(Bloomberg) -- Meta Platforms Inc. won court approval to buy virtual reality startup Within Unlimited, defeating an effort to block the deal by the US Federal Trade Commission, according to people familiar with the ruling.

In a sealed decision early Wednesday morning, US District Judge Edward Davila in San Jose, California, denied the FTC’s request for a preliminary injunction to block the proposed transaction while the agency pursues a separate case in its in-house court. He separately issued a temporary restraining order pausing Meta from closing the transaction for a week while the FTC decides whether to appeal his ruling.

The people asked for anonymity to describe Davila’s decisions. 

Facebook declined to comment. The FTC declined to comment, citing the sealed nature of Davila’s decisions.

Meta was down nearly 1% to $147.56 at 9:50 a.m. in New York.

An in-house trial before the FTC’s administrative judge is scheduled to begin on Feb. 13. The FTC also will need to decide whether to move forward with that case.  

The decision represents the first major loss for FTC Chair Lina Khan, who was appointed by President Joe Biden to reinvigorate antitrust enforcement as a key tenet of his administration’s economic policy. Khan has taken a more aggressive approach to mergers than her predecessors and stepped up the agency’s focus on technology giants in particular because of their potential to quickly dominate budding markets. 

The FTC sued Meta in July, arguing that its purchase of Within – the maker of Supernatural, a popular VR fitness app – would aid the social networking giant in dominating the emerging virtual reality industry. Top Meta executives, including Chief Executive Officer Mark Zuckerberg and VR head Andrew Bosworth, testified during an eight-day hearing in December. 

The FTC has also challenged Microsoft Corp.’s proposed $69 billion merger with gaming publisher Activision Blizzard Inc. on concerns the deal could harm competition in the nascent cloud gaming market. That case is slated for trial in August.

At the December hearing, the FTC argued that Meta’s acquisition of Within would help the Facebook parent develop a monopoly in the nascent virtual reality space. The FTC asserted that the deal could hurt “potential competition” that might emerge in the future. 

Davila’s apparent rejection of that argument could bode poorly for the FTC in its effort to block Microsoft from buying Activision, where similar contentions about the future of gaming in the cloud are central to the complaint. 

(Updates to add analysis on ruling’s impact in ninth graph)

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