The Wu Khan Clan Enters the Battle Arena
Columbia University Law Professor Tim Wu has written profoundly and persuasively for decades about anti-competitive behavior in the U.S. tech industry – from Western Union’s telegraph monopoly in the 1860s forward toward the market dominance of Google and Facebook – and is recognized as a leader in the movement to acknowledge the damage to our economy caused by the size, cross-platform power and anti-competitive behavior of today’s huge tech companies. Wu’s recent books like The Curse of Bigness and The Attention Merchants illustrate threats to our society and economy caused by huge internet-based concentrations of economic power.
Wu is known for coining the term “net neutrality and is an intellectual leader for the movement to allow government limitations on the power of Amazon, Google, Facebook, Apple and Microsoft. He recently accepted President Biden’s invitation to serve as special assistant to the president for technology and competition policy. This new political platform will add heft to his already substantial influence.
Lina Khan, also a professor at Columbia Law School known as an intellectual leader in the effort to rein in the power of Big Tech, has been confirmed as the new Chair of the Federal Trade Commission (FTC). Chair Khan has been a celebrated anti-trust thinker since law school, who has published extensively in the past several years about the need for a more aggressive U.S. anti-trust stance. The elevation of these two anti-trust legal thinkers critical of the role of Silicon Valley on our economy and lives, completes a serious shift in the once-indulgent attitude that Washington took toward Big Tech.
I have written in this space about the recent turn in legal enforcement actions against Silicon Valley giants (here, here, and here). For two decades our government allowed internet giants to grow unchecked and crush their competition by secret deals, structural advantages and underhanded tactics. But the last year has seen that attitude change. The arrival within the government of Professor Wu, Chair Khan and the acolytes to follow – we will call them the Wu Khan Clan – demonstrates the Biden Administration’s seriousness in revitalizing anti-trust laws in the face of our digital economy.
The Biden administration is not stopping with meaningful appointments. According to a story in last week's Wall Street Journal, The administration plans to issue an executive order “directing agencies to strengthen oversight of industries that they perceive to be dominated by a small number of companies, a wide-ranging attempt to rein in big business power across the economy.” The goal appears to be forcing regulators to look negatively at concentration of economic power in the industries they regulate.
For two decades our government allowed internet giants to grow unchecked and crush their competition by secret deals, structural advantages and underhanded tactics. But the last year has seen that attitude change. The arrival within the government of Professor Wu, Chair Khan and the acolytes to follow – we will call them the Wu Khan Clan – demonstrates the Biden Administration’s seriousness in revitalizing anti-trust laws in the face of our digital economy.
One of the important questions in the Big Tech anti-trust battles is whether courts stand on a “consumer harm” model that the Supreme Court developed in the 1970s, or if courts either roll back to some of the original interpretations of the Sherman Anti-Trust Act, or decide to advance the law in directions proposed by the Wu Khan Clan academic writers like Commissioner Khan herself or the influential Dina Srinivasan (who has not yet been called into an official Biden Administration position). In short, plaintiffs will have difficulty demonstrating that aggressive anti-competitive actions taken by Google, Amazon and Facebook violate the 1970s interpretation of anti-trust law because their services are either free or help reduce prices for consumers, at least in the short run. So if the effect on consumers is the ultimate test, holding the leviathans to account will be nearly impossible no matter how badly they behave.
Tim Wu and Commissioner Khan have pressed for a legal interpretation that corrects anti-competitive actions without regard to short-term effects on consumers. We know, for example, that an aspiring monopolist may reduce its prices below cost to drive competitors out of the market, but prices tend to rise again when that company has achieved market dominance. Commissioner Khan published an influential note in the Yale Law Journal as a student that argued for the need to regulate competitive harm that Amazon created by driving an entire industry of booksellers and publishers out of the market. She noted that Amazon’s dual role as a platform and a seller encouraged predatory pricing and would hurt the markets in the long run. In addition, Amazon’s role as a controller of the sales platform provides rich competitive imbalance through the data Amazon can collect not only on its own sales and customers, but the sales and customers of its smaller competitors.
