FTC WATCH: Khan’s “Wins” are Major U.S. Economic and Startup Losses

By SBE Council at 17 July, 2023, 4:22 pm

by Karen Kerrigan –

Even with her perfect loss record in challenging mergers (zero for 4) and a host of questionable management concerns that House Judiciary Committee members highlighted during an oversight hearing on July 13, Federal Trade Commission (FTC) Chair Lina Khan brazenly claimed success and waved off her legal actions and decisions as ones recommended by FTC staff, whose morale has taken a dive under her leadership as committee members pointed out.

In his opening remarks, Committee Chairman Jim Jordan (R-OH) said:

“Today, the FTC has not fully complied with a single request for documents from this committee, and because of her mismanagement, not even her own staff is impressed with Chairman Khan’s leadership. In 2020, the last year under the Trump administration, 87% of FTC employees agree that senior leaders maintain high standards. Under Chair Khan, that figure fell to 53% in 2021, has declined even further to 49% in 2022. In 2020, 83% of surveyed FTC employees agree that they have a high level of respect for the FTC senior leaders, again under the Chairman, that figure plummeted to 49%, and these numbers were before it was revealed recently that the chair was advised by FTC’s Ethics Counsel to recuse herself from a major case. She did not recuse herself, and then appears to have misled Congress about taking that advice.”

See SBE Council’s Questions for Chair Khan, sent to House Judiciary on July 13.

Chair Khan pushed back on the criticism and actually claimed significant “success” in challenging merger deals – “a75% win rate” – including parties who abandoned or walked away from deals.

Not surprisingly, startups and small-to-midsize companies have every incentive to walk away from an expensive legal fight with the powerful FTC, as most do not have the hefty resources required to endure a lengthy and expensive court battle with government lawyers. In reality, many of Kahn’s “wins” are real losses for the affected startups and SMBs (as well as consumers). These arbitrary challenges deny small businesses the opportunity to formally partner with a business entity that can provide significant capital, human capital and other resources, which allow small companies to scale and bring their innovations to the broader marketplace.

In our world, preventing this activity is bad for competition and a vibrant startup ecosystem.

Khan’s “predictive super powers” questioned by Judiciary committee members

This is just a small part of Khan’s curious philosophy in running the FTC. With respect to challenging deals, Khan asserts that she and her team enjoy predictive super powers that can accurately forecast future markets and how industries will develop. Given this self-anointed power, Khan has declared that specific deals pose a competitive harm even though said market may be emerging or nascent. This novel and egotistical approach is concerning to SBE Council, as it represents a grave threat to the U.S. startup ecosystem and our nation’s innovative competitiveness.

Judiciary committee Rep. Scott Fitzgerald (R-WI) correctly observed that the FTC is “killing small businesses still in the crib.”

Thank you @RepFitzgerald for highlighting how @linakhanFTC's agenda and actions are harming the U.S. startup ecosystem. Indeed, more costs, requirements, red tape, and arbitrary barriers are "killing small businesses still in the crib." More here:https://t.co/OCrw8z5bQV pic.twitter.com/Obn7kDfACP

— SBE Council (@SBECouncil) July 13, 2023

In addition, Rep. Darrell Issa (R-CA) pointed out the absurdity in Khan’s belief that she can envisage future “hypothetical” markets when she could not even predict that the FTC would lose “four out of four” big cases. Legal challenges by the way, that many experts said were built on shaky grounds.

@repdarrellissa nails it @JudiciaryGOP hearing, expressing the sentiments of #startup entrepreneurs regarding @linakhanFTC's "mystical ability" to predict future markets and innovation, which have been driving her failed attempts to snuff out productive M&A activity. pic.twitter.com/IzmBxiOkFu

— SBE Council (@SBECouncil) July 13, 2023

Will Oversight Deter Khan?

Hopefully, FTC oversight will be a regular occurrence in this Congress. It needs to be. Khan has proven that she won’t be deterred by her losses – after all, losing is “winning” – and beyond efforts to stop productive M&A deals, she has a robust regulatory agenda planned for the coming year.

For example, the FTC is moving to revamp the filing rules for mergers, which experts say will add a minimum of 2-3 months to the deal-review timetable. The FTC itself expects the new rule will add 100 hours in time for firms to prepare their filings. That is time and money entrepreneurs and startups don’t have.

Did Khan or the FTC staff consider the costs of these new requirements on small businesses and startups? Or, how the complexity and costs will negatively impact competition and the U.S. economy? What about how the new rule system will affect the ability of startups to acquire the capital and resources they need to grow and bring their innovations to the marketplace? We doubt FTC staff had any meaningful interaction with small businesses in designing the new filing rules.

Interestingly, however, the FTC did consult with the EU, UK, Canada and other jurisdictions on the new rule. It is downright bizarre that the U.S. is consulting with our competitors, who have little or no interest in helping to maintain or improve America’s healthy startup and business growth environment.

With much at stake for our economy and small business ecosystem, Congress must continue to hold Khan accountable for her radical departure from legal and FTC regulatory norms. The more time she spends on Capitol Hill explaining her broken record and anti-business agenda, the less time she will have to work on undermining American innovation and economic growth.

Karen Kerrigan is president & CEO of the Small Business & Entrepreneurship Council.