Lina Khan is bringing teeth to the FTC

Lina Khan has argued that Amazon is a monopoly comparable to United States railroads at the turn of the 20th century, and that frightens executives at some massive global business conglomerates.

Although most Americans could not name the chair of the United States Federal Trade Commission (FTC) – because the nation’s antitrust watchdog normally doesn’t attract widespread attention – Lina Khan is changing that.

The 32-year-old associate professor of law at Columbia University, who is on leave while she serves in the government, has Big Tech worried, because the FTC may be ready to take more definitive antitrust action than it has in decades.
Since she was appointed FTC chair by President Joe Biden in mid-June, two tech giants — Amazon and Facebook — have filed petitions to have her recused from decisions concerning them.

Khan is set to chair her second open meeting on Wednesday since taking the helm of the organization.

Here’s what you need to know about the brewing battle between Khan and some of the world’s biggest tech firms.

The Federal Trade Commission was created in 1914 primarily to “bust the trusts” in pursuit of policies popularized by President Theodore Roosevelt.

President Woodrow Wilson, who was a strong proponent of it, signed the Federal Trade Commission Act as a major response to 19th-century monopolistic trusts.

Trusts and trust-busting were significant political concerns during the Progressive Era, a period in which Americans dealt with many of the same problems we face today.

It has since evolved to protect consumers by creating a “vibrant economy characterized by vigorous competition and consumer access to accurate information”.

It is headed by five commissioners, and no more than three can be from the same political party. The FTC now has a Democratic majority.

So what kind of power does it have?
Big power. The FTC can investigate, bring enforcement, and create rules and penalties for violations.

Decisions rely on votes, but as chair, Khan sets the agenda for the agency.

Who is Lina Khan?

While a student at Yale Law School, she became known for her work in antitrust and competition law in the United States.

Khan published an article called Amazon’s Antitrust Paradox in the Yale Law Journal in 2017, in which she argued that the meaning of “monopoly” must be redefined for the digital age.

Amazon’s Antitrust Paradox made a significant impact in American legal and business circles. The New York Times described it as “reframing decades of monopoly law”

Khan argued that the current American antitrust law framework, which focuses on keeping consumer prices down, cannot account for the anticompetitive effects of platform-based business models such as that of Amazon. She proposed alternative approaches for doing so, including “restoring traditional antitrust and competition policy principles or applying common carrier obligations and duties.”

In the past, trust regulation focused on price. Monopolies would potentially have the power to raise prices, which would harm a consumer.

But as companies like Amazon use cut-rate prices to best the competition, Khan argues that this behaviour is also harmful. Lower prices give it an outsize share of the market, which allows it to influence the economy and create an environment where even competitors must become dependent on Amazon and its platform to succeed.

And how did Khan redefine monopolies?

Khan argued that Amazon was a monopoly comparable to US railroads at the turn of the 20th century. And monopolies are bad because while low prices may make consumers happy in the short term, they are bad for the economy and for individual consumers over the long term because they stifle competition – which can eventually harm innovation – and innovation is what keeps economies competitive.

“The long-term interests of consumers include product quality, variety and innovation — factors best promoted through both a robust competitive process and open markets,” she wrote in the paper.

That position is controversial.

Critics argue that Amazon’s popularity and low prices should not make the company a target, and Amazon argues that its unique approach creates new opportunities and competition avenues for emerging businesses.

Republican Senator Orrin Hatch noted that Joshua D. Wright, a Republican who was appointed by President Obama as a FTC commissioner, labeled Khan’s work “hipster antitrust” and wrote that it “reveal[ed] a profound lack of understanding of the consumer welfare model and the rule of reason framework.

Similarly, Herbert Hovenkamp, who served in the Clinton and Obama administrations, wrote that Khan’s claims are “technically undisciplined, untestable, and even incoherent.”

Hovenkamp claimed that her work “never explains how a nonmanufacturing retailer such as Amazon could ever recover its investment in below cost pricing by later raising prices, and even disputes that raising prices to higher levels ever needs to be a part of the strategy, thus indicating that it is confusing predation with investment.”

