Meta battles U.S. antitrust agency over future of virtual reality

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By Diane Bartz and Katie Paul

WASHINGTON/SAN JOSE, Calif. (Reuters) - The Federal Trade Commission, which enforces antitrust law, is about to engage in a real-life courtroom fight over virtual reality.

On Thursday, a high-profile trial kicks off in which the FTC will try to prevent Facebook parent Meta Platforms Inc (NASDAQ:META) from buying virtual reality app developer Within Inc.

The FTC sued in July to stop the deal, saying Meta's acquisition of Within would "tend to create a monopoly" in the market for virtual reality (VR) fitness apps. It has asked the judge to order a preliminary injunction that would halt the proposed transaction.

The trial that starts on Thursday will serve as a test of the FTC's bid to head off what it sees as a repeat of the company buying its way to dominance, this time in the nascent virtual and augmented reality markets.

The FTC is separately trying to force Meta to unwind two previous acquisitions, Instagram and WhatsApp, in a lawsuit filed in 2020. Both were in relatively new markets at the time the companies were purchased.

A government victory could crimp Meta's ability to maneuver in an area of emerging technology that Chief Executive Mark Zuckerberg has identified as the "next generation of computing."

If blocked from making acquisitions in the space, Meta would face greater pressure to produce its own hit apps and would give up the gains - in terms of revenue, talent, data and control - associated with bringing innovative developers in-house.

Within developed popular subscription-based virtual reality workout app Supernatural, which it advertises as a "complete fitness service" with "expert coaches," "beautiful destinations" and "workouts choreographed to the best music available."

It is available only on Meta's Quest devices, which are headsets offering immersive digital visuals and audio that market research firm IDC estimates capture 90% of global shipments in the virtual reality hardware market.

The majority of the more than 400 apps available in the Quest app store are produced by external developers. Meta owns the most popular virtual reality app in the Quest app store, Beat Saber, which it acquired in 2019.

Meta is expected to argue that the FTC did a poor job of defining the relevant market and that it competes with a whole range of fitness content, not just VR-dedicated fitness apps.

It is also expected to argue that the FTC underestimated the competition in the market for VR-dedicated fitness apps.

The social media company agreed to buy Within in October 2021, a day after changing its name from Facebook to Meta, signalling its ambition to build an immersive virtual environment known as the metaverse.

Meta did not disclose the price tag for the deal but tech publication the Information reported that it was about $400 million.

Zuckerberg will be a witness in the trial. Other potential witnesses are Within CEO Chris Milk and Meta Chief Technology Officer Andrew Bosworth, who runs the company's metaverse-oriented Reality Labs unit.

The trial is at the U.S. District Court for the Northern District of California.

In addition to defending the Within acquisition, Zuckerberg is expected to be questioned about the Facebook parent's strategy for its VR business, as well as the company's plans to support third-party developers, according to a court document.