Shulou(Shulou.com)11/24 Report--

On the morning of August 24, Beijing time, Facebook's parent company, Meta, recently found on the Twitter platform that the US Federal Trade Commission (FTC) had filed a lawsuit against the company against a small acquisition without prior warning.

As part of its routine disclosure, Meta provided FTC with hundreds of pages of documents, data and other details before acquiring Within Unlimited, a virtual reality fitness app, according to people familiar with the matter. Subsequently, regulators did not say they would challenge the deal, nor did they raise legal questions with the Meta.

The source said that after noticing the relevant Twitter content, Meta confirmed the authenticity of the message by looking at the court records. Typically, FTC gives the company the opportunity to meet with FTC commissioners to discuss the case before filing a lawsuit, and then notify the company by phone and a copy of the indictment a few minutes before the lawsuit is formally filed.

Launching a direct legal challenge to the deal without warning suggests that FTC chairwoman Lina Khan has chosen to take a more confrontational stance against the tech giants. Lena Khan is the FTC president appointed by US President Joe Biden and an aggressive antitrust expert. Previously, FTC has been strongly criticized for regulators failing to do anything in deals that tech giants such as Meta use to limit competition by acquiring rivals. Lena's task is to reform FTC.

A few weeks before the legal challenge on July 27, FTC never asked Meta executives or insiders to testify under oath about the deal. According to past practice, this is a common process if a lawsuit is being prepared. Since the size of the deal reaches a certain threshold, Meta needs to report to regulators and apply for antitrust review. But people familiar with the matter said the discussions between Meta and FTC were similar to previous communications related to acquisitions, and FTC raised no objection.

In an emailed statement on Tuesday, FTC said its communication with Meta about the acquisition was in line with the agency's practice and that Meta had met with every member of the FTC before FTC filed the lawsuit. FTC also said that, as required by law, it synchronized the situation with Meta and Within after filing a lawsuit. FTC declined to respond to questions about the timing and substance of discussions with Meta, citing non-disclosure of information.

Meta reiterated that it would "actively defend" the deal in court. Meta did not comment further on how the lawsuit was disclosed.

There are a lot of unusual things about FTC's approach this time. This is the first time that FTC has pre-emptively blocked Meta's acquisition; used previously rare reasons to oppose the deal in a new and growing industry; and Lena rarely vetoed the opinions of FTC staff before filing a lawsuit.

FTC believes that as the maker of the hottest virtual reality headline Oculus, Meta's move will eliminate possible competition, or "nascent competition", in a new market in the future. FTC rarely sues against deals on this basis, because it is difficult to prove that current acquisitions will affect the industry's competition in the distant future. The last time FTC filed a similar lawsuit was in 2015, but FTC lost the lawsuit at the time.

Neil Chilson, chief technology expert at FTC during the Trump administration, said the challenge to the Within deal seemed to focus more on "getting started and building stories around FTC's current work than building lasting legal authority. If they want to break through the boundaries, there should be a better way."

Earlier, media quoted sources familiar with the FTC review as saying that the FTC staff responsible for reviewing the deal recommended not filing a lawsuit. However, Lena's own subordinates led the lawsuit and contacted Meta with additional questions ahead of the transaction closing date set by the two companies on July 31.

According to media reports, Alvaro Bedoya (Alvaro Bedoya) of the Democratic Party, who joined the FTC in May, held a number of meetings with Lena's office and FTC staff about the deal. Two Republican members of the FTC tried to block Lena's more aggressive antitrust opinions after FTC reached an impasse with two votes for and two against the deal before Mr Bedoya participated. However, Bedoya's involvement changed the situation. This is his first vote on a major FTC case and is the key to challenging Meta.

With the help of Bedoya, Lena won the first battle. FTC has approved more than 100 Meta acquisitions in the past decade, according to a 2020 House of Representatives report on technology acquisitions.

The deal is also part of Meta's strategy to transform itself from social media to meta-universe. Meta-universe will bring about a more immersive Internet where people can shop, work, and party with friends.

FTC alleges that Within's Supernatural app competes with Meta's Beat Saber virtual reality game, and that the acquisition means Meta will no longer have to use the company's existing resources to develop its own virtual reality fitness apps. As a result, FTC believes that the deal will give Meta control of the market and prevent other companies from participating, thus reducing possible competition.

FTC is likely to win the case in internal court, but it still needs to convince a federal judge in California in December. However, some analysts believe that it is difficult to do so.

Gary Shapiro, president of the American Consumer Technology Association (CTA), called the FTC lawsuit "ridiculous". CTA represents more than 1500 consumer technology companies, including Meta. FTC's legal theory is weak and doing so is likely to affect investment in start-ups, he said. "this lawsuit breaks through previous policies, is very unfair and will cause so much damage to new investment that I feel it is necessary to speak out." He said he had never commented on FTC's ongoing lawsuit before.

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