FTC Chair Lina Khan talks innovation in startups, scale, and potential illegal activity

FTC Chair Lina Khan was the youngest person appointed to the position when she took office in 2021. But when her term ends in September and she stays on until a successor is named, her age may be the last thing people remember about her rule.

Khan's legacy is likely to be one of taking on big tech companies, and doing so very publicly. Unlike his decidedly low-key predecessor, Khan regularly speaks to the media about how the FTC is fulfilling both its antitrust enforcement and consumer protection missions, and he regularly issues warnings to today's big tech companies.

This strategy is all the more remarkable given how small the FTC actually is: It has just 1,300 employees handling about 150 cases at a time, and an annual budget of just $400 million — a pittance for some of the organizations it investigates.

We spoke with Khan about her approach and how Silicon Valley gets it wrong earlier this week at one of TechCrunch's more intimate StrictlyVC events in Washington, D.C. Excerpts from the conversation have been edited below for length. You can listen to the full talk here.

For the last 20 years, Washington has been dominated by giants like Google and Microsoft. I want to start with a report in the Wall Street Journal that federal regulators are investigating giants like Microsoft, OpenAI, Nvidia, and is there anything you can tell us about your plans?

As you say, there's a lot of interest across DC in making sure that we can take advantage of the opportunities and possibilities that these tools provide, but also in keeping these markets open and fair and competitive, and making sure that we don't have bottlenecks or choke points that undermine competition, opportunity, and innovation. I was in Silicon Valley a few months ago, and it was really interesting to hear stories, especially from founders, about how there's so much uncertainty right now about who has access to some of these critical inputs, whether it's the compute, whether it's the models, whether they have assurances that they're not effectively feeding back proprietary information. So I think you're hearing a lot of excitement, but also a sense of fatigue as people realize that there's already a lot of concentrated power, and that concentrated power has the potential to stifle innovation and competition.

It also seems like some of the people you're trying to regulate are getting more creative about the deals they're entering into, like Microsoft's deal with Inflection AI, an AI company whose co-founders and employees were hired by Microsoft in March and are now being paid $650 million in licensing fees by Microsoft to be able to resell the company. [InflectionAIs] It's technology. It's not technically a merger. Have they spoken to your agency or other regulators about what they're doing?

I'm limited in what I can say about these specific transactions and specific potential issues. I will say only that we are interested in watching closely to see if there is any circumvention of existing laws. We have been very clear that all of the existing laws still apply — laws prohibiting mergers that could substantially lessen competition, laws prohibiting price fixing and collusion. Whether you fix prices algorithmically or by handshake, both are illegal. So we are looking across the board to see if there is any potential for these innovations to become illegal. We want to make sure that everybody is playing by the same rules.

Earlier this year, we began looking into some of these strategic alliances and investments to make sure we understood what was really going on — for example, we heard concerns that some of these alliances and investments might give privileged access to some people and exclusive access to others — and that work is still ongoing.

Apple also made a number of announcements. [this week at WWDC]The company announced that it will integrate OpenAI into some of its services. It also said that it is looking at partnering with other third parties, including Google Gemini. Many of the partnerships are with the same players that are probably a bit concerning to you right now. What did you think about the outcome of this event?

Historically, we've found that some of the most important breakthrough innovations have come from startups, entrepreneurs and small businesses who see things differently, spot market opportunities and are able to bring about disruptive change without large corporations getting involved.

Certainly, what we can say at this point is that some of the incumbents may control access to the raw materials and inputs that are needed for these innovations. So we need to be vigilant to make sure that this moment of competition and innovation and disruption isn't hijacked by incumbents, closing off markets and preventing us from really enjoying the innovation and competition that has historically led our country.

I know you don't believe the argument that these companies should be protected. [from antitrust action] Because if we slow down in any way, it weakens the United States as a country. On the one hand, a lot of people are in favor. They want things to be split up so startups can breathe. On the other hand, some people will say, “This technology is advancing faster than we've ever seen it before. We can put this technology in autonomous weapons. How do you justify splitting things up without putting the country at risk?”

Even 40 or 50 years ago, when the Department of Justice was investigating AT&T, it was the Department of Defense that stepped in and said, “We need to proceed with caution because any antitrust action against AT&T could pose national security risks.” Even back then, we heard a lot of these similar arguments.

There are natural experiments. At different moments, we faced the choice of whether to protect and pamper monopolies or uphold the laws of fair competition. And time and again, we chose the path of competition. And that is what stimulated and drove much of the breakthrough innovation and remarkable growth that our country has enjoyed and that has allowed us to lead globally. When we look at other countries that chose the national champion model instead, they are the ones who have been left behind. I think we need to keep the lessons of history in mind as we choose our path again.

Among this audience are founders and VCs who want your company to thrive and have mixed feelings about you because they worry that their companies aren't making profits because you've been so vocal about your focus on Big Tech. [acquisitions]Exits are a big journey for VCs and founders, so how do you reassure them that you're doing what's best for them in both the short and long term?

Certainly, we understand that for some startups and founders, acquisitions are an important exit avenue that they are interested in. In fact, what the law prohibits are exits or acquisitions that would strengthen a monopoly or allow a dominant company to eliminate new or competitive threats. … Let's stop and think about that for a moment. There are up to 3,000 merger filings reported to us each year. Of those, about 2% are actually reviewed by the government, which means that 98% of the deals are, for the most part, done.

Also, if you're a startup or a founder looking to acquire as an exit strategy, I think it's better to be a company with six or seven or eight potential acquirers than a company that's only looking at one or two.

Does the FTC have 1,500 people?

About 1,300 people, which is 400 fewer people than we had in the 1980s, even though the economy has grown 15-fold. So, we're a small agency, but we're definitely punching above our weight.

I don't know if you're taking more action than your predecessor or if your actions are just more noticeable. Do you know if you're moving at a faster pace in the role than your predecessor?

If you look at the numbers, you're seeing some uptick. But in my opinion, counting the number of lawsuits or the number of investigations is only one way of looking at the impact. The types of lawsuits that are filed also matter. One of the things that's important to me is really looking at: Where is the biggest damage? Where are the players that seem to be more systemically causing these problems with their illegal activities? So we need to make our enforcement strategies effective, just like going after a mob boss is more effective than going after a low-level underling. So we're looking upstream and working on cases where we can actually take on the bigwigs. If we're successful, [it will] This will have a very beneficial effect on the market.

In terms of deterrence, I think we're already seeing some of that. We regularly hear from senior dealmakers and senior antitrust lawyers who frankly say that five, six, seven years ago, when they were thinking about a potential deal, antitrust risk or antitrust analysis wasn't even at the forefront of their conversation, and now it's at the forefront. For enforcers, having companies think about their legal issues up front is a very good thing, because then they don't have to spend as many public resources working on deals that they believe are violating the law.

Are you using AI to scale smaller offices that have fairly limited budgets?

We're wondering, is there a way to benefit from these tools, particularly in economic analysis? Obviously, to do that would require a significant computing upgrade, and we're asking Congress for more funding to do that. [secure].

Again, you can listen (or watch) to that lengthy conversation here:

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