WASHINGTON – Early in her term as chair of the Federal Trade Commission, Lina Khan said she would be holding back the power of the largest tech companies in a dramatically new way.
“We are trying to look ahead, anticipate problems and act quickly,” Ms. Khan said in an interview last month. You promised to focus on “next generation technologies” and not just areas where the tech giants were already established.
This week, Ms. Khan took her first step in stopping the tech monopolies of the future when she sued to block a small acquisition by Meta, the company formerly known as Facebook, of virtual reality fitness start-up Within. . The deal was significant for Meta’s development of the so-called metaverse, which is a nascent technology far from the mainstream.
In doing so, Ms. Khan overturned decades of antitrust standards, potentially triggering a global shift in how Washington imposes competition across corporate America. At the heart of the FTC’s case is the idea that regulators can enforce antitrust law without waiting for a market to mature to the point where it’s clear which companies have the most power. The FTC said such early action was warranted because the Meta deal would likely have eliminated competition in the young virtual reality market.
Since the late 1970s, most federal merger challenges have occurred in large, well-established markets and aim to prevent already clear monopolies. Regulators have mostly approved start-up purchases by tech giants, such as Google’s 2006 YouTube deal and Facebook’s acquisition of Instagram in 2012, because those markets were still emerging.
As a result, Ms. Khan is faced with a climb. Regulators have been reluctant to try to stop corporate mergers based on the theory that competition and consumers will be harmed in the future. The federal government has lost at least two cases that have used this strategy in the past decade, including an attempt to block a $ 1.9 billion merger in 2015 between X-ray sterilization providers that the FTC predicted would damage the future competition in regional markets.
The FTC’s lawsuit against Meta in the nascent virtual reality market is a “deliberately experimental case that seeks to push the boundaries of merger enforcement,” said William Kovacic, former president of the agency. “These cases are certainly more difficult to win.”
The FTC action immediately caused an uproar within antitrust circles and across the tech industry. Silicon Valley tech executives said the movement to lock a deal in an embryonic tech area could stifle innovation and scare technologists from taking bold steps into new areas.
“Regulators predicting future markets are a very, very dangerous precedent and position,” said Aaron Levie, chief executive of cloud storage company Box. He warned that venture capitalists and entrepreneurs would become wary of entering new markets if regulators disrupted the ability of companies like Meta to buy start-ups.
Adam Kovacevich, president of the Chamber of Progress trading group, which represents Meta, Amazon and Alphabet, also said the lawsuit would have a chilling effect on innovation.
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“This is such an extreme and baseless reaction to a small deal that many tech leaders are already worrying about what an FTC win would mean for startups,” he said.
For Ms. Khan, winning the case may be less of a priority than showing that a technology deal can be filed while it’s still early days. She said that regulators in the past were too cautious about merging for fear of damaging innovation, allowing a wave of deals between tech giants and start-ups that ultimately cemented their dominance.
“What we can see is that inaction after inaction after inaction can have high costs,” he said in an interview with the New York Times and CNBC in January. “And that’s what we’re really trying to reverse.”
Ms. Khan declined interview requests for this article, and the FTC declined to comment on Thursday.
Meta said the FTC was applying antitrust law incorrectly. The lawsuit focuses on how the merger with Within would remove the competition, but Meta said the agency was ignoring the large number of companies that also had health and fitness apps.
“The FTC has no answer to the most basic question: How could Meta’s acquisition of a single fitness app in a dynamic space with many existing and future players hurt the competition?” Nikhil Shanbhag, Meta’s vice president and associate general counsel, wrote in a blog post.
The company added that it hasn’t decided whether to appeal the lawsuit, which was filed Wednesday in the United States District Court for the Northern District of California.
The FTC accused Meta of building a virtual reality “empire”, starting in 2014 with the purchase of Oculus, the maker of the virtual reality headset Quest. Since then, Meta has acquired around 10 virtual reality app makers, such as the creator of a Viking fighting game, Asgard’s Wrath, and several first-person shooters and sports games.
By purchasing Within and its Supernatural virtual reality fitness app, the FTC said, Meta would not create its own app to compete and scare potential rivals from trying to create alternative apps. This would hinder competition and consumers, the agency said.
“This acquisition poses a reasonable chance of eliminating both present and future competition,” according to the lawsuit. “And Meta would be one step closer to his ultimate goal of owning the entire ‘Metaverse’.”
Rebecca Haw Allensworth, a professor of antitrust law at Vanderbilt University, said the FTC’s arguments would be subjected to severe scrutiny because Meta and Within weren’t competing with each other and because the virtual reality market was fledgling.
“How merger analysis has stood for at least 40 years is about the kind of head-to-head competition that this merger takes out of the picture,” he said.
Now it will be up to the agency to convince a judge that its metaverse predictions and the purchase of Meta would hurt the competition.
“It is up to the FTC to show, among other things, a reasonable likelihood that Meta has entered the virtual reality fitness app market, in the absence of the acquisition of Within,” said Diana Moss, president of the American Antitrust Institute. .
If the court dismisses the case, Ms. Khan may have set a precedent that would make it more difficult to prosecute nascent competition cases, antitrust experts have warned. This could then encourage tech giants to find their way into new business lines.
“This is a legacy system that goes both ways – whether you win or lose – and sends a signal to the market,” Ms. Allensworth said.
The FTC is looking into other technology deals, including Microsoft’s $ 70 billion acquisition of gaming company Activision and Amazon’s $ 3.9 billion merger with One Medical, a nationwide chain of care clinics. primary. Additionally, the agency investigated Amazon’s complaints of monopoly abuse in its third-party vendor market.
Ms. Khan appears to be prepared for lengthy legal battles with the tech giants even if the cases don’t end up going in favor of the FTC.
In his previous interview with The Times and CNBC, he said, “While it’s not an overwhelming case, even if there is a risk you might lose, there can be huge rewards in taking that risk.”