The Federal Trade Commission recently failed to stop Meta’s acquisition of virtual reality company Within, while the Department of Justice is now attempting to mitigate Google’s monopolization of the online “ad tech stack” by unwinding its 2008 purchase of DoubleClick. Daniel McCuaig outlines the parallels between the two cases and argues that consumers are threatened with anticompetitive harm if the courts continue to side with tech monopolist defendants when faced with uncertainty.

A technology behemoth shells out hundreds of millions of dollars to purchase the most successful innovator in a nascent market adjacent to one dominated by the behemoth. The direct competition between the two is insignificant and the government agency evaluating the merger lacks a sufficiently clear crystal ball to state with grounded confidence that the combination will lead to anticompetitive effects down the line.

That was the fundamental story in 2008 when Google acquired DoubleClick and it is the fundamental story today as Meta acquires Within.

The Agency’s Options

The agency can either (1) attempt to block the acquisition notwithstanding its imperfect information or (2) allow the deal to close and, if anticompetitive effects manifest, sue to unwind the merger years later. 

Neither option is ideal, as evidenced by the FTC’s recent failure to block Meta’s acquisition of Within (option 1) and by the headwinds the DOJ faces in its ongoing case against Google for illegal monopolization of the “ad tech stack” in which the key remedy sought is the unwinding of Google’s 2008 acquisition of DoubleClick (option 2). The Google/DoubleClick story has had fifteen years to develop since the FTC decided not to challenge that merger and it’s the clarity that has come with the passage of time that has convinced the DOJ now to seek a do-over.

“Impermissibly Speculative”

The Northern District of California’s decision to deny the FTC’s motion to preliminarily enjoin Meta’s acquisition of Within throws into starker relief the need for the government realistically to be able to unwind mergers. Application of an unrealistically high standard to enjoin mergers, such as in FTC v. Meta, otherwise will leave consumers to suffer anticompetitive effects in a world where vertical tech mergers are nigh impossible to block prospectively because the harms they threaten are “impermissibly speculative,” but then, when those “impermissibly speculative” harms in fact materialize, courts are unwilling to “unscramble the omelet” of a long-consummated merger.

In FTC v. Meta, the FTC sought “to block the merger between a virtual reality (“VR”) device provider [Meta] and a VR software developer [Within].” Within’s Supernatural is indisputably the leading VR dedicated fitness app in the United States, with “an 82.4% share of market revenue.” Meta also is a VR software provider—one that spends “several billion dollars each year on its VR Reality Labs division” —but it has not yet been able to develop its own successful VR dedicated fitness app in a market that “both parties seem to agree . . . is [] nascent and emerging.” Because the FTC challenged this acquisition on horizontal theories of harm rather than vertical ones, the central question for the court to address was whether Meta would have enhanced competition in the VR dedicated fitness app market absent its merger with Within.

Meta could have induced greater competition, either by developing its own successful entrant(s) or by spurring greater efforts from the players in that market just by the threat of doing so. At the same time, the court expressly recognized: (1) the inherently vertical “‘flywheel’ effect”—a phrase the DOJ uses four times in its ad tech stack complaint—that develops when widespread adoption of a platform incentivizes the creation of content for that platform which, in turn, drives even broader adoption of the platform, and so on; and (2) that “Meta repeatedly stated that VR dedicated fitness apps constituted a distinct market opportunity within the VR ecosystem due to their unique uses, distinct customers, and distinct prices.” That is, the court acknowledged the possibility of the vertical aspects of this merger ultimately leading to the kinds of anticompetitive harm we see in the DOJ’s Google case, but it did not translate that recognition into any kind of weighting in the government’s favor as it evaluated the FTC’s case against Meta.

