FTC Chair Lena Khan defended her progressive approach to antitrust enforcement at an event on Monday as the agency drew plenty of criticism from the business community.
“The role of the FTC is not to make us have our own personal philosophical beliefs about the big and small virtues. It’s really about regulation,” Khan said during a question-and-answer session at the Economic Club of New York.
“Congress, in passing antitrust regulations, has in many cases established a policy preference for competition over monopoly,” Khan said. “That said, the regulations don’t prohibit monopoly. They just prohibit illegal means of becoming a monopoly. So that’s what we’re looking at.”
Khan later added that the FTC views mergers through a competition paradigm, “but in some cases, you definitely need big players to provide the type and scale of services that we need.”
The comments came less than a week after the FTC and the Justice Department’s antitrust division unveiled new merger guidelines, signaling a broader application of antitrust law than the administration has recently adopted. For example, new guidance (still in draft form) recognizes that enforcers may consider the effects of labor competition in certain circumstances, and may also weigh the negative impact that a series of mergers may have on competition, rather than considering individual mergers in isolation.
While the agencies have yet to be finalized, the new guidelines have already drawn a backlash from the business community.
Neil Bradley, executive vice president and chief policy officer of the U.S. Chamber of Commerce’s business group, said in a statement that the guidelines “are designed to curb merger and acquisition activity, which would deny small companies access to the capital and expertise they need to grow and put U.S. businesses at a disadvantage compared with global competitors.”
Khan noted that while law enforcement agencies have come under increasing scrutiny over their efforts to block mergers, they still refuse to act on the vast majority of deals.
“In any given year, antitrust agencies receive anywhere from 1,500 to 3,000 merger filings. 98 percent of those filings are not even raised with any second question by the agency,” Khan said. “So, about 2% of transactions even get what’s called a second request, which is a series of questions so we can investigate more deeply. And a much smaller portion ends up in legal challenges.”
Khan said the problem arises when “fringe” deals emerge, which firms later discover lead to a “correction of direction” as a result of less competition.
Khan also defended the agency’s record in the merger case in court. Of the 13 to 20 cases the agency brought, depending on the count, the FTC lost two in federal court, she said.
“In our combined enforcement program, losing two people is acceptable,” Khan said, adding that the agency would only bring cases that enforcers thought they could win, and when that didn’t happen, they would look at how to improve in the future.
Even amidst these losses, however, there are some silver linings in further clarification of case law, Khan said.She pointed out that the agency tried to prevent YuanTake the acquisition of virtual reality fitness developer Within Unlimited, for example. While the FTC failed to block the deal, Khan said the judge rejected some of Mehta’s arguments about how the law should or should not apply.
Khan also responded to criticism of the new merger guidelines that the case the agency cited in support of its draft policy was old and outdated. Even cases from the 1960s and 1970s “are still frequently cited in modern merger decisions,” she said. That’s partly because the Supreme Court hasn’t taken up merger cases as often in recent decades, meaning “the old law is still good law.”
She added that the merger filing updates were not intended to place additional burdens on companies, but to speed up the FTC’s review process rather than having to go back to the parties for more information.
Acknowledging that an initial public offering may be a less viable path for many businesses today, Khan said the agency listens to and considers arguments about the commercial necessity of acquisitions. However, much depends on the specific circumstances of each case. As an example, she said, “If you have a pharma deal where you acquire a very, very early-stage drug, the outcome will be different than acquiring a fully formed, very popular drug.”
Finally, Khan also addressed the low morale of the agency under her leadership.
“There’s no doubt that when I came in, I think a lot of people were like, ‘Ha, what is she doing here?’ said Khan, the youngest chairman at 32. “I’m a fraction of my age. I think my previous career has really been focused on criticizing the practices of previous administrations and the decisions made by the former FTC, and I can definitely see how putting critics in that position can create some friction. “
“I think I could have, and our team should, have done better to make it clear that these types of criticisms are not intended to question in any way the integrity or the brilliance and skills of our professional staff,” she said.
Watch: How US antitrust law works and what it means for big tech companies
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