Meta CEO Mark Zuckerberg testifies in FTC case to block virtual-reality deal

The FTC is seeking an injunction blocking Meta’s planned acquisition of Within Unlimited Inc., the company behind the popular virtual-reality fitness game “Supernatural." The legal move poses a direct challenge to Meta’s strategic focus on the metaverse, a term used to describe a platform where numerous online users work and play in virtual worlds.

During Mr. Zuckerberg’s testimony, the FTC focused on how Meta moved into the space, highlighting a number of statements the executive has made in which he said the company planned to build its own virtual-reality software.

“Historically most of the major platform providers have built some of the key apps," Mr. Zuckerberg said, offering his view that the success of new technology platforms is often driven by software that is made by the companies operating the platforms.

The issue is at the heart of the FTC’s complaint, as it has asserted that Meta is trying to use acquisitions to dominate the burgeoning world of virtual reality rather than competing with software companies and building its own apps.

The case is widely seen as a test of FTC Chair Lina Khan’s expansive interpretation of antitrust law and the commission’s potential to rein in the power of the world’s biggest technology companies. The lawsuit is based on the theory that the deal is set to cause competitive harm because it may limit potential future competition in a nascent industry, a legal interpretation that some antitrust specialists said was unusual.

Meta agreed to delay closing the acquisition of Within to ensure the court has sufficient time to rule on the FTC’s request to block the deal, according to a court filing on Monday. The delay will last until either Jan. 31 or until the first business day after the court rules on the matter, whichever comes first.

The FTC also repeatedly questioned Mr. Zuckerberg on the performance of certain apps, and the potential they have to drive sales of headsets used to enter virtual reality, as well as to retain certain customers. Mr. Zuckerberg acknowledged that Meta’s “Beat Saber" game drives headset sales.

The importance of fitness in attracting interest from customers, especially women, has been a key area of focus for Mr. Zuckerberg and Meta, according to emails and chats the FTC highlighted in the trial.

However, Mr. Zuckerberg said Meta is focused on more than fitness applications. “I don’t want to overstate the centrality placed on it, especially compared with the other areas we were focusing on," he said in his testimony.

Mr. Zuckerberg said that the timing of the acquisition was meaningful, in that Meta’s business was thriving and producing “excess profits" that he was looking to invest. Fitness was not among the top tier of VR applications, he said, which include gaming, communication and productivity.

“Fitness was probably the fourth or fifth use case," he said, adding that the prospect of not acquiring “Supernatural" didn’t keep him up at night.

During questioning, Mr. Zuckerberg expressed uncertainty or unfamiliarity with some of the company’s past VR-related acquisitions, such as that of Armature Studio, which the company announced buying in October.

In Meta’s opening remarks, the tech company argued that the FTC is trying to set a precedent that “if you’re big, you’ve got an interest in something and we think you’d rather ought to build it, we’re going to stop you from buying it and we’re going to make you build it," said Mark Hansen, a lawyer for the company.

“Your honor, that’s not the law. If it became the law, it would doom just about every single vertical acquisition," Mr. Hansen said.

In its July complaint, the FTC accused Meta of trying to buy its way to the top of the virtual-reality market, rather than competing or building its own products.

In its opening remarks this month, the FTC argued that Meta could have chosen to use its resources to build its own app, and it was planning to do so until it heard a rumor that rival Apple Inc. was interested in buying Within Unlimited, said Abby Dennis, senior trial counsel at the FTC, in her opening remarks.

“Instead of building its own VR-dedicated fitness app, Meta just decided to acquire the market leader, ‘Supernatural,’" Ms. Dennis said.

Since Facebook’s name change to Meta in October 2021, Mr. Zuckerberg has talked about positioning his company to become the leader in the metaverse. Over the past year, the company has been unable to gain much traction in its efforts to sell its Quest VR headsets and lure users onto its metaverse apps.

In its quarterly earnings report released in October, Meta’s Reality Labs unit, which is driving the company’s virtual-reality and metaverse efforts, posted revenue of $285 million for the quarter, a decline of nearly 49% from a year ago.

Internal company documents also showed that the company’s flagship metaverse, Horizon Worlds, had initially set a goal of reaching 500,000 monthly active users by the end of 2022, but it had fewer than 200,000 as of October, according to a report by The Wall Street Journal.

This story has been published from a wire agency feed without modifications to the text