On July 27, 2022, the U.S. Federal Trade Commission (“FTC”) sued Meta, Facebook’s parent company, to block its merger acquisition of virtual reality (“VR”) company Within Unlimited (“Within ”) for antitrust reasons. Meta’s founder, majority shareholder, chairman and CEO Mark Zuckerberg and Within were also named. This is the second time in a month that the FTC and the Department of Justice (“DoJ”) have invoked antitrust laws in an effort to block merger and acquisition (“M&A”) activity (see “DoJ Sues to Block Acquisition of Defense /Intelligence Contractor,” June 29, 2022, available at Kurtin PLLC Mergers & Acquisitions). A copy of the FTC Complaint, as drafted by the FTC, filed in the U.S. District Court for the Northern District of California seeking an injunction, including a temporary restraining order blocking the merger, can be found here.
The FTC alleges in its complaint that Meta, the owner of Facebook, Instagram, Messenger and Whatsapp, already the world’s largest provider of immersive VR apps, offering more than 400 apps available for download on its Quest App Store, has launched in a roll-up campaign to dominate the VR market and create a VR “metaverse” (the reason for Meta’s recently adopted parent company name, of course), and that its planned acquisition of Within, which offers a virtual reality fitness product called “Supernatural” that competes horizontally with Meta’s existing VR fitness app will lessen competition and irreparably harm this market, requiring an injunction blocking the planned merger before it closes.
Essentially, the FTC alleges that Meta is trying to dominate the VR market by buying out competitors rather than gaining VR market share by developing its own product entries. Since Meta wields the buying power enabled by Facebook and Instagram, its VR roll-up targets, which tend to be much smaller, entrepreneurial ventures are often founded with the very type of “output” as the checkbook. of Meta offers in mind, without antitrust enforcement, Meta will be free to expand and dominate the virtual reality industry, in violation of Section 7 of the Clayton Antitrust Act, the antitrust law regulating the activities of mergers and acquisitions deemed anti-competitive.
We’ve reported over the past year and a half on the Biden administration’s newly activist merger review policies under the leadership of FTC Chair Lina M. Khan and DoJ Antitrust Chief. , Jonathan Kanter, after decades of relatively laissez-faire treatment of proposals. M&A activity. See, “FTC and DoJ Launch Effort to Restrict Anticompetitive Mergers,” “FTC Restores Restrictive Prior Approval Merger Review Policy” and “FTC Sets Ambitious M&A Enforcement Agenda,” all also available at Kurtin PLLC Mergers & Acquisitions. Khan reportedly rejected his own staff’s recommendation in deciding to take legal action against Meta.
As we noted a month ago in the defense/intelligence contractor case, a generation of negotiators and their lawyers grew up with a relatively relaxed attitude about the likelihood that the government scrutinizes M&A activity closely. That time has passed. Anyone structuring a transaction that will substantially lessen or eliminate competition generally, and a transaction that has implications for consolidation, concentration, and market monopoly in the technology sector, an objective announced by the FTC, should be aware that review Antitrust is a real problem, even for small deals, government should plan for careful scrutiny and structure their deals accordingly.
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