Inside Lina Khan’s war on monopolies

In July, the CEO of the biotech giant Illumina flew to D.C., checked into a hotel room off M Street and tried to conduct a routine piece of business: Persuading the Federal Trade Commission to let his company buy a cancer startup.

But nobody from the FTC would meet with him.

In the Obama and Trump eras, a pilgrimage to Washington was a tried-and-true strategy for CEOs seeking to resolve antitrust logjams — often yielding a flurry of meetings between commissioners and companies like Google, T-Mobile and Apple. But as Illumina’s Francis deSouza learned, that was a different FTC.

Under new FTC Chair Lina Khan, the century-old regulatory agency long accustomed to blessing corporate mergers is veering back to its original trustbusting mission and becoming markedly less friendly to the businesses it regulates. The shift has inspired cheers from her fellow progressives while unsettling many GOP lawmakers, the agency’s two Republican commissioners and even some longtime FTC employees, according to interviews with more than 20 FTC employees, commission alumni and people on Capitol Hill.

The 32-year-old law professor’s most prominent target is the tech industry, whose biggest players swelled to behemoth size on the commission’s watch. Nearly a decade after the commission overruled its own attorneys and declined to file an antitrust suit against Google, Khan is trying to prove that the agency is capable of taking on the nation’s wealthiest companies, including in Silicon Valley.

Some executives from other industries, like deSouza, say they’re being caught in the crossfire.

“There is an anti-big-company, anti-tech sentiment,” deSouza said of the FTC’s refusal to meet with him. “We’re the baby in the bathwater.”

Khan: ‘We can deliver’

President Joe Biden’s decision to elevate Khan as the FTC’s chair on June 15 stunned many in D.C. Those included some of the nearly two dozen Republican senators who had voted hours earlier to confirm the outspoken anti-monopolist, thinking she would be just one of the agency’s five commissioners.

The choice elated progressives who say the FTC, an antitrust and consumer agency created during Woodrow Wilson’s administration, has lost its antitrust firepower since the Reagan era.

Khan, a self-described FTC history nerd, has been outspoken in criticizing the agency. For decades, she told Congress this month, commissioners of both parties had pursued a philosophy that “recommended enforcers err on the side of inaction, on the assumption that monopoly power would be disciplined by the free market.”

Those days are over, she said in a memo to her employees last week that laid out her priorities: “American consumers, workers, and honest businesses depend on the Commission to champion a fair and thriving economy for all, and I am confident that we can deliver.” She said her top priority is taking on a massive wave of proposed mergers and other forms of “rampant consolidation.”

The other changes that Khan has pushed target a wide range of corporate behavior, from employee non-compete agreements to warranties that prevent customers from repairing their own electronic devices. Some steps the FTC has approved in 3-2 party-line votes have also enhanced Khan’s own authority. For instance, letting her approve antitrust subpoenas without agreement from the other commissioners.

“With only a few months on the job, Lina Khan has proven she is committed to strengthening competition policy and taking on monopolies,” said Sen. Amy Klobuchar (D-Minn.), who chairs the Senate Judiciary Committee’s antitrust panel. Klobuchar is drafting legislation that could give the FTC more resources to take on anti-competitive behavior.

But GOP critics like Utah Sen. Mike Lee accuse Khan of mounting a “progressive putsch.” Others, including the agency’s two Republican commissioners, say she is risking a repeat of the 1970s when a congressional backlash against alleged FTC overreach hobbled the commission’s authority.

“I am very concerned about giving the agency more power under current leadership,” Republican Commissioner Christine Wilson told the House Judiciary Committee in a hearing Tuesday. Under Khan, she said, “decades of tradition have been thrown out the window to the detriment of our decision making and consumers.”

Facebook and Amazon have demanded — unsuccessfully — that Khan abstain from decisions on their companies, citing her history of work and statements criticizing tech monopolies. The Wall Street Journal has published at least six editorials and four op-eds on Khan since mid-June, including one editorial that dismissed her as “a 32-year-old academic who has no experience running anything.”

“American business should get ready. The Khan FTC is coming after you,” the July opinion piece said.

She is also taking fire from sources closer to home. Even some people in the Biden administration grumbled this month after POLITICO reported that Khan’s newly appointed top antitrust adviser, Shaoul Sussman, had predicted to an Israeli newspaper last spring that Congress will break up Google and Facebook.

Some of the FTC’s 1,100 employees, meanwhile, complain that Khan has largely walled herself from rank-and-file staff and clamped down on decision-making, while limiting what the staff is allowed to say in public.

“She doesn’t care at all what we think,” one longtime staffer said in an interview, requesting anonymity to speak openly about their boss. The person added that during a Zoom meet-and-greet with staff in August, Khan read from a prepared statement and only took one or two questions. “There’s just no respect there.”

