F.T.C. Sues to Block Meta’s Virtual Reality Deal as It Confronts Big

WASHINGTON — The Federal Trade Commission on Wednesday filed for an injunction to block Meta, the company formerly known as Facebook, from buying a virtual reality company called Within, potentially limiting the company’s push into the so-called metaverse and signaling a shift in how the agency is approaching tech deals.

The antitrust lawsuit is the first under Lina Khan, the commission’s chair and a leading progressive critic of corporate concentration, against one of the tech giants. Ms. Khan has argued that regulators must stop competition and consumer protection violations when it comes to the bleeding edge of technology, including virtual and augmented reality, and not just in areas where the companies have already become behemoths.

The F.T.C.’s request for an injunction puts Ms. Khan on a collision course with Mark Zuckerberg, Meta’s chief executive, who is also named as a defendant in the request. He has poured billions of dollars into building products for virtual and augmented reality, betting that the immersive world of the metaverse is the next technology frontier. The lawsuit could crimp those ambitions.

“Meta could have chosen to try to compete with Within on the merits,” the F.T.C. said in its lawsuit, which was filed in the U.S. District Court for the Northern District of California. “Instead, it chose to buy” a top company in what the government called a “vitally important” category.

In a statement, Meta said the F.T.C.’s case was “based on ideology and speculation, not evidence.” It added that the lawsuit was an attack on innovation and that the agency was “sending a chilling message to anyone who wishes to innovate in V.R.”

Meta had said it would acquire Within, which produces the highly popular fitness app called Supernatural, last year for an undisclosed sum. The company has promoted its virtual reality headsets for fitness and health purposes.

The F.T.C.’s lawsuit is highly unusual and pushes the boundaries of antitrust law. Regulators mostly focus on deals between large companies in large markets, rather than their acquisitions of small start-ups in nascent tech areas. Courts have also been skeptical applying antitrust law to block mergers based on the hypothetical that the two companies involved would later become competitors if the deal was blocked.

But critics have said the government’s inaction has allowed Meta and other giants to vacuum up services that later became formidable. The agency approved Facebook’s 2012 acquisition of Instagram, the photo-sharing app that has since grown to more than one billion regular users. Instagram has helped Meta dominate the market on social photo sharing, though other start-ups have sprung up since.

“It’s a riskier case, but one they think is worth bringing because if they succeed it will help bring the frontier of enforcement outward,” said William E. Kovacic, a former chairman of the F.T.C. “I think this is a first of a kind.”