The battle is already engaged. Last week Amazon officially petitioned the FTC for Chair Khan to recuse herself from any matters relating to Amazon. Recusals are rare and Khan addressed the potential for such a request in her Congressional confirmation hearings. When the issue of potential recusal was raised, she stated that she had “none of the financial conflicts or personal ties that are the basis of recusal under federal ethics laws. I would be approaching these issues with an eye to the underlying facts and the empirics and really be following the evidence.” And the underlying facts and empirics are worrying Amazon.
Every era and new business cycle creates its own set of competition issues. John Rockefeller at Standard Oil was able to manipulate the budding rail and pipeline systems to squeeze competitors out of the marketplace and eventually jack up prices on consumers when he dominated supply. As Tim Wu observes in one of his excellent early books on competition, AT&T milked its telephone network monopoly to keep new technologies out of consumers hands. The internet economy has allowed a few giants to dominate markets that never existed before – search, ecommerce, social media – without an intellectual underpinning to understand what behaviors should be allowed in these novel markets existing entirely in the digital space. The European Union has been less shy about defining and punishing anticompetitive behavior in digital realms. U.S Big Tech has suffered the largest anti-trust fines in history. The U.S. is just starting to apply the old rules to the new economy.
Now that the anti-Big Tech anti-trust academics are influencing policy, will the rules change? Congressional Democrats have been interested in reigning in these companies and their brutal impact on smaller competitors for the past few years. Congressional Republicans have seemed more receptive to such actions because they chafe at Big Tech’s referee role in limiting harmful/hateful/false political speech (cutting off the current flow of mother’s milk for Republicans). Can the two sides ignore their differences in reasoning and build a coalition for results? The approval of 32-year-old Lina Khan as youngest ever Chair of the FTC would seem to indicate a willingness to work toward the goal of clipping Silicon Valley’s wings.
However, Biden could also temper the message sent by bringing both Wu and Khan into the administration. For example, he has not yet proposed a candidate for the powerful leader of the Justice Department’s antitrust division. In addition, Khan ally on the FTC Rohit Chopra will leave soon for another role in the government, and his replacement may not be as interested in limiting the behavior of Big Tech.But the Khan era at the FTC has begun decisively and confrontationally. In her first official meeting, Khan broke decades of precedent by meeting in public and airing the Commission’s partisan differences. Politico reported that the FTC voted along party lines – Democrats have three Commission spots to the Republican’s two – to push “through a series of actions on progressive Democrats' wish list: Fines for companies that lie about products being "Made in America." Greater latitude for launching antitrust probes and lawsuits. And a wider door to writing new regulations — something else the FTC hasn't done much of in decades.”
“It is unimaginable for those companies to make major acquisitions that might evoke charges of anti-competitiveness in the near future. Facebook might covet Clubhouse, but buying it is now out of the question. Biden’s FTC will make sure of that.” -STEVEN LEVY, WIRED
New legislation redefining illegal anti-competitive behavior for the digital age would like be most effective, but even an administration driven by Wu Khan Clan priorities will apply brakes to the tech giant’s more egregious aggressions. In law school we learn about the “chilling effect” of aggressive enforcement and restrictive interpretations of certain laws. If the government interprets a law as making a certain behavior illegal, then companies’ decisions will “chill” toward that behavior. Companies are less aggressive in that space, understanding the increased risk. So even if all of the current US antitrust cases against big tech do not dismember the industry monsters, these cases have already affected the behavior of those monsters.
Given the current level of regulatory, litigation, and legislative attention being paid to Big Tech’s actions, their executives would be foolish to push the envelope of anti-trust behavior in similar ways as the past. As Steven Levy wrote in Wired, “It is unimaginable for those companies to make major acquisitions that might evoke charges of anti-competitiveness in the near future. Facebook might covet Clubhouse, but buying it is now out of the question. Biden’s FTC will make sure of that.” The Amazon petition for Chair Khan’s recusal demonstrates that the chilling effect has already begun.
Whatever ruckus is raised by Big Tech, the fact remains that policymakers are now siding with their very dangerous intellectual adversaries. The battle has begun in earnest.