Antitrust & Competition Technology Quarterly Update - Q3 2022 - JD Supra

Two large exertion companies, Meta and Microsoft, proceed to support their acquisitions against challenges from antitrust regulators. The FTC dropped 1 of the 2 claims underlying its situation of Meta’s acquisition of Within (Meta/Within), and Meta is pressing guardant its efforts to marque FTC Chair Khan’s alleged bias an contented successful the case. Investigations into Microsoft’s acquisition of Activision look to beryllium heating up: the FTC is reportedly seeking signed declarations from manufacture participants, and some the UK Competition and Markets Authority (CMA) and the European Commission (EC) person opened Phase II investigations.

Update connected Meta’s projected acquisition of Within

The FTC filed a ailment successful July seeking to artifact Meta’s acquisition of Within, the virtual world (VR) app maker.¹ Meta makes Quest, the starring VR device. It besides operates the Quest app store and sells respective different best-selling VR apps. Within’s flagship merchandise is simply a fittingness VR app called Supernatural, which provides users with virtual fittingness classes for a monthly subscription fee.²

The FTC’s ailment relied connected 2 horizontal theories of harm. The archetypal was a imaginable contention theory. The FTC alleged that Meta is simply a imaginable entrant into the dedicated fittingness marketplace (which consists of apps specified a Supernatural that are specifically utilized for fitness) due to the fact that Meta has the size, resources, and capabilities to marque its ain dedicated fittingness app.³

The FTC’s 2nd mentation of harm was based connected existent contention betwixt Meta and Within successful an alleged broader fittingness app marketplace that includes some dedicated fittingness apps and incidental fittingness apps. The second are apps that promote users to prosecute successful activities similar dancing and to get workout incidentally. The FTC alleged that Meta’s Beat Saber and Supernatural are some a portion of the broader fittingness app marketplace and that the transaction would destruct contention betwixt the 2 products.

There person been 2 notable developments since the FTC filed its ailment successful July. First, connected October 7, the FTC filed an amended ailment that dropped the 2nd mentation of harm.⁴ The FTC did not explicate wherefore it dropped this claim. The determination came soon aft a September 20 Senate proceeding successful which Senator Mike Lee (R-Utah) challenged the FTC’s marketplace explanation successful Meta/Within arsenic contradictory to the FTC’s marketplace explanation successful its ailment challenging Meta’s acquisitions of Instagram and WhatsApp:

“The FTC explains successful its ailment that ‘other types of net based services successful the US that facilitate the sharing oregon depletion of contented are not capable substitutes for idiosyncratic societal networking services.’ In different words, it seems to beryllium saying that adjacent though different services person incidental overlapping [sic] with Facebook, that doesn’t mean they are successful the aforesaid market. And yet successful the FTC’s ailment to halt Meta’s acquisition of Within . . . that ailment relies successful portion connected what they notation to arsenic a ‘VR fittingness apps market’ definition, and the ailment states ‘the broader marketplace includes some VR dedicated fittingness apps and incidental fittingness apps.’ So present the FTC seems to beryllium saying products with incidental overlapping uses are successful information competitors. Are these 2 marketplace explanation theories compatible, due to the fact that it seems to maine they are rather wildly inconsistent and so mutually exclusive.” ⁵

Another improvement successful the lawsuit is Meta’s continued effort to qualify FTC Chair Lina Khan arsenic biased. Shortly earlier the FTC sued to halt the Meta/Within woody successful July, Meta petitioned the FTC to recuse Chair Khan from the substance due to the fact that her “public statements and writings bespeak her content that the authorities should artifact aboriginal acquisitions by Meta, careless of the merits of the transaction.”⁶ Meta’s bias claims volition beryllium reviewed by 4 members of the Commission. According to an October 17 associated filing successful the tribunal case, the FTC decided to see Meta’s petition to disqualify Chair Khan, a process successful which Chair Khan volition not instrumentality part.⁷ The result of the Commission’s determination connected this contented could person large impacts connected a fig of merger challenges, including the challenges of Meta’s projected acquisition of Within, and the long-consummated acquisitions of Instagram, and WhatsApp, arsenic good arsenic different acquisitions by different ample tech companies. Meta’s efforts to leverage this contented successful pending preliminary injunction litigation successful the Northern District of California look to person failed. In its answer, Meta alleged successful its defenses that:

“Chair Khan has made galore nationalist statements that show her bias against Meta, and successful peculiar its acquisitions, demonstrating her deficiency of impartiality with respect to Meta’s projected acquisition. She is not an impartial, unbiased Commissioner, but alternatively has prejudged Meta’s conduct, arsenic Meta explained successful its Petition for Recusal filed with the FTC connected July 25, 2022. Chair Khan’s information irrevocably taints the FTC’s claim.” ⁸

The FTC pushed backmost connected these allegations and moved to onslaught the defenses successful Meta’s answer, arguing that Meta failed to supply a factual ground for those defenses and that they were nevertheless not applicable to the court’s preliminary injunction ruling.⁹ The tribunal agreed with the FTC connected the second reasoning and granted the question to onslaught the bias related defenses.¹⁰

These accusations are akin to those raised by Meta successful its question to disregard the FTC’s lawsuit regarding its acquisition of Instagram and WhatsApp, which is presently earlier the DC District Court.¹¹ In that case, the tribunal denied Meta’s question holding that Chair Kahn was acting successful a prosecutorial role, not a judicial role, successful voting to bring the ailment against Meta.¹²

Update connected Microsoft’s projected acquisition of Activision

Microsoft’s acquisition of Activision, which was announced successful January, cleared 1 hurdle successful aboriginal October erstwhile the Brazilian contention authorization approved the woody without conditions. But the woody is reportedly gathering absorption from the FTC, CMA, and EC. The woody is besides nether reappraisal by authorities successful Australia, New Zealand, Japan, and South Korea.

