Lina Khan's Ability To Rein In Big Tech With The FTC Is Questioned After Her Loss To Meta

One former FTC official claims that there is a "huge mismatch" between expectations of what she can accomplish and what the law permits her to do.

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Lina Khan was heralded as the antitrust sheriff who would control Big Tech when she was appointed chair of the Federal Trade Commission in mid-2021.

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More than 18 months later, detractors claim the reputable scholar has so far failed to make a difference in the competitive worlds of politics and large business. Khan and the FTC are at a difficult crossroads because of expectations that are all but impossible to meet and burdened antitrust regulations that make it difficult for her to bring cases against the largest names in IT.

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Khan has not yet demonstrated the political expertise or organizational skills necessary to take on Big Tech as the Biden administration has promised. Yet, many analysts argue that not all of this is Khan's fault.

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Larry Downes, co-author of a recent Harvard Business Review article on the new era of antitrust action, stated that they were trying to "make her into a savior" five years after she graduated from law school.

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She had virtually no prior experience managing a sizable organization or handling legal disputes when she started her work. It was unjust. Prior to becoming a commissioner, her appointment as chair was made as a bow to the party's progressive flank, Downes told Trade Algo.

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Officials from the White House and FTC recoil at any notion that Khan has so far failed in her mission. They claim she has a significant list of achievements and argue she is striving to reform an organization that has been criticized for years as being ineffective.

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According to Bharat Ramamurti, deputy director of the National Economic Council, "Chair Khan has been an excellent leader of the Federal Trade Commission, and her work promoting competition, cracking down on junk fees, and moving to ban noncompete clauses has benefited American workers, consumers, and small businesses." Ramamurti made the statement via email to Trade Algo.

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When is a loss a victory in the Meta case?

The outcomes of Big Tech, though, haven't exactly been earth-shattering thus far. The most notable setback happened on February 24, when the FTC decided not to oppose Facebook parent Meta Platforms Inc.'s META, 4.96% acquisition of virtual reality firm Inside Limitless on the grounds that it was anticompetitive. A federal judge rejected the FTC's request for a temporary restraining order, thereby ending a case that many legal experts said lacked strong evidence.

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Like any agency, the FTC depends on credibility. According to Morten Skroejer, senior director for technology competition policy at the Software & Information Industry Association, the more cases you lose, the more difficult it is to maintain credibility with the courts and the general public, and [you] lose political capital.

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"She has politicized a professional, quasi-independent group," said Rob Atkinson, president of the Information Technology and Innovation Foundation, a nonpartisan research tank. Atkinson presided over Joe Biden's 2020 presidential campaign's advisory panel on emerging technology. He told Trade Algo, "[The FTC] has turned into an arm of the White House.

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Khan defied standard agency procedure to take on Meta's CEO, Mark Zuckerberg, disobeying staff advice and choosing to sue Meta last year despite the tenuousness of the case against the company, according to two people familiar with the agency. This decision compounded the failure of Meta. Tensions were heightened by comments Khan made prior to joining the FTC, in which she argued that Meta should be prohibited from making any other acquisitions.

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The FTC maintains that the organization won despite losing the legal battle, as do some legal experts. U.S. The agency's view that mergers could be barred even if they don't immediately harm competition but have the potential to do so in the future was acknowledged in District Judge Edward Davila's ruling.

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"The judge sided with the FTC on almost every matter of law and gave out a pretty clear ruling that said the way we were interpreting the statute was correct," Rebecca Kelly Slaughter, a Democratic commissioner, said of Davila's decision.

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Davila concurred that transactions "where the result would considerably diminish competition and tend to create a monopoly" are prohibited by Section 7 of the Clayton Act, which still applies to mergers involving businesses that are not currently in direct competition.

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Nevertheless, a few days before to the decision, FTC Commissioner Christine Wilson, in a rare instance of public criticism, announced her resignation in a scathing op-ed piece in Trade Algo, citing "concerns about the honesty and integrity of Ms. Khan and her senior FTC leadership."

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Wilson used the annual Federal Employee Viewpoint Survey in his statement that 87% of polled FTC employees felt that senior agency officials uphold high standards of honesty and integrity in 2020, the final year under Trump appointees. The current percentage is 49%.

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Both internal and external hindrances

According to Downes and others, Khan's efforts to make the FTC an up-to-date enforcement of antitrust law have been hampered by the absence of important federal statutes and a lack of personnel, resources, and technical know-how.

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No significant modifications to competition law have been made in years, according to Downes. The antitrust law has not been updated by Congress in a long time.

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Given its esoteric nature and the role technology has played in making life more convenient, antitrust legislation has been difficult to pass, according to Downes. It is very difficult to fight with free services, he added, adding that consumers are irritated and disillusioned by big technology. It is difficult to argue that free services are detrimental to them.

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Khan's term, however, also began with some self-inflicted wounds.

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Daniel Kaufman, who completed a 23-year career at the organization in October after most recently serving as acting director of the Bureau of Consumer Protection, claimed that Khan made a number of mistakes when she assumed the position of chair. She did not interact with the personnel and appointed individuals to important positions who collaborated with Commissioner [Rohit] Chopra, for whom she had served as an intern. The majority of newly elected FTC chairs nominate outsiders.

