Angry House Members Vent at FTC and Vote to Cut its Budget

July 17, 2023

“Why are you losing so much? Are you losing on purpose?”

An implacable Lina Khan fended off four hours of hostile questions from members of the House Judiciary Committee, who criticized her ethics and performance as FTC Chair and then proceeded to attack FTC career staffers, each other, and Congress itself at a grueling oversight hearing on July 13. Accusations of mismanagement, cover-ups, conflicts of interest, and partisanship made good theatre and national news, but a potentially devastating development for the FTC went almost unmentioned and unreported.

Midway through the hearing, the headline of the day was revealed by Rep. Cline (R-VA), who reported that the House Appropriations Committee had just voted to cut the Commission’s budget by 25 percent. The reduction, he said, was the consequence of the FTC’s misguided enforcement and disdain of Congress. If the budget proposal survives, it would mean massive layoffs and gutted programs at the Commission.

The hostilities came as no surprise, given the Committee’s preview of the hearing as an examination of “mismanagement of the FTC and its disregard for ethics and congressional oversight under Chair Lina Khan.” And if you follow our blog, Ad Law Access, you know that at the last Oversight and Appropriations hearings, members aired similar grievances. But unlike other hearings, the tension between members of the Committee and dissatisfaction with Khan were extraordinarily front and center.

Along with the drama (which we will leave to other reporters) members of the Committee raised many substantive concerns that are bound to affect FTC policy and activity. So without further ado, here is our rundown of the issues on the House Judiciary Committee’s radar and the Chair’s responses:

Opening Remarks

Committee Chair Rep. Jordan (R-OH) minced no words while describing Khan’s approach to antitrust reform as a “disaster” and a “costly” departure from decades of bipartisan consensus. He attacked her approach to big tech and the methods by which the FTC has demanded information during investigations.

Ranking Member Rep. Nadler (D-NY) was quick to come to Khan’s defense, touting the FTC’s return of $430 million to consumers in the past year. He praised the agency for pronouncing the “party” over for irresponsible corporations. This was the real reason, he said, that his Republican Colleagues were taking aim at the agency.

Khan’s opening remarks focused on the FTC’s initiatives and accomplishments, including major merger challenges, antitrust actions for farmers and small businesses, proposed rules against non-compete clauses and junk fees, scrutiny of dark patterns, and a major judgment for kids’ privacy. The FTC, she said, was guided by a North Star of preventing dangerous concentrations of private power, and she assured the committee that the agency “was firing on all cylinders.”

A Brief Ethics Undercard

Before the committee could delve into the FTC’s record, members carped at Khan and each other over ethical concerns. First up was Khan’s refusal to recuse herself from matters involving companies and practices she had criticized in the past. Rep. Hageman (R-WY) asked why the Chair had not recused herself from a matter after an FTC ethics official recommended she do so. Khan explained that the recommendation had left the decision to her, since the law did not require recusal.

Committee Democrats rushed to Khan’s defense by attacking the FTC official who had advised her. For good measure, Rep. Buck (R-CO) suggested that Congress itself could be bought, railed against lobbyists and think tanks that defended big tech, and fingered prominent members of the House and Senate for connections with the tech sector while managing legislation to reign it in. Khan relaxed during the members’ contretemps and took several opportunities to defend the integrity of the ethics official and other FTC staffers. Eventually the personal slights subsided without apparent effect.

Competition Cases Failing in Court

When the hearing moved to substance, critics pounced and defenders retreated. Just two days earlier, a Biden-appointed federal judge had thrown out the FTC’s effort to enjoin the Microsoft-Activision merger, which prompted Rep. Kiley (R-CA) to describe Khan as 0-for-4 record in merger trials in Federal Court and to ask her, “Why are you losing so much?…Are you losing on purpose?” He suggested the answer might lie in a New York Times article quoting Khan explaining the benefits of losing in court. Losses, she said, could signal to Congress the need for new antitrust laws.

Rep. Kiley also attacked the FTC’s plan to appeal the Microsoft decision, which he predicted would be upheld, and to spend more taxpayer dollars pursuing the action in front of an FTC administrative law judge. Khan responded by recalling the Commission’s prosecution of Martin Shkreli, the pharmaceutical executive notorious for price gouging. She did not have an answer for the merger losses, beyond praise for her intrepid but outnumbered trial lawyers. Hardly a member was heard rising to her defense.

