Lina Khan’s Square Deal: How the FTC is redefining antitrust for a populist age

This year, we witnessed the biggest acquisition by dollar value in the history of the tech industry — Microsoft’s roughly $68 billion purchase of video game studio Activision Blizzard — as well as a series of energy rollups at eye-watering valuations. So you’d be forgiven for thinking we’re still in an age of loosey-goosey regulation and frenzied dealmaking.

Only we’re not. This year’s megadeals were the exceptions that prove the rule. And, with a mandate from the Biden administration to curb monopoly power and prioritize competition, Federal Trade Commission Chair Lina Khan and her counterparts at the Department of Justice suddenly have the rule of the roost. 

After a lengthy review process and input from the public, the FTC and the DoJ recently released new guidelines for evaluating the legality of mergers and acquisitions, signaling an ongoing effort by government watchdogs to take antitrust enforcement seriously for the first time in perhaps decades.

Critics say the two agencies are overstepping and placing arduous roadblocks to the normal flow of business and commerce. Proponents say they’re simply attempting to use their authority to enforce the laws as written by Congress.

So what do the new guidelines mean? What can the past year’s worth of antitrust lawsuits tell us? And what does it mean for 2024?

The More of Guidelines, Anyways

First things first: The new guidelines comprise a roughly 50-page document that outlines troubling activity or outcomes that may violate antitrust law, such as when mergers “Increase the Risk of Coordination,” “Create a Firm That May Limit Access to Products or Services That Its Rivals Use to Compete,” or “Significantly Increase Concentration in a Highly Concentrated Market,” among other red flags. 

They are not, to be clear, laws or legislation. But they double as something as a guidebook for the legal community — and judges, specifically:

• The last major wave of antitrust legislation came in the 1950s, an era when Congress had significant concerns over market concentration. The FTC and the DoJ first issued merger and acquisition guidelines in 1968.
• But the Supreme Court hasn’t heard a substantive merger case since 1974. And in 1982, at the behest of the Reagan administration and influenced by Robert Bork and “The Chicago School’s” scrutiny of stringent antitrust laws, the two agencies released new guidelines significantly relaxing what had come before — and establishing a laissez-faire status that’s gone mostly unchallenged until the past few years.

The effect has essentially been legal and regulatory atrophy. Those 1950s-era laws remain on the books, even if they’re not fully enforced (Facebook, for example, acquired perhaps its biggest emerging competitor, Instagram, with little or no antitrust scrutiny).

“There’s not a ton of recent case law, because the agencies haven’t pushed as hard in the last 30 or 40 years,” Spencer Waller, professor and director of the Institute for Consumer Antitrust Studies at Loyola University Chicago, told The Daily Upside. (Waller worked as a senior advisor to the chair at the FTC in 2022, though he had no involvement in developing the new guidelines). 

And now, faced with fresh legal challenges, the court system lacks strong precedent, and most federal judges hearing these cases lack experience, knowledge, or expertise. The hope among the FTC and DoJ enforcers is that the newest guidelines can fill in the gaps.

“[The guidelines do not] bind the judges, but they are often persuasive,” Waller said. “Some of the less strict guidelines [in the past] have been cited by the court, on behalf of defendants. Only time will tell if the more strict guidelines will be cited by the courts in support of a challenge to a merger.”

The Shining: So just how, exactly, are these new guidelines stricter? In the post-Reagan era, merger and acquisition law has mostly focused solely on the question of market share and potential harm to consumers (typically in the form of higher prices).

But the new guidelines make clear that regulators are now concerned with harm to any market associated with a business. It’s not just a question of how consolidation can harm competition, but how it could harm labor, suppliers, and other adjacent markets.

A major victory for regulators in 2022 provided something of a template: the successful challenge of the proposed acquisition of Simon & Schuster by rival book publisher Penguin Random House. That case famously saw popular horror author Stephen King taking the stand to detail the potential harm to authors, marking a novel expansion of the law to include the harm to laborers (albeit atypically high-profile ones).

“[Challenging] that merger in particular was very risky for the agencies, because they only brought the action on buyer-side problems,” Daniel Hanley, senior legal analyst at the Open Markets Institute, told The Daily Upside, adding that the case marked “the first time that any merger has been blocked on labor market grounds.” (Khan worked at the Open Markets Institute as a researcher before attending Yale Law School).

It could serve as a bellwether for what’s to come, with harms to labor particularly stressed in the latest guidelines. While firms formerly cited efficiencies and cost-cutting — often by way of layoffs — as good reason for merging, that argument may no longer hold so much water.

“These guidelines made clear that [layoffs are] a separate harm. That’s not a defense. That’s like a confession,” Waller said. “Firms say they’re seeking efficiencies. But it’s just a way of misusing your market power in one of the other markets that you do business with as a buyer or seller.”

Keeping the Record Straight: For Khan, the new guidelines follow what has been at best an uneven tenure. The FTC lost its court case seeking to block Microsoft’s acquisition of Activision, marking a major blow for the agency. That’s in addition to another high-profile loss in February, in which the agency failed to block Meta’s acquisition of VR software studio Within Unlimited. 

And the critics have rarely been quiet. According to the pro-antitrust American Economic Liberties Project, the typically business-friendly Wall Street Journal editorial board has published 80 pieces criticizing Khan since the start of her tenure in June 2021, or roughly one every 11 days. Meta even filed a lawsuit arguing that much of the FTC’s authorities are unconstitutional.

But a rising tide of economic populism in both major American political parties has created an atypical array of bipartisan fans, too, for both Khan and the FTC, ranging as wide as right-wing firebrand Congressman Matt Gaetz and progressive Senator Elizabeth Warren.

Next year’s presidential election could bring an end to Khan’s tenure and her agency’s strict antitrust enforcement (though “give some credit to the Trump administration,” Waller said, noting the cases opened up against Google and Apple late in 2020).

But 2024 also will see a possible lawsuit to block a planned merger between grocery giants Kroger and Albertsons, a case Hanley says could make for an interesting bellwether for antitrust action to come, and the continuation of a massive anti-monopoly lawsuit brought against Amazon in September. 

Dealmaking slowed to a crawl in 2023 amid a variety of economic factors that may right themselves next year. But the difficulty of gaining regulatory approval may live on as an M&A deterrent: Adobe just backed away from its planned $20 billion acquisition of upstart direct competitor Figma, citing regulatory roadblocks — before the FTC or DoJ even moved to block the deal. A signal that stricter antitrust enforcement may just be steering the business world away from consolidation and toward competition.