Over the last few years, we have been consistently strong proponents of Bidenomics, not only encouraging the Biden Administration to more enthusiastically champion the president’s underappreciated economic record but also unofficially helping advise several top leaders in the administration on issues ranging from the economy to foreign policy.
However, there is one aspect of the Bidenomics agenda that we believe is being poorly carried out and could undermine American competitiveness in key industries–the increasingly brazen and counterproductive antitrust anti-merger overreach led by Federal Trade Commission (FTC) Chair Lina Khan.
Khan deserves respect as a historic trailblazer, the youngest FTC chair in history, and “one of the most consequential figures in business today,” in the words of Andrew Ross Sorkin. Perhaps unfairly pilloried by slanderous personal attacks from ideological foes from the day she took office, she is without a doubt sincere in her belief that more “vigorous antitrust enforcement is critical to the dynamism of our economy.” Surely, Khan sees herself as faithfully executing President Joe Biden’s commendable antitrust mandate, including strengthening competition across industries, increasing affordability for consumers, and buttressing labor rights.
Many of Khan’s initiatives have led to tangible results, ranging from her proposal to limit noncompete clauses to her efforts to tackle deceptive business practices and ban junk fees.
Perhaps emboldened by some of her successes on other fronts, Khan is increasingly challenging mergers and acquisitions that she deems “anti-competitive.” However, her track record on litigated “anti-competitive” merger challenges is plainly dismal.
A zero-win track record on M&As
Two and a half years into Khan’s tenure, the FTC has lost every single merger challenge it has brought through litigation across both federal and administrative court without even a single win in litigation in cases as varied as Microsoft’s acquisition of Activision Blizzard, Meta’s acquisition of Within, and Illumina’s acquisition of Grail, to name just a few.
Khan is currently appealing several of those losses, but all the appeals that have been ruled on have failed, too. Simply put, no judicial ruling or appeal on blocking a merger has ever gone Khan’s way. The anti-merger litigation track record of Khan’s allies at the DOJ Antitrust Division, led by Jonathan Kanter, is similarly bad, except for one notable success when Judge Florence Pan blocked the Simon & Schuster deal in litigation.
It is hard to defend a zero-win track record, but that is not how Khan sees it. When pushed, Khan and her defenders note that at least 19 deals were abandoned after the FTC filed challenges, which they have a habit of claiming as enforcement “victories.” But even Khan has to agree that not every merger is, by definition, anticompetitive. In fact, some mergers are necessary to prevent companies from going under. In many cases where companies abandon a merger, they merely understandably do not want to fight an interminable war against a regulator whose strategy can sometimes seem to be “run out the clock”. While that strategy may be the regulators’ prerogative, it is highly costly–not only for companies but also for their workforces and communities, as several current antitrust cases from both the DOJ and FTC amply prove. The damage to these deals came from antitrust overreach and feet-dragging rather than the actual mergers themselves.
The result? Antitrust overreach is hurting companies, employees, and consumers. Take, for example, the DOJ Antitrust Division’s current suit against the JetBlue-Spirit Airlines merger. Some18 months after the merger was announced, the case is winding its way through trial to a judge’s verdict, but that delay of 18 months has been deleterious, putting Spirit’s survival at risk, with Spirit losing hundreds of millions of dollars every quarter and laying off thousands of employees with more layoffs coming. The cost of this wasted legal time to shareholders is staggering. Both Spirit and JetBlue stocks are down 50% compared with the time of their merger announcement. That’s billions of dollars in value destruction.
Making things even worse, the regulatory delays can seem completely arbitrary and byzantine at times. For example, despite Kroger and Albertsons certifying that they have now provided the FTC with all the information it asked for and requesting a FTC decision either way this year on its proposed $24.6 billion merger, Khan recently breezily quipped that her decision would not come until “some point next year” and complained that the FTC is understaffed and underfunded. No wonder Kroger and Albertsons stocks are both down since the merger announcement, amounting to over $4 billion in destroyed shareholder value. Similarly, the FTC has provided little public reasoning for why they are holding up Roark Capital’s acquisition of Subway. Ironically, the only ones who benefit from Khan’s intransigence are the Wall Street cottage industries of transaction bankers, lawyers, and consultants who relish the opportunity to charge extra hourly fees as cases drag on and the Wall Street speculators who have made windfall profits by betting against Khan every time she brings litigation, given her zero-win track record.
Khan rightly notes that bringing litigation through to the finish line is only one option out of many, pointing to at least 14 cases where litigation was happily dropped after agreed-upon settlements and asset divestitures that made sense for all involved. This seems to be a happy medium, but regrettably, it seems that sometimes the regulators ignore companies’ settlement overtures, reject proposed remedies and compromises, and prefer to plow forward with ultimately unsuccessful judicial verdicts. This self-defeating all-or-nothing mentality yields nothing, every time.
Antitrust overreach is hurting American competitiveness
Khan openly admits to preferring to err on the side of overly aggressive enforcement rather than too-passive enforcement. Amidst this strategy of deterrence, too often, it seems that Khan is overreaching from enforcement into active policymaking and losing lawsuits.
Even Khan’s progressive allies have pushed back against this freewheeling approach. “I respect, of course, Lina Khan, but I don’t think the FTC should be making AI policy for the United States of America. The President and Congress should be. It would be a shame if we had ad hoc agency suits making policy,” Congressman Ro Khanna pointedly noted in response to a threatened FTC AI investigation in July.
Arguably the most damaging byproduct of Khan’s anti-merger overreach is that it is hurting American global competitiveness and innovation, even in fields such as life-saving medicines. For example, when the FTC filed suit against pharmaceutical giant Amgen for its acquisition of Horizon Therapeutics despite the companies having no overlapping products (the first time this has ever happened for any pharmaceutical company) and the FTC was closely scrutinizing Pfizer’s purchase of Seagen to advance no-overlap cancer drugs, even Amgen and Pfizer’s competitors rallied against the FTC.
