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FTC Chairman Lina Khan Promotes Antitrust Standards by Suing Meta

WASHINGTON – At the start of her tenure as chairman of the Federal Trade Commission, Lina Khan announced that she would retain control of the largest technology companies in a dramatic new way.

“We’re trying to be proactive, anticipating problems and acting quickly,” Ms. Khan said in an interview last month. He promised to focus on “advanced technologies,” not just in areas where tech behemoths are well established.

This week, Ms Khan took her first step towards ending the tech monopolies of the future when she sued to block the limited acquisition by Meta, the company formerly known as Facebook, of a successful fitness start-up. This agreement is very important for the Meta development of the so-called metaverse, which is a recent technology and far from the source.

In doing so, Mrs. Khan upended decades of antitrust regulations, potentially unleashing wholesale changes in Washington’s way of forcing competition across corporate America. At the heart of the FTC case is the idea that regulators can impose antitrust laws without waiting for the market to grow to the point where it is clear that companies hold the most power. The FTC said such early conduct was justified because the Meta deal would eliminate competition in the emerging virtual market.

Since the late 1970s, most federal challenges to mergers have been in large, well-established markets and have sought to prevent clear ownership. Regulators have used rubber stamps to buy startups of tech giants, such as Google’s 2006 deal to buy YouTube and Facebook’s 2012 acquisition of Instagram, because those markets are still emerging.

As a result, Mrs Khan faced an uphill climb. Regulators have stopped trying to stop mergers of companies based on the theory that competition and consumers will be harmed in the future. The federal government has lost at least two lawsuits over the past decade, including an attempt to block a $1.9 billion merger in 2015 between providers of X-ray sterilization that the FTC predicted will harm future competition in the local market.

The FTC case against Meta in the budding virtual-reality market is a “deliberate experimental case that seeks to extend the limits of merger enforcement,” said William Kovacic, former chairman of the company. “These types of cases are very difficult to win.”

The FTC’s action immediately caused an uproar in antitrust circles and across the tech industry. Silicon Valley tech leaders say the move to restrict contracts around embryonic technology could stifle innovation and discourage technologists from venturing into new areas.

“Regulators predicting future markets is a critical situation,” said Aaron Levie, president of the cloud security firm. He warned that investors and entrepreneurs will be careful about entering new markets if regulators cut off the ability of companies like Meta to buy startups.

Adam Kovacevich, head of the Chamber of Progress trade group, which represents Meta, Amazon and Alphabet, also said the case would have a chilling effect on innovation.

“This is a reckless and irrational reaction to a small deal that many tech industry leaders are worried about what the FTC’s victory will mean for startups,” he said.

For Ms. Khan, winning the case may be more important than proving that it is possible to litigate against a technical contract while it is still too early. He said regulators have been cautious in the past about getting involved in mergers for fear of harming innovation, allowing deals between tech giants and startups to eventually strengthen their power.

“What we can see is that unemployment after unemployment after unemployment can have huge costs,” he said in an interview with the New York Times and CNBC in January. “But that’s what we’re really trying to change.”

Mrs. Khan declined a request for an interview for this article, and the FTC declined to comment Thursday.

Meta said the FTC is applying antitrust laws incorrectly. The lawsuit focuses on how a merger with Inin would eliminate competition, but Meta said the company is ignoring a large number of companies that also have medical and health equipment.

“The FTC doesn’t have an answer to the most important question – how can Meta’s access to a single medical device in such a tight space with so many existing and future players hurt competition?” Nikhil Shanbhag, Meta’s vice president and general counsel, wrote in a blog post.

The company added that it has not yet decided whether to challenge the lawsuit, which was filed on Wednesday in the US District Court for the Northern District of California.

The FTC accused Meta of building a successful “empire,” starting in 2014 with the purchase of Oculus, maker of the Quest virtual-reality headset. Since then, Meta has acquired about 10 developers, such as the creator of Viking fighting game, Wrath of Asgard and many shooters and sports games.

By buying in on fitness apps, the FTC said, Meta would not be able to create its own app to compete and scare off those who might try to create another app. That would harm competition and consumers, the company said.

“This acquisition creates a reasonable opportunity to eliminate both present and future competition,” according to the lawsuit. “Meta will also be one step closer to his goal of owning the entire ‘Metaverse’.”

Rebecca Haw Allensworth, a professor of antitrust law at Vanderbilt University, said the FTC’s argument will face tough scrutiny because Meta and Insider do not compete with each other and because the market of the truth develops.

“The way merger analysis has stood for at least 40 years is for the kind of head-to-head competition that mergers are taking out of the picture,” he said.

There will now be a need for the company to convince the judge that its policy regarding the metaverse and the purchase of Meta will harm competition.

Diana Moss, president of the American Antitrust Institute, said, “The burden is on the FTC to show, among other things, a reasonable probability that Meta will enter the dedicated VR medical device market to him.

If the court dismisses the case, Ms. Khan could create regulations that would make it harder to pursue recent competition cases, antitrust experts have warned. That can give tech giants the confidence to enter new business lines.

“This is the first system that goes both ways – whether you win or lose – and sends a signal to the market,” Ms. Allensworth said.

The FTC is investigating other technology deals, including Microsoft’s $70 billion acquisition of gaming company Activision and Amazon’s $3.9 billion merger with One Medical, the nation’s first primary care hospital system. In addition, the company is investigating Amazon and allegations of abuse of one person in its market of third-party sellers.

Ms. Khan appears prepared for a long legal battle with tech giants even if the case doesn’t end up going the FTC’s way.

In his first interview with the Times and CNBC, he said, “Even if it’s not a slam-dunk case, even if there’s a risk you can lose, there can be a lot of profit from taking that risk.”

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