After losing to Meta, Lina Khan’s ability to contain Big Tech with the FTC is questioned

By Jon Swartz

“There’s a huge disconnect between expectations of what it can achieve and what the law allows it to do,” says a former FTC official

When she was sworn in as chair of the Federal Trade Commission in mid-2021, Lina Khan was hailed as the antitrust sheriff who would rein in big tech.

More than 18 months later, critics say the respected academic has been ineffective in the harsh world of politics and big business. Tagged with near-impossible expectations and saddled with stuffy antitrust laws that prevent them from pursuing the tech’s biggest players, Khan and the FTC find themselves at a troubled crossroads, a handful of antitrust experts told MarketWatch.

Khan has so far shown neither the political savvy nor the organizational savvy to crack down on Big Tech as the Biden administration has promised — but not all is their fault, many observers say.

“Five years out of law school, they’re trying to turn her into a savior,” said Larry Downes, co-author of a recent Harvard Business Review article on the new era of antitrust litigation.

“She came into the job with basically no experience running a large organization and leading cases. It wasn’t fair. The decision to appoint her as leader before she became commissioner was a nod to the progressive wing of the party,” Downes told Market Watch.

From 2021: New FTC Chair Lina Khan is Big Tech’s biggest nightmare

White House and FTC officials balk at any suggestion that Khan has failed in his job so far. They insist she is working to shake up an agency that many have ridiculed for years as moribund and say she has a long list of accomplishments.

“Chair Khan was an outstanding leader of the Federal Trade Commission, and her work to promote competition, fight junk fees and ban non-compete clauses has benefited American workers, consumers and small businesses,” said Bharat Ramamurti, deputy director of the National Economic Council, MarketWatch informed via email.

The Meta Case: When is a Loss a Win?

So far, however, the results involving Big Tech have been less than earth-shattering. The most notable setback occurred on Feb. 24, when the FTC dropped its opposition to Facebook parent Meta Platforms Inc. (META)’s purchase of virtual reality startup Within Unlimited on anticompetitive grounds. A federal judge denied the FTC’s request for an injunction, nearly sinking a case many legal experts said lacked probative value.

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“Like any agency, the FTC relies on credibility. The more cases you lose, the harder it is to maintain credibility with the courts and the public, and [you] lose political capital,” Morten Skroejer, senior director for technology competition policy at the Software & Information Industry Association, told MarketWatch.

“She’s politicized a professional, quasi-independent organization,” said Rob Atkinson, president of the Information Technology and Innovation Foundation, a nonpartisan think tank. In 2020, Atkinson served as chair of then-presidential candidate Joe Biden’s policy advisory group on emerging technologies. “[The FTC] has become an arm of the White House,” he told MarketWatch.

Meta’s failure was compounded by the fact that Khan broke routine agency precedent to take on the company’s CEO, Mark Zuckerberg, ignored staff recommendations, and chose to sue Meta last year despite the case was flimsy against the company, according to two people close to the agency. Statements made by Khan prior to joining the FTC alleging that Meta should be barred from making future acquisitions further fueled tensions.

The FTC, along with some legal observers, insist the agency won in court despite the loss. US District Judge Edward Davila’s decision recognized the agency’s position that mergers could be blocked even if they don’t directly affect competition but have the potential to do so in the future.

“The judge sided with the FTC on virtually every legal issue and presented a very clear opinion that the way we interpreted the law was correct,” said Rebecca Kelly Slaughter, a Democratic commissioner, about Davila’s decision.

Davila agreed that mergers between companies that are not currently in competition can still violate Section 7 of the Clayton Act, which prohibits transactions “if the effect would significantly reduce competition and tend to create a monopoly”.

But a few days before the ruling, in a rare public rebuke, FTC Commissioner Christine Wilson announced in a scathing comment in The Wall Street Journal that she was stepping down, saying she had “concerns about the honesty and integrity of Ms. Khan and her senior officials.” FTC leadership.”

Referring to the annual Federal Employee Viewpoint Survey, Wilson wrote, “In 2020, the final year of Trump’s appointments, 87% of FTC employees surveyed agreed that senior agency officials upheld high standards of honesty and integrity. Today that percentage is 49%. ”

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External obstacles and self-inflicted wounds

Khan’s goal of transforming the FTC into a modern antitrust enforcer was hampered by a lack of significant federal legislation and a lack of staff, resources and technical expertise, according to Downes and others.

