Sues FTC to block VR Meta deal as it faces big tech

WASHINGTON — The Federal Trade Commission on Wednesday filed a lawsuit to prevent Meta, the company formerly known as Facebook, from buying a virtual reality company called Inside, which could limit the company’s push into the so-called metaverse and signal a shift in how the agency approaches tech deals.

The antitrust lawsuit is the first to be brought under Lina Khan, the panel’s chairwoman and a leading progressive critic of corporate focus, against a tech giant. Ms Khan argued that regulators should stop violations of competition laws and consumer protection when it comes to the bleeding edge of technology, including virtual and augmented reality, and not just in areas where companies are already giants.

The FTC’s request for an injunction puts Ms Khan on a collision course with Mark Zuckerberg, CEO of Meta, who is also named as a defendant in the request. He’s spent billions of dollars building products for virtual and augmented reality, betting that the immersive metaverse is the next frontier of technology. The lawsuit could hinder those ambitions.

Meta could have chosen to try to compete with Wayne on the merits, the FTC said in its lawsuit filed in the United States District Court for the Northern District of California. Instead, it chose to buy a ‘major company’ in what the government described as a ‘vitally important’ category.

In a statement, Meta said the FTC’s case is “based on ideology and speculation, not evidence. The idea that this acquisition will lead to non-competitive outcomes in a dynamic space with as much entry and growth as online and connected fitness is simply not credible.” The company added that the lawsuit was an attack on innovation, with the agency “sending a chilling message to anyone wishing to innovate in virtual reality.”

Meta said it would acquire Inside, which produces the hugely popular fitness app called Supernatural, last year for an undisclosed amount. The company has been promoting its VR headsets for fitness and health purposes.

The lawsuit is part of a wave of actions against Meta and other big tech companies such as Google, Apple and Amazon, which have faced increased scrutiny due to their power and dominance. Under Ms Khan’s predecessor, the Federal Trade Commission filed a lawsuit against Facebook arguing that the company shut down emerging competition through acquisitions. The Department of Justice also filed a lawsuit against Google over whether the company abused its monopoly on online search.

More cases can come. The Federal Trade Commission is investigating whether Amazon violated antitrust laws, and the Department of Justice has inquiries about Google’s dominance of advertising technology and in Apple’s App Store policies.

Mr Zuckerberg has pushed Meta away from its roots in social networks as the company’s apps, such as Facebook and Instagram, face increased competition and issues such as privacy and misinformation.

To support the push into the metaverse, Zuckerberg has rehired the staff and appointed a senior lieutenant in charge of the effort. It also authorized the assistants to follow some of the most popular games in the field of virtual reality. In 2019, Facebook bought Beat Games, makers of the hit title Beat Saber, one of the best virtual reality games on the Oculus platform.

Meta is due to report its quarterly earnings later on Wednesday. The company recently scaled back employee benefits and reined in spending amid uncertain economic conditions.

The FTC’s move can be seen as an attempt to learn from history. The agency approved Facebook’s 2012 acquisition of Instagram, the photo-sharing app that has grown to more than 1 billion regular users. Instagram Meta helped dominate the market in social photo sharing, although other startups have since emerged.

John Newman, deputy director of the FTC’s Office of Competition, said the agency acted in an internal deal because Meta was “trying to make her way to the top.” He said the company already had a best-selling VR fitness app, but then opted to acquire the Wyozen superhero app to “buy a market position.” He described the deal as an “unlawful takeover, and we will seek all appropriate relief.”

The Federal Trade Commission (FTC) vote on authorization to register was split 3 to 2.

This is an evolving news story and will be updated.

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