Rep. Issa (R-CA) accused Khan of turning the FTC into a bully that would make America less competitive. Also citing the failed case against Microsoft, he argued that FTC challenges were undermining American companies that had to compete worldwide. FTC overreach could ultimately end up hurting consumers, Rep. Issa argued, pointing to another case in which the FTC ordered that Illumina divest cancer detection test maker GRAIL. This, he said, could frustrate the development of life-saving technology.

Expanding on the theme of overreach, Rep. Fitzgerald (R-WI), Rep. Johnson (R-LA), Rep. Van Drew (R-NJ), and Rep. Biggs (R-AZ), all asked about statements by FTC Commissioner Rebecca Slaughter that the Commission would apply an “equity focus lens” on its competition policy agenda while incorporating antiracist thinking into anti-trust law. Was it wise to protect interest groups instead of consumers? Khan declined to speak for Slaughter, but the members pressed. Would Khan require merger approvals to be contingent on companies’ ESG (environmental, social, and corporate governance) principles? Was there a gender lens to antitrust? Did she agree with a senior staffer quoted as saying that merger policy was industrial policy and that startups should go public rather than get acquired? Khan endorsed none of it, committed to following the law, and emphasized that factors outside of the statutes are irrelevant to the Commission.

Switching to offense, Khan repeated her oft-expressed criticism of her predecessors’ antitrust enforcement, claiming that for decades the government had been allowing markets to consolidate and competition to erode. It was under-enforcement that was making it difficult for domestic firms to compete internationally, she maintained. Inadequate antitrust was even threatening national security, she contended, citing concentration of military contractors.

But Khan would not explain what standard she applied to enforcement. Rep Bentz (R-OR), pointing to her rejection of the consumer welfare standard, asked her what approach she followed. She responded that she followed the law. He wanted to hear more than the law. What was the standard? She referred him again to the statutes and the Commission’s Policy Statement on Unfair Methods of Competition (which has been criticized for eschewing an overarching policy). Notably, she did not remind him of concentration prevention, the North Star she had claimed as her guide in her opening statement.

Rep. Lee (R-FL), apparently not persuaded by denials that social engineering was affecting law enforcement, asked why the new premerger notification rules were demanding so much information that it would take a hundred more hours to prepare a notice and why merging companies’ now had to report on their labor relations and employee demographics. He did not seem impressed with her answer that asking for more information up front would obviate subsequent inquiries. A wider net would open up more avenues for investigation while raising costs across the board that small businesses could least afford.

Khan had another chance to address policy when Rep. McClintock (R-CA) asked her for her view of capitalism? She answered that we enforce laws. Asked again for her view, she denied that it was the role of government to interpose in market decisions. It is the FTC’s job to protect markets and their participants, she said. The agency’s role is to be the referee. Her responses in these policy dialogs reflect a more modest role for the Commission than it has suggested in the past.

Rep. Jordan grilled Khan on the investigation of Twitter, which he called harassment. The exchange gave her an easy opening and she took advantage of it with a predictable response. First she recounted Commission allegations against Twitter, then she denied any impropriety, and finally she rose to the defense the career staff of the Commission. Attacks on pending investigations seldom gain traction, and this one was no exception.

But Khan could only promise to do better when members turned to her treatment of FTC staff. Rep. Cline bemoaned the resignations of Commissioner Philips and Wilson and reports that dispirited FTC staffers had departed in droves, including 71 senior attorneys leaving in 2021 to 2022. Rep. Fry (R-SC) also raised the annual Federal Employee Viewpoint Survey, which found that the percent of FTC employees who strongly agreed that the senior leaders “maintain high standards of honesty and integrity” had dropped from 57.6% in 2020 to 22.5% in 2022. Until her arrival, FTC scores typically topped the rankings. Members wanted to know what Khan was doing to improve morale. She admitted to management mistakes early in her tenure, and reported corrections such as streamlining decision making and holding more meetings with staff.

Bipartisan Support for Data Privacy

In one of the rare moments of bipartisanship, both Rep. Buck and Rep. Gaetz (R-FL) raised concerns about American’s data privacy and the lack of regulation around data brokers. Khan agreed with the need for national legislation and also noted the FTC’s filing of an amended complaint against data broker Korchava, which allegedly sold Americans’ sensitive personal information. Rep. Bishop (R-NC) asked about the CID recently issued to OpenAI. Khan refrained from addressing it specifically, but she expressed general alarm over AI chatbots accumulating and disseminating a huge trove of data without any quality checks, potentially leading to misinformation, libel, and disclosure of people’s sensitive information. None of the members disagreed.

