Who is Lina Khan?
WMMM #024 - This week I share another edition in the Master Useless Information series. Mastering “Useless Information” is an antiphrasis for “being interesting” as a sales skill, in addition to “being interested.”
Jeff Keplar Newsletter July 8, 2023 9 min read
Lina Khan and her fight against Big Tech.
This month, in a San Francisco courtroom, federal regulators are fighting to block one of the biggest deals in the history of Silicon Valley. The architect of that lawsuit is Lina Khan, and the face of the growing campaign by the Biden administration to finally rein in big tech.
The Federal Trade Commission is the regulator that is tasked with making sure that capitalism works in the United States. So the cases that they bring are bellwethers for how big companies end up getting regulated and how powerful they are able to become. And one of those cases is playing out this month.
So the Federal Trade Commission is trying to stop Microsoft, which makes the Xbox video game console, along with being involved in a ton of other businesses, from buying Activision Blizzard, which publishes some of the biggest video games in the world — including Activision’s “The Call of Duty” franchise and one of the most popular mobile games, “Candy Crush.”
And right now, in San Francisco, a judge is deciding whether or not the FTC’s case is good enough that they should temporarily block this deal from closing so that this big challenge to this acquisition can go forward. After all, while it was pitched as an acquisition, in some ways, it’s more of a merger between two of the five biggest gaming companies globally.
And this case is actually important in a bigger way, which is that it’s a key indicator for whether or not government agencies like the Federal Trade Commission can stop big tech from getting bigger.
So over the last five or so years, there’s been really mounting concern, not just in Washington, but in world capitals, like Brussels and London, over how big Silicon Valley companies have gotten. And we’re talking, really, here about five companies — Amazon, Google, Apple, Meta, which owns Facebook and Instagram, and Microsoft.
And the critics of these companies believe that they’ve become these kind of insurmountable gatekeepers for commerce and communications and basically our whole lives online. And governments have responded by saying there’s a problem here. But now the question is, can anybody actually take action to rein these companies in, or will they just get more powerful?
And it seems to be one of those rare issues where you actually have support on both sides of the aisle, where you kind of have mainstream figures, from Bernie Sanders to Joe Biden and Josh Hawley, all of whom sort of agree something needs to be done to regulate big tech.
It’s the rare bipartisan consensus in Washington right now that these companies have gotten really big and really powerful and that the government should possibly do something about it. But Congress in particular has really struggled to figure out what that is. They propose a lot of laws, and they haven’t gone anywhere.
And so when Congress can’t make new laws to regulate the tech giants, it means the only tool that the government has to pursue these companies is the laws on the books. And that means that the questions about, are these companies too powerful, and, what should the government do, have really fallen to regulators like the Federal Trade Commission. And that agency has started to take on these tech giants in a way that it hasn’t before. And the architect and face of that pivot is the FTC’s new chair, Lina Khan.
Who is Lina Khan?
Lina Khan is a prominent figure in the field of antitrust regulation and the current chair of the Federal Trade Commission (FTC) in the United States. Khan's journey began when she was a law student at Yale Law School. In 2017, she gained widespread attention for publishing a groundbreaking paper titled "Amazon's Antitrust Paradox," which critiqued Amazon's dominance in the market. In the paper, Khan argued that antitrust laws should consider factors beyond just consumer prices and focus on the potential harm to competition and the economy caused by large tech platforms.
Her ideas quickly gained traction and sparked a broader conversation about the role of antitrust laws in the digital age. Khan's work challenged the prevailing legal interpretations that had focused primarily on consumer prices as the determining factor for antitrust violations. Instead, she advocated for a broader understanding of market power and its potential negative impacts on competition, innovation, and democracy.
Following her time as a law student, Khan worked as an aide to a progressive commissioner at the FTC and was involved in a congressional investigation into the power of tech platforms. She then became a law professor at Columbia University, where she continued to delve into issues related to competition and antitrust.
