The FTC versus America
Activist bureaucrats-turned-bullies are making our country sicker, weaker, and less free
The late, great historian Robert Conquest’s 3rd law of politics was as follows:
The simplest way to explain the behavior of any bureaucratic organization is to assume that it is controlled by a cabal of its enemies.
It’s a cheeky statement, but also a useful one. Bureaucracies are instituted for specific purposes; as they grow, those purposes are often lost and replaced by internal politics, special interests, and hunger for power. The result is bureaucratic dysfunction that can make Conquest’s law seem totally plausible.
Here’s a question: theoretically, if the Federal Trade Commission were controlled by a foreign cabal that wanted to sabotage our technology sector in service of the Chinese sector, prevent Americans from getting early cancer treatments, and end the American system of checks and balances… how would we be able to tell?
The FTC is likely not an actual cabal of malevolent foreign saboteurs. But today the agency is on a terrible trajectory. At best its regulatory approach is misguided; at worst it is capricious and destructive to our economy and country. And the new approach is increasingly popular with politicians of all stripes.
Lina Khan, the FTC Chair and its leading intellectual force, is a part of the “New Brandeis” movement within academic legal circles advocating an extreme, expansive version of antitrust. Ms. Khan, a former law professor, was confirmed by a sizable margin in the U.S. Senate, reflecting some bipartisan interest in her aggressive positions against Amazon and others.
It's no secret that Big Tech is in the dog house with both sides of the aisle, and that’s often warranted. There are oligopolies in the sector and plenty of abuses, whether it’s censorship of Americans or absurd behaviors like how Apple manages its App Store. I have no special attachment to large tech businesses — quite the opposite (I even wrote in the WSJ last year that Amazon should spin off its cloud division, AWS, to promote competition).
But Khan-thought at the FTC is a radical, intellectually lazy form of anticapitalism based on a view that anything done by big companies must be bad because they're big. As a result of this obsession with tech businesses especially, the FTC is willing to use the flimsiest of arguments to stop as much market activity as possible without regard for the consequences — and ignore areas where antitrust law could be applied with obvious benefits.
It’s critical that Americans understand the extreme costs of the new approach. Let’s look at a few cases.
First, Do No Harm
The US is in a major competition with China, and the strength of our innovation sector is a major weapon for us in that competition. One factor that sets our sector apart is liquidity: entrepreneurs can win more than once, and every major win can lead to tens of more companies being founded and receiving investment.
The most notable antitrust cases in the past few years are Microsoft’s purchase of the gamemaker Activision Blizzard, Meta’s purchase of the small virtual reality fitness company Within, and Adobe’s purchase of the design software maker Figma. All three reveal a damaging trend: the US antitrust bureaucracy wants to stop all acquisitions as a default.
Of the three companies, Microsoft is the most familiar with antitrust. US v. Microsoft in the late 1990s was the biggest antitrust case in generations, when the DOJ sought to challenge Microsoft’s OS dominance in the PC market. To say that the FTC’s new complaint against Microsoft is considerably less serious would be giving the agency too much credit.
Lulu Cheng Meservey, the Chief Commercial Officer at Activision Blizzard, laid out just how weird the complaint is. She makes a compelling case that the FTC is — bizarrely, inexplicably — running cover for dominant foreign competitors, specifically Sony and Nintendo.
I’m a fan of both of those companies; we just shouldn’t be making antitrust policy to protect them from US-based competitors. Nor should the FTC be dreaming up new categories of markets in order to argue that they’ve been monopolized, which is just what they did.
In the case of Meta, we have an obvious example of the FTC’s pre-cooked enforcement agenda. Lina Khan, before joining the FTC, actually called on the agency to block all Facebook (now Meta) acquisitions in a 2017 letter. In pursuit of that agenda, she and the other Democratic commissioners overruled the FTC staff to sue when Meta purchased Within, a small VR fitness company.
After failing to argue that Meta competed with Within in VR fitness (it did not) the agency attempted to argue that if not for the merger, Meta would develop a competitive app in the future. This theory did not hold water with a California judge, and the deal has now closed. But it’s yet more evidence that the FTC is willing to use incredibly strained legal theories to stop mergers — even when there’s no clear anticompetitive behavior.
It’s not the only suit against Meta. The agency has also sued to force Meta to sell Whatsapp and Instagram, both of which it purchased when they were small, and both of which grew into services that serve billions of people for free under Facebook.
