Introduction
On August 19, 2021, the Federal Trade Commission (FTC) filed an amended complaint in its ongoing case against Meta, alleging that the social media giant had run afoul of federal antitrust law by adhering to the internal philosophy that “it is better to buy than compete.”
Central to the complaint are Meta’s 2012 acquisition of Instagram and 2014 acquisition of WhatsApp.
Referring to Meta’s “anticompetitive spending spree,” the agency alleged that Meta “systematically tracked potential rivals” and “[bought] up new innovators that were succeeding where [Meta] failed.”
But an acquisition not mentioned in the FTC complaint may play an even bigger role in shaping Meta’s future. In 2014, Meta bought Oculus, a company that designed virtual reality (VR) gaming glasses.
For years after its 2014 acquisition, Oculus and its VR gaming glasses were not widely used like Instagram.
Meta’s own press release announcing the deal noted that VR applications “beyond gaming are in their nascent stages.”
The press release, however, also hinted at Meta’s future plans—“to extend Oculus’ existing advantage in gaming to new verticals, including communications, media and entertainment, [and] education.”
Meta also noted that VR technology “is a strong candidate to emerge as the next social and communications platform.”
Oculus symbolized Meta’s foray into a tentative side business in a newly emerging market; Meta’s bread and butter remained social media and online ads.
But this shift in strategy was officially codified on October 28, 2021, when then-Facebook announced that it was changing its name to Meta as part of its effort to become a company that “bring[s] the metaverse to life.”
More than seven years after its acquisition, Oculus’s Quest VR headset, rebranded as Meta Quest, now stands at the center of Meta’s vision for its future.
The dramatic concentration in the tech industry over the previous decade has drawn increasing antitrust scrutiny. Meta currently owns the four most downloaded apps of the last decade—Facebook, Facebook Messenger, WhatsApp, and Instagram.
Over three decades, a group of companies known as GAFAM (Google, Apple, Facebook, Amazon, and Microsoft) have acquired 770 start-ups, including at least twenty-nine acquisitions worth over $1 billion.
While the biggest deals draw headlines, hundreds of these acquisitions occur at the smaller end of the dealmaking spectrum. In 2021, Apple CEO Tim Cook noted that Apple had acquired about 100 companies over the past six years, which averages out to an acquisition every three to four weeks.
Tech concentration has attracted the scrutiny of Congress, with the House Subcommittee on Antitrust releasing a landmark report arguing that “[t]he effects of this significant and durable market power are costly. . . . [T]hese firms wield their dominance in ways that erode entrepreneurship, degrade Americans’ privacy online, and undermine the vibrancy of the free and diverse press. The result is less innovation, fewer choices for consumers, and a weakened democracy.”
While much attention has been focused on what to do about the biggest deals of the past decade, less attention has been given to the small, early-stage deals still occurring apace in the tech industry today.
Acquisitions of small start-ups in new and developing fields of technology—nascent acquisitions—pose a unique problem for regulators.
Many of these deals lie below the $101 million threshold set by the Hart–Scott–Rodino (HSR) Act, rendering them outside the realm of transactions that must be reported to the antitrust enforcement agencies.
But even when regulators know of the transactions, these deals largely exist outside of the framework of what current antitrust law is designed to tackle. The FTC currently defines mergers as either horizontal or vertical, evaluating companies based on the idea of definable product markets and current measurements of market power.
But in the case of digital start-ups:
The more plausible threat is from a startup that offers a differentiated version, a complement, or some novel innovation that has distinctive appeal. As a result, many of these acquisitions are only partially horizontal or not horizontal at all. . . . [M]ergers between firms whose relationship is neither horizontal nor vertical are rarely challenged, but this is where the startup-acquisition threat is most pronounced.
Another government agency has experience tackling a similar problem and may provide useful lessons for the FTC’s future. In 2018, Congress passed the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), transforming the Committee on Foreign Investment in the United States (CFIUS) by significantly upgrading the committee’s jurisdictional reach and resources for monitoring global technology flows.
At first glance, the two regulatory regimes—domestic antitrust merger review and national security review of foreign direct investment—do not appear to have similar aims. Digging deeper, however, reveals the parallels. The passage of FIRRMA came after years of mounting concern about Chinese investment in and access to U.S. technology.
Chinese-owned companies utilized mergers, acquisitions, joint ventures, and more to gain access to technologies that could become the nexus points of future geopolitical competition.
The crisis built to a point where Congress needed to give CFIUS additional tools to stop tech deals that the committee previously failed to see or act on. FIRRMA created a mandatory filing regime for critical technology-related transactions and expanded CFIUS’s ability to review non-notified transactions, empowering the committee to scan a broader universe of business transactions for national security risks.
Domestic antitrust law surrounding tech acquisitions may be at a similar political tipping point. Capitol Hill has held multiple hearings about dominant tech firms’ acquisitions of their competitors—with some legislators signaling an appetite to empower antitrust enforcement agencies with a mandate to more aggressively tackle this decade-long trend.
But the parallels between CFIUS and tech antitrust do not end at more aggressive enforcement—the CFIUS idea of “critical technology” also captures an essential element that is missing from consideration in current antitrust law. The nascent acquisitions drawing the most concern in antitrust literature involve companies that offer products that are not easily classified as substitutes or complements when compared with incumbents’ current market products. In these cases, it is difficult to say whether the firms are competitors at all.
The unique concerns surrounding these acquisitions focus on (1) the early-stage nature of the technology and market in which the acquiree operates and (2) a concern that whomever controls this technology will wield undue influence in shaping future technology markets.
In short, while most proposals addressing tech acquisitions focus on incumbent power and actions, this Note posits that the nature of the technology being acquired is a key determinant of the anticompetitive concern an acquisition should raise.
This Note argues that the FTC should develop its own “critical technologies” pilot program for merger review, creating a system that mandates reporting of all acquisitions related to certain nascent technologies regardless of the size of the transaction or whether it would traditionally raise anticompetitive concerns.
Under this framework, the FTC would decide which technologies it believes are critical to future economic infrastructure and innovation—possibly including, but not limited to, acquisitions related to augmented reality (AR), VR, cloud computing, cryptocurrencies, 5G technology, and certain types of artificial intelligence (AI)—and mandate reporting of all acquisitions in those industries, regardless of transaction size.
Such a program would allow the FTC to name and focus on the cause of concern raised by these transactions: Regulators believe this acquiree’s technology will play a central role in the continued development of digital platforms and they will take special care in reviewing technology with strong potential to leapfrog or displace current incumbents.
This forward-looking approach can prevent and complement the much-discussed remedy of retrospectively breaking up “Big Tech” companies.
CFIUS, while still imperfect, took a major step forward in catching up with the new realities of the tech industry through the 2018 passage of FIRRMA. The political moment may be ripe for a similar system for the FTC. Part I of this Note provides an overview of current antitrust law on premerger notification and merger review. Part II examines the problem of nascent tech acquisitions, tracking both the history of the tech industry and the academic discussion surrounding tech concentration. Part II then analyzes the parallels between the FTC’s nascent tech acquisition problem and the issues that CFIUS was facing before the passage of FIRRMA. Part III lays out the arguments for the creation of a CFIUS-style critical technologies pilot program run by the FTC, which would allow the antitrust enforcement agency to orient its mission toward addressing emerging technological markets.