From Law Student to FTC Chair in Four Years
In 2021, Khan's expertise and advocacy caught the attention of President Joe Biden, who appointed her as one of the five commissioners of the FTC. Her nomination was approved by the Senate, and shortly afterward, Biden surprised many by designating her as the chair of the agency, making her the youngest person ever to hold that position.
Amazon’s Antitrust Paradox, Yale Law Journal
In 2017, Lina wrote this essay for the law review, as a lot of law students do, about Amazon.
Lina Khan:
“I think, increasingly, businesses are not able to compete on the merits with Amazon.”
The way that she describes it in the paper is really instructive of how she views the company and these tech platforms. So she writes, “In addition to being a retailer, Amazon is now a marketing platform, a delivery and logistics network, a payment service, a credit lender, an auction house, a major book publisher, a producer of television and films, a fashion designer, a hardware manufacturer, and a leading host of cloud server space.”
Wow, we all know how huge Amazon is in our lives. But it’s quite startling to hear this list of things that it does, one company that spans so many industries and roles — basically sells things, competes against others selling things, and owns the platform where all of these transactions happen as well.
And this idea of a platform business is really crucial to understanding Lina Khan’s concerns because it’s not just Amazon. Amazon is a clear example of it.
But Apple runs a platform in the form of its App Store. Apple sells apps. They also run the main store where other people sell apps.
Google runs a search engine that includes results from websites like reviews of a restaurant. Google also has its own review service. So what she’s articulating is that these sort of mega-platforms have grown without a lot of attention from the government and are posing real problems for competition in the economy.
Citing American History
Lina Khan is telling a story about history. Antitrust laws were passed around the turn of the century at a time when there were these big trusts, the most classic of which is Standard Oil, which made the Rockefeller family rich. And over time, they were used to break up Standard Oil, to break up other big companies.
But the reality is that some of antitrust law is written down in the laws, and some of antitrust law is about how judges interpret it. And what Lina Khan is saying is that in the 1970s, conservative lawyers, academics, economists were able to shift the way antitrust law is understood by the courts and that instead of considering a whole range of harms to competition, to the economy, that the courts were now basically considering, in most cases, one factor to decide whether or not something violated antitrust law.
And that was whether or not it hurt consumers, and particularly whether or not it hurt consumers in the form of higher prices.
So since the 1970s, the definition of antitrust, in a way, was that as long as prices remained low and consumers happy, regulators left big companies alone.
And so in this paper, Lina Khan is basically saying that the government and the courts should widen the scope of what falls under antitrust laws in a way that she would argue basically returns it to the tool it once was in American history, that even though Amazon keeps prices very low, that it’s still engaging in all these practices that could harm competition, potentially to the detriment of people, including other smaller companies who sell on its platform.
So Lina is making the augment that price alone is no longer a useful and valuable indicator for when to apply antitrust practices.
Lina’s Law Review Article Goes Viral
Even though antitrust laws were originally designed to prevent the concentration of corporate power, ironically, it seems that in recent decades, it’s almost like they have favored market concentration by focusing so much on lower prices and consumer happiness. And now Lina Khan wants the FTC to return to that original mission.
That’s how she sees the central failing of the government in the preceding 30 years, that they essentially were asleep at the switch while these companies got extremely big and extremely powerful. And ultimately, the case that Lina Khan is making is that, yes, consumers are one part of the broader world.
But the government needs to think about the economy more broadly, that it needs to think about — does concentration in the economy mean workers get paid less? Does it mean that it’s harder to start a startup that might come up with some sort of genius, innovative product?— and that when you consider all of those things together, that you have a healthier and more dynamic economy and, ultimately, democracy.
And how do people react to her paper?
It goes viral.
And suddenly, she’s kind of a celebrity. She’s profiled in “The New York Times.” She’s also profiled in “The Atlantic,” in “The Washington Post.”
Part of what this article triggers is a big debate about whether or not Lina Khan is right or coming in with basically an attack on bigness for bigness’s sake that actually won’t be good for consumers.