Smaller tech businesses need a fair shot to innovate against the large businesses, and often the mechanism that consummates victory against the established order is a purchase into it. Many of the great companies of our time would have never been started if a lucrative acquisition was impossible. Exits are very expensive for the top players, like Adobe’s $20 billion purchase of Figma. In that case, the people who built and invested in Figma made a lot of money (Adobe’s money).
Now, the DOJ is looking to intervene to stop the acquisition. This is absurd. Not only is Adobe not actually a real competitor with Figma (which the DOJ would know if they talked with any design teams in Silicon Valley). Figma’s actual competitors are elated by the sale — they know that Figma will be less nimble and innovative within a larger company like Adobe. Design software is among the most competitive spaces on the whole Internet.
Exits are an engine to drive new funding and talent toward new things. Without them, technology markets are inefficient and illiquid. They are also a multiplier of economic growth — exits beget more exits, and encourage the type of entrepreneurship that makes our economy the strongest in history.
We shouldn’t take that strength for granted. With a decade or two of extreme anti-exit policy, we could live in a very different country: poorer, less dynamic, and with less opportunity. In China, that is just what’s happening.
CCP President-for-Life Xi Xinping has terrified many successful entrepreneurs from building more businesses. We are watching, in real time, a massive, coordinated state sabotage of a technology sector. I’m talking about the CCP and the Chinese sector; let’s not do the same here.
Second, Preserve Life
In 2008, I lost my mother to cancer. By the time doctors discovered the cancer, it had advanced to Stage IV and was no longer treatable. For many cancers, including my mother’s, it could have been treated at Stage I or II. Getting earlier, better tests to more people would save thousands of lives every single month.
The FTC has done its best to stop this from happening, i.e. to guarantee that more Americans die from treatable cancers because one company might be too effective at saving them.
GRAIL is a company that produces multi-cancer early detection tests — specifically, liquid biopsy blood tests. It was originally founded in and then spun out of Illumina, a larger company that does genomic sequencing. In 2021, GRAIL sold back to Illumina, which had the infrastructure to make these tests the national standard.
The FTC intervened based on a vertical merger theory — i.e. opposition to a merger that would unify different parts of a supply chain (tests and test processing). As Illumina dominates in genomic sequencing, the FTC argued it would be able to lower prices on GRAIL’s blood tests and outcompete other test producers.
None of this made sense. Illumina committed to fixed-price contracts for at least 12 years for its sequencing products, and additionally promised to lower prices substantially by 2025 and maintain all sequencing contracts with other test producers.
But despite the utter lack of a case for consumer harm — the best blood tests would become cheaper and more available to tens of millions of people and stop thousands of deaths every month — and despite the agency also knowing that in the only vertical antitrust case in decades, federal courts shut down the DOJ’s effort to stop AT&T from purchasing Time Warner and rejected the vertical merger theory… the FTC filed anyway.
The agency lost when an administrative law judge threw out the complaint, but the damage was already done. We didn’t get the rapid expansion of GRAIL on the Illumina platform that would have been possible without the crackdown.
The company was put through the wringer, and during the delay, tens of thousands of Americans died needlessly, sacrificed on the altar of vertical merger theory.
Third, Don’t Outsource Regulation
The FTC may have failed to stop the Illumina/GRAIL merger when faced with American law. But don’t think that stopped them; they had a backup plan.
It turns out that throughout the entire Illumina case, the agency’s staff (and presumably commissioners) were in touch with their European counterparts. The U.S. Chamber of Commerce recently acquired redacted FTC emails that strongly suggest the FTC coordinated with European Commission and U.K. regulators to guarantee victory against Illumina, knowing they faced a difficult legal battle in the U.S.
Miraculously, when the FTC complaint got thrown out in the United States, the European Commission, that great bureaucratic leviathan, stepped in and told Illumina to unwind the deal — despite GRAIL not operating at all in Europe.
And that’s part of the playbook: if American law stops them, bureaucrats can always export their bullying campaigns to the EU — and the American government won’t do anything about it. In this case, it was our bureaucracy that appears to have instigated it. Just weeks after the FTC began communicating with the European Commission, the latter announced a change in policy: it would review mergers that don’t affect the European market at the request of any member country.
It is absolutely egregious for the FTC to launder its regulatory action against American businesses to a foreign jurisdiction where those businesses don’t even operate — in this case, because they were so intent on continuing the mass death of Americans from treatable cancers.
Unfortunately, this behavior is hardly the only instance of the agency behaving with utter disregard for American laws and traditions.
Finally, Abide by the American System.