A Reasonable Approach, Poorly Applied

The court in FTC v. Meta enunciated a facially reasonable approach for considering claims proceeding under an “actual potential competition” theory, first evaluating the relevant objective evidence: “The inquiry can be stated as follows: ‘Is it reasonably probable that Meta would have entered the VR dedicated fitness app market de novo if it was not able to acquire Within?’” Only “[i]f the objective evidence is weak, inconclusive, or conflicting” is subjective evidence then to be considered.

In addressing the “would have entered” inquiry, the court sensibly turned to those old antitrust warhorses, the “capability” to enter and the “incentives” to do so. In its application of those concepts, the court started with the obvious: “There can be no serious dispute that Meta possesses the financial resources to undertake de novo entry.” Since the specific necessary infrastructure the court found Meta currently lacks—personal trainers and a production studio—could be acquired for a relative pittance, Meta’s financial resources, particularly when coupled with its “ready access to qualified VR engineers,” would seem to compel the obvious conclusion that, yes, Meta has the capability to enter the VR dedicated fitness app market.

Indeed, any of today’s internet behemoths always will have the capability to enter any market adjacent to one it already dominates. The ultimate question thus always will be whether it has the incentives to do so. That question, in turn, requires the court to evaluate how a nascent market will develop and how important it will become: If the VR dedicated fitness app market becomes huge and vital, of course Meta will enter it; if it turns out to be a fad that passes, of course Meta will direct its vast resources elsewhere. Since most judges are neither technologists nor clairvoyants, though, they fall back on searching documents and testimony for clues of the behemoth’s current intent to enter (or not) the nascent market.

Through that process and the conflation of the “capability” question with the “incentives” one, the Northern District of California managed to convince itself—notwithstanding both Meta’s “considerable financial and VR engineering resources” and the relatively lenient legal standard to obtain a preliminary injunction—that “Meta did not have the ‘available feasible means’ to enter the relevant market other than by acquisition.” Thus, the court held that the FTC “failed to establish a likelihood that it would ultimately succeed on the merits . . . based on the actual potential competition theory.”

The Retrospective Challenge

The DOJ’s ad tech stack case against Google is different in that the function of matching sellers of web page space (“publishers”) with purchasers of that space (“advertisers”) has now proven to be wildly profitable. And Google’s 2008 acquisition of DoubleClick, which represents publishers in those transactions and which also at that time was developing an exchange platform for the transactions known as AdX, allowed Google to drive advertisers to AdX if they wanted full access to Google/DoubleClick’s stable of publishers. At the same time, Google also drove publishers to AdX if they wanted full access to Google’s market-leading share of advertisers. Not surprisingly, this dynamic allows Google to claim, mostly through usurious AdX fees, an outsized piece of the large and fast-growing ad tech pie.

So, if Google had not been able to acquire DoubleClick, would it have entered the publisher ad server and ad exchange markets de novo? Of course it would have. There turned out to be too much money in the ad tech stack for any other path to be plausible. But that doesn’t mean a challenge by the FTC in 2008 would have fared any better than its challenge to Meta’s acquisition of Within if held to the same standard. And it doesn’t mean the DOJ is likely to succeed in its ad tech stack case against Google today. Convincing courts to break up tech juggernauts, after all, has never been easy. The DOJ pulled it off with AT&T in the 1980s and almost did the same with Microsoft in the early aughts, but that’s pretty much the full list.

That reality suggests two conclusions. First, the FTC v. Meta standard is too high. When a monopolist seeks to acquire the most successful upstart in an adjacent market, courts should be slower to reject as “speculative” plausible theories of harm that have at least some evidentiary support. Second, at least as long as the pre-closing bar is not lowered, courts should not be squeamish about unwinding long-consummated mergers of this type that have proven to be anticompetitive. After all, the parties almost certainly were looking into clearer crystal balls than the government or any court before the deal closed—and they, not the public, should bear the risk that they’re able to sneak an anticompetitive deal through the fog of uncertainty.

Articles represent the opinions of their writers, not necessarily those of the University of Chicago, the Booth School of Business, or its faculty.