appeals.

Meta officially closed its acquisition of Within on Feb. 8. The Facebook parent had agreed to hold off on closing the deal until Judge Davila had ruled on the injunction request.

—Dave Michaels contributed to this article.

Write to Jan Wolfe at [email protected]

U.S. antitrust enforcers have often abandoned such administrative litigation once a federal judge denies a request for an injunction.

An FTC spokesman declined to comment. A Meta spokesman said, “We’re excited that the Within team has joined Meta, and we’re eager to partner with this talented group in bringing the future of VR fitness to life.”

Both the administrative case and the federal court litigation have been closely watched because the FTC adopted an unusual theory of competitive harm focusing on potential future competition in a nascent industry. The case is also widely seen as emblematic of FTC Chair Lina Khan’s opposition to the expansion of big technology companies.

Within makes a popular game called Supernatural, which lets users take virtual-reality fitness classes. Meta announced in 2021 that it was acquiring Within—the latest in a string of acquisitions that have made Meta a dominant player in the virtual-reality space.

Meta CEO

Mark Zuckerberg

has made a big bet on immersive virtual worlds, or metaverses, a strategic shift that led to the 2021 rebranding of Facebook as Meta.

In July, the FTC sued to block the Meta-Within deal, saying it would lessen competition in the market for virtual-reality fitness products. The antitrust lawsuit was the first under Ms. Khan against one of the “big four” technology companies: Meta,

Alphabet Inc.,

Apple Inc.,

and

Amazon.com Inc.

Historically, the FTC and Justice Department have challenged mergers by two major players in established industries. So the FTC’s challenge to Meta buying a startup in a relatively new market was seen as an unusual approach and an important test case.

The FTC alleged Meta had the resources to build a rival to Within’s Supernatural, but instead of competing on the merits opted to buy its way to the top of the industry.

The agency said blocking the Meta-Within deal would ultimately lead to more competition, which in turn would foster innovation and benefit consumers. Even the perceived threat of Meta launching a rival to Within’s Supernatural was leading to a more competitive industry, the FTC said.

Judge Davila poked holes in those theories in his Jan. 31 ruling, which was made public on Feb. 3. The judge said that, while Met undoubtedly has vast resources, there were many obstacles to it launching its own virtual-reality fitness product.

The judge ultimately concluded “that Meta did not have the available feasible means to enter the relevant market other than by acquisition.” 

The ruling wasn’t a total defeat for the FTC. While the judge disagreed with the FTC on its view of the facts of the case, he said it was premised on a valid legal theory—namely, that the transaction could lessen competition because the industry would benefit from Meta’s independent entry into the market. Meta’s lawyers had argued that this theory, known as the “actual potential competition” doctrine and which has never been explicitly endorsed by the Supreme Court, is invalid.

The FTC has said it won’t be appealing Judge Davila’s ruling to the Ninth U.S. Circuit Court of Appeals.

Meta officially closed its acquisition of Within on Feb. 8. The Facebook parent had agreed to hold off on closing the deal until Judge Davila had ruled on the injunction request.

—Dave Michaels contributed to this article.

Write to Jan Wolfe at [email protected]