According to reports successful aboriginal October,¹³ FTC unit investigating the transaction are gathering signed declarations from third-party manufacture participants. This measurement suggests that unit whitethorn beryllium preparing to urge that the Commission situation the woody aft the ongoing Second Request investigation.

In the UK, the CMA is conducting a Phase II probe of the deal. The CMA published its Phase I determination connected September 1, uncovering that the woody could substantially trim contention successful gaming consoles, multi-game subscription services, and unreality gaming services.¹⁴ According to the CMA, grounds it gathered suggests that Activision’s video games—Call of Duty, successful particular—have a important power connected the occurrence of rival gaming platforms.¹⁵ The combined institution could truthful harm rivals by refusing oregon degrading rivals’ entree to Activision games. According to the CMA, Microsoft took specified an attack pursuing anterior acquisitions of video crippled publishers.¹⁶

The EC has besides decided to unfastened an in-depth probe with akin concerns.¹⁷ According to reports, Microsoft had a deadline of October 28 to connection the EC remedies to code contention concerns, but Microsoft did not connection any.¹⁸

Despite not formally offering remedies to the CMA oregon EC, Microsoft has publically committed to making Call of Duty disposable to its biggest rival, PlayStation, astatine the aforesaid clip the crippled launches connected Microsoft platforms. Behavioral fixes similar this 1 person historically been acceptable to antitrust regulators astir the world. But successful caller years, regulators’ views, including those successful the US, UK, and EU, person shifted toward greater skepticism of vertical transactions and the quality of behavioral remedies to alleviate concerns.

^[1] Complaint for a Temporary Restraining Order and Preliminary Injunction, FTC v. Meta Platforms, Inc., Mark Zuckerberg, and Within Unlimited, Case No. Case 3:22-cv-04325 (N.D. Cal. July 27, 2022), available astatine https://www.ftc.gov/system/files/ftc_gov/pdf/221%200040%20Meta%20Within%20TRO%20Complaint.pdf. (hereinafter “Meta/Within Complaint”)
^[2] www.getsupernatural.com
^[3] astatine p. 11, 18.
^[4] Stipulation and [Proposed] Order to Amend Complaint, FTC v. Meta Platforms, Inc., Case No. 5:22-cv-04325-EJD (N.D. Cal. October 7, 2022).
^[5] Subcommittee connected Competition Policy, Antitrust, and Consumer Rights, Oversight of Federal Enforcement of the Antitrust Laws, Q&A opening astatine 1:09:17 (September 20, 2022) available at https://www.judiciary.senate.gov/meetings/oversight-of-federal-enforcement-of-the-antitrust-laws
^[6] Petition for Recusal, In re Petition for Recusal of Chair Lina M. Khan from Involvement successful the Pending Antitrust Case Against Facebook, Inc., astatine 2 (July 25, 2022).
^[7] Joint Statement of Recent Decision, , FTC v. Meta Platforms Inc., Case No. 5:22-cv-04325-EJD (N.D. Cal. October 17. 2022).
^[8] Meta Answer astatine 16-17.
^[9] Plaintiff Federal Trade Commission’s Motion To Strike Defendants’ Affirmative Defenses, FTC v. Meta Platforms Inc., Case No. 5:22-cv-04325-EJD (N.D. Cal. September 9, 2022).
^[10] Order Granting In Part Motion To Strike, FTC v. Meta Platforms Inc., Case No. 5:22-cv-04325-EJD (N.D. Cal. November 2, 2022).
^[11] Memorandum successful Support of Facebook, Inc.’s Motion to Dismiss the FTC’s Amended Complaint, Case No. 1:20-cv-03590-JEB (D.D.C. October 4, 2021);
^[12] Memorandum Opinion, Case No. 1:20-cv-03590-JEB (D.D.C. January 11, 2022).
^[13] The Capitol Forum, Microsoft/Activision Blizzard: FTC Staff Presses Third Parties to Sign Declarations by End of Month (October 5, 2022)
^[14] Decision connected applicable merger concern and important lessening of competition, Anticipated acquisition by Microsoft Corporation of Activision Blizzard, Inc. (September 1, 2022) available astatine https://assets.publishing.service.gov.uk/media/634536048fa8f5153767e533/MSFT.ABK_phase_1_decision_-_1.09.2022.pdf.
^[15] Id.
^[16] Id.
^[17] Press release: Commission opens in-depth probe into the projected acquisition of Activision Blizzard by Microsoft (November 8, 2022) available at https://ec.europa.eu/commission/presscorner/detail/en/ip_22_6578
^[18] Mlex, Microsoft skips EU remedies implicit Activision Blizzard deal, making in-depth probe apt (October 31, 2022) available at https://content.mlex.com/#/content/1420759?referrer=search_linkclick

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