The FTC declined a request to interview Khan. The new chair hasn’t done any media interviews — except for a roundtable with reporters in July after her first congressional appearance — nor spoken publicly aside from the commission’s three open meetings so far. After the agency initially said Khan would give her maiden speech at a prominent international antitrust conference that begins Wednesday at Fordham University in New York, the FTC backpedaled and said she would attend the conference to meet with European competition heads but wouldn’t be speaking.

At the same time, Khan has sought to tamp down accusations that she’s politicizing a traditionally bipartisan agency. In her letters to lawmakers in early September, she noted that several of the initiatives she has led, such as investigating and suing big tech platforms like Facebook, “were also priorities identified by the Trump administration.”

Khan’s aim is to revive the FTC’s original role as a zealous enforcer, said Matt Stoller, a friend and former colleague of Khan’s at the antimonopoly group Open Markets. That’s an FTC people haven’t seen in a while, he said.

In the 1980s and ‘90s, FTC chairs “defanged the commission, put economists in charge and made it an agent of monopolists,” said Stoller, now director of research at the anti-monopoly group American Economic Liberties Project. “The Big Tech giants are all creations of those shifts. What Lina is doing is going back to the pre-1980s model.”

‘They want to do everything’

The FTC’s internal changes began soon after Khan moved in.

One was a blanket moratorium on public engagements by FTC employees, causing scheduling headaches for several American Bar Association conferences where the staffers had been slated to speak. That order, still in place three months later, also barred the FTC’s economists from publishing their research.

Such a temporary pause on outside communications isn’t unusual when the FTC gets a new chair, allowing the agency to adjust to the new boss’ priorities. But Khan’s chief of staff, Jen Howard, caused internal grumbling by ordering the employees to withdraw even from already-approved engagements. Her rationale was that the agency is too busy.

Khan has also declined to allow staff attorneys to brief her on cases, instead requiring their division managers to attend — a move that some staffers have perceived as a snub. Khan’s predecessor, Trump-nominated Republican Joe Simons, had a reputation for being especially deferential to the staff, making Khan’s reversals appear particularly abrupt.

And for all the talk of bold action, Khan has been slow to hire her own staff, bringing in only one adviser — Sussman — and a paralegal plus naming new competition and consumer protection chiefs so far. That shortage of trusted employees, coupled with what former colleagues describe as Khan’s eagerness to delve into the weeds of cases, has led to slow action on rulemakings she has identified as a priority for the agency.

“They don’t have enough people to run the trains,” a former FTC employee said. “They want to do everything but don’t have the personnel and they don’t trust anybody else to do anything.”

Change has always come slowly at the FTC, in part because of the staff’s longevity and the high turnover of their politically appointed bosses. Longtime staffers have a term for that, former FTC chief technologist Ashkan Soltani said: They call themselves the “Weebies,” as in “we will be here after you go.”

Soltani recalled that he got significant pushback from the staff in 2014, when he set out to create a dedicated group of technology experts within the agency to consult on cases.

“There is a view among some of the staff at the agency that the commissioners and chief technologists come and go, but the staff has been there throughout,” Soltani said. “And for better or worse they are the ones who make the calls as to what the agency does.”

Some top staffers are actively looking to leave the agency, three former FTC staffers who have heard from job-seeking colleagues said — a trend some at the agency believe is being encouraged by companies under investigation and their law firms. Such a brain drain would worsen FTC’s difficulties: It’s already hemorrhaging money, a problem it blames on its record amounts of litigation, and has about 600 fewer staffers than it did in 1979.

Many complaints about Khan from both inside and outside the building revolve around her age — she’s the youngest chair in the agency’s history — and the fact that she has never practiced law. Her supporters see that as a coded attack on her as a young Asian American woman (Khan is of Pakistani descent).

In fact, she has spent years as an influential figure in the tech antitrust world, starting with a Yale Law Journal article that she wrote as a student in 2017 that spawned a broader rethinking of how regulators should approach dominant tech companies like Amazon.

She later served as a House Judiciary Committee aide during the panel’s 16-month antitrust probe of Amazon, Apple, Google and Facebook. Together with her fellow Columbia Law School professor Tim Wu — now a member of Biden’s National Economic Council — she has led a legal movement that critics label “hipster antitrust,” which argues that the government should challenge corporate power to prevent any company from exerting too much economic or political control.

Khan’s allies say she is facing a backlash from a business establishment that became accustomed to getting its way at the agency.

“The antitrust bar that represents the defense side has always felt an entitlement to the chair of the FTC, whether it’s a Democrat or Republican,” said Ed Mierzwinski, who oversees the nonprofit advocacy group U.S. PIRG’s federal consumer program and has worked with the FTC since the 1980s. “It’s great to see the president pick someone outside Big Law.”

