Lina Khan’s coup attempt over antitrust violations

On February 24 of this year, in an opinion piece in the Wall St. Journal, Federal Trade Commissioner Christine Wilson took the rare step of resigning in protest of what she called Commission Chairwoman Lina Khan’s “disregard for the rule of law and due process.” Commissioner Wilson’s warning was prophetic. Chairwoman Khan has stuck to it. Earlier this month (July 2024), U.S. District Judge Manish Shah dismissed the FTC’s lawsuit against Walmart for a second time, this time “with prejudice” (meaning the lawsuit can’t be re-filed).

Judge Shah’s decision was the latest in a series of defeats for the FTC under Ms. Khan. Last year, U.S. District Judge Jacqueline Scott Corley handed Microsoft a major victory when she rejected the FTC’s attempt to block its $69 billion antitrust takeover of video game company Activision Blizzard. The FTC had challenged the “vertical merger” (distributor buys supplier) on the theoretically dubious grounds that Microsoft would somehow limit access to Activision’s most popular games, such as Call to duty. Judge Corley called this argument speculative. “On the contrary,” she wrote, “the evidence in the record indicates greater consumer access to Call to duty and other Activision content.” In a separate case, Judge Edward J. Davila of the U.S. District Court for the Northern District of California dismissed the FTC’s request for a preliminary injunction blocking Meta Platforms Inc.’s (also known as Facebook) acquisition of virtual reality (VR) application developer Within Unlimited, Inc., on the grounds that the FTC had not proven that it would be likely to succeed based on the evidence presented. The Commission’s claim echoed Ms. Khan’s scholarly work (see below) that giant companies use deep pockets to acquire and then suppress nascent startups that might one day challenge the giant’s position. Again, the judge found the claim to be entirely speculative.

Two prominent supporters of President Biden, in an op-ed criticizing Ms. Khan, noted that “the FTC has lost every single merger challenge it has brought through litigation in both federal and administrative court.”

It will not surprise anyone familiar with antitrust law that such losses were to be expected. Indeed, late last year Ms. Khan herself suggested that the Commission might have brought cases it knew it would lose. In February, Congress released a report revealing this strategy. One staff email obtained by Congress opined: “I am not sure that succeeding (or doing things well) is a common goal, because the chairman wants to show that we cannot fulfill our mission mandate without changing the law.” The idea, of course, is to bring lost cases as a way to encourage ideological friends in Congress to change the law.

Is this sound, or even ethical, policy? Ankush Khardori, a sympathetic observer, pondered this in a penetrating piece in New York Magazine late last year. The purpose of his essay was to uncover “why the agency is bringing cases on questionable legal grounds, why it’s losing those cases, why seasoned officials are leaving, and why the rest of us should care.” He noted that Ms. Khan’s “neo-Brandean antitrust” philosophy, promoted in a 2017 article in the Harvard Law and Policy Review that catapulted her career, sought to replace the current “consumer welfare” standard (which permits legal attacks on mergers only if they harm consumers) with a new standard that would punish “bigness” and “inequality.” Khardori quotes a former FTC official who left the commission: “What am I supposed to do? Go to court and say, ‘This cement merger is threatening democracy’? The whole approach is so incoherent.” The FTC’s Bureau of Economics has apparently become discouraged with this approach, given that it is increasingly being replaced by handpicked, unpaid “scientific” consultants (described below) who promote this ineffective approach.

As noted above, the federal courts appear poised to rein in the FTC. In April 2023, a unanimous court in Axon v. FTC held that the Commission’s administrative processes could be challenged in district court as due process violations. (In June 2024, the Supreme Court expanded Axon (in SEC v. Jarkesy, affirming the right to a jury trial when “civil penalties” are sought by an administrative agency.) And repeal in 2024.”Chevron “doctrine” means that major changes in antitrust theory will likely require legislative, not just “scientific,” authorization.

In 2022, the Office of Inspector General (OIG) criticized Ms. Khan for her unprecedented use of unpaid consultants. The OIG report found that Ms. Khan did so in far greater numbers than her predecessors and without providing an appropriate, narrow framework for the scope of their work. The OIG expressed concern that these practices may violate federal agency rules that state that such employment cannot perform an “inherently governmental function” in the course of one’s work for the agency. During congressional testimony, Rep. Kat Cammack (R-Fla.) asked Ms. Khan what her process was for hiring these unpaid consultants. Khan admitted that she did not advertise public sector jobs for them. Instead, she admitted that she directly contacted hand-picked individuals she wanted to serve in these broad positions. Federal law prohibits such individuals from setting policy. The watchdog group Americans for tax reform he noticed that,

“(in) light of reports suggesting that Khan did not rely on staff to perform key agency functions, such as engaging in Finish lawsuit, it is troubling that Khan has staffed the agency with an unprecedented number of handpicked consultants. Khan has no experience in litigating. If the staff did not advise Khan to make this decision, then her decision to dismiss them must have been suggested by another party. Khan simply does not have the experience to make such a bold move without any guidance. So Khan likely staffed the agency with people who are likely to adopt a similarly creative, if inaccurate, conception of her rights, in order to fill the FTC with an echo chamber of people with a radical, progressive, neo-Brandean antitrust philosophy.”

It’s unclear whether Donald Trump or Kamala Harris will address antitrust during the upcoming presidential campaign. If they do, I hope Lina Khan’s failed coup attempt is highlighted.