Why the FTC is battling Meta over a VR fitness app

The Federal Trade Commission on Thursday kicked off a court effort to prevent Meta from acquiring Within, the maker of a virtual reality fitness app.

• However, the case is likely to have ripple effects beyond Facebook’s struggling parent.

Why it matters: Setting any precedent that prevents big tech companies from acquiring startups is sure to send ripples through startup land, where selling to a larger company is seen as a critical part of what keeps the ecosystem going.

Catch up quickly: In October 2021, the social media giant announced its intention to acquire Within, whose app Supernatural offers users immersive workouts.

• But the FTC sued in July to block the acquisition, asking for a preliminary injunction to prevent the deal from closing before it went through a full legal review.

What they say: “This case is about the harm to competition that happens when one of the world’s largest technology companies decides to buy an innovator,” the FTC said in its opening statement to a federal court Thursday in San Jose.

• The FTC said it “has reason to believe that the effect of the proposed acquisition is to lessen competition,” adding that without Within, Meta would likely get into the VR fitness game by building its own app.
• The agency also argues that an order now would allow for “effective enforcement of the antitrust laws” and avoid the challenges of “crawling the eggs” after acquisition.

The other side: In its opening statement, Meta argued that the deal is “a beneficial acquisition — it’s good for competition, it’s good for everyone involved in this emerging technology … and good for consumers.”

• Not only that, but “the FTC is not right on the law … and third, it’s wrong on the facts,” Meta added.
• “What’s so backwards about the FTC’s lawsuit is that the one company that Supernatural is not competing with is Meta,” said Within’s attorney.

The plot: The two parties also differed on the consequences of an order.

• While the FTC argued that the merger would only die if the companies decided to allow it, Meta and Within said there was no way it would survive this type of delay.

• “It’s not a break — it’s the ball game,” Meta said in court.

My thought bubble: It’s hard not to see the FTC’s aggressive action against Meta’s acquisition of a relatively small app as an attempt to make up for what (critics say) was its failure to act a decade ago, when Meta Instagram and other smaller apps have absorbed.

• Now the agency wants to show it can be forward-thinking when it comes to foreseeing how even a small acquisition could have anticompetitive implications in the future.

Between the lines: Experts criticizing the FTC’s case believe it will be extremely difficult to win, as Ashley Gold of Axios notes.

• Meanwhile, supporters argue that the agency can only advance its larger ambitions for antitrust law by taking cases to court — and even help a loss by spurring lawmakers to act.

What is next: The two sides will continue to present their arguments over the next 10 days or so.

• Witnesses are expected to include Meta executives (and likely testimony by CEO Mark Zuckerberg), as well as various home fitness product manufacturers and legal experts.