Mixed Emotions

 U.S. District Judge Edward Davila ruled against the FTC in its attempt to prevent the merger between the criminal enterprise formerly known as Facebook™ and VR company Within Unlimited. 

Clearly, I would have preferred that it go the other way, but it is not as bad as it sounds:

A federal judge declined to halt Meta Platforms Inc.’s acquisition of the virtual-reality startup Within Unlimited, delivering a setback to antitrust enforcers at the Federal Trade Commission seeking to block the deal, a person familiar with the ruling said.

In a sealed court decision issued overnight, U.S. District Judge Edward Davila in San Jose, Calif., denied the FTC’s request for an injunction blocking the proposed merger, the person said.

The judge’s opinion, which isn’t yet public, is a boost to Meta’s virtual-reality ambitions and appears to vindicate for now the Facebook parent’s claims that the FTC overreached by bringing a flawed antitrust case.

The FTC could continue to try to block the deal through a separate lawsuit filed in its in-house administrative court, where a trial is scheduled to begin on Feb. 13. But antitrust enforcers have in the past often abandoned such administrative litigation once a federal judge denies the request for an injunction.

They aren't going to this time, because unlike her milquetoast predecessors, Lina Khan is on a mission.

The lawsuit has been closely watched because it is based on an unusual theory of competitive harm focusing on potential future competition in a nascent industry. The case is also widely seen as emblematic of FTC Chair Lina Khan’s opposition to the expansion of big technology companies. 

While there are too many judges who continue to apply Robert Bork's hypocritical and corrupt standards for antitrust, this appears not to be the case.  The judge's ruling was presented as a finding of facts, and not a rejection of the FTC's legal argument.

The judge's ruling does not end the enforcement action:

Yesterday, Judge Edward Davila ruled against the Federal Trade Commission in its challenge to Meta’s acquisition of a virtual reality app maker named Within. Within produces a popular game called Supernatural, and the purchase is part of Mark Zuckerberg’s attempt to dominate what he once thought was going to be the next big computing platform, the ‘Metaverse.’ The merger challenge is one of Lina Khan’s first big cases. So what just happened? What does this outcome mean? And what’s next?

First, the loss was a bit of a surprising decision. Based on how Judge Davila acted throughout the hearing, I thought the FTC was going to win. The loss here looks, on first blush, bad for Khan, the FTC, and the anti-monopoly project. A lot of antitrust lawyers are saying this decision will weaken enforcement going forward. For instance, Leah Nylen wrote in Bloomberg that “Davila’s apparent rejection of that argument could bode poorly for the FTC in its effort to block Microsoft from buying Activision".

………

In fact, the more information I’m gathering, the more I think this decision will be an important springboard for more assertive enforcement. In other words, while the FTC did not prevail in the outcome of the hearing, the actual decision will be pretty helpful to enforcers going forward. Now, we won’t know for sure for a few more days, because the judge decided to temporarily seal his ruling in the case to the public, which means all we know about his reading is what involved lawyers have leaked to the press. However, what we have learned is that the judge ruled against the FTC on the facts, but not on the underlying legal theory.

………

Again, I’m annoyed I can’t read the decision itself yet. But if this reporting is correct, basically the judge said ‘Yes, Lina Khan’s theories on antitrust are correct, but the FTC didn’t prove its case.’

So why does this ruling help anti-monopolists? The answer is that it opens up an entire area of law that hasn’t been used for four decades. Most antitrust cases these days are plain vanilla, a ‘rival wants to buy a rival in a market for widgets and raise prices’ type complaint. While no case is easy to litigate, those kinds of cases, like AT&T/T-Mobile or Office Depot/Staples, have recognizable theories of harm. Confining oneself to orthodox cases, however, means that all sorts of mergers go unchallenged, which is something I noted in the Conglomerate Problem. Big tech roll-ups are often not straightforward rivals buying rivals, but involve nascent markets and conglomerate or other relationships between the acquiring and acquired firms.

This was clearly not a good day for antitrust enforcement, but it does not appear to be an unmitigated disaster either.