Politico

Meta’s Zuckerberg goes to court to defend his company’s VR deal

SAN JOSE, CALIF — Meta CEO Mark Zuckerberg squared off against the federal government in a California courtroom on Tuesday, as regulators push to stop the tech giant from buying up small companies and instead force them to develop their own products.

The Federal Trade Commission is suing to block Meta’s $440 million purchase of Within, the maker of the VR fitness game Supernatural, as the tech giant pivots toward the metaverse.

Zuckerberg took the stand Tuesday to argue his case. At issue is whether Meta bought Within rather than compete by developing its own virtual reality fitness product.

The case is the first to challenge a consumer tech deal from the FTC under Chair Lina Khan — the influential antitrust thinker who President Joe Biden nominated to one of the most powerful corporate watchdog jobs in the federal government. The outcome of the three-week hearing, expected to wrap Tuesday, will be a key test of her authority to pursue alleged anticompetitive conduct using aggressive, largely untested legal theories.

At the trial, Zuckerberg and an attorney for the FTC sparred over whether the company had planned to build or acquire most of the apps on its virtual reality platform and how essential fitness services are to its ability to gain traction in the metaverse. The FTC’s case hinges in part on whether Meta would have competed in the market if not for the acquisition.

“Historically, most of the major platform providers have built some of the key apps,” Zuckerberg said in court, referring to the company’s Meta Quest virtual reality headset. However, FTC attorney Abby Dennis pushed Zuckerberg to say that as far back as 2015, he planned to build most of the apps for its then-fledgling VR operation itself.

Zuckerberg replied that Meta has been focused on building apps in three key areas, including gaming, social interaction and productivity. Other use cases, such as fitness, while important, were not at the core of Meta’s virtual reality expansion, he said.

Wearing a blue suit and testifying through a face covering, Zuckerberg was on the stand for just about two hours.

And at the end of his testimony, under questioning from U.S. District Judge Edward Davila, Zuckerberg said a key reason for building the so-called Metaverse is to get out from under the control of Apple, and to a lesser extent, Google, which currently controls the primary consumer computing interface through their stranglehold over the mobile phone industry. Earlier trial testimony revealed that Meta decided to purchase Within in part after hearing rumors that Apple was also looking to acquire it.

“To the extent that we can help shape the platform, that will hopefully create a more level playing field,” Zuckerberg said.

The Meta CEO added that it’s his goal to use the deal to boost the wider VR market. Davila, though, pressed him on whether he could support companies without buying them.

While Zuckerberg said it would not be good if Meta owned every developer, he said “There’s a limit to what [start-up] founders can do with a platform. Having a tighter feedback loop between the developer and platform” can help improve the platform in way that benefits the whole market.

Meta has promised to become a leader in the metaverse — hence the name change from Facebook — and wants to buy Within to expand its virtual reality offerings. The FTC argues that the deal will illegally boost Meta’s market power in the nascent virtual reality industry and that the company is looking to buy out the competition rather than compete on the merits.

Meta announced the deal in October 2021, and the agency sued in July to block the deal. The companies did not disclose the purchase price, but the deal was valued at $440 million, according to testimony on Monday.

According to previous trial testimony Meta had a project, code-named “Operation Twinkie,” to partner with fitness equipment maker Peloton and build out its own virtual reality product.

The FTC has put much weight on a March 2021 email from Zuckerberg to his deputy Andrew Bosworth and others, in which the Meta CEO said a partnership with Peloton for a virtual reality game “sounds awesome! I’d love to make that happen. Let me know how I can help.”

Dennis continuously pressed Zuckerberg on his interest in fitness for VR, using past statements from him and other executives about potentially building a competing product as evidence they chose to buy rather than compete. On Monday, Bosworth, who oversees Facebook Reality Labs, also testified that the company had no real plan to enter the virtual reality fitness market on its own.

Zuckerberg stressed that while fitness apps are valuable for expanding virtual reality beyond a core group of gamers that skews largely young and male, it was not the most crucial part of Meta’s plans. “Fitness was probably the fourth or fifth use case,” he said.

The FTC says Meta’s possible Peloton partnership was intended to build out a different game, Beat Saber, an interactive VR music game in which users also physically move around, into a game specifically focused on fitness. The FTC initially said Meta competed with Within prior to the deal because of the fitness aspects of Beat Saber but dropped those claims in October.

The FTC, in a separate case, is attempting to unwind Meta’s 2012 and 2014 purchases of Instagram and WhatsApp, and the agency said it is challenging the company’s strategy of buying existing companies, rather than competing. That case was filed during the Trump administration.

Meta has said throughout the hearing that if the FTC wins this first round, the companies will abandon the deal.

Meta and Within previously set Dec. 31 as a deadline to close their deal, but on Monday night, extended that through January to give Davila more time to issue a ruling. An administrative trial in the FTC’s in-house court is currently scheduled to start in January. The agency typically abandons that effort if it can’t first get a preliminary injunction in federal court.

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