Despite such criticism, President Joe Biden thinks Khan is the woman for the job of reshaping antitrust law and taking Big Tech to task over anticompetitive practices.

Progressive like Massachusetts Senator Elizabeth Warren agree — she called Khan’s leadership of the FTC “a huge opportunity to make big, structural change by reviving antitrust enforcement and fighting monopolies that threaten our economy, our society, and our democracy”.

Facebook filed a petition to have Khan recused from antitrust cases involving it, arguing that her past writings and comments make her biased against the social media giant.

Amazon – which is facing multiple probes by the FTC – filed a similar motion seeking to have Khan recused from proceedings involving it as well.

Both tech giants are arguing that her previously expressed views on concentration in the tech industry, coupled with her work in Congress investigating Silicon Valley, rendered her too conflicted to fairly regulate the industry.

It’s a brazen claim on one level, as companies never suggest that regulators who cheer on the success of major companies are equally biased in the opposite direction, and if the logic were accepted, it would create a situation in which only allies of Big Tech or those wholly unfamiliar with the industry would be allowed to regulate it.

On another level, it also reflects a fundamental misunderstanding of Khan’s antitrust approach, said Fordham law professor Zephyr Teachout.

When Khan was nominated to the FTC, the news media universally referred to her by some version of “prominent critic of Big Tech.”

Teachout says Khan is better described as someone who understands fundamental economics.

“One of the things that we have seen is that these big tech companies are destroying innovations, they’re buying up competitors, they’re choking people who might have more exciting ideas,” said Teachout. “It’s pro-tech, and it’s about economic theory, not just tech policy.”

Amazon and Facebook could potentially get their way.

In a 1970 case, Cinderella Career and Finishing School versus FTC, the courts ruled that the chair refusing to recuse himself was a denial of due process. And in a 1966 case, American Cyanamid Co versus FTC, a court disqualified the chair from a hearing because he had conducted previous investigative work for the Senate Subcommittee on Antitrust and Monopoly.

Even if the firms’ recusal requests are unsuccessful, however, experts say this move by Big Tech may cast a shadow over the FTC’s involvement and Khan’s leadership in future antitrust cases.

Her participation in antitrust matters about the two companies appears pivotal to their continuation of current business practices.

Two Republican commissioners voted against bringing the Facebook lawsuit, which was recently dismissed by a federal judge. The FTC has an opportunity to file an amended complaint this month, but would need to vote to do so.

Assuming both Republicans vote against a new complaint and the other two Democratic commissioners were to vote for one, there would likely be a stalemate without Khan as a tiebreaker.

Even if the companies are unsuccessful in getting Khan recused, they could cast a shadow over future FTC proceedings involving their businesses.

With respect to the Facebook and Amazon recusal petitions, Khan says there is no need for her to recuse herself under ethics law, which primarily focuses on financial conflicts. Khan pledged to follow the facts of the case during her confirmation process and said that if challenges arose, she would consult with FTC ethics monitors.

While not as progressive as other Democrats in the 2020 presidential race, Biden ran on a pro-union platform and has pledged to better protect consumers.

To that end, he recently signed an executive order with 72 initiatives designed to limit corporate power and increase corporate competition across a wide range of sectors, including Big Tech.

How to best regulate US tech giants like Amazon, Google, Apple and Facebook has become a rallying cry for both parties, even in the US’s polarized political climate, although the parties often disagree on the best approach.

In a deeply divided Congress, it’s revealing that 48 Democratic senators and 21 Republicans supported Khan’s nomination to lead the FTC. Some Republicans, however, have expressed scepticism that she has enough experience for the job.

And last month, both Democrat and Republican lawmakers unveiled a five-bill package designed to reign in Big Tech’s power by creating guardrails around mergers and a more even playing field for competitors.

With bipartisan support of antitrust legislation and bipartisan support of Khan, the issue will likely become central to the FTC’s work in the upcoming months.

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