FTC Chair Lina Khan: The Better Offline Interview

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3:10I'm your host, Ed Zitron.

3:21Better Offline. Today I'm joined by the chair of the Federal Trade Commission, Lina Khan. Lina, thank you so much for joining me. Great to be here. So on a simple level, what does the FTC actually do? So the FTC enforces America's antitrust and consumer protection laws. And so these are the laws that try to ensure that our markets are fair and honest and competitive. And so that means we're looking to protect people from illegal monopolies. We're trying to protect people from all sorts of frauds and scams. We're trying to protect people's privacy and wanting to make sure that they're not subjected to all sorts of unfair practices.

3:58We were created 110 years ago, and so it's a pretty big mandate. We have oversight across markets, across the entire economy for the most part, with some exceptions, like in areas such as banks and airlines. So it's a really big job that this agency does, and it's been thrilling to get to do it. And it feels like you're a lot more aggressive than perhaps anti-monopoly and anti-consolidation has been in the past. What led to that? So I came into this job wanting to make sure that we were, A, fully using the tools that Congress gave us. As I noted, this agency has been around for over a century.

4:39Our agency was given some pretty important authorities and tools. But over the decades, there had been a drift away from fully using all of the tools that we have, from fully embracing the law on the books. And so the first thing we did was kind of come in and just make sure that we are mapping out what are all the tools we actually have and how do we make sure we're faithfully using those. The second thing that's been important is wanting to make sure that we're enforcing the law and taking action in response to how markets actually work today. And that meant making sure we were having top expertise internally.

5:19We started a new bureau of technologists that brought data scientists, data engineers, people who fully understand the ins and outs of how algorithms work. Previously, companies would view lawsuits as just a cost of doing business, and especially in digital markets where there's such a focus on chasing scale and chasing growth. There was a bit of an ask for forgiveness later mentality rather than everybody abiding by the law and making sure Americans were getting their rights on the front end. So how do you curtail that instinct where they have so much money that they can just kind of absorb the fee?

5:58Sorry, the fine, I mean. Yeah, it's a good question. And it's especially important because a few months before I came into this role, the courts had actually further limited the FTC's ability to get money. We mitigated that in a couple of ways. First, we used the tools we did have to their full extent to still get record-breaking sums. We also made sure we were looking at things like individual accountability. And so if a specific individual executive was involved in directing or participating in the lawbreaking, the lawsuit can be brought not just against the company, but also against the individual executive.

6:40And so we've done that in several instances where we had evidence that high-level execs knew what was going on, had the ability to stop it, and didn't. And there's been a lot of empirical work that shows that actually holding individual executives accountable is really important for deterring lawbreaking in the first instance. So we've done that. We've also made sure that when companies, for example, have used illegal practices to hoard people's data, that they're having to actually get rid of that data or get rid of the models that were trained on the data. So we're actually getting remedies that make sense for today's markets.

7:23So you filed a case against Amazon. What is the case? What's going on over there? Because I know you have some history when at Yale Law School, you wrote that, the antitrust paradox, I believe. What's the case against Amazon? So just to step back, what we see with digital platforms in particular is that there can be a life cycle, right? Initially, when a digital platform is entering the market, they're really focused on chasing scale and building up a large customer base on one side of the market. So then they can also attract a big customer base on the other end. And they want to basically achieve the flywheel of accelerated growth and momentum that especially in digital markets, once you've kind of hit that sweet spot of sufficient scale, there can be enormous acceleration.

8:13But what we've seen is that once firms achieve that accelerated growth, and if they're successful at knocking out their rivals, we can see a different phase kick in where the platform starts looking to milk the monopoly. Right. And we can see that in a few ways. The company can start charging higher prices. Sometimes they can make service worse. Corey Doctorow has coined this term in shitification around just the degradation of the services that you see. And so the lawsuit that we've brought is about Amazon as it is in this second phase, where basically we allege they have hiked prices for both buyers on Amazon's platform, as well as the small businesses that sell through its platform, where Amazon now collects one out of every$2.

9:06We also note that Amazon has kind of cluttered its search results page with irrelevant ads as a very deliberate strategy to be able to basically milk more ad revenue from the platform, even when it's not serving shoppers and serving consumers. And so we allege that Amazon's only been able to make things worse in this way for people because they've architected this anti-competitive scheme to block out rivals through illegal tactics. And so that's what the lawsuit is about. It's going to go to trial in a couple of years. And we brought it with a whole bunch of state attorneys general as well. Lovely.

9:47So one of the core thrusts you made in your paper, Amazon's antitrust paradox, is that they prioritized growth over being a profitable company. This feels like a problem across the tech firms, all of them, they all seem to be growth hungry. Do you feel that this is anti-competitive at its core? Because growth doesn't seem to be about better, it just seems like more. Yeah, it's a really good question. And the antitrust laws in no way say that chasing scale or chasing growth is illegal, or even that being big is illegal. It really comes down to what are the mechanisms of chasing that growth or the mechanisms of becoming big, right?

