Technology

The Missed Opportunities Of The Khan FTC Are Glaring

From the missed opportunities department.

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Federal Trade Commission – FTC – by David Lat

The Federal Trade Commission – FTC (photo by David Lat).

A few months ago at a conference, I was somewhat surprised to hear from an academic whose views on antitrust are closely aligned with FTC chair Lina Khan complain to me that Khan appeared to be a disaster as an FTC Commissioner, noting that multiple FTC staffers had been complaining or heading for the exits. Since then, I’ve been surprised at how many others I’ve heard similar things from, including from both those who support Khan’s policy positions and those opposed (while it’s certainly less surprising to hear it from those who disagree with her, the fact that it was coming across the board seemed notable).

Khan, who was highly lauded for for her Yale Law Journal paper, Amazon’s Antitrust Paradox, was a bit of a surprise pick for an FTC Commissioner. She had a high profile, and clearly had very detailed ideas about how antitrust law should work, but her actual experience on these issues seemed a bit limited. Still, as a statement nomination, it perhaps made sense as Joe Biden saying “this is how I want to revive antitrust law” (though, if it was a statement pick, the fact that he’s then completely failed to get Gigi Sohn appointed to the FCC, suggests less clear strategy in these picks, and more of a haphazard process).

Even still, after she was approved by the Senate, there was an even bigger shock, that she was immediately appointed not just as one of five commissioners, but as the chair. This raised a bunch of eyebrows, as running the FTC is a pretty serious administrative task, one which she had little (if any?) relevant experience. Being a policy wonk is way different than running an agency. However, when people brought up this point, we were often brushed aside by others saying that the only people raising that were those opposed to her policy goals. Still, it strikes me as a fairly huge mistake that the chair position wasn’t given to someone else, with even the possibility of Khan growing into the role after gaining more experience in how the FTC functions.

We started to hear rumblings of problems within the FTC when Khan effectively muzzled FTC economists, which many worried was a sign that part of her leadership was politicizing the FTC, which generally has a pretty strong history of not being particularly political (obviously, there’s always some element of politics, but the FTC was generally seen as being above the fray, especially compared to some other agencies).

And, then… there have been some odd decisions. While it’s no surprise that the Khan FTC has brought antitrust lawsuits against Meta and Google (many people note the oddity that she has waited to go after Amazon, the subject of her paper, though rumors are that’s finally about to happen), the first few cases of the Khan FTC have been… almost astoundingly weak. And that’s especially if you support her policy goals and think that the big tech companies need to be smashed to pieces. Bringing terrible cases is a horrible way to go about that, and that became clear when a court basically laughed her first case against Meta out of court.

Some of the follow up cases have actually been stronger, which only puts an exclamation point on the idea that if the Biden administration wanted to make a big statement on antitrust, it should have put in a chair who actually understood how these suits would actually play out in court, so as to focus on marshaling the necessary resources for the strong cases, rather than creating chaos through weak cases.

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And there’s perhaps no better example of a weak case than the one the FTC brought to stop Meta from acquiring Within, a VR exercise company. As we noted at the time, everything about that case was… strange. It appeared to be a clear case of an antitrust case being brought for punitive reasons, rather than any legitimate pro-competition rationale. The key point we made is that it seemed impossible to believe that the case would have been brought if Oculus wasn’t owned by Meta. In other words, Oculus buying Within wasn’t the issue, it was just a statement trying to say “Meta shouldn’t be allowed to acquire anyone any more.”

And that’s not how antitrust should work… or (more importantly) does work.

Earlier this month, the court rejected the FTC’s attempt to block the acquisition, and that was even after agreeing with the FTC’s market definition (a key part of any antitrust case) and even that there was “substantial concentration” in the market. But, in effect, the court basically said that Meta had perfectly reasonable market reasons for making the purchase, rather than anti-competitive ones, and thus it refused to block the acquisition, which was then completed soon after the court ruled.

This was all pretty embarrassing. Stretching how antitrust works may be an interesting idea, but to do so, you better bring really compelling cases. And this wasn’t that.

