Architect of US tech crackdown faces Republican critics

FTC Chair Lina Khan defended her approach to antitrust enforcement Thursday during a contentious Washington hearing where one Republican referred to her as a "bully" and another said her leadership of the agency had been a "disaster."

Lawmakers on the House Judiciary Committee spent much of the day questioning Khan about the legal basis for the FTC’s recent antitrust actions that targeted past and pending mergers among tech giants, hospitals, pharmaceutical firms, and grocery chain companies.

The hearing was prompted in part by the FTC’s investigation of Twitter, which is examining whether the social media company was in compliance with a consent order to safeguard sensitive user data. But the proceedings turned into a broader forum on Khan's track record of lawsuits.

Chair Jim Jordan, an Ohio Republican, called her leadership of the FTC a "disaster." Rep. Darrell Issa, a California Republican, called her a "bully" and said her view is that "every merger somehow has to be bad for the company and good for the consumer."

Rep. Kevin Kiley, a California Republican, pointed out that the FTC had proposed a 37% budget increase from its $430 million fiscal year budget in 2023 despite losing four of four Khan-led merger challenges, and then asked: "Why should Americans have faith in your judgment?"

Khan said she brings cases only where the agency has determined laws have been violated, and "unfortunately things don't always go our way."

'Why are you losing so much?'

The hearing comes just two days after a federal judge dealt a blow to the FTC’s lawsuit to block Microsoft's (MSFT) $69 billion acquisition of video game developer Activision Blizzard (ATVI).

In an order responding to the FTC’s request for an injunction in the Microsoft case, the judge said the commission didn’t make its case to show that the deal should be stopped from closing while the suit proceeds.

The FTC has filed an appeal to the ruling with the Ninth Circuit Court of Appeals.

“We’re disappointed that the FTC is continuing to pursue what has become a demonstrably weak case, and we will oppose further efforts to delay the ability to move forward,” Microsoft president Brad Smith said in a statement.

At Thursday's hearing, Kiley asked if the FTC's court losses are a strategy to signal Congress that antitrust laws need updating.

"Why are you losing so much?" he said.

"We fight hard when we believe there is a law violation," Khan said. "When we get an adverse ruling, our teams look closely at the text of opinion and see if there are errors on matters of law that warrant an appeal."

Republican lawmakers also accused Khan of violating ethics rules in its cases against Facebook parent company Meta (META) by refusing to recuse herself from evaluating the transactions. Khan denied the claim, saying she adhered to ethics rules.

In February, a federal judge ruled against the FTC in favor of Meta in the agency’s lawsuit to block the company from acquiring virtual reality company Within.

In a separate antitrust suit seeking to undo Meta's acquisition of Instagram and WhatsApp, a federal judge said the FTC could file an amended complaint to move forward with its originally dismissed case.

'Amazon's antitrust paradox'

There may be more high-profile antitrust and consumer protection cases in the making at the Khan-led FTC. On Thursday, The Washington Post reported that the FTC has launched an expansive investigation into ChatGPT maker OpenAI.

The investigation reportedly revolves around whether OpenAI is doing enough to prevent ChatGPT from making false or disparaging remarks about real-world individuals.

Though Khan said she could not comment on non-public information, she said as a general matter, some of the concerns the agency is seeing in the AI space is that ChatGPT and other generative AI services are being fed a huge trove of data with "no checks on what type of data is being inserted."

"And we’ve heard about reports where people’s sensitive information is showing up in response to an inquiry from somebody else. We've heard about libel, defamatory statements, flatly untrue things that are emerging," she said.

Amazon (AMZN) is another company under scrutiny. In June, the FTC claimed in a lawsuit that the way the company operates its Prime subscription service violates consumer protection laws.

The agency is also expected to file a complaint against Amazon alleging that Amazon.com favors third-party sellers who use its Amazon Logistics services to ship and fulfill orders.

Ahead of the hearing, Big Tech industry group NetChoice issued a statement criticizing Khan and calling on Congress to restore accountability to the FTC. Yahoo Finance's parent company, Yahoo, is a member of NetChoice.

"Chair Khan is frustrated because she is bound by American antitrust law, which requires her to use facts and evidence, rather than her own ideology about how the U.S. economy should operate," the group said in a statement.

Khan, who was appointed as chair of the FTC at just 32 years old, made waves with her 2017 article for the Yale Law Journal titled "Amazon's Antitrust Paradox."

In the piece, Khan argued that the nation's current antitrust laws aren't capable of tackling the tech industry's anticompetitive behavior and that they need to be rethought to bring Big Tech companies to heel.

Khan found support among both Democrats and Republicans during her confirmation hearing for the FTC, especially from Rep. Pramila Jayapal, a Democrat from Washington, herself a critic of Big Tech and a member of the House Antitrust Committee.

Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on Twitter @alexiskweed.

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