“The role of the FTC is not to have our own personal philosophical beliefs about the virtues of big versus small. It’s really about the statutes,” Khan said during a Q&A session at The Economic Club of New York.
“Congress, when passing the antitrust statutes, was setting out a policy preference, in many cases, for competition over monopoly,” Khan said. “That said, the statutes don’t prohibit being a monopoly. They only prohibit becoming a monopoly through illegal tactics. And so that’s the sort of thing that we look at.”
Khan later added that the FTC views mergers through the paradigm of competition, “but there are certainly instances in which you need to have big firms to be able to deliver the types of services and scale that we need.”
The remarks came less than a week after the FTC and the Department of Justice Antitrust Division revealed their new guidelines for mergers, which indicated a broader application of antitrust laws than the government had taken in the recent past. For example, the new guidelines — which are still in draft form — include acknowledgments that enforcers can consider the impact of competition for labor in certain cases and can also weigh how a series of mergers may negatively impact competition, rather than think about single mergers on their own.
While not yet finalized as the receive public comment, the new guidelines have already prompted backlash from the business community.
Neil Bradley, executive vice president and chief policy officer of the US Chamber of Commerce business group, said in a statement that the guidelines were “designed to chill merger activity, which will deny smaller companies access to the capital and expertise they need to grow and place US businesses at a disadvantage with their global competitors.”
Khan noted that despite increased attention on the enforcement agencies’ moves to block mergers, they still decline to take action on the vast majority of deals.
“Any given year, the antitrust agencies get anywhere between 1,500 to 3,000 merger filings. Of that number, 98% go through without even any second questions being asked by the agencies,” Khan said. “So around 2% of all deals even get what’s known as a second request, which is a set of questions so that we can do a deeper investigation. And an even smaller fraction ultimately result in a legal challenge.”
Khan said issues arise when there are deals “on the margins” that in retrospect the agencies realized led to reduced competition, prompting “course correcting.”
Khan also defended the agency’s record in court when it comes to merger cases. She said that of the 13 to 20 cases the agency has brought — depending on the criteria used for counting — the FTC has lost two in federal court.
“In the scheme of our merger enforcement program, losing two is OK,” Khan said, adding that the agency only brings cases its enforcers think they can win and when that doesn’t happen, they examine how they can improve in the future.
Even in those losses, however, Khan said there have been some silver linings in getting additional clarity on the case law. She pointed to the agency’s attempt to block Meta‘s acquisition of virtual reality fitness developer Within Unlimited as an example. Although the FTC lost its attempt to block the deal, Khan said the judge rejected some of Meta’s arguments about how the law should or should not apply.
Khan also responded to a critique of the new merger guidelines, which is that the cases the agency cites to back up its draft policies are outdated and outdated. She said that even cases from the 1960s and ’70s “are ones that are still routinely cited in modern merger decisions.” That’s in part because the Supreme Court hasn’t taken up merger cases as frequently in recent decades, meaning “that older law is still good law.”
She added that updates to the merger filing form are not meant to produce additional burdens for companies, but rather speed up the FTC’s review process, rather than it having to go back to the parties for more information.
Khan acknowledged that initial public offerings might be a less viable path for many businesses these days, saying the agency hears and considers arguments about the commercial necessity of acquisitions. A lot depends on the circumstances of each case, however. As an example, she said, “an instance where you have a pharma deal that’s an acquisition of a very, very early stage drug is going to land differently than an acquisition of a fully formed, very popular drug.”
Finally, Khan also addressed low morale at the agency under her leadership.
There’s no doubt that when I came in, I think a lot of people were like, ‘Huh, what is she doing here?’ you know, a fraction of my age,” said Khan, the youngest chair sworn into the agency, at age 32. “I think it’s also true that my career previously had been focused on critiquing the approaches of prior administrations and the decisions that prior FTCs had made, and I can definitely see how that critic being put into this position could create some frictions.”
“I think I could have, and our team should have, done a much better job making very clear that those types of critiques were not intended in any way to be kind of impugning the integrity or questioning the talent and skill of our career staff,” she said.
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