Lina Khan Has Her Own Antitrust Paradox

A poisoned chalice is not the most welcoming of gifts for a new chair of a major federal agency. But that is what legal scholar Lina Khan has been handed as she arrives at her office at the Federal Trade Commission (FTC), with media coverage more befitting a rock star than a regulator. She is breathlessly described as a legal wunderkind and her “Amazon’s Antitrust Paradox” may already be the most widely talked about note in the history of the Yale Law Journal. Even Sen. Ted Cruz said he looks forward to working with her—and you know that puts her in an extremely select club. The clock is ticking on her very first assignment—to refile an antitrust complaint against Facebook and convince a federal judge to reconsider a complaint he so expeditiously threw out. Khan has under 30 days.

The best thing Khan can do? Nothing.

Congress ought to make the next move and do the responsible thing by getting its act together and reaching an agreement over a slate of bills it has been bickering over, creating a modern regulatory infrastructure for today’s tech. U.S. lawmakers ought to stop cheering Khan from the sidelines and egging her into a legal skirmish. Instead, they need to do the hard work of taking the longer view—bringing antitrust law to the digital age before refiling another complaint. Unless our lawmakers create the right framework and agency responsible for regulating the digital industry, Khan’s FTC—and U.S. consumers—will be drawn into near-term battles while the actual war rages on.

Here is the plot so far and what must be done.

To be sure, antitrust lawsuits must meet high hurdles and take their time to wind through courts, but the speed of this rejection was stunning. Unsurprisingly, hopes are now pinned on Khan being precisely the person to take on the challenge—and advice is pouring in on how to go back for round two. Some have argued the agency just needs to be more explicit about its definition of the market and the data it is relying on.

It is useful to recall that, as the judge threw out the complaint, he also ruled that “the FTC’s inability to offer any indication of the metric(s) or method(s) it used to calculate Facebook’s market share renders its vague ‘60%-plus’ assertion too speculative and conclusory to go forward.” Defining the “market” and “market share” as well as putting data against these are not straightforward in Facebook’s case.

Since access to the social media platform is free to users, figuring out the “market” might mean considering the advertising customers who actually pay for space there see. Here, Facebook’s share is as low as across all U.S. online advertising. The share climbs to 60 percent when limited to U.S. social media advertising but then drops away when the social media advertising market is considered globally. Moreover, “social networking” itself is a fluid category. A Facebook commissioned study found that 90 percent of the people who use one of Facebook’s apps also use YouTube and 25 percent also use Twitter. To complicate matters further, in Apple’s App Store, Facebook is classified as “social networking,” but YouTube is “video, music, and live streaming” and Twitter is “news.” Other metrics, such as time spent on the apps or total user interactions, are not regularly reported. No matter how the FTC reframes the market and market share (and even if it is accepted by the judge), the definitions will be open to numerous challenges, which will surely lengthen the legal process, giving the defendant the upper hand.

One might argue the conventional metrics for proving monopoly power—“market share” and related measures—are outmoded and a different approach is needed. The FTC might, instead, frame the complaint against Facebook differently: The company used its dominance to play fast and loose with user data. For such an argument to hold though, it needs to be linked to implications for consumer welfare—the prevailing standard for antitrust that has been applied since the 1960s. But how does one prove consumers are harmed by the fact that Facebook is collecting their data? Clearly, part of the data being collected gives users services tailored to their interests that many users find beneficial. This begs more questions: Are users being asked for more data than is strictly necessary? Is the information being collected in intrusive or abusive ways? Ultimately, the FTC and the courts would have decide if customers are getting a good value in exchange for their data.

Regardless of how one discusses consumer welfare, Khan, especially, ought to resist being forced into this straightjacket; after all, she has argued that antitrust standards based on consumer welfare are unfit to gauge competitiveness in the digital economy. To put her ideas into practice, she ought to have the freedom to bring a case that rests on the argument that a company’s impact on the market structure inhibits competition.

Since Khan has written forcefully about revisiting antitrust standards, it is natural to expect this case would be her chance to rewrite not only the charge against Facebook but to change those standards more broadly. There is little doubt this is where her mind is. The FTC under her leadership voted to revoke a 2015 policy statement that limited the agency’s reach, giving it room to frame cases beyond the two foundational boundaries of antitrust in the United States: the Sherman Antitrust Act and the Clayton Antitrust Act.

