Published: March 10, 2023

An industry that was once dominated by physical games and bulky consoles, the video gaming space is now shifting towards online playing environments and virtual reality (VR). One of the biggest purveyors of this technology has been Mark Zuckerberg and his company, Meta, which transformed from one of the biggest social networking platforms in history into the world’s most enthusiastic VR purveyor. Zuckerberg has shifted his entire business to focus on virtual universes, VR, and AR, and Meta’s current investment and acquisition strategy reflects that belief as the company has now poured $36 billion into its VR division, Reality Labs, to help beat out the competition.

But the tech giant isn’t seeing immediate success from their foray into the virtual realm; in fact, they have lost more than $30 billion on the effort and have found itself fighting the Federal Trade Commission over an acquisition that could take the VR fitness industry to a new level. This wasn’t Meta’s first time in court with the FTC, and this case has likely helped set the precedent for what’s expected in future antitrust fights in the realm of experts, regulations, and more.

Let’s take a quick look at how the FTC’s complaint crumbled and consider how future litigation in the space may look as innovation continues to create competition.

The FTC Strikes Motion to Halt Meta’s ‘Within’ Acquisition

As major players continue to dominate massive portions of the market, the government has been looking for ways to reign in big tech and improve the industry’s competitive landscape. So, in 2021, when Meta announced their plans to acquire Within Unlimited Inc., a VR startup and creator of the fitness app Supernatural, the FTC quickly began investigating the deal. While Meta moved to purchase Within, making it the company’s tenth VR studio acquisition in three years, the FTC claimed that the merger would lessen competition in the space by depriving the market of a Meta-created VR fitness app that could compete with Supernatural, which currently holds 82 percent share of market revenue among existing applications.

In July 2022, the FTC moved to block the deal and filed complaints both in federal court and its in-house court- but garnered little support. In December, U.S. District Judge Edward Davila concluded that the FTC didn’t prove that the acquisition would stifle competition or that Meta was “trying to buy its way to the top… instead of earning it on the merits.” Judge Davila ruled in favor of Meta, claiming that they “did not have the available feasible means to enter the relevant market other than by acquisition.” Then, at the beginning of February, a federal court denied the FTC’s request for a preliminary injunction to block the purchase, ultimately pushing the agency to withdraw its complaint and end the case on February 24, just 10 days after Meta closed the deal. This was a major case against big tech for FTC Chair Lina Khan, marking a defeat in her quest to breathe life back into aggressive federal antitrust enforcement, and if its arguments begin to be adopted by the courts, the way that the industry approaches competition could be altered forever.

This dispute is just the beginning of what’s to come for big tech players, having helped lay the groundwork for the FTC and other entities to challenge similar deals in the future as digital markets continue to rapidly evolve. As Rebecca Allensworth, an antitrust professor at Vanderbilt law school, said, “They have every incentive to bring more cases. There’s a lot in it for them to keep pushing in this direction.” How can firms ensure they are prepared for the push?

Future of FTC Litigation

While the trial ultimately ruled in favor of Meta, the court advanced one of the entity’s key legal theories arguing that the acquisition of competitors in nascent markets can stifle competition. The Judge also agreed with the FTC’s claim that mergers involving noncompeting companies can violate Section 7 of the Clayton Act, which will help guide future rulings around potential mergers. During the FTC trial, the parties engaged in numerous expert discoveries that involved a variety of depositions and expert reports on the industry. Since the entity is determined to develop additional cases in the space, it will likely continue to access its breadth of experts to help move forward with its filings. Meaning that those involved in the industry need to work with experts now to prepare for potential fights with the FTC, especially since they recently launched a technology office to keep up with evolving Big Tech giants.

Engaging with experts in the gaming space can help inform your litigation strategy to keep you ahead of the curve when it comes to disputes brought on by the FTC. WIT has created teams of video gaming experts who are top academics in computer science, information technology, engineering, communications, and mathematics and have worked with over 1,000 brands from small, independent studios to top 10 companies. They can identify the competitive nature of mergers, highlight monopolization, call out intellectual property infringement, analyze contract issues, and more. In the coming months, be sure to watch the FTC as they attempt to change the way the commission chooses to enforce the law against Amazon, Twitter, and more.

If your company needs help preparing for these challenges, reach out to our gaming experts who are uniquely qualified to inform your litigation strategy. And in the meantime, check out what gaming expert and IP Panelist Josh Grant feels about the future of antitrust disputes in the space here.

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