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Fundamentally, however, "there is a huge mismatch between expectations of what she may achieve and what the law enables her to do," Kaufman told WSJ.

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Some who are familiar with Khan claim that she is running into opposition as a result of her efforts to awaken the FTC from its protracted slumber.

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K said, "She is restoring a power that the FTC hasn't employed in years. Khan has known and worked with Sabeel Rahman for seven years. Rahman is a professor at Brooklyn Law School and a former senior counselor in the Office of Information and Regulatory Affairs. The age and experience argument is unfounded.

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Movement Known As "Hipster Antitrust"

Khan was welcomed into the FTC with extremely high hopes upon her appointment as chair, which surprised several observers who had anticipated her to be named a commissioner. She is well-known for her scholarly contributions, and among younger academics, she is recognized as the pioneer of the "hipster antitrust" movement. She is also one of Silicon Valley's most vocal opponents.

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She also belonged to a wave of antitrust-supporting progressive policy wonk hires, including Jonathan Kanter, a relative newcomer to the federal government who is now in charge of the Justice Department's antitrust division; legal expert Tim Wu, who served as the president's special assistant for technology and competition policy; and Gigi Sohn, who has been nominated by Vice President Biden to the Federal Communications Commission.

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Wu had a key role in developing a comprehensive executive order in 2021 that aimed to rein in anticompetitive business activities in Big Tech, the labor market, and other sectors. Last year, the Justice Department filed an antitrust lawsuit in the ad-tech sector against Alphabet Inc.'s GOOGL, 1.33% GOOG, 1.29% Google and is getting ready to file one against Apple Inc. Apple gained 2.61% due to its renowned app store. Khan, according to her critics, has not made any significant contributions to Big Tech.

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The White House and Khan's supporters, however, highlight a list of her accomplishments while serving as the FTC chair, which includes filing a lawsuit to halt Microsoft Corp.'s MSFT, 1.12% $69 billion offer to acquire Activision Blizzard Inc. ATVI, 1.33%, which would be the largest tech acquisition ever; the first significant update to merger policies since the 1970s; a proposed near-complete ban on employee noncompete agreements; success in getting funding from Congress to increase the FTC's annual budget by $55 million, to $430 million; and enforcement of "the right to repair," new rules prohibiting businesses from misleading customers by selling products that cannot be repaired without destroying the product.

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According to FTC spokesperson Douglas Farrar, "Chair Khan has energized the FTC, winning challenges to a $40 billion semiconductor industry merger and preventing further consolidation in the life-saving kidney-dialysis market." He was referring to Nvidia Corp.'s unsuccessful attempt to acquire chip designer Arm Ltd. from SoftBank Group Corp. 9984, -0.48% as well as a new requirement for DaVita Inc. To get preapproval for anticompetitive mergers is DVA, -0.22%. Beside winning merger challenges, she has suggested regulations that will free workers and business owners from wrongful noncompete provisions and safeguard Americans' online privacy.

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Farrar continued, "The job of the FTC chair is not to appease partisan detractors, but to carry out the duty of Congress: safeguard American consumers and businesses from unfair tactics of competition. "Lina Khan is doing just that," someone said.

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Khan continues to have a lot of support from members of both parties, ranging from progressives and moderates to conservatives, despite the departure of two commissioners—Wilson and Noah Joshua Phillips, who left last year without providing a reason—and the announced retirement of Holly Vedova, the FTC's top competition official, after more than 30 years with the agency.

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A lengthy, ambitious course of study

The agency is currently setting out on an ambitious trajectory that might be profitable for all tech businesses, regardless of their size or stature. Yet according to tech insiders, that may still be a long way off.

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In an interview with Trade Algo, serial entrepreneur Muddu Sudhakar, who is currently the CEO of the software startup Aisera, said: "I agree with the [FTC's] mentality [toward Big Tech], but it has not helped me so far. "It's crucial to safeguard both innovation and small businesses. Nonetheless, I oppose excessive regulation. Let capitalism run its course.

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According to Downes, it is "certainly brilliant" of the FTC to file lawsuits that, like the one against Meta, are intended to prove a legal point more than anything else, even more than winning. That puts pressure on Congress to make changes and tech corporations to offer compromises, the speaker claimed.

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The agency is sending a message that similar mergers won't be routinely approved, according to Katherine Van Dyck, senior legal counsel at the nonprofit American Economic Liberties Project, who was speaking to Trade Algo. It takes a huge ship to turn around 40 years' worth of terrible case law.

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Nobody knows where it will all end. Some believe Khan will proceed with the lawsuit against Amazon.com Inc. despite her outspoken critics. AMZN, 2.12% prior to eventually going back to school.

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"The challenge is that antitrust and antimonopoly law have been commonplace for so long. Rahman told Trade Algo that it needed to be revised. If laws proceed in the right direction, "the FTC's success will be primarily determined over the next five to ten years."