The Federal Trade Commission’s lawsuit to block Facebook parent company Meta’s acquisition of virtual reality app developer Within presented the court with a legal question that used to exist on the periphery of antitrust law and is now critical to the government’s efforts to rein in big tech: How to assess proposed deals by dominant firms in nascent markets.

During the seven-day trial in December where the FTC challenged the deal because it allegedly put Meta in prime position to monopolize VR fitness apps, the company questioned how the acquisition of one app in a developing market could harm competition. U.S. District Judge Edward Davila approved the deal in a blow to the agency’s bid to dismantle the tech giant but advanced one of its key legal theories arguing that the purchase of competitors in budding markets can hurt competition. Additionally, he agreed with the FTC that mergers between companies that don’t currently compete against each other can violate Section 7 of the Clayton Act, which bars deals “whenever the effect would substantially lessen competition and tend to create a monopoly.”

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Critically, the FTC also successfully convinced the court that the relevant market in the case is VR fitness apps — among the most crucial obstacles for the government when challenging a merger. Meta claimed that the FTC’s proposed market is too narrow because it excludes apps that it argued are interchangeable with VR fitness apps, like those on other non-VR consoles. In antitrust cases, defendants try to define the market as broadly as possible.

Despite the factual findings in the court’s order, Lee Hepner, a lawyer for the American Economic Liberties Project, called the ruling a win for the FTC because the judge accepted key arguments at the heart of the commission’s enforcement agenda.

“The road map is in the legal theories,” Hepner said, pointing to Davila endorsing the potential competition doctrine.“The court, by making this order so specific to VR app development, leaves open a path for the FTC to bring these types of cases pursuant to the theories the were fighting for in court. This goes to vindicating the FTC and DOJ’s approach to bring touch cases with the objective of advancing the law even if they lose.”

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