Rulemakings

Members gave mixed reviews of the rulemaking activity at the FTC, with the consumer protection rules faring better than the first competition rule of Khan’s tenure:

Non-competes – Rep. Johnson asked whether it was fair to prohibit a small business from protecting its investment in employees by preventing them from jumping to competitors. Rep. Bishop, who once litigated employment contracts, reflected on the variety of state rules that had evolved over the centuries to address non-compete clauses. Khan, he said, would displace them with one national rule. Her concern about concentration in business did not seem to apply to concentration of legal power. Khan assured him that the rulemaking had to observe extensive procedural protections. She expressed eagerness to seeing the feedback from comments to the proposed rule, which you can read more about here.
Motor Vehicle Rule – Relying on an outside expert’s report, Rep. Hunt (R-TX) expressed concern that the proposed Motor Vehicle Rule would cost $38 billion over 10 years. Khan committed to examining the evidence. You can find the proposed rule here.
Click-to-Cancel – Khan addressed concerns of members, such as Rep. Cohen (D-TN), whose constituents are bombarded with unwanted subscriptions offers and renewals by explaining the proposed Click-to-Cancel Rule that would require services to make cancelling a subscription as easy as signing up for it. You can read more about the proposed rule here.
Junk Fees – while touting successes during her tenure, Khan referenced the proposed rule on junk fees and addressed concerns from Rep. Balint (D-VT) about dark patterns, which you can also read more about here.

Consequential Conversations

Chair Khan may have delivered the line that best sums up the oversight hearing when she explained how losing in court could reap benefits in Congress for the FTC. She characterized the history of antitrust as a series of conversations among prosecutors, courts and lawmakers.

Nobody, not even Khan, denied that the conversation between the FTC and the courts has gone poorly for the Commission under her leadership.

As it became painfully obvious over the course of the hearing, the conversation with Congress is not faring much better. Although she received praise, some of it bipartisan, for some of the Commission’s efforts, criticism outweighed compliments, and Khan did not rebut much of it. Indeed, she often declined to engage with member’s questions, choosing instead to resort to anodyne evasions that reinforced their suspicions.

On occasion, friendly members came to her defense. Ethical attacks failed to register, and consumer protection garnered more praise than rebuke. But too often on competition policy, she left her inquisitors frustrated with vagaries that gave her supporters little to work with.

Disputes in courts typically reach clear and quick resolutions in the form of judgments and orders. Indeed, a day after the Commission noticed its appeal in the Microsoft-Activision case, the Ninth Circuit summarily rejected it.

In Congress, consequences percolate more slowly, but they can be much more momentous, as the FTC may soon discover. While Khan jousted with Judiciary members, ominous signals of a crisis for Commission issued from a sedate House Appropriation Committee. In the GOP controlled House, the agency is facing the prospect of a 25 percent budget cut, rather than the one-third increase it requested. Beyond the budget cut, the funding bill would corral the Bureau of Competition and erase Khan’s signature initiative – her redefinition of unfair methods of competition. Among other restrictions, the bill provides:

Not more than $165,000,000 shall be for the Bureau of Competition;
None of the funds made available for the Bureau of Consumer Protection shall be reprogrammed to the Bureau of Competition; and
No funds may be used to implement, administer, or enforce the Withdrawal of the Statement of Enforcement Principles Regarding “Unfair Methods of Competition.”

Of course, the budget is far from settled. The Commission has plenty of time and another chamber to avoid the worst. In the Senate, the situation is not dire; appropriators have voted to give the agency enough funds to cover inflation. But as the bidding now stands on Capitol Hill, the FTC stands somewhere between a massive budget cut and the status quo. That is a perilous place to be.

Other members in attendance included Rep. Lofgren (D-CA), Rep. Scanlon (D-PA), Rep. Johnson (D-GA), Rep. Massie (R-KY), Rep. Ivey (D-MD), Rep. Roy (R-TX), Rep. McBath (D-GA), Rep. Tiffany (R-WI), Rep. Bush (R-MO), Rep. Spartz (D-IN), Rep. Gooden (R-TX), Rep. Schiff (D-CA), Rep. Jayapal (D-WA), Rep. Neguse (D-CO), Rep. Dean (D-PA), Rep. Ross (D-NC), and Rep. Moran (R-TX).

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That’s our summary for now. Stay tuned as we continue to track updates from the FTC.