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FTC Chair Lina Khan on startups, scaling, and ”innovations in potential lawbreaking”

Simon Osuji by Simon Osuji
June 15, 2024
in Creator Economy
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FTC Chair Lina Khan on startups, scaling, and ”innovations in potential lawbreaking”
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FTC Chair Lina Khan was the youngest person appointed to her position when she assumed the job in 2021. But once her term ends in September –  after which she’ll stay until a successor is named – her age might be the last thing that people remember about her reign.

It’s more likely that Khan’s legacy will be taking on Big Tech – and doing it very publicly. Unlike her decidedly low-flying predecessors, Khan talks routinely with the media about how the FTC executes on its mandate of both enforcing antitrust laws and protecting consumers, putting today’s tech giants on constant notice. 

The strategy is all the more notable given how small the FTC really is, with just 1,300 employees who work roughly 150 cases simultaneously and are backed by an annual budget of just $400 million. That’s a drop in the ocean for some of the outfits the agency investigates.

We talked with Khan about her approach – and what she thinks Silicon Valley misunderstands about it – in a sit-down earlier this week at one of TechCrunch’s more intimate StrictlyVC events, this one held in Washington, D.C. Outtakes from that conversation have been edited for length below. You can listen to the talk in its entirety here.

Over the last two decades, Washington has  become dominated by massive players like Google and Microsoft. I was hoping we could start with the Wall Street Journal’s report that federal regulators are moving forward with an investigation of some of these big players – Microsoft, OpenAI, and Nvidia –  if there’s anything you can say about your plans.

You’re right that there is a lot of interest across D.C. and making sure that we are able to harness the opportunity and potential that these tools present while also making sure that these markets stay open and fair and competitive, rather than allowing certain types of bottlenecks or choke points to emerge in ways that could undermine that competition and that opportunity and that innovation . . . I was out in Silicon Valley a few months ago, and it was really interesting to hear from those founders in particular about how right now there is a whole lot of opacity around who’s getting access to some of these key inputs, be it compute, be at the models, be it whether there is any guarantee that you’re not effectively feeding back proprietary information. And so I think, there’s a lot of excitement, but we’re also hearing some weariness that can emerge when you realize there’s a lot of power already concentrated, and then that power being concentrated could foreclose innovation and competition. 

It also seems like some of the people that you are trying to regulate are getting more creative about the deals that they’re striking, like Microsoft’s deal with Inflection AI, an AI company whose co-founder and employees were hired by Microsoft back in March and that is now being paid a $650 million licensing fee by Microsoft so it can resell [InflectionAI’s] technology. It’s not technically a merger. Did they talk to your agency or other regulators about what they were doing?

I’m limited in what I can say about some of these specific deals or specific potential matters. I will say that we are interested in being vigilant to make sure that we’re not seeing evasion of the existing laws. We’ve been really clear that all of the existing laws still apply: the laws prohibiting mergers that may substantially lessen competition, the laws that ban price fixing and collusion. Whether you’re doing that price fixing through an algorithm or through a handshake, both are still illegal. So across the board, we’re trying to scrutinize and make sure we’re not seeing some of these innovations in potential lawbreaking. We want to make sure that everybody’s playing by the same rules.

I will say that earlier this year, we also launched an inquiry into some of these strategic partnerships and investments to make sure we were understanding what was really going on here. We’d heard some concerns about, for example, whether some of these partnerships and investments could be resulting in privileged access for some or exclusionary access for others . . and that work is still ongoing as well.

Apple also made a lot of announcements [this week at WWDC]. It said it’s integrating OpenAI into some of its offerings; it said it is also open to working with other third parties, including potentially Google Gemini. It seems like a lot of the partnerships are among the same players that are probably a bit concerning to you right now. What did you think of what came out of that event?

We’ve seen that some of the most significant breakthrough innovations have historically come from the startups and the entrepreneurs and the small guys who are able to just see things differently, see an opening in the marketplace, and really disrupt in ways that disintermediate the big guys . . . 

