February 9, 2023

President Biden’s antitrust regulators have adopted a mantra: In order to win, they need to be willing to lose.

Since Mr. Biden took office in January 2021, leaders of the FTC and the Justice Department’s antitrust division have been filing risky cases that use novel legal arguments to block mergers and foster competition. Their goal is to expand the use of antitrust laws beyond the way they have been applied for decades, including against the largest tech companies.

The strategy will be put to the test on Thursday in federal court in San Jose, California, where FTC lawyers plan to use little-known legal arguments to urge a judge to block Facebook parent Meta from acquiring a virtual reality startup called Within.

In the case, the first challenge to a tech giant developed under FTC Chairman Lina Khan, the agency has adopted the unusual argument that Meta’s deal would hurt potential competition in a market for virtual reality products that could be robust in the future. By contrast, most antitrust cases have traditionally focused on how a deal would hinder competition in an already established field.

Given how novel the FTC’s arguments are, it’s unclear whether the agency will succeed in blocking Meta’s transactions. But the agency may have seen the case as a victory. In April, Ms Khan told a conference that if “there is a violation” and the agency “believes that existing laws might make it difficult, there would be great benefit in continuing to work on it.”

Any court defeat would signal to Congress that lawmakers need to update antitrust laws to better fit the modern economy, she added. “I’m certainly not one of those people who thinks that success is marked by a 100 percent court record,” she said.

Under the Biden administration, the Justice Department has sued to block eight mergers and alliances between American Airlines and JetBlue without announcing settlements, while the Federal Trade Commission has filed eight lawsuits challenging business mergers, Includes Meta’s Virtual Reality Trading. During the same period in the Trump administration, the Justice Department announced one challenge to unresolved mergers and the FTC announced five, according to a New York Times tally. (Companies sometimes settle with the agency instead of going to court, or walk away from deals when it becomes clear the agency plans to sue.)

At least a few cases have tested the limits of antitrust law. One — the FTC’s attempt to block Illumina, a maker of gene-sequencing products, from acquiring a small company that makes cancer-detection tests — is unusual because the two companies are not in direct competition. Another — the Justice Department’s opposition to Penguin Random House’s acquisition of publisher Simon & Schuster — focuses on providing publishers with authors of books, rather than consumers, who are often the focus of merger challenges.

In another case, the Justice Department sought to block UnitedHealth Group from acquiring a company on the grounds that it would acquire vast amounts of digital data that could be used against competitors. Regulators have long focused on the growing value of personal information to tech companies, but it is unusual for such data to be a central argument in an antitrust case.

Some of these arguments have already failed to win in court. september, judge bad for the justice department in the UnitedHealth Group deal. That same month, the Federal Trade Commission’s challenge to the Illumina acquisition also failed. The agencies can appeal both rulings.

After some early losses, the head of the Justice Department’s antitrust division, Jonathan Kanter, said in April that he had told his staff to rally by bashing Tom Petty’s classic “I Won’t Back Down.”

“We will continue to file lawsuits,” he told a conference. The Simon & Schuster deal fell through in October after a judge ruled in favor of a Justice Department challenge.

A Justice Department spokesman declined to comment.

Agency officials argue that they are returning to an era of aggressive antitrust enforcement — before conservative legal scholars persuaded courts to narrow their cases in the 1970s — when the lawsuits took full advantage of laws enacted by Congress.

“Congress created the FTC to stop unfair competitive methods that affect commerce,” FTC spokesman Douglas Farrar said in a statement. Congress has given us the tools to protect Americans from illegal business practices.”

For years, progressives have argued that the federal government is reluctant to bring antitrust lawsuits — and other charges against companies and executives — because it fears it will lose. Instead, they say, the administration has reached weak settlements with companies that have failed to stop rampant mergers and corporate misconduct in tech and other industries.

But a court loss has real risks, including setting a precedent that makes it harder for the government to pursue similar cases in the future.

For example, in 2018, the government ask the supreme court Addresses the question of whether American Express violated antitrust laws by prohibiting merchants from persuading customers to use other credit cards with lower fees. The court ultimately ruled in favor of Amex.

At the time, Justice Clarence Thomas wrote an opinion supporting the view that a court should consider whether a firm operates in a market in which it makes an offer to two different parties in a transaction (such as a merchant). and credit card holders) to sell products. In 2020, the government lost a case challenging a travel company merger when a judge cited the Amex decision.

“You have to be willing to continue to make antitrust laws,” said Maureen Allhausen, a former Republican chair of the FTC who has represented Meta and other companies in private practice. “But it has to be built on a solid foundation so you can, one, be convincing in court and two, justify the expenditure of resources.”

Allies of Ms. Khan and Mr. Kanter say the risk to help modernize antitrust law is worth the risk. They cheered the FTC’s lawsuit, filed in July, challenging Meta’s $400 million acquisition of Within, which made a virtual reality fitness game called Supernatural. The lawsuit is notable in part because the deal is relatively small and involves a nascent part of Meta’s business.

But the FTC argued that allowing Meta to acquire Within would stifle future head-to-head competition between the tech giant and startups. If the deal is blocked, Meta could launch its own VR fitness game or turn an existing game into a formidable competitor, the agency said. This debate about the theoretically possible future of emerging technology competition is less prevalent than debates around mature areas of the industry.

exist a blog post After the FTC filed its lawsuit, Meta’s deputy general counsel, Nikhil Shanbhag, said the agency’s arguments were wrong. Meta, he said, had “looked into building a fitness-focused service, but ultimately decided we simply couldn’t do that.”

In October, the FTC asked the judge in the case, Edward J. Davila of the U.S. District Court for the Northern District of California, to allow it to dismiss some of the claims in a lawsuit seeking an injunctive deal. The lawsuit now focuses more on claims that the deal could harm future competition. Meta has asked the judge to dismiss the case outright.

Judge Davila is expected to hear arguments from the FTC and Meta in several sessions beginning Thursday. Asked for comment, a Meta spokesman referred to a November statement on the case in which the company said it believed the evidence would show the benefits of the deal and was preparing to make its case in court.

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