The U.S. Federal Trade Commission today filed a lawsuit to block Meta Platform Inc.’s acquisition of Within Unlimited Inc., a Los Angeles-based virtual reality application developer.

Within develops a popular VR fitness app called Supernatural. Last October, Meta agreed to buy the company in a deal reportedly valued at $400 million.

The FTC’s newly announced lawsuit charges that the acquisition is illegal and should be blocked. According to the agency, the deal would harm competition in the VR ecosystem if it were to go through.

Meta pushed back against the lawsuit in a statement issued to Protocol. “The FTC’s case is based on ideology and speculation, not evidence,” the company stated. “By attacking this deal in a 3-2 vote, the FTC is sending a chilling message to anyone who wishes to innovate in VR. We are confident that our acquisition of Within will be good for people, developers and the VR space.”

Meta, the FTC said today, has the resources to build a VR fitness app that would compete with Within’s Supernatural app. Moreover, the agency stated that there’s a “reasonable probability” Meta would have built such a service. The FTC argues that Meta’s decision to acquire Within instead of developing a rival offering could reduce competition in the segment and thereby decrease future innovation.

The FTC also presented other arguments for why the deal should be blocked.

Meta offers a VR video game called “Beat Saber” that competes with Within’s Supernatural app. According to the FTC, the rivalry between the two apps encouraged both Meta and Within to keep building more features. That rivalry would be lost if the acquisition were allowed to proceed, the FTC stated. 

According to the agency, another factor behind the lawsuit is that the “mere possibility of Meta’s entry has likely influenced competition in the virtual reality dedicated fitness app market.” The FTC believes that “competitive pressure will slacken” in the segment if Meta is allowed to complete its acquisition of Within. 

“Instead of competing on the merits, Meta is trying to buy its way to the top,” said John Newman, the deputy director of the FTC’s competition bureau. “Meta already owns a best-selling virtual reality fitness app, and it had the capabilities to compete even more closely with Within’s popular Supernatural app. But Meta chose to buy market position instead of earning it on the merits. This is an illegal acquisition, and we will pursue all appropriate relief.”

The development comes less than a year after the U.K.’s competition regulator, the Competition and Markets Authority, directed Meta to unwind its acquisition of GIF sharing platform Giphy. Earlier this month, the CMA announced plans to reevaluate the ruling as a result of a decision by the U.K.’s Competition Appeal Tribunal. The regulator expects to complete the evaluation within 3 months.

Meta is also facing regulatory scrutiny in the advertising market. The CMA and the European Commission, the European Union’s executive arm, recently launched antitrust investigations over an advertising agreement that Meta had signed with Google LLC in 2018.

Image: Meta