And, literally as I was working on this article, another shoe dropped, in that Republican FTC Commissioner Christine Wilson released a bombshell of a resignation letter in the WSJ, in which she comes pretty close to suggesting criminal behavior by Khan within the FTC. I can’t recall seeing a resignation letter quite like this one. Some will argue that it was motivated by policy differences between Wilson and Khan, but the letter seems to go way beyond that, and highlights managerial dysfunction, as well as Khan trying to suppress Wilson’s own views not for legitimate reasons, but to simply avoid having criticism be made public:

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I also disagreed with my colleagues on federal ethics grounds. To facilitate transparency and accountability, I detailed my concerns in my dissent—but Ms. Khan’s allies ensured the public wouldn’t learn of them. Despite previous disclosures of analogous information, Commissioners Rebecca Slaughter and Alvaro Bedoya imposed heavy redactions on my dissent. Commission opinions commonly use redactions to prevent disclosure of confidential business information, but my opinion contained no such information. The redactions served no purpose but to protect Ms. Khan from embarrassment.

She also notes the strong belief that Khan should have recused herself from the Meta/Within issue, having previously publicly stated that Meta should be blocked from acquiring any new companies.

Consider the FTC’s challenge to Meta’s acquisition of Within, a virtual-reality gaming company. Before joining the FTC, Ms. Khan argued that Meta should be blocked from making any future acquisitions and wrote a report on the same issues as a congressional staffer. She would now sit as a purportedly impartial judge and decide whether Meta can acquire Within. Spurning due-process considerations and federal ethics obligations, my Democratic colleagues on the commission affirmed Ms. Khan’s decision not to recuse herself.

One could argue that these were both about policy differences, though that seems like a stretch, especially in an FTC that used to reveal Commissioner dissents without such redactions in the past. Also, given the result of this case and others, it sure ends up looking like being more public in dealing with Wilson’s objections and concerns, rather than sweeping them under the rug, might have resulted in a stronger case (or no case at all), rather than such a weak one that failed.

Furthermore, the whispers I’d been hearing about staffers becoming disgruntled are apparently backed up with some data:

I am not alone in harboring concerns about the honesty and integrity of Ms. Khan and her senior FTC leadership. Hundreds of FTC employees respond annually to the Federal Employee Viewpoint Survey. In 2020, the last year under Trump appointees, 87% of surveyed FTC employees agreed that senior agency officials maintain high standards of honesty and integrity. Today that share stands at 49%.

Many FTC staffers agree with Ms. Khan on antitrust policy, so these survey results don’t necessarily reflect disagreement with her ends. Instead, the data convey the staffers’ discomfort with her means, which involve dishonesty and subterfuge to pursue her agenda.

That’s… just not a good sign at all.

Finally, the closing paragraph certainly hints at even more egregious things to come out at some point in the future:

As an antitrust lawyer, I counseled clients to avoid trouble by knowing when to object and how to exit. When my clients attended trade association gatherings, I advised them to leave quickly if discussions with competitors took a wrong turn and raised alarm bells about price fixing or other illegal activity. Make a noisy exit—say, spill a pitcher of water—so that attendees remember that you objected and that you left. Although serving as an FTC commissioner has been the highest honor of my professional career, I must follow my own advice and resign in the face of continuing lawlessness. Consider this my noisy exit.

Yikes.

It really feels like much of this could have been avoided by focusing on bringing strong cases, while making the policy arguments for changing how antitrust works, without trying to take big swings on weak cases without the cover of congressional approval.

It’s possible that there will be some turnaround on this. As I noted, a few of the more recent cases have been stronger and appeared more well planned out. So, perhaps things are changing, and perhaps the legacy of the Khan FTC will shift by the end of her reign. But failures like the Meta/Within case, and now Wilson’s “noisy exit” (not to mention staff dissatisfaction with the agency) suggest a much bigger underlying issue in how the FTC currently operates.

And, if anything, that feels like a huge missed opportunity if the goal was to bring about real change, and create a much more competitive marketplace.

The Missed Opportunities Of The Khan FTC Are Glaring

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