FTC’s Lina Khan faces new questions after Microsoft’s ruling

Lena Khan became chair of the Federal Trade Commission two years ago by promising to take bold action against the biggest tech companies.

Ms. Khan said at the time that the agency had been a weak policeman for too long and needed to challenge corporate giants like Microsoft, Amazon, Meta and Google in the courts to stop its growing power. She added later that even if the FTC loses the cases, it will be a victory in part because the agency will point out that antitrust laws need to be updated for the modern internet age.

But on Tuesday, Ms. Khan was dealt the biggest blow yet to her featured agenda. A federal judge has rejected the Federal Trade Commission’s (FTC) bid to stop Microsoft’s $70 billion acquisition of video game maker Activision Blizzard, saying the agency failed to prove the deal would reduce competition and harm consumers. It followed a loss in February, when a judge dismissed a Federal Trade Commission lawsuit seeking to block Meta from buying the on-boarding virtual reality company.

The defeats raise questions about Ms. Khan’s ability to carry out her ambitious goal to reverse decades of weak antitrust enforcement, as political pressure mounts and patience wanes for the 34-year-old academic, who has ruffled the feathers of corporate America. Ms. Khan’s critics are even more emboldened and vocal about punching holes in her strategy of taking the matter to court, saying the losses aren’t even partial gains — they’re just losses.

“I completely disagree with that approach,” said Anthony Sabino, a professor of business and law at St. John’s University, of Ms. Khan’s methods. “It’s trying to change a century-long antitrust law overnight, and that’s not necessarily wise.”

Adam Kovacevic, CEO of Chamber of Progress, a technology trade group, said the defeats made the FTC look less credible. “All these judicial losses make their threats sound like a paper tiger,” he said.

Others questioned whether Ms. Khan was wasting FTC resources on unwinnable cases. “They’re crossing the line by being reckless with the cases they bring,” said Ashley Baker, director of public policy at the Committee on Justice, a conservative think tank.

The wave of criticism puts Ms. Khan in a hot spot as she prepares for possible further action against the tech giants. The FTC has filed antitrust lawsuits against Meta and could bring a case against Amazon, which it has been investigating over allegations of illegal monopoly.

Now Miss Khan must stand up for herself first. She is expected to be questioned Thursday before a House Judiciary Committee he heard On oversight of the Federal Trade Commission, the Republican-led commission’s website said it wanted to “examine the FTC’s mismanagement and disregard for ethics and congressional oversight under Chair Lena Khan.”

Ms. Khan declined to comment for this article, and Douglas Farrar, a spokesperson for the Federal Trade Commission, also declined to comment on how the court’s losses would affect her agenda. After the Microsoft-Activision ruling on Tuesday, Farrar said the agency was “disappointed in this finding given the clear threat this merger poses to opening up competition in cloud gaming, subscription services, and consoles.” The Federal Trade Commission can appeal the judge’s decision.

Ms. Khan became famous as a Yale law student in 2017 when she argued in a law journal paper that Amazon was crushing competition and violating antitrust laws despite cutting prices for consumers. The paper helped start a discussion about how to limit tech giants and how to modernize antitrust practices.

After President Biden selected Ms. Khan to lead the Federal Trade Commission, she argued again and again that she needed to go to court — win or lose — to send a strong signal to the tech industry that the agency is getting a tougher mayor. She asserted that even losses in court would gradually reform antitrust theories.

Ms. Khan applied this thinking when the Federal Trade Commission sued to block Meta last year from buying a small virtual reality company, Yuen. The case was a surprise because virtual reality is a nascent technology, which makes it hard to argue that the deal will reduce competition in a market that hasn’t yet formed.

But Ms. Khan argued that regulators must stop competition and consumer protection violations at the tech bleeding edge, and not just in areas where the companies have already become giant.

“What we can see is that inaction after inaction can have huge costs. And that’s what we’re really trying to reverse,” she said in an interview with The New York Times and CNBC in January 2022.

Early this year, a federal judge denied the Federal Trade Commission’s request to block Meta’s acquisition of Inside. But the judge agreed with some of the FTC’s arguments, including how the agency determined technology markets in the case.

Tuesday’s loss in the Microsoft-Activision case was even more pressing, in part because the blockbuster merger has become a litmus test for whether massive tech deals can survive despite heightened regulatory scrutiny. Consumers benefited from Microsoft’s expectations of a rigorous review, Judge Jacqueline Scott Corley of the US District Court for the Northern District of California said, “This audit has paid off.” But its ruling left nothing else to replace the FTC

In the case, the agency argued the deal should not be closed because it could harm competition. Microsoft may make some Activision games exclusive to its Xbox game consoles or reduce the experience of playing games like Activision’s Call of Duty on competing consoles like Sony’s PlayStation.

But Justice Corley wrote that the FTC probably won’t win its merger challenge in the agency’s inner court, and said, essentially, that Microsoft is doing enough to prevent competitors from getting hurt.

“The FTC has not identified a single document that contradicts Microsoft’s publicly stated commitment to making Call of Duty available on PlayStation,” it wrote.

Eleanor Fox, professor emeritus at New York University School of Law, said it was too early to pass judgment on Khan’s strategy. She noted that elsewhere in the world, particularly in the European Union and Britain, regulators have also pursued antitrust measures against big tech companies.

Ms. Khan, she said, is “only an anomaly in the United States, not globally”.