Pharma industry groups came together to publish a detailed report showing how $18 billion in private venture capital investment and $152 billion in large pharmaceutical company investments into new vaccines and treatments would be practically outlawed overnight, bringing the flow of new drugs to market to a virtual halt and bankrupting thousands of biotech startups overnight. A respected pharmaceutical industry analyst, Jay Olson of Oppenheimer, wrote, “Stop the insanity,” describing the FTC actions as “ludicrous,” echoing the sentiments of many of his peers.
Only after severe blowback did the FTC pause, then rapidly settle, the suit. Nevertheless, the damage from Khan’s suit has been lasting, with biotech venture capital investments down 25% this quarter, partially spurred by investor concerns over FTC interference, resulting in fewer new drugs being brought to market. Meanwhile, Khan has refused to acknowledge any mistake. In fact, Khan took a victory lap over “significant” settlement concessions in its settlement with Amgen–even though Amgen factually noted that all the settlement entailed was a promise not to commit illegal actions (which the company has never done and had no intention to do regardless of the settlement) with zero real impact on Amgen’s business.
Importantly, antitrust overreach is hurting American business competitiveness in global markets, with the FTC calculating industry concentration on a purely domestic–and sometimes even local–basis instead of examining market share on a global scale. For example, this week’s reports emerged that the FTC is now probing the Exxon-Pioneer merger, which means the FTC will likely also probe the Chevron-Hess merger. Antitrust advocates rightly note that the Exxon-Pioneer merger means the combined entity will control over 50% of the Permian oil field, but oil is, by definition, a global marketplace, and the Permian oil field is equivalent to just 5% of global production.
Do we really want to have to buy more oil from Vladimir Putin and other foreign autocrats by hurting our own companies? Hamstringing American entities by miscalculating industry concentration as if U.S. companies do not compete with foreign competitors, many of which are subsidized by their national governments, in strategic industries such as energy, steelmaking, mining, and others only hurts American competitiveness.
Another example of how market share is defined too narrowly and locally is Roark Capital’s purchase of Subway. Antitrust advocates point out that Subway has a 20% market share in sandwiches and delis within the U.S.–but its international presence has been much more challenged with single-digit (if even that) market share across each of its international markets. In almost every international market, Subway trails behind local brands as well as U.S.-based competitors such as McDonald’s and Yum Brands, which have a combined market share of up to 70% in some overseas localities.
Antitrust legislation is overdue for an overhaul
It is too easy for Khan’s antitrust allies to blame others for their defeats, particularly judges who rule against them. In a recent New York Times op-ed this week, former antitrust official Tim Wu chided the judge presiding over the JetBlue-Spirit merger trial by name while castigating the judiciary more broadly and suggesting that judges just do not understand antitrust. But this ignores the reality that judges across the political spectrum continue to rule against antitrust overreach and that it’s not a partisan issue. For example, Judge Jacqueline Scott Corley, who issued a blistering ruling against the FTC in its Microsoft-Activision suit, was appointed to the bench by President Biden with the enthusiastic support of both of California’s Democratic Senators.
Similarly, Wu’s insinuation that anyone who advocates against antitrust enforcement is paid for by companies is not true. For the record, we do not and have never drawn any payment from any company currently in FTC merger litigation–and have publicly shamed and criticized ten times the number of companies the FTC is prosecuting without fear or favor. Our work is driven by facts, not ideological fervor.
Many of Khan’s progressive allies have floated a much more realistic cure for Khan’s abysmal litigation track record: to rewrite antitrust laws in Congress, where laws are made, instead of losing case after case in court with tortured legalistic sophistry and ad hoc judicial rulemaking.
As Yale antitrust expert Fiona Scott Morton said, “Khan may advocate for breakups as a commission, but what is the authority under which you would do that? The FTC can’t just announce that they’d like to break up some corporation.” Congressman Ro Khanna aptly observed, “I think on antitrust we need legislative change. More aggressive enforcement is not going to be enough. Unless there is a tightening of the law, I think you are hamstrung.” Indeed, the primary legislation governing antitrust, the Sherman Antitrust Act and the Clayton Antitrust Act, are each over 100 years old and in need of updating.
Perhaps that is where Khan’s antitrust allies ought to direct their efforts. As Albert Einstein once said, “The definition of insanity is doing the same thing over and over again, but expecting different results.” With zero victories in court and countless litigation defeats and another defeat likely on the way for the DOJ this month in the JetBlue-Spirit trial, there has to be a better way for Lina Khan and her antitrust allies to achieve their goals than pummeling random companies, stretching legal theory to the extreme, and forcing the layoffs of scores of American workers, and hurting communities.
Too, often Khan seems to start with the assumption that something is wrong with merger deals rather than asking herself, “Is anything wrong here?” These adversarial instincts against business came through in her interview at the recent New York Times Dealbook Summit. When asked if she enjoys meeting CEOs, Khan pointed out that they usually only meet CEOs when she investigates them, which shows how little interest she has in understanding their business.
The FTC chair’s economics bible seems to be one that was written 20 years before she was born, when E. F. Schumacher wrote the classic “Small is Beautiful: A Study of Economics As If People Mattered.” But in reality, just as small does not mean virtuous by definition, big does not mean evil by default.
Jeffrey Sonnenfeld is the Lester Crown Professor in Management Practice and Senior Associate Dean at Yale School of Management. He was named “Management Professor of the Year” by Poets & Quants magazine.
Steven Tian is the director of research at the Yale Chief Executive Leadership Institute and a former quantitative investment analyst with the Rockefeller Family Office.
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