FTC's Lina Khan warns Big Tech over AI
Federal Trade Commission Chair Lina Khan delivered a sharp warning to the technology industry in a speech at Stanford on Thursday: Antitrust enforcers are watching what you do in the race to profit from artificial intelligence.
“Much is uncertain about what the future of this technology will look like,” said Khan. “But the FTC has made clear that there is no exemption from the [antitrust] laws on the books.” The agency, she continued, “will be clear-eyed in ensuring that claims of innovation are not used as cover for lawbreaking.”
Speaking at the Stanford Institute for Economic Policy Research (SIEPR) on Nov. 2, Khan said the agency is seeing signs of market concentration in AI. She said the FTC is examining Big Tech’s role supplying key tools, like access to cloud infrastructure or data processing units, that AI startups and other developers need. She said the FTC is particularly worried about the prospect of “excessive” prices and “coercive” demands on buyers.
“There’s a risk that some of the existing incumbents would use control over those inputs to undermine innovation and competition,” Khan said. Another concern: the turbocharging of AI-enabled scams without a clear “liability regime” for how to punish fraudsters.
Khan’s prepared remarks and replies to audience questions at the event — which was co-sponsored by SIEPR, Stanford Graduate School of Business, and its Business, Government, and Society Initiative — touched on a range of hot-button issues confronting the FTC, whose mandate is to protect consumers from unfair competition and deceptive practices. Among the topics covered were the agency’s bid to outlaw non-compete clauses in employment contracts, its efforts to crack down on drug pricing practices, and a proposal released this summer along with the Department of Justice that would toughen guidelines for reviewing the antitrust implications of proposed mergers.
Khan’s Stanford visit came at an especially momentous time for the FTC, noted Mark Duggan, The Trione Director at SIEPR, in introducing Khan to the packed room of business leaders, Stanford students, researchers, and alumni.
Under Khan’s leadership, the FTC has boldly taken on some of the country’s biggest names in business while testing a new approach to antitrust enforcement after what her supporters say has been decades of weak government oversight. Her most high-profile challenge to business practices yet came in September when the commission and 17 states sued Amazon for allegedly abusing its e-commerce power to stifle competition, thereby harming consumers and other online retailers. The lawsuit is the FTC’s largest antitrust case since taking on Microsoft in the 1990s.
‘Firing on all cylinders’
While calling Stanford a “key catalyst of research and innovation,” Khan focused on a single message throughout the hour-long event: Antitrust enforcement going back to the 1950s and in the decades since has been a crucial driver of the breakthrough innovations that have allowed the U.S. to “lead as an economic powerhouse.”
Antitrust watchdogs under President Joe Biden are intent on following a playbook that clearly works, she said.
“The FTC is firing on all cylinders,” she said.
Duggan noted that the FTC’s renewed activism under President Biden has “drawn both praise and criticism from many directions” even before Khan’s appointment in June 2021 (making her the youngest FTC chair in history). Yahoo Finance this summer dubbed her “the most feared person in Silicon Valley,” while New York magazine has called Khan “indisputably the most powerful figure in the anti-monopoly vanguard.”
Khan herself is under attack by opponents who say the FTC “has been overreaching far beyond its own regulatory authority,” said Duggan, who is also The Wayne and Jodi Cooperman Professor of Economics in the School of Humanities and Sciences.
Khan’s critics and supporters alike point to a seminal paper, titled “Amazon’s Antitrust Paradox” that she wrote while a student at Yale Law School in 2017. Her analysis laid the groundwork for her enforcement approach as FTC chair, which, at its core, seeks to broaden antitrust scrutiny to look at how business practices not only affect consumers prices, but also influence other factors like the quality of a product or service or reflect societal values.
The paper, according to The New York Times, “is already one of the most consequential of modern times.”
A mixed track record
In a follow-up Q&A moderated by Duggan, Khan acknowledged that the FTC has suffered some major setbacks in court. These include a failed effort to block Facebook parent Meta from acquiring a virtual reality app developer and Microsoft’s purchase of video game developer Activision. The Supreme Court, too, has reined in the FTC’s power in recent years.
But in defending the FTC’s work, Khan noted that the commission has also had significant successes, including in important areas like semiconductor chip manufacturing and defense contracting. And she said the court ruling in the Meta case was indirectly a win for the FTC given the judge’s analysis of how competition rules apply in digital markets.
The court’s opinion, she said, “created a roadmap for enforcers to succeed going forward.”
She did, however, lament the high costs of pursuing antitrust cases in courts and called on Congress to empower the FTC to recover money when consumers are defrauded. In 2021, before she joined the commission, the Supreme Court limited the FTC’s power to penalize companies and make consumers whole.
If scammers are “making money through these illegal tactics, but we’re not able to get that illegitimately obtained money back for people,” she said, “that can create a real deterrence problem.”