Although Khan can reframe the fundamentals of the antitrust complaint, without adequate regulatory infrastructure—something only Congress can provide—there are likely to be unsurmountable obstacles as the chess game between the law and Facebook unfolds. No matter how brilliantly Khan’s FTC rewrites the case against Facebook, the agency’s powers, budget, and resources are still limited. Ad hoc adjustments to the FTC’s budget, as envisioned in one of the bills in Congress, and stopgap measures to expand its powers do not get around the fundamental fact that the FTC was not set up to pursue the breadth of novel issues and policy trade-offs that digital industries create.

Antitrust in digital industries cannot be considered in isolation. It is also quite different from antitrust in other industries because there are issues unique to the industry. A holistic view of digital antitrust means tying antitrust concerns with numerous broader questions, such as securing users’ data rights, the responsibilities platforms ought to have for the content they host, and criteria that helps demarcate the benefits of network effects from the abuses of network power. The FTC is too much of a general purpose entity to dive into these complexities. As former Federal Communications Commission chair Tom Wheeler observed: “The vast scope of the FTC’s present responsibilities—as diverse as funeral director practices, robocalls, and labeling hockey pucks—means that the oversight of digital platform regulation must compete with the agency’s existing diverse responsibilities and limited resources.”

Meanwhile, Facebook is shoring up its defenses. Even as the FTC gets its act together and its complaint is reconsidered, Facebook is busy integrating the backend infrastructure that supports its popular apps: Facebook Messenger, Instagram, and WhatsApp. This is likely to make it impossible to tear the apps apart. In addition to the integration’s technical aspects, which offer the company many benefits, Facebook is making the case that consumers benefit from it as well. It is testing a unified “accounts center” that shows the user all the apps the user has open; Facebook Messenger and Instagram users can send messages and get access to features across apps as well. Most significantly, this could also enable end-to-end encryption across all the apps, which would be an enormous boost to Facebook’s argument that its changes are meant to enhance users’ privacy.

It is conceivable that even if the FTC’s rewritten complaint is accepted, an antitrust case would take a long time to prosecute. In the meantime, Facebook will have already accomplished a fait accompli, making it hard to push further with the current, narrow complaint’s core. In fact, Khan’s predecessor, Joseph Simons, acknowledged that Facebook’s plan to integrate its apps would pose challenges to any move to break up the company.

Khan and the FTC need Congress and the White House’s help. It is not enough, as one bill proposes to do, to increase FTC funding for antitrust enforcement. Budgets are only one part of what constrains the agency from taking a holistic approach to regulating the digital industry.

All parties concerned need to take a longer view and stop getting into near-term skirmishes, either with the courts or even among members of the U.S. House of Representatives battling one another over the passage of narrow bills. This ought to be an opportunity to consider the various issues of the digital industry in its entirety: data protection versus the use of data to provide better services, platforms as media companies with editorial responsibilities versus platforms as “public squares,” network effects versus networks as barriers to entry, and potential sources of power abuses.

The digital industry demands a dedicated regulatory agency to sort through these issues. As I have argued before in Foreign Policy, Congress needs to create a new agency—perhaps called the Federal Digital Commission—along the lines of the Securities and Exchange Commission to take on the unique complexities of the financial services industry separate from the FTC. This agency can be given the power to set antitrust rules more broadly than what the FTC can pursue. Congress is eager to find ways to define antitrust more expansively, and it needs an agency that can carry out such a broader mandate.

Taking the holistic view will be a long-term project. In the meantime, Congress can bring several of its priorities together by connecting a few more dots. With several bills under discussion, it has leverage over Big Tech broadly and over Facebook in particular. It can extract some short-term gains: It is desperately looking for ways to fund U.S. President Joe Biden’s infrastructure plan—a major part of which involves closing the country’s digital divide. Why not get Facebook to chip in with its high-capacity fiber optic lines already deployed in many parts of the country (North Carolina being a good example) and its Terragraph technology, which can deliver fiber-like speeds in urban settings, to close broadband gaps and save the U.S. taxpayer big bucks?

To create the new agency, Congress needs to stop its political bickering and unite. The problem is although there is seeming bipartisan support for taking action on Big Tech, unity is a mirage; Republicans and Democrats have different reasons for wishing to limit the powers of tech companies. When the new agency is up and running, it is essential to have fresh-thinking and innovative leaders involved. Put a reformer like Khan in charge of that. Her talents are more needed in an agency focused on the digital industry than on “funeral director practices, robocalls, and labeling hockey pucks.”

The bigger prize is worth waiting for. The federal judge has done Americans a favor by giving Congress a chance to hit the reboot button on its antitrust crusade against Big Tech. The worst thing to do is to set the author of Yale Law Journal’s most famous note with a rushed assignment that will end up as a forgotten footnote in the annals of tech antitrust.