We have a society that says consumers come first, investors come second, and workers come third. And I think we’re beginning to question that rubric.
And Lina becomes a face of what is now kind of a ballooning movement of people who think that these big tech companies have gotten too big.
And suddenly, all of these people are paying attention to this argument that the regulators who were tasked with reining in American corporations have failed to do so.
Lina takes the Chair
At 32 years old, Lina Khan, who has not been shy about her ambition of going after big tech, is now the head of the FTC. So what does she do when she gets there?
Well, her appointment attracts the attention of the company she has been criticizing. So both Amazon and Facebook, within about a month of her being named chair, ask that she be recused from any investigations into the companies.
They’ve certainly noticed that she’s in charge now. And ultimately, she has so far opted not to recuse from either matter. So pretty soon, it becomes clear that Lina Khan is interested in running a more aggressive FTC.
And it takes a while to build these cases. But, of course, the big question is still, what is she going to do about the big tech platforms, the ones that she’d highlighted in her paper? And we get the first hint towards the end of 2021 when Meta decides that it’s going to buy a virtual reality startup called Within.
Now, Meta, which owns Facebook and Instagram and WhatsApp, in recent years has been trying to make this pivot to what they call the metaverse. This is like a virtual reality world or an augmented reality world where people hang out. They go to work.
And it’s a big part of their strategy. And they produce virtual reality headsets as part of this. And so they buy this company that makes a virtual reality fitness game. It’s a way to exercise with one of these headsets on.
And these companies, the big tech companies traditionally have acquired a lot of startups. And this deal, it’s reported to be around $400 million. Anything under a billion dollars, people think of as small, certainly not a blockbuster deal.
This is a big company buying a small company. The small company gets paid out. The big company gets the virtual reality fitness game.
And on top of that, we’re talking about virtual reality, which is a really nascent technology. It’s not proliferated throughout offices and schools, as some people think maybe it will. But in July of 2022, the FTC sued to block this deal.
So even though the actual number value on the deal isn’t that high, Lina says that by acquiring this company, Meta is going to be able to try and dominate, basically, going forward, this young market for virtual reality. And remember how part of the concerns that she has are that the regulators were basically asleep at the wheel while these companies got too big.
It’s really about doing what she says the regulators had not done for decades, which is get ahead of tech companies and basically beat them to the future.
And does she win?
She does not. Meta closes this deal. They declare victory.
And it’s a difficult moment because this is the first tech case that had really been developed totally under Lina Khan. So the FTC suffers a loss. But the agency doesn’t stop there.
Microsoft and Activision Blizzard
So even before they’d lost in the Meta case, they had sued to stop Microsoft from buying this video game publisher, Activision Blizzard. And basically, they’re arguing that Microsoft will use the popular Activision games — namely this “Call of Duty” series, which, just to give people a sense of scale here, has made, like, $30 billion over the lifetime of the franchise. In 2019, Activision said that “Call of Duty” had earned more than the Marvel Cinematic Universe.
So these are big games. And the FTC is saying that, basically, Microsoft will withhold those games, these blockbuster titles, from the companies that compete with Xbox, the console itself, the physical platform that runs the game. Basically, they’re saying they’re going to withhold them from Sony, which makes the PlayStation. And the FTC says Microsoft could also use this kind of new leverage through the deal to dominate cloud gaming, which is a nascent market for streaming games over the web.
But in this case, Microsoft fights back hard, and they say, we promise we won’t do this. And we’re willing to basically ink contracts with other video game console makers that guarantee that we will provide “Call of Duty” to them for a certain period of time. They do strike, in some form, one of these deals with Nintendo.
They say that they have made a similar offer to Sony, but Sony hasn’t accepted. And so they basically say, this concern you have, we can alleviate it without ever going to court.
But Lina Khan doesn’t believe them?
And from her perspective, all of this basically leads to a less competitive marketplace.
