Starting this week, a court will consider the Federal Trade Commission’s request to block Meta from acquiring Within Limited, a start-up that created a popular virtual reality fitness app. The case should provide the first test of the FTC’s new claim to vast authority under Section 5 of the FTC Act, which prohibits “unfair methods of competition.” With a win, the FTC could gain the power to set the rules of the road for the entire US economy. With a loss, which is far more likely, the FTC’s grand ambitions could crumple at the starting line.
The FTC sued Meta to prevent it from dominating the “market for virtual reality dedicated fitness apps.” Under traditional antitrust jurisprudence, this case is almost certain to fail because it postulates only very speculative harms to competition. In the first place, there is no “market for virtual reality dedicated fitness apps.” Instead, VR fitness apps compete with other VR apps that encourage movement, non-VR exercise apps, and an entire world of exercise products. This exercise market is incredibly competitive – just look at the pandemic’s impact on gym membership knows.
Even if such a narrow market did exist, there is no evidence that Meta’s acquisition would harm competition in it. Meta doesn’t offer a VR fitness app, so its purchase would not eliminate a competitor. The FTC theorizes that, absent the acquisition, Meta would build its own VR-fitness app to compete with Within’s app. This “potential future competition” theory, however, is rank speculation. The FTC has no idea whether Meta could develop a competitive VR fitness app; over the years, Meta has had a mixed record when it comes to developing successful new tech from scratch.
What Meta has done well consistently is to buy someone else’s tech, improve it, scale it, and distribute it broadly to consumers. See Beat Saber, a popular VR game from another studio that Meta purchased. Meta has every incentive to do the same with Within’s app: invest, improve, scale, and distribute broadly. Historically, this process happens all the time; in 1918, for example, John Deere bought a tractor company after failing to develop a successful model of its own, improved the tractor, marketed it, and sold millions using its distribution network. Accordingly, even if there was a VR fitness app market (there’s not), and even if Meta’s acquisition could somehow harm competition in that market (it doesn’t), the acquisition would still benefit consumers through better products and greater availability.
So why is the FTC bringing this suit? The FTC knows that it’s likely to lose under a traditional antitrust analysis. Indeed, according to public reports, FTC Chair Lina Khan overruled the FTC career staff’s recommendation against bringing suit. One possibility is that Chair Khan, a vocal critic of Big Tech, is determined to find tech mergers to challenge, regardless of the likelihood of success.
Another possibility is that the FTC is eager to test its Section 5 powers in court. For decades, including in a 2015 policy statement, the FTC and courts treated Section 5 as largely consistent with traditional antitrust jurisprudence. To show that a business practice was “unfair,” the FTC had to show that the practice harmed consumers based on a complete assessment of the competitive impact, including any business rationales and efficiencies.
Last month, however, the FTC issued a policy statement that interpreted Section 5 much more broadly. In the FTC’s current view, Section 5 allows it to deem many types of routine business conduct as “unfair” without any showing of harm to consumers or anticompetitive intent. According to the FTC, it may be “unfair” for companies to harm competitors, seek economies of scale, or pursue mergers that could possibly later ripen into antitrust problems. Under this view, the FTC can declare a merger illegal without having to define a market, show market power, prove harm to consumers, or evaluate business efficiencies. Moreover, brushing aside any concerns of administrative hubris, the FTC also declared that “Congress intended for the FTC to be entitled to deference from the courts as an independent, expert agency.”
If the courts uphold the agency’s view, the FTC will have wide discretion to declare illegal any competitive behavior that it disfavors. Without the need to define markets or show harm to consumers, the FTC almost certainly could block Meta’s purchase of Within. Beyond that, the current FTC could also decide which companies to help, which special interests to promote, and even which progressive policy goals to prioritize. As Commissioner Christine Wilson explained in her twenty-page dissent, the agency would use its newfound authority “to advance the welfare of inefficient competitors, ‘workers,’ and other unnamed but politically favored groups – at the expense of consumers.”
Fortunately, the courts are likely to view the FTC’s grandiose claims with deep skepticism. The policy statement breaks with decades of practice and the Commission’s prior position. The statement would give the agency carte blanche to micromanage vast swaths of the US economy without having to provide evidence of competitive harm and without having to explain how the agency will choose among the often-competing interests of consumers, competitors, workers, and other progressives goals. To that extent, the policy statement could raise serious constitutional concerns under the major questions and non-delegation doctrines. Are there any limits on what the FTC could deem “unfair?”
In any event, the FTC’s suit against Meta should help to answer these questions. The courts could and should affirm traditional antitrust jurisprudence, which prioritizes consumers, requires evidence, and constrains agency discretion. On the other hand, if the courts endorse the FTC’s view, an administrative agency would effectively hold the keys to the US economy.
Asheesh Agarwal is the President of Agarwal Strategies, LLC, and an alumnus of both the US Department of Justice and Federal Trade Commission. Agarwal is affiliated with organizations that promote pro-technology policies.
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