Republicans: FTC abandoning its traditions

Khan is also getting public complaints from Wilson and fellow Republican Commissioner Noah Phillips, who have voted no on nearly all the votes she has led as chair.

Those included the decision in August to file a new antitrust suit against Facebook, replacing a Trump-era lawsuit that a federal judge had tossed out.

Khan and her fellow Democrats have also repealed an Obama-era policy statement that had limited the commission’s ability to challenge anti-competitive behavior. In mid-September, they rescinded Trump-era guidelines that Democrats called overly favorable to so-called vertical mergers, which unite companies in the same industry that aren’t direct competitors. (Think AT&T’s purchase of Time Warner, or Amazon’s proposal to buy MGM Studios.)

Republicans fear that Khan is setting the stage for an even more momentous change — a repudiation of a decades-old antitrust doctrine, beloved by economists and federal judges, that looks to rising consumer prices as the yardstick for whether a market lacks competition.

Khan and other critics of this “consumer welfare” standard call it ill-suited to the online age, when companies like Facebook and Google earn enormous fortunes while offering products for free or low cost. (Amazon, Khan wrote in her 2017 law review article, “has evaded government scrutiny in part through fervently devoting its business strategy and rhetoric to reducing prices for consumers.”) But the doctrine’s defenders say shredding it would allow massive government intervention in the economy.

Beyond losing on all these votes, the FTC Republicans say they’ve started feeling a chill on the information they receive from the agency’s staff.

“We have lost a window into what staff is doing,” Wilson said at a July congressional hearing, accusing Khan of jettisoning “long-standing norms and procedures.”

Wilson went even further in September, complaining on Twitter that she’d been unable to find out what questions the FTC staff had sent to some companies seeking merger approvals. Instead, she said, she asked the companies themselves for copies.

“So much for a new era of transparency at the @FTC,” Wilson tweeted.

Howard, Khan’s chief of staff, responded on Twitter with an eyeroll emoji. But on Tuesday, the FTC announced new merger review procedures that include ensuring that such information requests are “securely accessible to all Commissioners.”

As chair, Khan gets to fill key positions at the agency with staffers who report to her directly. Some chairs have interpreted the agency’s chain of command loosely, allowing any commissioner to request briefings on case updates. Others have banned staff from providing information to the minority party’s commissioners without explicit approval.

In response to Wilson’s complaints, the agency pointed to testimony by Democratic Commissioner Rohit Chopra that he routinely received less information on ongoing cases while he was a minority commissioner during the Trump years than he does now with Democrats in charge.

Course correction?

The FTC’s risk aversion can be traced to a Carter-era dust-up known as “Kidvid,” in which the agency sparked a political backlash by seeking to create rules for television advertising directed at children. Under pressure from advertisers and business groups, Congress significantly curtailed the FTC’s rulemaking authority.

With the agency’s powers and budget slashed, then-President Ronald Reagan’s FTC chair — the first economist, rather than lawyer, to helm the agency — greatly expanded the role of economics in the commission’s work and moved toward industry self-regulation.

To this day, agency staffers and alumni have “deeply, deeply personal” feelings about Kidvid and its aftermath, said Stoller — Khan’s former colleague — which helps explain some of the visceral reactions to the new chair.

“It’s like the FTC was born again at that moment,” Stoller said. “Everything after was moral and correct and everything before was crazy and radical.”

DeSouza, the Illumina CEO, argued that the FTC is overcorrecting to make up for its past mistakes with the tech industry, such as opting not to challenge Facebook’s $1 billion purchase of Instagram in 2012. The FTC’s suit against Facebook now seeks to unwind that deal.

The FTC is also being aggressive in challenging llumina’s attempt to buy Grail, a startup it had spun off in 2015. Illumina controls roughly 70 percent of the market for DNA sequencing technology, while Grail has developed a blood test to detect 50 types of early-stage cancer.

“I’ve been asked whether this is like Facebook-Instagram,” deSouza said in an interview in a conference room at the Jefferson Hotel in Washington. “This isn’t like that.”

The FTC confirmed to POLITICO that deSouza’s hoped-for meetings with the agency never happened, but declined to comment on why.

But Khan’s admirers say the agency is finally back on the right track.

“The FTC is pushing as hard as they can right now, which is what we have needed for so long,” said Charlotte Slaiman, competition policy director for the advocacy group Public Knowledge, during POLITICO’s Tech Summit this month. She added: “I expect great things from the FTC.”

Julia Arciga contributed to this report.

Leave a Reply

Your email address will not be published. Required fields are marked *