Antitrust regulators have not brought a ton of cases in recent years in which you’re dealing with two companies that are merging, or one company is being acquired, where they don’t totally directly compete. It’s more common for them to challenge a deal like — say, this is a total hypothetical, but two meat packers who are merging into one meat packer.
So in that sense, the case potentially could be difficult.
Lina Begins Her Approach Against Amazon
So she went after Facebook. She went after Microsoft. What about Amazon, the company that has been the focus of so much of her work prior to coming to the FTC?
Well, and that was, for the first 18 months of her tenure, the big question. For those of us who track this every day, it’s like, when is the Amazon case going to come? Is it going to come at all?
And the FTC actually has two sets of powers. They can bring these antitrust cases that argue that there’s some problem with competition in the market. They also are in charge of stopping companies from doing things that they say are unfair or deceptive. So think about a scam or a violation of your privacy.
And last month, they did take Amazon to court. They argued, in a pretty sweeping complaint, that Amazon had tricked customers, through using basically deceptive designs, into signing up without total informed consent for their Prime subscription service.
And they say, basically, that these customers had been duped into signing up for Prime and that then, when you went to cancel Prime, it was like this maze to cancel it. They would bombard you with offers saying, well, no, stay, stay, stay. And there were a ton of screens you had to get through if you wanted to cancel it.
These are not uncommon across the internet. And critics of these practices call them dark patterns, that they’re basically trickster design tactics that are meant to make your brain do something without totally understanding what it’s doing. And the FTC had promised they would go after these dark patterns, and they bring this case that argues that Amazon has used these tricky tactics to pull consumers into this really core part of its business in the form of the Prime subscription.
Amazon has signaled that they’re going to fight this aggressively. They said in response to the lawsuit that, in fact, things are designed to be easy to navigate. And they are not going down without a fight.
But it leaves the broader question unanswered, which is, is she going to bring a case against Amazon that is really about Amazon’s effect on competition in the market, an actual antitrust case against the company? Because the case that they just filed, well, it’s about a service that’s very popular and deals with some sort of novel and interesting issues, it’s not her paper turned into a case.
Lina Khan has taken on three very difficult cases. None of them is a slam dunk. Is it fair to say that her approach is not really going the way she thought it would?
The FTC isn’t setting out to lose cases. But Lina Khan and her allies believe that in order to win in the long term by shifting the law back in this direction that they think hearkens back to kind of the golden era of trust busting in America, that you have to be willing to lose, that you have to be willing to bring risky cases, kind of take big swings, and know that not all of them will pan out.
Some of them might be losses that trigger Congress to act. In other cases, they might just be losses. But you have to be willing to take those risks to shift the law back in a long-term sense.
Lina Khan and her counterpart at the Department of Justice are arguably sending a message to industry that, in their mind, the cop is back on the beat, that they should think twice before they do deals that might raise concerns.
Could Lina’s Approach Harm Capitalism?
There is another scenario here where Lina Khan succeeds, and it doesn’t turn out well. As customers, we love Amazon because our books and our toothpaste show up the next day. So if Lina Khan does anything that changes that, there is a chance that the very people she’s trying to protect from market power will actually be very unhappy with her and the FTC.
Moves like the kind that Lina Khan is making may just make the internet a worse experience for consumers. And increasingly, there’s been pushback against Lina Khan from other companies across the economy. The Chamber of Commerce, probably the biggest and most prominent business lobby in America, has been extremely aggressive in attacking her policies.
Sometimes it takes a long time to tell whether or not antitrust policy has worked. People argue that earlier antitrust cases paved the way for companies like Google to start in the first place. But that, again, is a long-term view. What’s clear right now is that this is one of the greatest battles in recent memory over how corporate power is regulated in America. And Lina Khan and her allies are right at the center of it.
H/T “Is Washington Finally Ready to Take On Big Tech” on "The Daily" podcast from The New York Times, host Katrin Bennhold and her colleague David McCabe
Thank you for reading,
Jeff
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