Facebook and Amazon are rattled by Lina Khan, the new FTC chair
The antitrust regulator has Silicon Valley in her sights. Her agency filed an amended complaint against Facebook on Thursday, alleging an illegal monopoly.
Laura HautalaFormer Senior Writer
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2022 Eddie Award for a single article in consumer technology
Christopher Leslie knows antitrust law. A UC Irvine School of Law professor, he's written or co-authored three textbooks on the subject. So he was startled to meet a Yale Law School student who knew his area of expertise inside out.
"A student came up to me, and she knew my scholarship and the body of antitrust scholarship with a level of depth and enthusiasm that is unheard of for a student," Leslie said about the 2016 encounter. "That student turned out to be Lina Khan."
Khan now has a huge platform from which to apply her interest in antitrust law. In June, the 32-year-old was sworn in as the Federal Trade Commission's chair, one of America's top monopoly cops. The appointment quickly aroused concern among Big Tech companies, one of her chief targets because of the industry's concentrated power. Facebook and Amazon have already come out against Khan. They'll likely have company.
In July, Facebook filed a motion with the FTC asking that Khan recuse herself from cases involving the social media giant. In a 26-page document, the company argued that Khan's public comments and writings suggest she's already concluded that the company violated antitrust laws and that therefore she can't give it a fair hearing. In June, Amazon filed a recusal request backed by a similar argument.
The FTC didn't make Khan available for an interview or immediately respond to a request for comment.
Facebook's and Amazon's concerns are founded on Khan's outspoken critiques of both companies. She's argued that it's unfair that Facebook can degrade privacy, because its users have no comparable social network to turn to. Amazon, she says, could gain an unfair advantage in competing against retailers that use its marketplace, because the giant company has access to their sales and product data. The FTC investigations of both companies began before Khan arrived at the agency. On Thursday, however, under Khan's leadership the agency filed an amended complaint against Facebook in an effort to shore up its arguments that the company has created an illegal monopoly on personal social networks with more evidence.
The issue isn't a financial conflict of interest, like if Khan had owned stock in Amazon's competitors. In her financial disclosure form to the Senate Commerce committee, Khan listed only retirement plans and a few benefits she'd be eligible for while on a leave of absence from her job at Columbia University. Instead, the companies question whether Khan will give a fair shake to the their legal defenses.
Khan will also likely be involved in cases involving Google, which is being sued for allegedly having an unfair advantage in the online ads market, giving preference to its own search results over links from competitors and forcing device makers using the Android operating system to include Google apps with their products. Apple is also under scrutiny for the control it has over competitors on its App Store.
Apple and Google declined to comment. Amazon didn't respond to a request for comment. In a statement, Facebook said, "Chair Khan has consistently made well-documented statements about Facebook and antitrust matters that would lead any reasonable observer to conclude that she has prejudged the Facebook antitrust case brought by the FTC."
The companies will likely argue their actions don't violate antitrust law, which has been interpreted through the lens of consumer prices since the 1970s. If one company controls a market, the theory suggests, it can push up prices. Think of the jacked-up rent you'd pay if one player owned both Park Place and Broadway. (There's a reason the game is called Monopoly.)
Tech companies put that interpretation of the law to a test. Most of their services are free to consumers. It's advertisers and other business customers that pay. In Amazon's case, the company keeps its prices low and runs a slim margin on its retail business, a luxury other retailers don't typically have.
Khan argues that the old interpretation misses threats. The dominance of Big Tech can drive competitors from the market, leaving us with few other choices for shopping, socializing online and searching the web. It concentrates economic and political power in the hands of a small group of businesses and their leaders, "empowering the interests of a few to steer collective outcomes," she wrote as a student in an article published in the Yale Law Journal. The companies are exceptionally well positioned to engage in abusive tactics, because the internet has allowed them to scale up their power at dizzying speeds and control multiple sectors at once. As a result, they should be subject to scrutiny that addresses that power, Khan says.
"Ensuring that our framework fits how competition actually works in these markets is vital," Khan said in the article, which catapulted her to rock star status in the buttoned-down world of antitrust law.
Khan hasn't worked for Silicon Valley
Khan's profile as a progressive reformer of antitrust contrasts with the cut of traditional federal regulators, who usually circulate in cozy overlapping circles of government and business lobbies. As Big Tech grew bigger, the flow of people from the government to Silicon Valley has increased, raising alarm bells among advocates for change.
Hal Singer, an antitrust economist and a director at the litigation consulting firm Econ One, analyzed LinkedIn data in 2020 and found that Amazon, Google and Facebook employed 19, 27 and 30 people, respectively, who had previously worked in the antitrust group of FTC, the Department of Justice Antitrust Division, the Senate Judiciary Committee or the House Judiciary Committee. The flow of expertise between government and the private sector benefits the companies, Singer argues, giving them personal connections at the agencies and with the lawmakers who oversee them.
Khan has taken a decidedly different path, opting for scholarship and government roles instead of private sector work. After graduating from Williams College in 2010, she joined the New America Foundation, where she conducted anti-monopoly research. After law school, she worked for a year as the legal director of the newly formed Open Markets Institute, a nonprofit that focuses on the dangers of monopoly abuse, before joining the staff of the House Judiciary Committee's Subcommittee on Antitrust, Commercial and Administrative Law.