Earlier I noted that the FTC’s Illumina suit was ultimately rejected by an administrative law judge (ALJ). That fact raises an important question: why is the FTC allowed to adjudicate its complaints with judges that are its own employees, and not with independent judges?
A pending case in the Supreme Court will soon answer that question: Axon v. Federal Trade Commission.
Axon Enterprise is best known for its “Taser” electroshock weapons. In 2018, Axon acquired VieVu, a small company that makes police body-cameras (Axon was a larger competitor). The purchase was for just $7 million with other incentives built in — in other words, small potatoes.
In 2019, the FTC informed Axon of its demands, which went well beyond simple divestiture of the VieVu purchase. The FTC actually demanded that Axon create a new competitor to itself and pay for the transfer of customers to that competitor, intellectual property, and employees to that competitor.
Faced with the obscene demand to sabotage other parts of its own business as penance for not getting prior bureaucratic permission from the FTC over a small acquisition, Axon decided to initiate a very expensive legal battle.
Before the FTC filed the official complaint and initiated the internal “judicial” process, Axon sued the agency in federal court, seeking challenge the constitutionality of the agency’s structure that allows it to bypass courts in the first place. The complaint’s lack of merit wouldn’t have mattered, except that FTC complaints can take a long time to adjudicate — which the FTC knows and uses as a part of the bullying strategy.
They want to be prosecutor, judge, jury, and executioner — and set the timelines of each case. It’s an exact inversion of the way our country was set up: with checks and balances and separation of powers. If federal judges are unable to scrutinize the FTC or its decisions until the FTC has completed an internal process — which could take years, and which the FTC can easily drag out — then they are totally unaccountable.
Billions of dollars are often at stake in FTC proceedings, and in cases like Illumina, many American lives. For that reason, bureaucracies must be subject to the same laws as the rest of us. The fact that the FTC isn’t means it doesn’t have to think twice before pursuing punitive action against people and businesses it doesn’t like.
It remains a major advantage for us against China and other competitors that businesses know they can get a fair shake in America with an independent judge. It’s critical we don’t give that up — not for the FTC, not for anyone.
The Antitrust Star Chamber
We need a reset on our antitrust policy, and that starts with re-evaluating the extreme powers granted to the FTC. Congress must take back the policy making power from the agency. Our judiciary must take back the adjudication power. The FTC should have a very specific mandate — to prosecute those cases that are clearly pursuable under laws set by Congress and precedents set by courts.
Even the FTC staff are unhappy with the current course. In her recent resignation letter, FTC Commissioner Christine Wilson noted the collapse of morale at the FTC under the activist leadership:
In 2020, 87% of responding FTC employees agreed that senior leaders maintain high standards of honesty and integrity; that number fell to 53% in 2021 and declined further to 49% in 2022. Among all surveyed federal agencies, the FTC plummeted from best in 2020 to worst in 2021.
FTC numbers show the shift in priorities. Ms. Khan and the FTC majority have turned away from prudent enforcement of antitrust law that consumers expect in favor of going after big-name, politically charged cases with novel (and often baseless) legal theories. In 2021 the agency filed 15 suits and 32 consumer protection actions, down from 31 and 79 in 2020, respectively.
Getting back on course would mean focusing on the truly anti-competitive industries, those that are hiding in plain sight in Washington: defense, hospitals, healthcare, transportation, insurance, and energy, etc. Unfortunately, it turns out that a practical antitrust policy focused on where consumers are actually harmed is less appealing than pursuing vendettas.
The American founding generation knew what had gone wrong in Europe in the preceding decades and centuries — the excesses of monarchic power, the dangers of inquisitions, etc.
One thing they knew well was the Star Chamber, a “court” set up in England outside the auspices of the common law and equity courts, ostensibly to provide equal justice in the cases of the politically connected, where other courts could not. Conquest’s 3rd Law applies, and what the Star Chamber became was not an organ of equal justice or anti-corruption, but an organ of injustice and corruption.
You can think of our Constitution as an anti-Star Chamber document. Our Framers wrote the separation of powers and checks and balances into the structure of the Republic from the very beginning, to insulate our government from the concentration of arbitrary and unaccountable power.
We are teetering toward a dangerous point in our governance when the antitrust bureaucracy exercises immense power resembling that of a legislator, prosecutor, and judge together. It brings to mind James Madison’s warning in The Federalist no. 47:
“The accumulation of all powers, legislative, executive, and judiciary, in the same hands, whether of one, a few, or many, and whether hereditary, self appointed, or elective, may justly be pronounced the very definition of tyranny.”