“There hasn’t been any major change in competition law for years,” Downes said. “Congress has repeatedly failed to update antitrust laws.”

Antitrust legislation was a hard sell because of its esoteric nature — and because of the impact technology has had on making life easier, Downes said. “Consumers are angry and frustrated with Big Tech, but it’s very hard to argue against free services,” he said. “It’s hard to argue that free services hurt them.”

But the beginning of Khan’s tenure was also marked by some self-inflicted wounds.

“Khan made a number of mistakes when she took over the chair,” said Daniel Kaufman, who ended a 23-year career at the agency in October and most recently served as acting director of the Bureau of Consumer Protection. “She has not engaged with staff, and she has appointed key people who have worked with Commissioner [Rohit] Chopra, for whom she did an internship. Most new FTC chairs appoint people from outside.”

But fundamentally, Kaufman told MarketWatch, “there’s a tremendous disconnect between expectations of what it can achieve and what the law allows it to do.”

Read more: Biden has made big promises on antitrust law, but Lina Khan’s FTC is underperforming, critics say

Those who know Khan say she faces opposition as she seeks to shake the long-dormant FTC from its decades-long slumber.

“She revitalizes an authority that the FTC has not used in years,” said K. Sabeel Rahman, a Brooklyn Law School professor and former senior counselor in the Office of Information and Regulatory Affairs, who has known and worked with Khan for seven years works together years. “Age [and] A matter of experience is a diversionary tactic.”

The Hipster Cartel Movement

Upon her appointment as FTC chair – surprising some observers who expected her to be commissioner – Khan was ushered in with sky-high expectations. She is highly respected for her scientific work and is considered one of Silicon Valley’s main critics among young scientists as a leader of the “Hipster Antitrust” movement.

She was also part of a wave of antitrust candidates for progressive politicians like Jonathan Kanter, another relative newcomer to the federal government who is now head of the Justice Department’s Antitrust Division; Legal scholar Tim Wu, who served as the President’s special assistant for technology and competition policy; and Gigi Sohn, who was nominated by Biden for the Federal Communications Commission.

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Wu was a driving force in drafting a sweeping executive order in 2021 aimed at cracking down on anti-competitive business practices in big tech, the workplace and other industries. The Justice Department this year filed an ad-tech antitrust case against Alphabet Inc.’s Google (GOOGL)(GOOGL) and is nearing a lawsuit against Apple Inc. (AAPL) for its dominant app store. Khan, her critics claim, has achieved nothing of comparable magnitude in relation to big tech.

However, White House and Khan supporters point to a list of her accomplishments as FTC Chair, including the lawsuit overturning Microsoft Corp.’s $69 billion bid. (MSFT) to Block Purchase of Activision Blizzard Inc. (ATVI), Which Would Be Biggest Tech Acquisition Ever; the first major revision of merger guidelines since the 1970s; a proposed near-total ban on non-compete obligations for employees; success in securing funding from Congress to increase the FTC’s annual budget by $55 million to $430 million; and enforcing the “right to repair,” new rules that prohibit companies from deceiving customers by selling products that cannot be repaired without destroying the device or that cannot be repaired outside of the company’s own service network.

“Chair Khan energized the FTC, won challenges for a $40 billion merger in the semiconductor industry and prevented further consolidation in the life-saving kidney dialysis market,” FTC spokesman Douglas Farrar told MarketWatch, referring to the success of Nvidia Corp. (NVDA). Offer to acquire chip designer Arm Ltd. by SoftBank Group Corp and on a new requirement for DaVita Inc. (DVA) to obtain pre-approval for anti-competitive mergers. “Beyond the victories in the merger challenge, she has proposed rules that will exempt employees and contractors from illegal non-compete clauses and protect American’s digital privacy.

“The job of the FTC chairman is not to please partisan critics, but to do what Congress has directed: to protect American consumers and businesses from unfair competitive practices,” Farrar added. “That’s exactly what Lina Khan does.”

(FOLLOWING) Dow Jones Newswires

03-05-23 2233ET

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