10:31And so in the same ways that we would recognize, hey, like going across, you know, if you have a pizza shop that goes across the street and sets fire to its rival pizza shop, you know, that's not fair competition. That's an extreme example, but there are all sorts of other mechanisms that the law say are not fair means of competing. And so that's what the law does. It tries to distinguish what is fair play versus not when you're looking to, you know, compete and grow and get big. And so chasing scale and chasing growth is not in any way by itself illegal and instead is a really kind of, you know, core part of what incentivizes business is.

11:12What we have seen, though, is if law enforcers are not effective and are not timely, chasing growth can happen through playing fast and loose with the rules, especially if companies know that, okay, sure, I might get hit with a lawsuit in five years, but guess what? I will have hit my targets by then. I'll be the biggest firm. I'll have achieved dominance. And so I can worry about that later. From a business perspective, it's actually better for the company to play fast and loose with the rules so that they gain that dominance and then deal with it later. That's really problematic as a mindset for law enforcement.

11:50And so that's something that we've been trying to figure out. How do we devise strategies to be much more assertive, be much more forward-leaning, be much more timely so that we're not having to do that cleanup five years, 10 years after the fact? So what powers does the FTC have to actually tackle antitrust violators and indeed within those shortened timescales? So we oversee various facets of a firm's behavior. One is if they are looking to merge or pursue an acquisition, if it's above, you know,$119 million, it gets reported both to the FTC and to the antitrust division. And we can figure out, is this an anti-competitive transaction?

12:30Is this basically going to reduce competition? And then we can also look at companies' business tactics, especially, you know, if they've become monopolies or are kind of using their dominance in illegal ways. And so we can bring lawsuits. We can also issue rules, and we've been very active in issuing rules, including in areas like fake reviews, taking on things like government imposters. We just finalized a rule taking on junk fees in the economy, these hidden fees that companies just show at the very end that you don't know what you're exactly paying for, but suddenly the price of the ticket is almost doubled and you have no choice.

13:15And so we've issued a series of rules. We brought a series of lawsuits. We can also do various studies of the market, including in areas where things are moving very quickly. So we, a few months ago, launched a study into surveillance pricing, this idea that firms could be charging every single individual a standalone price based on the data they have on you. So these are just some of the tools and authorities we have.

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16:45When you buy business software from lots of vendors, the costs add up and it gets complicated and confusing. Odoo solves this. It's a single company that sells a suite of enterprise apps that handles everything from accounting to inventory to sales. Odoo is all connected on a single platform in a simple and affordable way. You can save money without missing out on the features you need. Check out Odoo at odoo.com. That's odoo.com. So let's talk artificial intelligence. From a regulatory perspective, What are your major concerns? So the biggest concern for me just right at the beginning was making sure we were making very, very clear to the market that there was no AI exemption from the laws on the books.

17:35And this can sound like a basic point, but it seemed incredibly important because we have seen, especially when new technologies come onto the market, we can see an effort by firms to say, okay, sure, you have these age-old laws on the books, but this new technology is different. And that means these laws don't apply or they have to apply in dramatically different ways. And it's really important for enforcers to hear out those arguments, make sure we understand how the technologies are working, but not get so dazzled by the novelty to say, okay, well, I guess we can totally abandon our core laws.

18:14And suddenly we're saying, okay, fraud is illegal. But if you do fraud with AI, somehow that's okay. That's not a position we want to be in. And companies are making this argument, like that kind of argument, they're attempting to cite. Not that specific one, but they're trying to dodge. Yeah, we do see arguments that, you know, the traditional laws around unfair practices or deceptive practices apply differently. The other big thing is, you know, America has been so fortunate to be such a key home of breakthrough innovations historically. And to my mind, a key ingredient of that has been making sure we have fair competitive markets where you actually do have somebody with a great new idea, an upstart that's able to come in, that's able to fairly compete and knock out the incumbents.

19:08That's how historically we have gotten real major technological progress in our country. And what I wanted to make sure we were being very clear-eyed about is the risk of a few large dominant incumbents locking in the market in a way that shuts out a lot of that innovation and a lot of that next generation breakthrough that historically we've seen come purely from fair competition and open markets. So it was about wanting to make sure that companies are not using their existing heft to immediately lock up the market and shut out the innovation that we should be able to see. So with that in mind, are you worried about the consolidation we're seeing right now in the generative AI market?