This is what the FTC has become: a tyrannical American Star Chamber. Which of our leaders will follow the principles of our founders and our Constitution by standing up to these bullies and restoring the rule of law?
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I can see that the aim of this article was to do some high level inspection of the recent progressive movement in antitrust, however it fails to fundamentally offer any valid critique due to getting multiple facts wrong and avoiding what the actual data says, something anti-trust places heavy burden on.
Firstly, no one, not consumers, not workers, not Wall Street, not regulators, is buying the decade old rhetoric of the China boogeyman coming to take over tech.
You might of had a stand, a very tiny one, if this was about SMCs but it's not. The basic facts:
- US has 97% of the search market
- US has 93% of the browser market
- US has 97% of the OS (PC/mobile) market
- US has 75% of the cloud market
- 3 US companies alone have 50% of the entire global advertising market
- Out of the Top 50 most valuable Tech companies, 35 are US. A mere 5 are Chinese.
Complete nonsense to broadcast such fear mongering.
It's interesting you bring up market definition yet miss out on the FTC's historic win in the Meta case. Market definition in an economic sense, the one regulators look at, is not too difficult to quantify. One looks at the similarity of competitor sets, supplier sets, the substitutability of each product, diversion ratios, poll consumers or other industry members, and many of these can be quantified or plainly identified by going through the corporate documents/email/presentations of the companies.
Your Adobe/Figma analysis for instance is categorically false. Adobe have a direct competitor to Figma called Adobe XD.
The market definition debate happens when companies like Big Tech hijack an entire lawsuit, and centre it on ever expanding markets to evade a clear monopoly definition, rather than confront the reason for the purchase.
Two recent wins in court however have changed that. Penguin and Simon merger was blocked by the DOJ and won in courts, with the DOJ emphasising that the market of high earning authors is particularly important to look at. The Judge agreed because the data clearly showed it.
In the FTC v Meta case, the judge agreed on the FTC's narrow definition of a market, the idea that big companies can buy out leaders in nascent markets, and that yes that it is anti-competitive. To point out how historic this is, this is the first time since the 1980s the courts have accepted such a framework.
You talk about Illumina and GRAIL and once again its misguided. GRAIL has many rivals and they are in an innovation race. There's plenty of funding to go round, GRAIL does not need Illumina, the public markets alone would give ample funding. Illumina has no say in this race, instead their clear purpose was to prevent GRAIL rivals by either denying or jacking up prices of its NGS systems which they need. Their remedies showed that.
It's ironic you talk about wanting to help cure cancer, and yet advocate for the crushing of early cancer test companies (competition is what breeds innovation and accelerates it) or have prices be jacked up in such a vital industry.
Speaking of healthcare, you make the assertion that the FTC focusing on tech somehow means it is ignoring healthcare, hospitals, defence, as if the two are mutually exclusive.
They are not and you clearly have not been paying attention. The FTC/DOJ has blocked: United Health/Change, Saint Peter’s Healthcare System/RWJBarnabas Health, HCA/Steward Health , Lifespan/Care NE, Lockheed/Aero, SUNY Upstate University Hospital/Crouse Hospital, have crushed insulin prices, reducing it by 70% and addressed the Pharmacy Benefit Manager's rent seeking issue of jacking up prices nationally.
All this in 2 years and yet I do not see you support the FTC/DOJ for any these that you claim is truly addressing consumer harm.
There's a lot more to poke holes in, like how you take offence in global regulators working together, despite the fact that each domestic regulator still follows the legal framework within their country, so I just want to say, the tides are turning.
The world has lived in an anti-trust ice age for the past 40 years. It's no longer acceptable. The regulators have completely changed, the FTC, the DOJ, the UK CMA, the Australian ACCC, the Germans, and the EUC. The politicians have changed, President Biden for the first time in decades mentioned and constantly referred to anti-trust in the President's State of the Union. Most importantly the people have changed. They are increasingly against corporate consolidation due to their actual experiences of living/working in monopolised markets.
You only have to look at the historic public support the FTC/DOJ has gotten from blocking Penguin/SS, investigating Ticketmaster or banning non-competes. Some of the most upvoted posts of all time on Reddit are about anti-trust. Stephen King and Taylor Swift now talk about anti-trust.
The tides are turning and they are turning fast.
Activist bureaucrats-turned-bullies are making our country sicker, weaker, and less free. And dumber with indoctrination, not education. We need to get back to basics by doing to the government what Elon did to Twitter - fire all toxic commissars: https://yuribezmenov.substack.com/p/how-to-fire-a-commissar-part-2