Meta’s VR Win Complicates FTC’s Focus on Future-Competition Cases

The Federal Trade Commission’s bid to stifle Big Tech’s “potential competition” acquisitions suffered a setback after a federal judge approved Meta Platforms Inc.'s bid to buy VR tech developer Within Unlimited.

Judge Edward Davila’s much-anticipated decision Wednesday at the US District Court for the Northern District of California could complicate antitrust regulators’ enforcement against deals where Big Tech companies gobble up startups before they become serious competitors, antitrust analysts say.

Antitrust agencies, under the Biden administration, vowed to aggressively crack down on what they perceive to be anticompetitive conduct, including stringent oversight of Big Tech.

The FTC’s outlook for defeating potential competition cases was already shaky, said Stephen Calkins, a professor at Wayne State University Law School. The agency lost its last case depending on such an argument, FTC v. Steris Corporation.

“The problem with potential competition cases is that there are so few that each loss is a significant loss,” Calkins said.

Davila’s opinion, though sealed as of Wednesday, will likely be scrutinized by other companies whose startup acquisitions are being reviewed by antitrust regulators.

“It’s a setback, but not a fatal one,” Calkins said. “Each time the government loses, there’s a hit to its aura of invincibility. More defendants gain confidence and more judges are going to listen keenly to the arguments made by the defendants.”

The FTC’s suit in the California court last year had been considered a long shot by legal scholars. Dusting off a rarely used “potential competition” theory, the agency primarily alleged that the merger wouldn’t hamper current competition but would allow Meta to roll up a future competitor.

Big Tech companies often engage in a series of small acquisitions to gain control of a developing sector before they face serious competition, as Facebook did when it acquired Instagram.

A win for the FTC could have served as a template for future challenges to more consequential mergers, court watchers previously told Bloomberg Law.

The FTC will likely not go away quietly in the Meta-Within case. There’s a separate case proceeding in its in-house court. The agency has a week to decide whether it’s appealing Davila’s decision, before Meta can close the deal.

The commission has proven adept at learning from its mistakes and stubbornly hanging on to long-term goals even through individual defeats, said Bruce Hoffman, a Cleary Gottlieb partner and former FTC official.

“The FTC has a long history of not being deterred by major litigation losses,” he said. “If you look at major issues like the state action doctrine where the FTC has prevailed, it had a lot of losses and eventually won.”

The FTC declined to comment.

But the lawsuit itself is a message from the FTC, said Eleanor Tyler, a Bloomberg Law legal analyst. It signifies that the agency will no longer accept the “risks of under-enforcement” to avoid the appearance of over-enforcement, she said.

The FTC suffered a string of losses against hospital mergers in the 1990s, but managed to reverse its losing record after studying the market, Tyler noted.

“I don’t think that this loss changes that message, or really even dents it,” she said.