It’s true that right now, what we could be saying is that some of the existing incumbents may be controlling access to the inputs and the raw material that’s needed for some of these innovations. And so we need to be vigilant to make sure that that moment of competition and innovation and disruption is not going to be coopted by the existing incumbents in ways that we’ll close off the market, and prevent us from really enjoying the innovations and competition that have historically kept our country ahead . . .

I know you don’t buy this argument that these companies have to be protected [from antitrust action] because if they’re slowed down in any way, it weakens the U.S. as a country. And on the one hand, plenty of people agree; they want to see things broken up so that startups can breathe. Others might say, ‘This technology moves much faster than anything we’ve ever seen before. Autonomous weapons can incorporate this technology.’ How do you lay out the case for breaking things up while also not putting the country at any risk? 

Even 40 or 50 years ago, as the Justice Department was investigating AT&T, it was the Defense Department that stepped in and said, ‘Hey, we really need to tread carefully here because taking antitrust action against AT&T could pose a national security risk.’ And so even back then, we were hearing a lot of these analogous arguments. 

There are some natural experiments. At various moments, we faced a choice as to whether we should protect and coddle our monopolies or instead whether we should protect the laws of fair competition. And time and time again, we chose the path of competition. And that is what ended up fueling and catalyzing so many of these breakthrough innovations and so much of the remarkable growth that our country has enjoyed and that has allowed us to stay ahead globally. If you look at some other countries that instead chose that national champions model, they’re the ones who got left behind. I think we need to keep those lessons of history in mind as we again choose a path. 

There are founders and VCs in this audience who have mixed feelings about you because they want their companies to thrive, and they’re worried that you’ve been so vocal about having your eye on Big Tech that companies aren’t making any [acquisitions]. Exits are a huge path for VCs and for founders; how do you make them comfortable that you’re doing what’s best for them in both the short and long term?

Certainly, we understand that for some startups and founders that acquisition is a key exit path that they’re interested in. Really, what the law prohibits is an exit or an acquisition that’s going to fortify a monopoly or allow a dominant firm to take out a nascent threat and a competitive threat. . . Just to step back, in any given year, we see up to 3,000 merger filings that get reported to us. Around 2% of those actually get a second look by the government, so you have 98% of all deals that, for the most part, are going through. 

I’ll also say that if you are a startup or a founder that is eager for an acquisition as an exit, I would think that a world in which you have six or seven or eight potential suitors is a better world than one where you have just one or two. 

There are 1,500 people at the FTC? 

Around 1,300, which is actually 400 fewer people than in the 1980s, even though the economy has grown 15 times over so . . we’re a small agency, but definitely punch above our weight.

I don’t know if you’re taking more actions than your predecessors, or if you’re just more visible about it. Do you know if you’re moving at a faster pace than your predecessors in the role? 

You can look at the numbers and there are some upticks there. But to my mind, counting the number of lawsuits or the number of investigations is only one way to try to capture impact. The types of cases you’re bringing is also important. One thing that’s been important for me is to make sure that we’re actually looking at: where do we see the biggest harm? Where do we see players that we think are more systematically driving some of these problems in illegal behaviors? So in the same way that being able to go after the mob boss is going to be more effective than going after some of the henchmen at the bottom, you want to be effective in your enforcement strategy. That’s why we have been looking upstream and taking on lawsuits that can really go up against some of the big guys; we think if we’re successful, [it will] have a really beneficial effect in the marketplace. 

When it comes to deterrence, I think we’re already seeing some of that. We hear routinely from senior dealmakers, senior antitrust lawyers, who will say pretty openly that as of five or six or seven years ago, when you were thinking about a potential deal, antitrust risk or even the antitrust analysis was nowhere near the top of the conversation, and now it is up front and center. For an enforcer, if you’re having companies think about that legal issue on the front end, that’s a really good thing because then we’re not going to have to spend as many public resources taking on deals that we believe are violating the laws. 

To scale your relatively small office, which has a fairly constrained budget, are you using AI?

We are thinking about: are there ways, especially with some of our economic analysis, to be benefiting from some of these tools? Obviously, being able to do that requires pretty significant compute upgrades, which we’re asking Congress for more funding to be able to [secure].

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