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] Amended Complaint for a Preliminary Injunction Pursuant to Section 13(b) of the Federal Trade Commission Act, FTC v. Meta Platforms, Inc., et al., No. 5:22-cv-04325-EJD, Dkt. No. 102-3 (N.D. Cal. Oct. 7, 2022).
[2] The FTC defines “VR Dedicated Fitness Apps” as “VR apps, like Within’s Supernatural app, that are designed so that users can exercise through a structured physical workout in their own homes.” Id. at ¶ 35.
[3] Complaint Counsel’s Unopposed Motion to Amend Complaint, In the Matter of Meta Platforms, Inc., et al., Docket No. 9411, Doc. No. 605823, at 1 (F.T.C. Oct. 12, 2022).
[4] See Leah Nylen, FTC’s Khan Overruled Staff to Sue Meta Over Virtual Reality Deal, Bloomberg (July 29, 2022); Alex Barinka, Leah Nylen & Sarah Frier, Meta Learned Via a Tweet of FTC’s Surprise Suit to Block VR Deal, Bloomberg (Aug. 23, 2022).
[5] See Notice of Filing of Plaintiff’s Redacted Amendment Complaint for Temporary Restraining Order and Preliminary Injunction Pursuant to Section 13(b) of the Federal Trade Commission Act, FTC v. Edgewell Personal Care Co., et al., No. 1:20-cv-292, Dkt. No. 25 (D.D.C. Feb. 18, 2020) (apparently providing notice of the FTC filing a redacted version of the original complaint); Unopposed Motion of Complaint Counsel for Leave to Amend Complaint, In the Matter of Wilh. Wilhelmsen Holding ASA, et al., Docket No. 9380, Doc. No. 589873, at 2 (F.T.C. Mar. 5, 2018) (requesting leave to amend the complaint to correct the corporate name of one of the defendants).
[6] See Plaintiff’s Motion for Leave to File Amended Complaint and Memorandum of Law in Support, FTC, et al., v. Phoebe Putney Health Sys., Inc., et al., No. 1:11-cv-00058, Dkt. No. 107 (M.D. Ga. Apr. 9, 2013); Complaint Counsel’s Motion to Amend Complaint, In the Matter of Whole Foods Market, Inc., et al., Docket No. 9324, Doc. No. 239391 (F.T.C. Aug. 26, 2008).
[7] See Complaint for Temporary Restraining Order and Preliminary Injunction Pursuant to Section 13(b) of the Federal Trade Commission Act, FTC v. Staples, Inc., et al., No. 1:97-cv-00701, Dkt. No. 1, at 4 (D.D.C. Apr. 9, 1997); cf. First Amended Complaint, FTC v. Staples, Inc., et al., No. 1:97-cv-00701, Dkt. No. 11, at 4 (D.D.C. Apr. 10, 1997).
[8] This conclusion is based on searches of federal dockets and the FTC’s administrative court proceedings database, the latter of which contains materials dating back to early 1997. See Case Document Search, U.S. Federal Trade Commission, https://www.ftc.gov/legal-library/browse/cases-proceedings/case-document-search.
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