F.T.C. Sues to Block Meta’s Virtual Reality Deal

WASHINGTON — The Federal Trade Commission on Wednesday filed for an injunction to block Meta, the company formerly known as Facebook, from buying a virtual reality company called Within, potentially limiting the company’s push into the so-called metaverse and signaling a shift in how the agency is approaching tech deals.

The antitrust lawsuit is the first to be filed under Lina Khan, the commission’s chair and a leading progressive critic of corporate concentration, against one of the tech giants. Ms. Khan has argued that regulators must stop violations of competition and consumer protection laws when it comes to the bleeding edge of technology, including virtual and augmented reality, and not just in areas where the companies have already become behemoths.

The F.T.C.’s request for an injunction puts Ms. Khan on a collision course with Mark Zuckerberg, Meta’s chief executive, who is also named as a defendant in the request. He has poured billions of dollars into building products for virtual and augmented reality, betting that the immersive world of the metaverse is the next technology frontier. The lawsuit could crimp those ambitions.

“Meta could have chosen to try to compete with Within on the merits,” the F.T.C. said in its lawsuit, which was filed in the United States District Court for the Northern District of California. “Instead, it chose to buy” a top company in what the government called a “vitally important” category.

In a statement, Meta said the F.T.C.’s case was “based on ideology and speculation, not evidence. The idea that this acquisition would lead to anticompetitive 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 who wishes to innovate in V.R.”

Meta said it would acquire Within, which produces the highly popular fitness app called Supernatural, last year for an undisclosed sum. The company has promoted its virtual reality headsets for fitness and health purposes.

The lawsuit is part of a wave of actions against Meta and other large tech companies like Google, Apple and Amazon, which have increasingly faced scrutiny for their power and dominance. Under Ms. Khan’s predecessor, the F.T.C. filed a lawsuit against Facebook that argued the company shut down nascent competition through acquisitions. The Justice Department has also sued Google over whether the company abused a monopoly over online search.

More cases could be coming. The F.T.C. is investigating whether Amazon has violated antitrust laws, and the Justice Department has inquiries into Google’s dominance over advertising technology and into Apple’s App Store policies.

Mr. Zuckerberg has been pushing Meta away from its roots in social networking as the company’s apps, like Facebook and Instagram, face increasing competition and issues such as privacy and misinformation.

To support the push into the metaverse, Mr. Zuckerberg has reassigned employees and put a top lieutenant in charge of the efforts. He has also authorized lieutenants to pursue some of the most popular games in the V.R. space. In 2019, Facebook purchased Beat Games, makers of the hit title Beat Saber, one of the top V.R. games on the Oculus platform.

Meta is scheduled to report quarterly earnings later on Wednesday. The company has recently trimmed employee perks and reined in spending amid uncertain economic conditions.

The F.T.C.’s move could be viewed 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 one billion regular users. Instagram has helped Meta dominate the market on social photo sharing, though other start-ups have sprung up since.

John Newman, the deputy director of the F.T.C.’s Bureau of Competition, said the agency acted on the Within deal because Meta was “trying to buy its way to the top.” The company already owned a best-selling virtual reality fitness app, he said, but then chose to acquire Within’s Supernatural app “to buy market position.” He called the deal “an illegal acquisition, and we will pursue all appropriate relief.”

The F.T.C.’s vote to authorize the filing was split 3 to 2.

This is a developing news story and will be updated.

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