The Federal Trade Commission (FTC) case against Meta (formerly Facebook) is a travesty. Quite simply, the idea that Meta’s acquisition of tiny game maker Within will stifle competition in the nascent VR gaming space is ludicrous.
However, I hope Meta will see the case through. Not only is Meta likely to win on the merits, but the case may just reveal the damage FTC Chair Lina Hahn is doing to the FTC and American innovation.
The lawsuit is a blow to one of America’s most successful technology companies. At its heart, the request is based on the idea that large companies should not acquire smaller ones. Naturally, this is a perspective shared by very few of the startups that actually create the competition that the FTC is supposed to protect.
Startups are born from the passion and drive of entrepreneurs to create something new. Startup investors, however, have a different priority: they want a return on their investment.
This return can come from intrinsic growth, an IPO, or an acquisition by another company. Remove any leg from this three-legged stool and it will topple over. By filing this lawsuit, the FTC postulates the Alice in Wonderland legal theory that a large company cannot legally enter new markets through acquisition.
A similar idea has made its way through the halls of Congress and has so far failed to gain traction. Just by filing this case, the FTC could further freeze venture capital funding to startups at a time when many are already struggling.
The rationale for the lawsuit seems weak. The AR/VR gaming sector is growing at a rapid pace, fueled by rapid technological advancements and the pandemic that has kept us closer to home. Accenture estimates that the gaming industry has gained half a billion players in the past three years. The broader augmented and virtual reality market could exceed $450 billion by 2030, more than 30 times the $15 billion in 2020. In this context, a $400 million acquisition is a drop in the bucket.
The idea that Meta will create a VR fitness monopoly just by pre-installing an Oculus app ignores the reality of a robust but still nascent AR/VR industry.
The suit also chooses to ignore existing competition between Oculus and other gamified fitness platforms. Oculus isn’t just competing with Xbox, PlayStation, Nintendo and others for users’ time and attention. As people return to personal engagements and seek community interaction, AR and VR fitness platforms are increasingly competing with Orange Theory, yoga studios, and other more traditional gyms and fitness centers.
This action by the FTC seems like a vendetta, especially amid reports that Hahn overruled the recommendations of her own staff to file the lawsuit. During her tenure, the FTC has already lost one case against Meta. In his ruling last June, U.S. District Judge James Boasberg delivered an epic slap in the face, dismissing the FTC’s complaint as “say[ing] almost nothing concrete on the key question of how much power [Meta] in fact there was and still is…as if the agency expects the Court to simply nod to the conventional wisdom that [Meta] is a monopolist.” A year later, there is some irony in the FTC filing another lawsuit on the same day Meta, the alleged monopolist, reported lower profits.
I began my legal career in Washington as a law student working with a firm of former Democratic Federal Trade Commission commissioners and attorneys. Over the next four decades, through successive administrations, the Federal Trade Commission served our nation and attracted the best and brightest in the career. In antitrust cases, the agency focuses on a consumer welfare standard that preserves competition and promotes the common good. But over the past 18 months, the FTC has shifted to ideological attacks on big companies instead of considering what consumers want.
Given this sudden change and falling morale, it is not surprising that the FTC has lost the confidence of so many of its longtime staff. Perhaps it’s time for Congress to step in and stop the new regime from harming not only the FTC, but also innovation, competition, and the free market.
As the leader of a technology association, I have never commented on the FTC’s view on a particular acquisition – until now. But this lawsuit is such a violation of policy, so unfair, and so damaging to new investment, that I feel compelled to speak out.
The FTC’s legal actions should be guided by congressional authority, common sense, and consumer welfare, not politics and personal vendettas. A headline-grabbing lawsuit could help anti-tech crusaders rally around the flag and counter the bad news swirling around the Federal Trade Commission, but it comes at a price.
As Khan’s FTC swings at Big Tech, it will ultimately hit America’s startups, hurt consumers and stifle innovation. This is not a price we should be willing to pay.
Gary Shapiro is president and CEO of the Consumer Technology Association (CTA), the US trade association representing more than 1,500 consumer technology companies, and New York Times bestselling author. He is the author of The Future of Ninja: The Secrets of Success in the New World of Innovation. His views are his own.
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