How To Handle Big Tech Acquisitions Under Uncertainty


May 4, 2023

By Daniel McCuaig

The Federal Trade Commission recently failed to stop Meta’s acquisition of virtual reality company Within, while the Department of Justice is now attempting to mitigate Google’s monopolization of the online “ad tech stack” by unwinding its 2008 purchase of DoubleClick. Daniel McCuaig outlines the parallels between the two cases and argues that consumers are threatened with anticompetitive harm if the courts continue to side with tech monopolist defendants when faced with uncertainty.

A technology behemoth shells out hundreds of millions of dollars to purchase the most successful innovator in a nascent market adjacent to one dominated by the behemoth. The direct competition between the two is insignificant and the government agency evaluating the merger lacks a sufficiently clear crystal ball to state with grounded confidence that the combination will lead to anticompetitive effects down the line.

That was the fundamental story in 2008 when Google acquired DoubleClick and it is the fundamental story today as Meta acquires Within.

The Agency’s Options

The agency can either (1) attempt to block the acquisition notwithstanding its imperfect information or (2) allow the deal to close and, if anticompetitive effects manifest, sue to unwind the merger years later.

Neither option is ideal, as evidenced by the FTC’s recent failure to block Meta’s acquisition of Within (option 1) and by the headwinds the DOJ faces in its ongoing case against Google for illegal monopolization of the “ad tech stack” in which the key remedy sought is the unwinding of Google’s 2008 acquisition of DoubleClick (option 2). The Google/DoubleClick story has had fifteen years to develop since the FTC decided not to challenge that merger and it’s the clarity that has come with the passage of time that has convinced the DOJ now to seek a do-over.

“Impermissibly Speculative”

The Northern District of California’s decision to deny the FTC’s motion to preliminarily enjoin Meta’s acquisition of Within throws into starker relief the need for the government realistically to be able to unwind mergers. Application of an unrealistically high standard to enjoin mergers, such as in FTC v. Meta, otherwise will leave consumers to suffer anticompetitive effects in a world where vertical tech mergers are nigh impossible to block prospectively because the harms they threaten are “impermissibly speculative,” but then, when those “impermissibly speculative” harms in fact materialize, courts are unwilling to “unscramble the omelet” of a long-consummated merger.

In FTC v. Meta, the FTC sought “to block the merger between a virtual reality (“VR”) device provider [Meta] and a VR software developer [Within].” Within’s Supernatural is indisputably the leading VR dedicated fitness app in the United States, with “an 82.4% share of market revenue.” Meta also is a VR software provider—one that spends “several billion dollars each year on its VR Reality Labs division” —but it has not yet been able to develop its own successful VR dedicated fitness app in a market that “both parties seem to agree . . . is [] nascent and emerging.” Because the FTC challenged this acquisition on horizontal theories of harm rather than vertical ones, the central question for the court to address was whether Meta would have enhanced competition in the VR dedicated fitness app market absent its merger with Within.

Meta could have induced greater competition, either by developing its own successful entrant(s) or by spurring greater efforts from the players in that market just by the threat of doing so. At the same time, the court expressly recognized: (1) the inherently vertical “‘flywheel’ effect”—a phrase the DOJ uses four times in its ad tech stack complaint—that develops when widespread adoption of a platform incentivizes the creation of content for that platform which, in turn, drives even broader adoption of the platform, and so on; and (2) that “Meta repeatedly stated that VR dedicated fitness apps constituted a distinct market opportunity within the VR ecosystem due to their unique uses, distinct customers, and distinct prices.” That is, the court acknowledged the possibility of the vertical aspects of this merger ultimately leading to the kinds of anticompetitive harm we see in the DOJ’s Google case, but it did not translate that recognition into any kind of weighting in the government’s favor as it evaluated the FTC’s case against Meta.

Read Dan’s complete op-ed on ProMarket.