F.T.C.’s Court Loss Raises Fresh Questions About Its Chair’s Strategy

Lina Khan became chair of the Federal Trade Commission two years ago on a promise to bring bold action against the biggest tech companies.

For too long, Ms. Khan said at the time, the agency had been a weak cop and needed to challenge behemoths like Microsoft, Amazon, Meta and Google in the courts to stem their growing power. Even if the F.T.C. lost the cases, she later added, they would be a partial victory because the agency would signal that antitrust laws needed to be updated for the modern internet era.

But on Tuesday, Ms. Khan suffered the biggest blow yet to her hallmark agenda. A federal judge rejected the F.T.C.’s attempt to stop Microsoft’s $70 billion acquisition of the video game maker Activision Blizzard from closing, saying the agency failed to prove the deal would reduce competition and harm consumers. That followed a loss in February, when a judge rejected an F.T.C. lawsuit seeking to block Meta from buying the virtual reality start-up Within.

The defeats raise questions about Ms. Khan’s ability to carry out her ambitious goal of reversing decades of weak antitrust enforcement, as political pressure mounts and patience wanes for the 34-year-old academic, who has ruffled the feathers of corporate America. Ms. Khan’s critics are more emboldened and are speaking out more loudly to poke holes in her take-it-to-the-courts strategy, saying the losses are not even partial wins — they’re just losses.

“I completely disagree with this approach,” Anthony Sabino, a professor of business and law at St. John’s University, said of Ms. Khan’s methods. “She’s trying to change a century’s worth of antitrust law overnight, and that’s not necessarily wise.”

Adam Kovacevich, the chief executive of Chamber of Progress, a tech trade group, said the defeats made the F.T.C. appear less credible. “All these court losses are making their threats look more like a paper tiger,” he said.

Others wondered if Ms. Khan was wasting the F.T.C.’s resources on can’t-win cases. “They’ve crossed the line to being reckless with the cases they are bringing,” said Ashley Baker, a director of public policy for Committee for Justice, a conservative think tank.

The tide of criticism puts Ms. Khan in the hot seat as she prepares further potential actions against the tech giants. The F.T.C. has filed antitrust suits against Meta and could bring a case against Amazon, which it has been investigating over claims of illegal monopolization.

Now Ms. Khan will first have to defend herself. On Thursday, she is expected to be grilled at a House Judiciary Committee hearing on oversight of the F.T.C., with the Republican-led panel’s website saying it wants to “examine mismanagement of the F.T.C. and its disregard for ethics and congressional oversight under Chair Lina Khan.”

Ms. Khan declined to comment for this article, and Douglas Farrar, an F.T.C. spokesman, also declined to comment on how the court losses will affect her agenda. After the Microsoft-Activision ruling on Tuesday, Mr. Farrar said the agency was “disappointed in this outcome given the clear threat this merger poses to open competition in cloud gaming, subscription services and consoles.” The F.T.C. could appeal the judge’s decision.

Ms. Khan rose to fame while a Yale law student in 2017 when she argued in a paper for a law journal that Amazon was crushing competition and violating antitrust laws despite lowering prices for consumers. The paper helped kick off a debate about how to limit the tech giants and how to modernize antitrust practices.

After President Biden picked Ms. Khan to lead the F.T.C., she repeatedly argued that it needed to go to court — win or lose — to send the tech industry a strong signal that the agency was becoming a tougher sheriff. Even losses in court, she maintained, would gradually reform theories of antitrust.

Ms. Khan applied that thinking when the F.T.C. sued to stop Meta last year from buying a small virtual-reality company, Within. The case was a surprise because virtual reality is a nascent technology, making it hard to argue that the deal would reduce competition in a market that has not yet formed.

But Ms. Khan argued that regulators must stop violations of competition and consumer protections at the bleeding edge of technology, not just in areas where the companies had already become behemoths.

“What we can see is that inaction after inaction after inaction can have severe costs,” she said in an interview with The New York Times and CNBC in January 2022. “And that’s what we’re really trying to reverse.”

Early this year, a federal judge rejected the F.T.C.’s demand to block Meta’s acquisition of Within. But the judge agreed with some of the F.T.C.’s arguments, including how the agency defined tech markets in the case.

The loss on Tuesday in the Microsoft-Activision case was more stinging, partly because the blockbuster merger has become a test of whether tech megadeals can go through despite rising regulatory scrutiny. Judge Jacqueline Scott Corley of U.S. District Court for the Northern District of California said consumers benefited from Microsoft’s expectation of a tough review, writing: “That scrutiny has paid off.” But her ruling left little else that was redeeming for the F.T.C.

In the case, the agency argued that the deal should not close because it might harm competition. Microsoft might make some of Activision’s games exclusive to its Xbox game consoles or degrade the experience of playing games like Activision’s Call of Duty on competing consoles like Sony’s PlayStation.

But Judge Corley wrote that the F.T.C. probably wouldn’t win its challenge to the merger in the agency’s internal court and said, essentially, that Microsoft was doing enough to prevent rivals from being hurt.

“The F.T.C. has not identified a single document which contradicts Microsoft’s publicly stated commitment to make Call of Duty available on PlayStation,” she wrote.

Eleanor Fox, a professor emeritus at New York University’s law school, said it was too soon to have a verdict on Ms. Khan’s strategy. Elsewhere in the world, especially in the European Union and in Britain, regulators have also pursued antitrust actions against large tech companies, she noted.

Ms. Khan, she said, “is only an outlier in the U.S., not globally.”