FTC Drops Challenge To Meta's Acquisition Of Virtual Reality Fitness Company After Court Denies Preliminary Injunction

• Jurisdiction: California,United States,Federal
• Law Firm: MoginRubin
• Subject Matter: ntitrust/Competition Law, Antitrust, EU Competition
• Author: Mr Jonathan Rubin
• Published date: 24 February 2023

Court found harm to potential competition a viable anti-merger legal theory, but required evidence FTC could not produce.

The FTC has decided to abandon its challenge to Meta Platforms Inc.'s acquisition of virtual reality (VR) exercise app developer, Within Unlimited, Inc., after U.S. District Judge Edward J. Davila from the Northern District of California rejected the Federal Trade Commission's bid for a preliminary injunction blocking the deal. A setback for the Biden administration's campaign to get tougher on anticompetitive mergers, the judge found that entry by acquiring Within was Meta's only option because - despite its enormous resources - the company did not have the "available feasible means" and capabilities to develop its own VR exercise app business on its own.

The order denying the preliminary injunction, entered Jan. 31, 2023 in FTC v. Meta Platforms Inc., et al., No. 5:22-cv-04325-EJD (N.D.Ca., filed Jul. 27, 2022), allowed the transaction to close on Feb. 8. The Commission could have appealed the court's ruling or commenced a proceeding before the agency's Administrative Law Judge. On Feb. 6, the FTC said that it would not appeal the district court's refusal to pause the merger and on Feb. 10 it stayed the administrative law proceedings.

Definition of the Relevant Market

The Commission had argued that the market consisted of VR apps that are "dedicated" to fitness and does not include apps for which fitness is "incidental," such as exercise videos on YouTube. Products described as "VR dedicated fitness apps" occupy their own relevant market, the FTC alleged, because these products have distinct customers and pricing schemes and provide an offering that differs from other apps on VR platforms. The merging parties countered that the Commission's market definition was impermissibly narrow because it excluded too many reasonably interchangeable products.

The court agreed with the FTC's market definition, noting that despite the existence of "a broad fitness market that includes everything from VR apps to bicycles," it would "in no way preclude[ ] the existence of a submarket constituting a relevant product market for antitrust purposes." The way the user of a VR dedicated fitness app is "embodied" in a virtual environment, the court said, is "vastly different" from what can be offered on a stationary bike or mobile phone. Moreover, VR dedicated fitness apps are more likely than other VR apps to be subscription-based.

The court also observed that "neither general fitness firms nor general...