The case against the FTC
Over the past two years, the Federal Trade Commission has suffered a series of stinging defeats in headline matters: the reversal in August 2020 of the district court order in the agency’s lawsuit against Qualcomm; the near-dismissal in June 2021 of one of its lawsuits against Facebook, and, most recently, the rejection in February and September 2022, respectively, by administrative law judges of its lawsuits against Altria and Illumina.
If this were a business, the firm’s shareholders might be asking for new management. In government, voters might be asking why their dollars keep being spent on enforcement actions that lead nowhere.
Agency leadership and its supporters in Congress, think tanks, and much of the media will blame the law, repeating the now-familiar claim that “antitrust law is broken.” Yet perhaps it is the agency that is broken.
Contrary to populist statements made by some policymakers and commentators, it is not the mission of the antitrust laws to punish big firms for just being big. Rather, antitrust enforcers must demonstrate that those firms have secured commercial success through something other than competition on the merits. If the agency cannot make that case, then a judge must reject the suit.
Any other course of action would abandon the market to the unfettered exercise of regulatory fiat.
FTC leadership has suggested that they have little concern about losing “big cases.” Not only does this reflect a disdain for making prudent use of public resources, it also reflects indifference to the substantial costs imposed by unsubstantiated enforcement of the antitrust laws.
To illustrate, consider the agency’s ongoing campaign to block acquisitions of startups and other small firms by large technology companies. As part of this effort, the FTC has sought to block Altria’s minority equity investment in Juul, a struggling firm in the alternative cigarettes market, to unwind Illumina’s acquisition of Grail, an emerging company with a novel cancer diagnostics tool, and most recently, has challenged Facebook’s acquisition of Within, a startup that has developed a virtual-reality fitness app.
The challenges to the acquisitions by Altria, Illumina, and Facebook rest on theories of competitive harm ranging from contestable to dubious. Juul was and is a struggling firm and competition in the relevant market increased after Altria’s investment (which has lost most of its value). Grail and Within are emerging companies in nascent markets and neither poses any reasonably foreseeable competitive challenge to the acquiring firm.
In the case of Grail, Illumina has also committed to provide customers (including Grail’s potential future rivals) with access on comparable terms for 12 years to its gene-sequencing products. The challenge to Facebook’s acquisition of Within is especially curious: The target occupies a small corner of a submarket for VR apps in a broader market (the metaverse) that is still in its emergent stages. In both cases, any claim of antitrust risk is almost entirely hypothetical.
Adventurist suits based on implausible theories of competitive harm are not merely wasteful but threaten to cause a chilling effect on the market for innovation.
Startups rely on the prospect of acquisition by a larger firm to attract investment from venture capital. In information technology markets, many startups develop innovations that can only achieve value by being integrated into a product and service ecosystem maintained by existing platforms. For these firms, it is not feasible to achieve monetization through an IPO. Many founders are unwilling to bear the compliance costs and liability risks associated with being a public company, which might explain why an IPO is not the typical path through which startups achieve a profitable exit for investors.
Some legislators and regulators argue that preemptive action to block startup acquisitions by large firms is necessary to preserve competitive conditions in technology markets. So far it seems the opposite may be the case.
Continued action by antitrust enforcers to block startup acquisitions (or, in the case of the Altria/Juul transaction, even a minority equity investment) without evidence of competitive harm may preclude new firms from securing the risk capital without which they cannot grow. The campaign against startup acquisitions can easily suppress startup entry — a blatantly anticompetitive outcome that runs counter to the objective of the antitrust laws.
Perhaps of greatest concern, the FTC’s continued intent to bring antitrust cases that rest on meager evidence of competitive harm raises doubts about the agency’s commitment to the rule of law. If the agency is blocking Facebook’s acquisition of Within, what is the principle that explains why it is not also blocking the tens of other acquisitions made by Facebook? Or Walmart? Or Exxon?
There is no answer other than the discretion of agency leadership. It is therefore unsurprising that the agency’s suits fail when scrutinized by judges that find government briefs lacking a sound basis in precedent, evidence, or economic common sense. Under the FTC’s inherently conflicted adjudicative process (which happens to be the subject of a Supreme Court case to be heard this November), the majority Commissioners will now surely take advantage of the opportunity to reverse the judges’ rejections of the Altria and Illumina suits that the Commission had authorized in the first place.
The antitrust agencies are entrusted with enforcement powers that encompass far-reaching remedies that can disrupt business relationships representing billions of dollars of investments. As contemplated by the statutes and broader division-of-powers principles under which the agencies operate, these powers should be reserved for cases in which the evidence can support a reasonable likelihood of success under applicable law.
An agency that seeks theatrics over results is not an agency that is acting in the public interest.
Jonathan M. Barnett is the Torrey H. Webb Professor of Law at the University of Southern California, Gould School of Law. He is the author of Innovators, Firms, and Markets: The Organizational Logic of Intellectual Property (Oxford University Press 2021).