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Meta/Within loss exposes FTC's struggle to make its case

In its pursuit of big tech companies, the FTC theorizes their dominance is based on acquisition of nascent companies -- a theory the agency has struggled to prove in court.

The Federal Trade Commission's uphill battle against big tech companies took another blow earlier this month when a U.S. judge denied its request to stop Meta from acquiring virtual reality firm Within.

The FTC filed a lawsuit against Meta last year alleging that the company, owner of popular social media platforms Facebook and Instagram, was trying to buy its way to the top in the fitness virtual reality industry instead of engaging in healthy competition by building its own product. Judge Edward Davila of the U.S. District Court for the Northern District of California ruled that the FTC didn't prove that Meta would have entered the space without the Within acquisition -- the second time a U.S. judge has informed the FTC that the agency didn't have enough facts to prove its case.

Though the Within loss may look bad, it was a "pretty out-there case," said George Hay, professor of law and economics at Cornell Law School. The theory in the Within case -- that the problem was in the industry where Meta was acquiring -- is a "stretch of merger law" that hasn't been successfully applied in more than 30 years, Hay said.

"[The judge] didn't trash the whole theory," Hay said. "He just didn't buy the story that Meta was going to enter the market on its own."

This was the FTC's second lawsuit against Meta. In 2020, it accused the company of illegal monopolization over its acquisitions of Instagram and WhatsApp. A U.S. judge tossed the FTC's original case due to lack of evidence but allowed it to refile.

The FTC believes that dominant firms like Meta became powerful companies because of acquisitions of nascent firms. Despite its loss in the Within case, the FTC's theory is supportable and could be proven in another case based on the judge's ruling, said William Kovacic, law professor and director of the Competition Law Center at the George Washington University Law School.

"There are some elements of the court's decision that are favorable to the government and embrace the general theory that the FTC was pursuing," he said. "It said, 'Your theory is supportable; your facts don't back it up,' with the suggestion being, 'If you get better facts, we'll back you.'"

Why the FTC pursued the Within challenge

Meta's past acquisitions of Instagram and WhatsApp greatly influenced the agency's decision to bring the Within challenge, Kovacic said.

From that past experience, the FTC believes antitrust law needs to stringently police transactions involving the acquisitions of relatively new upstart enterprises to prevent dominant firms from forestalling the possibility of greater competition in the future if those small firms were left to grow on their own, Kovacic said.

You're playing with your reputation, good and bad, every time you walk into the courtroom. At some point, if you're going to be effective, you have to win.
William KovacicDirector, Competition Law Center, George Washington University Law School

"A strong view of the FTC and DOJ leadership is that weak antitrust enforcement enabled the major platforms to achieve and entrench a position of dominance and that had the antitrust agencies been bolder in challenging transactions, the leading information services platforms would not be so formidable today," he said.

Though Judge Davila leaned toward supporting the FTC's theory, Kovacic said the problem with the ruling's charge to the FTC to gather more facts to support the case could be creating "what amounts to a mirage."

The FTC has numerous tools at its disposal to gain facts, including compelling testimony and gathering documents from companies on mergers. But Kovacic said the FTC could potentially keep going after more and more facts to no avail if the information simply isn't there.

"In the desert of enforcement, there's an oasis. And if you stay on the path you're traveling, you're going to get to the oasis. All you need is good facts," Kovacic said. "As you crawl through the desert and come upon what looks to be the oasis, it turns out to be another sand dune. That's saying, those additional facts you need are never quite attainable, and so you never get there."

How the loss impacts the FTC

Regardless of setbacks, the FTC "seems determined to develop a case and to bring more cases," meaning they will press ahead, Kovacic said. The FTC is rumored to be considering filing an antitrust case against Amazon.

"They have said many times, 'We have an appetite for risk that means we are willing to lose cases,'" he said.

However, Kovacic said unless the FTC gains victories, the agency runs the risk of enshrining bad doctrine in the law, demoralizing FTC staff and losing credibility.

"You're playing with your reputation, good and bad, every time you walk into the courtroom," he said. "At some point, if you're going to be effective, you have to win."

Makenzie Holland is a news writer covering big tech and federal regulation. Prior to joining TechTarget, she was a general reporter for the Wilmington StarNews and a crime and education reporter at the Wabash Plain Dealer.

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