It's a potent combination of experience, admirers say.
"You've got this populist who says the system is broken. She writes the report on dominant platforms that the legislation is based on. And then she comes in as the regulator to actually make it happen," said Singer, adding that Khan's opinions don't constitute a conflict of interest. "It's unheard of."
Big Tech under scrutiny
Much of Khan's work has focused on Amazon's ability to compete against retailers on its website. The company also sells these retailers other Amazon services, such as cloud storage, advertising, and storage and delivery. The American Choice and Innovation Online Act targets this behavior, prohibiting owners of marketplaces, like Amazon, from favoring their own products or forcing third-party retailers to buy its other products, something the company has been accused of but denies.
Other Big Tech companies will also likely spar with Khan.
Facebook, already facing an FTC lawsuit, is expected to be her first test. In June, a federal judge dismissed an FTC complaint that accused the social media giant of engaging in illegal anticompetitive practices. The judge said the FTC didn't provide enough evidence that Facebook held monopoly power in social networking but allowed the agency to file an amended complaint, which it did on Aug. 19.
Google has scuffled with the FTC for years. In 2019, the search giant was slapped with a record $170 million fine, as well as new requirements, after its YouTube video-sharing site was found to have violated the Children's Online Privacy Protection Act. More recently, the company has been targeted in several major antitrust lawsuits, including a landmark case by the Justice Department, and two complaints filed by coalitions of states. Regulators and prosecutors are investigating Google's search and advertising businesses, as well as its Android operating system, the most dominant mobile software in the world.
Like Amazon's marketplace, Apple's App Store has prompted antitrust reformers to question whether the company should be allowed to favor its own apps. The App Store also draws criticism for giving the company too much power over app developers, who can only sell their iPhone and iPad wares through the company marketplace. The company's commission, which can be as much as 30%, has also prompted complaints.
Right place, right time
Khan was born in London to Pakistani parents in 1989, and immigrated to the US when she was 11. As a student in Mamaroneck, New York, she wrote for the high school newspaper, covering a local Starbucks that barred students from sitting in the store. With a top-tier education and a raft of speaking engagements under her belt, Khan conveys herself with authority. At her nomination hearing, she dove easily into the technical world of antitrust law, gesturing occasionally to punctuate her points.
Skeptics of Khan's brilliance are hard to find, though some observers have criticized her legal analysis. She has also benefited from positioning herself as an expert in her field just as the political winds shifted.
During President Barack Obama's administration, Big Tech was the darling of DC. No surprise, the companies used that period to consolidate their power, both entrenching themselves in their markets and expanding into others.
She quickly became a prominent figure in the New Brandeis Movement, which fundamentally reconsidered the US approach to antitrust enforcement, particularly when it comes to Big Tech. Proponents espouse a 21st century version of the populist competition policies once championed by Supreme Court Justice Louis Brandeis, holding that short-term harms to consumers like higher prices aren't the only problems antitrust law should target. Concentration of market power, for instance, makes it all but impossible for new businesses to compete in an industry.
A concentration of wealth also risks the creation of business oligarchs with outsized sway on everyday life. In her Yale Law Review article on Amazon, she quoted Sen. John Sherman, who authored America's foundational antitrust law in 1890, as saying: "If we will not endure a king as a political power, we should not endure a king over the production, transportation, and sale of any of the necessities of life."
Khan's message tapped into a growing resentment of Silicon Valley that defies the left-right paradigm dominating Washington interactions. Elizabeth Warren, a progressive senator from Massachusetts, embraced Khan's message during a strong run for president. Former President Donald Trump and his loyalists also lambasted Facebook, Twitter and Google's YouTube, arguing the platforms silenced their voices online. Lawmakers on both sides of the political aisles berated tech executives during acrimonious Congressional hearings.
When Joe Biden replaced Trump as president, Khan was well positioned to be called up to the FTC.
How effective will she be?
Khan's views of antitrust enforcement depart from recent court decisions and views held by economists since the 1970s. The maverick approach, combined with her relative lack of experience, raised questions during the Senate nomination process.
"Khan no doubt has a promising career ahead of her, but being less than four years out of law school, she lacks the experience necessary for such an important role as FTC Commissioner," Utah Sen. Mike Lee, a Republican, said in a statement in March. "Her views on antitrust enforcement are also wildly out of step with a prudent approach to the law."
Khan's effectiveness also depends on who Biden appoints to other top antitrust posts, including the Department of Justice's antitrust division as well as one commissioner role at the FTC. The commission currently has a 3-2 Democratic majority, but Democrat Rohit Chopra is expected to leave the commission soon to lead the Consumer Financial Protection Bureau.
Until Biden nominates a replacement for Chopra, the commission would likely be deadlocked in a 2-2 split vote. Additionally, Biden has an opportunity to temper his choice of Khan to lead the FTC by replacing Chopra with a more moderate Democrat, which could also limit Khan's influence to more incremental change.
If he picks progressives for the open roles, the US could experience a sea change in antitrust law.
"If it's a platform-friendly Obama holdover, that could really thwart the entirety of Khan's agenda," Singer said about the FTC's freedom to pursue antitrust. "We have to see who fills these other jobs first."
CNET's Rich Nieva, Ian Sherr and Queenie Wong contributed to this story.