The FTC’s Unprecedented Complaint Amendment in Meta/Within

The FTC’s Unprecedented Complaint Amendment in Meta/Within

November 10, 2022, Covington Alert

On October 7, 2022, the U.S. Federal Trade Commission (FTC) filed an amended complaint in its federal lawsuit seeking to block Meta’s acquisition of Within, the developer of a popular virtual reality (VR) fitness app called Supernatural.^[1] This appears to be the first time in the era of electronic recordkeeping that the Commission has amended a complaint to remove a substantive allegation while seeking to block an unconsummated merger.

The amended complaint removes one of the two theories of harm that the FTC alleged in the original complaint. In particular, the FTC eliminated all of its allegations relating to existing head-to-head competition between Meta and Within, thereby withdrawing the claim that the proposed acquisition is presumptively unlawful. The Commission’s remaining allegations hinge on perceived potential competition (i.e., that participants in the purported “VR Dedicated Fitness App Market”^[2] compete harder because they believe Meta may enter) and actual potential competition (i.e., that Meta would have developed its own VR Dedicated Fitness App had it not acquired Within).

According to the FTC, its decision to eliminate all allegations of existing head-to-head competition between the merging parties reflected “information obtained during discovery since the filing of the original Complaint.”^[3] The amendment comes after three commissioners reportedly voted to block the proposed acquisition despite staff’s recommendation to close the investigation.^[4] And the manner in which the FTC amended its complaint appears to be unprecedented. Prior complaint amendments involved technical changes to the complaint (e.g., adding redactions or correcting the corporate name of a defendant),^[5] updates to reflect changed factual circumstances (e.g., consummation of the proposed merger during appeal),^[6] or supplementing the allegations in the complaint (e.g., by adding relevant markets).^[7] In no prior amendment has the FTC removed one of its primary theories of harm.^[8]

There are several takeaways for companies considering mergers and acquisitions that may be reviewed by the FTC:

1. The FTC is willing to challenge mergers based on aggressive claims.
2. The FTC is willing to pull back from at least some claims if it learns that it lacks evidentiary support for them.
3. The Commission may not follow traditional procedures or engage with merging parties in the same way it has done in the past.

If you have any questions concerning the material discussed in this client alert, please contact the members of our Litigation and Investigations practice.