On Monday the U.S. District Court for the Northern District of California denied the Federal Trade Commission lawsuit to block the merger between social media giant Meta and Within, a virtual reality app maker known for its fitness app, Supernatural. Meta is poised to be a dominant player in VR platforms, since it already has an unimaginably large network in Facebook. Fitness apps are seen as a “killer app,” to help users see the value in VR, so Within may have been a rare source of power that Meta didn’t control. So it’s unfortunate that the federal district court didn’t side with the FTC to block the merger. But we shouldn’t view the case as a failure. Instead, we should view this short-term loss as a step toward a long-term gain: building better case law and enhancing the FTC’s ability to block future anticompetitive mergers in tech.
If we want to increase competition in the technology sector to put people back in the driver’s seat instead of dominant digital platforms, then we need to be comfortable losing cases sometimes. Historically, this is exactly how antitrust law has changed slowly over time. Part of the responsibility of the antitrust enforcement agencies (the Federal Trade Commission and Department of Justice) is to bring cases like this one that are a bit riskier as an opportunity to explain new market dynamics and improve the law. It takes a long time and it’s very expensive, but we have to do this important work to get our economy functioning competitively. Unfortunately, Congress has so far abdicated its authority to solve this problem quickly and comprehensively, so the FTC must take up the work. And I’m glad to see it has.
Of course, it would have been better to win. But the Meta/Within decision represents a step forward, even though the court didn’t grant the TRO (temporary restraining order to block the merger). I don’t expect the FTC to continue to have the win record it has had in the past, because the agency is strategically trying to improve the law by bringing edge cases, and that’s exactly what it needs to do. While the court ultimately declined to block the merger, Judge Davila’s decision credited many of the FTC’s arguments. The court understood that “VR dedicated fitness apps” is a relevant market and that it is highly concentrated. And though he found that this particular case didn’t meet the criteria for actual potential competition, Davila did not reject the doctrine of actual potential competition, noting the many times it has been applied and stating the mere passage of time has not invalidated those precedents. This means the doctrine of actual potential competition is now on stronger footing for the FTC to use in future cases than it was before this decision. There was also a benefit to laying out the doctrine of perceived potential competition, even though this, too, was rejected as not applicable here. Potential competition is an important area of the law for dominant digital platforms, so it’s valuable to build up the recent case law around it.
Bringing edge cases like this one is what the FTC needs to do in order to build better case law. It’s a strategy with historical precedent. Here’s just one example: The FTC lost a lot of pay-for-delay cases before it finally won against Actavis. Pay-for-delay was the strategy of branded drug manufacturers settling patent infringement suits by paying competing generic drug manufacturers to stay out of the market for years. Sometimes referred to by the less-charged language of “reverse payments,” the settlements seemed suspicious, or at least counter-intuitive, because most patent infringement suits are settled by having the infringer pay the patent holder. Why were these patent holders paying their infringers? The answer’s pretty simple: They were using the settlements to give an air of legitimacy to their transparent agreements not to compete.
But fixing the problem wasn’t so simple. In 2010, the FTC published a report about the problem, pointing to the past nine years during which it had “invested substantial resources” in investigating and litigating these cases. The agency asked Congress to intervene by passing legislation declaring the settlements illegal, but Congress failed to do so. Finally, in 2013, after 12 years (folks who were there have told me it was more like 20, but I don’t have any supporting evidence for that claim!), the FTC claimed victory: In Actavis v. FTC, the Supreme Court ruled that pay-for-delay settlements actually can violate the antitrust laws! Truthfully, I think we have to call it a partial victory. The settlements are still subject to the rule of reason, rather than granted “per se” unlawful status. This means antitrust enforcers like the FTC still have to show through economic analysis that there was consumer harm from the settlement, and that it’s not outweighed by some pro-competitive benefit of the agreement, before the FTC can win its case.
This is a frustrating story because it took so much FTC staff work over such a long period of time, but I think it’s an important model for the FTC today. I’m optimistic that with the greater buy-in from the White House, Congress, and the public that we have today, the FTC can be even more effective in its efforts to build better case law through litigation. And the agency is going to have to be! Because the changes we need to improve our antitrust laws today are much bigger than pay-for-delay, and we need them on a much quicker timeline.
Most importantly, Congress can and must intervene to save the FTC (and the American people!) a lot of time and money by passing antitrust reforms and regulating tech platforms to promote competition and protect consumers’ privacy, safety, and free expression. Legislation would be much more efficient and effective at achieving the competitive markets we need when we need them (now!). But where Congress refuses or is unable to act, we need the FTC to step in with more cases like this one.