This month, U.S. District Judge Edward Davila decided to allow Meta (Facebook) to move forward with its purchase of virtual reality (VR) app developer Within Unlimited. That decision is just the latest in a long string of Federal Trade Commission (FTC) failures that undermine the agency’s credibility, waste valuable resources and reveal misplaced priorities.
The case in question revolves around a 2021 bid by Meta to acquire Within, a technology company best known for its VR fitness app Supernatural. Under the leadership of CEO Mark Zuckerberg, Meta has made a priority of acquiring VR app studios, which it believes are necessary to build a digital metaverse where people can explore and socialize in 3D spaces. Its purchase of Within is one such acquisition.
The FTC sought to block this purchase in July 2021, arguing that Meta was trying to “illegally acquire a dedicated fitness app” and “buy its way to the top” rather than participate fairly in the market. In his ruling, Davila rejects this line of reasoning, writing that the “FTC has failed to demonstrate that it was ‘reasonably probable’ that Meta was perceived as a potential competitor into the relevant market.” In addition, he writes that “the Court rejects FTC’s suggestion” that it need only provide evidence of a “likely influence” on competition. Therefore, Meta is perfectly within its rights to purchase Within.
Some outside observers consider the recent ruling to be a small win for the FTC because Davila declined to reject an obscure legal theory known as the Potential Competition Doctrine — which holds that allowing certain types of corporate acquisitions can harm potential market entrants — outright.
However, if such modest allowances are the FTC’s standard for success, then the agency has failed in its mission to protect American consumers and will likely continue to fail for the foreseeable future. In the last two years alone, the agency has lost a number of court cases, including a lawsuit against semiconductor company Qualcomm in 2020 and more recently a lawsuit against tobacco and e-cigarette manufacturers Altria Group and Juul Labs.
Despite routine setbacks, the agency seems content to continue throwing mud at the wall to see what sticks. FTC Chair Lina Khan has even acknowledged that the agency cares little about whether it wins “big cases” so long as these cases send a message to Congress that “there’s a problem” and the “current law is not adequate.” Perhaps that’s part of the reason why the agency has already lined up several future cases, including one against Microsoft for its proposed merger with Activision Blizzard and another against Facebook for its purchase of Instagram and WhatsApp. Win or lose, the FTC believes that taking such cases is well worth the cost because the suits challenge the status quo and let businesses know that the agency is serious about more proactive enforcement.
That’s a shame. The FTC’s philosophy is likely to produce a chilling effect on market innovation and discourage new companies from entering the market altogether. The actions it takes to advance it are also a poor use of taxpayer dollars.
The FTC already maintains a large budget of $376.5 million, which is only expected to expand to $430 million following the recent passage of the Consolidated Appropriations Act. It should be an agency priority to shepherd this money wisely, considering it ultimately comes from taxpayers. Yet, there’s no clear indication the agency will do so.
Much of the problem stems from the recent politicization of the agency under the leadership of Khan, who’s made it known that she’d like to see the agency practice far more aggressive antitrust enforcement. In her widely discussed 2017 essay, Amazon’s Antitrust Paradox, Khan argues that the size of a company alone can make it inherently dangerous to consumer welfare and market competition. It’s therefore the government’s responsibility to intervene in such cases. She bases her argument on the idea that the Consumer Welfare Standard — which has guided American antitrust policy for the past 40 years — is antiquated and “unequipped to capture the architecture of market power in the modern economy.”
Since the publication of that essay, Khan, and those who share her New Brandeis ideology, have continued to push the FTC in a radical new direction that seeks to expand the agency’s role in the economy and convince others that “big is bad”. It’s this very push to radically transform the agency that continues to undermine the FTC’s credibility. Americans want the FTC to stick to its original mission and protect consumer welfare, not waste time revising policy statements or meddling in the affairs of popular soft drink vendors who are only trying to sell retailers products that consumers demand.
By going back to the basics, the FTC can regain public confidence and reassure taxpayers that it is indeed spending their money wisely. Learning from its mistakes in the Meta case would be a good first step.