WASHINGTON — Early in her tenure as Federal Trade Commission chairman, Lina Khan stated that she would curb the power of the biggest tech companies in a dramatically new way.
“We are trying to look ahead, anticipate problems and take action quickly,” Ms Khan said in an interview last month, promising to focus on “next generation technologies” and not just areas where tech giants are already were well established.
This week, Ms Khan took her first step toward stopping the tech monopolies of the future when she filed a lawsuit over a minor takeover by Meta, the company formerly known as Facebook, of the virtual reality fitness startup. -up Within to block. The deal was important for Meta’s development of the so-called metaverse, an emerging technology and far from mainstream.
By doing so, Ms. Khan has turned decades of antitrust standards upside down, potentially causing a large-scale shift in the way Washington enforces competition in corporate America. At the heart of the FTC’s lawsuit is the idea that regulators can enforce antitrust laws without waiting for a market to mature to the point where it is clear which companies have the most power. The FTC said such early action was warranted because Meta’s deal would likely eliminate competition in the fledgling virtual reality market.
Since the late 1970s, most federal challenges to mergers have been in large, established markets and are designed to avoid already obvious monopolies. Regulators have typically approved startup purchases by tech giants, such as Google’s 2006 deal to buy YouTube and Facebook’s 2012 acquisition of Instagram, as those markets were still emerging.
As a result, Ms Khan faces a tough climb. Regulators have been reluctant to try to stop corporate mergers by relying on the theory that competition and consumers will be harmed in the future. The federal government has lost at least two instances of using this strategy in the past decade, including a 2015 attempt to block a $1.9 billion merger between X-ray sterilization suppliers that the FTC predicted would face future competition in regional markets. would harm 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, a former chairman of the agency. “Things like that are definitely harder to win.”
The FTC’s action immediately caused a stir in antitrust circles and in the tech industry. Tech executives in Silicon Valley said blocking a deal in an embryonic field of technology could stifle innovation and deter technologists from making bold leaps into new areas.
“Regulators predicting future markets is a very, very dangerous precedent and position,” said Aaron Levie, the CEO of cloud storage company Box. He warned that venture capitalists and entrepreneurs would be wary of entering new markets if regulators cut the ability of companies like Meta to buy start-ups.
Adam Kovacevich, the chairman of the trade group Chamber of Progress, which represents Meta, Amazon and Alphabet, also said the lawsuit would have a chilling effect on innovation.
What is the metaverse and why is it important?
The origin. The word ‘metaverse’ describes a fully realized digital world that exists outside of the world we live in. It was conceived by Neal Stephenson in his 1992 novel ‘Snow Crash’ and the concept was further explored by Ernest Cline in his novel ‘Ready Player One’.
“This is such an extreme and unwarranted response to a small deal that many tech industry leaders are already concerned about what an FTC victory would mean for start-ups,” he said.
For Ms Khan, winning the lawsuit may be less of a priority than demonstrating that it is possible to strike a tech deal while it is still early. She has said that in the past, regulators have been too cautious about intervening in mergers for fear of harming innovation, enabling a wave of deals between tech giants and start-ups that ultimately cemented their dominance.
“What we can see is that inactivity after inactivity after inactivity can have serious costs,” she said in an interview with The New York Times and CNBC in January. “And that’s what we’re really trying to turn around.”
Ms Khan declined interview requests for this article and the FTC declined to comment on Thursday.
Meta said the FTC is misapplying antitrust law. The lawsuit focuses on how the merger with Within would eliminate competition, but Meta said the agency ignored the large number of companies that also had health and fitness apps.
“The FTC has no answer to the most fundamental question: How could Meta’s acquisition of a single fitness app in a dynamic space with many existing and future players potentially hurt competition?” Nikhil Shanbhag, Meta’s vice president and associate general counsel, wrote in a blog post.
The company added that it had not yet decided whether it would challenge the lawsuit, which was filed Wednesday in the US District Court for the Northern District of California.
The FTC accused Meta of building a virtual reality “empire,” beginning in 2014 with the purchase of Oculus, the maker of the Quest virtual reality headset. Since then, Meta has taken over about 10 virtual reality app makers, such as the creator of a Viking battle game, Asgard’s Wrath, and several first-person shooter and sports games.
By buying Within and its Supernatural virtual-reality fitness app, the FTC said, Meta would not create its own app to compete and scare potential rivals into creating alternative apps. That would hamper competition and consumers, the agency said.
“This acquisition presents a reasonable opportunity to eliminate both current and future competition,” the lawsuit said. “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 will be scrutinized because Meta and Within did not compete with each other and because the virtual reality market was still young.
“The way merger analysis has held up for at least 40 years is about what kind of mutual competition takes this merger out of the picture,” she said.
It’s now up to the agency to convince a judge that his predictions about the metaverse and Meta’s purchase would hurt the competition.
“It’s up to the FTC to show, among other things, that it’s reasonably likely that Meta would have entered the VR-specific fitness apps market without 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 emerging competition cases, antitrust experts warned. That could then encourage tech giants to make their way into new industries.
“This is a precedent system that goes both ways – if you win or lose – sending a signal to the market,” Ms Allensworth said.
The FTC is reviewing other tech deals, including Microsoft’s $70 billion acquisition of gaming company Activision and Amazon’s $3.9 billion merger with One Medical, a national chain of primary care clinics. In addition, the agency has been investigating Amazon for monopoly abuse claims on its marketplace from third-party sellers.
Ms. Khan appears to be prepared for a lengthy legal battle with the tech giants, even if things don’t end up going in the direction of the FTC.
In her previous interview with The Times and CNBC, she said, “Even if it’s not a slam-dunk thing, even if there’s a risk you could lose, there can be huge benefits from taking that risk.”