Lina Khan, nominee for Commissioner of the Federal Trade Commission (FTC), speaks during a Senate Commerce, Science, and Transportation Committee confirmation hearing on Capitol Hill in Washington, DC, April 21, 2021 .
Saul Loeb | Swimming pool | Reuters
In the seven months since Lina Khan took over as chairman of the Federal Trade Commission, a cold war has erupted between several of the biggest tech companies and regulators. The question for 2022 is whether it gets hot.
Microsoft, Amazon and Alphabet announced more deals in 2021 than any other year in the past decade, according to data compiled by Dealogic. This pace of deals signals that they’re trying to weather an upcoming antitrust crackdown — or that they don’t believe Khan and other regulators will be able to make a strong enough case to block acquisitions.
Khan, who assumed the top job at the FTC last June, hasn’t been shy about suggesting his agency aggressively enforce antitrust policy. She is already filed an amended complaint against Facebook claim your acquisitions of Instagram and WhatsApp have contributed to its current status as a social media monopoly. In the meantime, she is drew criticism from Facebook and Amazon that her prior writings and statements about Amazon’s abuses of market power and her work as a House staffer render her incapable of fairly judging matters of importance relating to that company.
Microsoft’s $69 billion deal for video game maker Activision Blizzard this week is the latest example of a big tech company regulators potentially difficult to act. It follows several major transactions from 2021, including Microsoft’s $19 billion purchase Nuance Communications and Amazon’s $8.5 billion deal for MGM Studios.
According to Dealogic, Google parent Alphabet’s 22 deals, Microsoft’s 56 deals and Amazon’s 29 deals in 2021 were all 10-year highs. While Dealogic’s data only accounts for publicly disclosed deal values, based on these records, Alphabet and Microsoft’s aggregate deal volumes also hit 10-year highs of $22 billion and $22 billion. $25.7 billion, respectively. Amazon’s total trading volume, at $15.7 billion, just missed a 10-year high after just 2017 when it agreed to buy Whole Foods for $13.7 billion.
Big Tech “is paying a lot of attention and would like to get deals done before the administration manages to set a new precedent,” said Erik Gordon, a professor at the University of Michigan’s Ross School of Business. “Once a precedent is set in a courtroom by one judge, it is easier for other judges to follow that precedent.”
So far, the FTC under Khan has relied on a deterrence strategy to control corporate acquisitions as it struggles to deal with a historic surge in merger applications across all industries. What remains to be seen is how far the agency is willing to go to follow through on its threats of action on the antitrust front.
With a budget that hasn’t kept pace with antitrust agencies and pales in comparison to those of the companies it supports, the FTC has instead fired messages like warning shots to indicate its seriousness. .
One such action was the agency announcing that it would send letters to certain companies wishing to merge, letting them know that the FTC would continue to investigate their transactions even though the legal waiting period had passed. . The letter essentially warned that the companies could merge at their own risk, but the FTC may later take legal action to have them reverse their transaction.
While such letters don’t actually define new policy — it’s still true that authorities may seek to block or reverse mergers even after reviewing them — the change in tone marked a stark turn from the past.
But that may not work to actually change company behavior, Gordon said. Until the courts rule on regulators’ interpretation of antitrust law, big companies are likely to keep up the frantic pace of deals, hoping to close as many as possible, he said. declared.
“Once you’ve cracked the eggs and made the omelet, it’s hard to put the eggs back in the shells,” Gordon said. “You’re going to be more likely to crack the shells, scramble that omelet, and put the government in a position where they go to court and say this deal needs to be overturned, and the judge looks at them and says how are you going to do it that ?”
Khan, in her first on-camera interview since taking the job, told CNBC’s Andrew Ross Sorkin and New York Times “Sway” podcast host Kara Swisher that the agency is trying to reflect on sending broad messages while recognizing its own resource limitations.
“What are the instances where certain types of actions could impact the overall market?” Khan said, giving an example of the type of question she would consider. “If we’re able to get a particular settlement or consent decree or get a good result in court, what are the instances where that could really change the dynamics of the whole market rather than just, you know, here or there?
Bill Kovacic, former FTC commissioner and current law professor at George Washington University, said it was only a matter of time before antitrust authorities act on their threats.
“The players are largely in place, the commitments have been made, they have the President of the United States in his July executive order saying ‘go get them,'” Kovacic said, referring to Biden’s order. directing various government agencies to consider finding new ways to address the problems of monopolistic concentration and competition in the economy. “If you don’t do it now in the next twelve months, you’ll never have that opportunity again. And I think not only do they realize they have to deliver, they want to deliver.”
It’s time to fight
In her CNBC interview, Khan said fighting Big Tech “takes courage,” though she refrained from suggesting that her agency would block any existing deal.
“They are extremely well-resourced companies,” Khan said in the interview. “They don’t hesitate to deploy those resources. We’re really showing these companies, but we’re also showing the country that law enforcement won’t back down because these companies show force or try to intimidate us.”
Big tech companies often pay dozens of lawyers, in-house and outside, to advise on the deal’s chances of approval. Microsoft, Amazon, Facebook Meta parent, Alphabet and Apple may be the five most scrutinized companies in terms of the kind of market power they wield over society and their rivals given their collective market valuations, which total nearly $9.5 trillion.
On the face of it, Amazon buying a movie studio (MGM) or Microsoft acquiring a games company (Activision) or an AI healthcare software company (Nuance) doesn’t ring traditional antitrust alarm bells. . These are not deals where there is a limited competitor base pretending to get even smaller, like the wireless or broadband industries.
This puts Khan in a “prove” position, where she will likely have to argue that the interpretation of antitrust law should adapt to current capitalist dynamics.
Meanwhile, Congress is working on new laws that could make it easier for authorities to prove to a court that certain behaviors of online platforms are illegal. On Thursday, the Senate Judiciary Committee introduced a major bill that would ban dominant online platforms from discriminating against competitors’ products on their platforms. While this bill focuses on corporate conduct, House lawmakers also considered a bill that would shift the burden of proof in merger transactions to dominant companies.
“Deciding when to move on and act is always worth it, even if it’s not a slam dunk affair,” Khan said in his CNBC interview. “Even though there is a risk that you can still lose, there can be huge upsides to taking that risk. You could win. You lose every shot you don’t take. But what we can see, is that inaction after inaction after inaction can have This is what we are really trying to reverse.
Make a statement
During President Joe Biden’s first year in office, his chosen antitrust regulators chose to block two major deals in media and technology. The Ministry of Justice sued to block Penguin Random House’s acquisition of rival publisher Simon & Schuster in November, and Khan’s FTC sued to block Nvidia’s $40 billion acquisition of British chip design supplier Arm in December.
These two agreements are of unusual importance because they are two of the first big cases to come out of the door, Kovacic said. “It’s a huge advantage to win your first business,” he said. “To show you can do it. To show it’s not just about talking.”
The relatively short time available to law enforcement officials during their tenure also gives a “fierce sense of urgency” to the FTC, which understands it must rely on precedent to change the way businesses are considering mergers and acquisitions, Khan said.
WATCH: Lina Khan answers questions about antitrust regulations