Federal Trade Commission v. Meta Platforms Inc.

Background

The Federal Trade Commission (FTC) sued Meta Platforms Inc. and Within Unlimited, Inc. to block Meta’s proposed acquisition of Within, which developed virtual-reality applications, including the fitness application Supernatural. The FTC sought a preliminary injunction under Section 13(b) of the FTC Act, alleging that the acquisition could substantially lessen competition under Section 7 of the Clayton Act.

Meta asserted 22 affirmative defenses, and Within asserted 20. An affirmative defense is a defendant’s stated reason why the plaintiff should not obtain relief even if the complaint’s allegations are accepted. The FTC moved under Federal Rule of Civil Procedure 12(f) to strike six of Meta’s defenses and three of Within’s defenses. Rule 12(f) allows a court to remove an insufficient, redundant, immaterial, impertinent, or scandalous defense from a pleading.

Bias-related defenses

Meta’s Eighteenth and Nineteenth defenses alleged that FTC Chair Khan was biased and disqualified from participating in the matter. The court found that these defenses included enough factual allegations to give the FTC fair notice, but held that the defenses were not pertinent to the FTC’s Section 13(b) request for a preliminary injunction.

The court rejected the FTC’s argument that it lacked subject-matter jurisdiction over these defenses. It held that the court had jurisdiction over the FTC’s claim and over the affirmative defenses asserted in response. The court distinguished cases involving parties who had offensively challenged FTC administrative proceedings in district court.

The court then held that Section 13(b)’s inquiry into the FTC’s “likelihood of ultimate success” concerns the FTC’s likely success on the antitrust merits in the underlying administrative proceedings, not the possible success of objections to FTC procedures on a later appeal. The court also held that Chair Khan’s alleged bias was not relevant either to the antitrust merits or to the limited public and private equities considered when deciding whether to issue a preliminary injunction.

Because the problems with the bias defenses were legal and foundational, the court found that amendment would be futile and that allowing the defenses to remain could shift discovery toward the FTC’s conduct. The court therefore granted the motion and struck Meta’s Eighteenth and Nineteenth Affirmative Defenses without leave to amend.

Constitutional defenses

Meta and Within asserted defenses alleging that the FTC’s exercise of executive authority violated Article II of the Constitution and that the proceedings violated due process. The court held that, to the extent these defenses were based on Chair Khan’s alleged bias or procedural deficiencies, they were subject to the same relevance problem as the bias defenses.

The court separately held that the defenses were inadequately pleaded because each consisted of only a single sentence and included no factual allegations. The defenses did not give the FTC fair notice of their factual bases. The court granted the motion as to Meta’s Seventeenth and Twenty-First defenses and Within’s Seventeenth and Nineteenth defenses, striking them with leave to amend.

Selective-enforcement defense

Meta’s Fourteenth defense stated that the FTC’s complaint reflected improper selective enforcement of the antitrust laws. The court held that the defense lacked any factual basis and therefore did not satisfy the required plausibility pleading standard, whether characterized as selective enforcement or selective prosecution.

The court stated that Meta’s opposition brief could not supply facts missing from its answer, but concluded that amendment might not be futile. It granted the motion to strike Meta’s Fourteenth Affirmative Defense with leave to amend.

Equitable defenses

Meta’s Twentieth defense referred to unclean hands, estoppel, and other equitable doctrines based on Chair Khan’s alleged disqualification. Within’s Eighteenth defense stated that the FTC was equitably estopped from pursuing its claims. The court held that these single-sentence defenses did not provide sufficient notice and did not plead the additional facts needed for equitable defenses against the government.

The court did not decide that amendment would be futile because the defendants had not yet supplied factual allegations or identified clearly which equitable defenses they intended to assert. It granted the motion to strike Meta’s Twentieth and Within’s Eighteenth defenses with leave to amend.

Disposition

The court granted in part the FTC’s motion to strike. Meta’s Eighteenth and Nineteenth defenses were stricken without leave to amend. Meta’s Fourteenth, Seventeenth, Twentieth, and Twenty-First defenses, and Within’s Seventeenth, Eighteenth, and Nineteenth defenses, were stricken with leave to amend within seven days of the order. The order addressed the sufficiency and relevance of affirmative defenses; it did not decide the underlying antitrust claims or whether the acquisition violated federal antitrust law.