19:56Because to build these models, the foundation models like Claude 3 or GPT or Llama or what have you, it requires financial heft. How do you avoid the monopoly that naturally comes out of the fact that you need billions and billions of dollars to even make one of these? Yeah, it's a key question. And one approach that we've taken is making sure that we are actually going layer by layer in the market. Right. And so you want to understand, OK, what's happening with chips? What's happening with cloud and compute? What's happening with the models? You want to understand what are the key economic properties of each point in the stack and then understand, okay, do we see this consolidation purely because there's such high fixed costs and that's just going to be the state of the market?

20:51And how do we make sure that to the degree you do have dominant players in some of these layers, they're not using that dominance to then squelch out competition in a layer where you should actually be able to see more innovation, more competition. And so we're looking at, for example, some of the partnerships and investments between the big cloud providers and some of the newer firms. Famously, you know, the Microsoft OpenAI Partnership, Amazon and Google have also made some investments. And we want to understand, you know, are these truly kind of independent companies? Are these able to be independent firms in terms of the competitive decision making?

21:35Some of the key strategic calls when so much investment is being made? What is the structure of the contracts? What are some of the key requirements? Are there kind of interlocking directorates here in ways that create conflicts that are problematic? Are there contractual, you know, tying provisions here? So that's just the universe of what we're looking at. But of course, it's a fast moving market. And we're very fortunate to have just top tier technological talent in-house to be letting us push forward here. So consolidation is a concern, though, in generative AI. it's certainly something we have to be vigilant about to make sure that to the degree we do see you know monopolies or firms with enormous market power we want to make sure a that that's not being achieved through illegal tactics or that it's not being used illegally to snuff out competition somewhere else so that's incredibly important how about the training data situation because that feels like a mixture of different parts of the government would be involved, but that also feels like a massive anti-competitive issue.

22:44Is this something the FTC is looking into or would have to partner with other parts of the government potentially? So we are looking into it. Actually, last year we convened a roundtable with creators from all sorts of different sectors. So we had, you know, artists, authors, graphic designers, even people who work in fashion, sharing how their core creations had actually already been scraped in many instances. And suddenly they were waking up where their life's creation having been ingested by this machine and spitting out outcomes that they had never consented to and suddenly felt like they had no control over.

23:25And so that's something we've heard a lot about. Interestingly, these creators, many of them were acknowledging that these technologies could be quite fruitful for them as well. They're not kind of reflexively and viscerally anti-AI. It's really about wanting to make sure that the terms on which their creations are being used, that those are actually fairly negotiated. And it's not some type of opt-out model after the fact that they actually should be able to consent, that they should actually be getting compensation that's, you know, can measure it with the value of what they're getting. So that's a lot of concerns we've heard.

24:04The FTC submitted a comment to the Copyright Office, which is considering some of these issues, kind of relaying what we had heard. And so it's certainly a live issue. And to the extent the FTC can share expertise on it, we've been looking to do that. So generative AI is being crammed into every tech product. Do you see any potential for consumer harms from this happening? Well, generally, we've brought a set of lawsuits that fall into a few categories. One of the big categories is around this idea of AI hype. So as more and more products are adopting generative AI services, they're making oftentimes commitments or promises about what these services can actually deliver.

24:50And sometimes we see that those claims are inflated. And so, you know, for example, the FTC a few months ago brought a whole sweep of enforcement actions against, for example, a company that was claiming to be the world's first robot lawyer. Do not pay, but the product failed to live up to its claims that the service could substitute for the expertise of a human lawyer. Now, don't get me wrong, to the extent that these types of services and advances can bring things like way low cost legal services to people, that's a great thing. But just we want to make sure companies are not inflating or hyping or falsely overstating what those services can actually do.

25:37So that's been a big strain of the cases that we've brought so far in this area. Yeah. So do you see any anti-competitive issues in the cloud and compute industry in general, even outside of AI? Because it really is just a few big players. It is. Yeah, it is a relatively small number of firms. The FTC did do a inquiry here. We got a lot of comments and some of the complaints that we heard about focused on things like, how easy is it to exit the cloud service and transfer your data elsewhere? And are you having to pay these egress fees to the cloud providers in ways that inhibits switching? We also heard just more generally about some of the software licensing practices where some people suggested that some of the cloud providers limit their ability to use certain software in other cloud infrastructure provider environments, so that you can imagine could lead to lock-in, or if one cloud provider is effectively degrading the ability to use other third-party softwares on that cloud, you could see some issues there.

26:56And then we also heard some concerns that some provisions in cloud computing contracts could be incentivizing customers to consolidate their use of cloud services to just one provider that could further hasten consolidation. More generally, we looked at this not just from the competition lens, but also from a resiliency lens. I think we've all seen how when you have extreme centralization, that can also create a lot of fragility where you have a single point of failure, right? And we've seen how if a single, you know, data service center somewhere goes out, sometimes a corner of the internet also goes out.

27:35And so how do we make sure we're also thinking about the resiliency element here? And then there are kind of similar data security concerns as well that we heard about.

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