FTC Pares Back Lawsuit Targeting Meta Platforms’ Bid for Virtual-Reality Company

The FTC’s original case argued that Meta’s own product, a game called Beat Saber, competed directly against Within’s popular Supernatural app. The deal was part of a pattern, the FTC said, of Meta buying studios that produce virtual-reality apps sold through Meta’s Quest Store. The original complaint also named Meta Chief Executive

Mark Zuckerberg

as a defendant in the case.

The FTC dismissed the claims against Mr. Zuckerberg in August. It now has also backed away from alleging the deal would undermine existing competition between Meta and Within, according to a court filing made public Friday. That eliminates one avenue for blocking the deal.

The move appears to conform with some of Meta’s criticism of the FTC’s case. Meta had said that Beat Saber, a music-and-rhythm game, isn’t targeted at fitness users. Supernatural, on the other hand, is a dedicated exercise service offering 800 virtual-reality workouts featuring trainers, music and settings such as the Galápagos Islands and the Great Wall of China.

Meta said Friday that the FTC’s lawsuit is still built “on ideology, not evidence.”

“What remains of the FTC’s case are speculative claims that continue to lack support in either the facts or the law,” a Meta spokesman said.

The FTC has the authority to challenge mergers that would substantially reduce competition or tend to create a monopoly. It argues the deal is still illegal because it would remove the benefits of potential competition. That is a less common argument for the government to challenge a merger or acquisition as anticompetitive.

The theory turns on the idea that Meta’s potential entry into the market for virtual-reality fitness apps spurs Within and others to compete harder to retain customers and improve their products. It also suggests that Meta, if it developed its own fitness app, could improve choices for consumers. That would enhance competition, while conversely the decision to buy Within would do the opposite, the FTC argued.

“The acquisition would eliminate that incentive for market participants to compete…in contravention of the antitrust laws,” the FTC argues in its amended complaint.

The FTC’s new complaint was filed in a federal lawsuit that seeks to pause the deal while it litigates whether the deal should be permanently blocked in its administrative court.

The FTC is already litigating with Meta’s Facebook unit over claims that the company has abused a monopoly position in social media. The agency’s lawsuit in that case seeks to unwind its acquisition of messaging platform WhatsApp and image-sharing app Instagram.

In the latest complaint against Meta, over the Within acquisition, the FTC alleges the company now wants to build, and ultimately control, a virtual-reality metaverse. The FTC says virtual-reality industry sales are projected to more than double from $5 billion in 2021 to more than $12 billion in 2024. Meta in 2021 shipped 78% of all VR headsets sold worldwide and distributes many apps through its online Quest Store, the FTC said in court filings.

Write to Dave Michaels at dave.michaels@wsj.com