DOJ's Jonathan Kanter on the Bidenomics Approach to Antitrust

28:05One of the biggest sources of case generation for us tends to be from business. So I'm often asked the question, well, is antitrust good for business? And if you ask the folks who are coming to us asking for enforcement of the antitrust laws, I think the answer is yes. A lot of our cases are generated by businesses who want the opportunity to compete or in a B2B market or consumer market don't want to be held under the thumb of a dominant firm or dominant firms. We have a number of other ways. I think it's important for us as the economy becomes more sophisticated to use data analysis, to identify trends that might indicate problems and concerns.

28:46We have a whole range of tools and methods that we are using and modernizing to make sure that we are being proactive in our case detection. Now, that's a little bit different from – there are a couple of distinctions in some other areas of our enforcement. One is mergers. And so I mentioned the update to the Clayton Act in the 70s. that required mergers of a certain size to pre-notify and wait to close until we've had the chance to investigate. And that's called the Hart-Scott-Rodino Act. So mergers at least above a certain size come to us through merger filings. And then in the criminal context where we have criminally antitrust enforcement, we will get tips, we will get proactive sources and methods that we use to uncover violations.

29:28But we also have a vibrant leniency program where we can have potential wrongdoers come to us under certain conditions and self-disclose. So it's not reading the newspaper, but there was an episode of a podcast called Odd Lots that was released July 17, 2023, in which our guest said that large tech companies are making big investments in AI startups because they're worried about antitrust enforcement. And so they're doing is maybe a large company with a big cloud division makes an investment in some company that makes an AI model. And then that company spends all of their money on the investor's cloud.

30:12And then all of their future customers are implicitly customers of that cloud, et cetera. And so I'm curious, you know, and he said that he's like, well, this is just because of a, you know, a way to get around concerns about antitrust. Are there non-merger things that are anti-competitive in your view, such as business relationships that large tech companies could make with, say, strategic investments that can raise red flags even if they're not formally a merger? So that's a fun question. I think you have a future in writing law school exams, because that's like a perfect hypothetical scenario.

30:49Again, I want to be careful not to wait. It's all hypothetical. I didn't name any companies, by the way. I didn't say Google, OpenAI, Microsoft, Anthropic. I just said large cloud companies, companies with a model. Well, thank you for that. Let me take a little bit of a step back at a different level of abstraction and try to answer that question in a productive way here for you. So one of the things I often will say across all industries is that substance over form. And so what we're looking at is it's not just mergers. First of all, one of that amendment that I mentioned in the 50s made sure to cover other kinds of partial and asset acquisitions.

31:29Our new merger guidelines has a whole new section that specifically addresses partial ownership and acquisitions. And there are other parts of the antitrust law. There's monopolization. There's an area of antitrust enforcement that we have deployed perhaps more extensively than any enforcement authority ever since it was enacted in 1914. And that's called Section 8 of the Clayton Act, which prohibits interlocking directorates, meaning you can't sit on the boards or have representatives on boards of competing companies. And we've caused, I think, over 15, nearly 20 members of boards to step off boards in violation of Section 8.

32:09We have a whole range of investigations that are open. So the short answer to your question is we have many tools that we can use and it's substance over form. And so attempts at evasion are usually not successful. And so if the goal of a transaction or investment is to monopolize a market, manipulate a market, to exclude competition, then we have the tools necessary to address that if we need to. Let me ask the question in a slightly different way. Do you see any evidence currently of perhaps anti-competitive practices in some of the, let's call it the AI boom recently? And then secondly, I'd just be curious how you're sort of looking at AI and its interactions with tech.

32:55And I know you mentioned beefing up staff and technical expertise on that matter. Yeah. So the first part of the question I will artfully dodge because I can't talk about specific industries. I appreciate the effort. It's noble and noted. But the second part I can embrace. So our job is to make sure that we are following the puck where it's going, so much so that we have something at the antitrust division we call Project Gretzky based on the famous quote from Wayne Gretzky, which is he skates to where the puck is going, not to where it is. And so AI is a significant inflection point and development in business.

33:34And it's changing the way a lot of things operate, and it's changing economic realities. And so we have to understand those significant changes. And it's really more – AI is an umbrella term that's used to talk about a lot of different things. But machine learning, data as a platform are all really important developments. And it's also going to create many really great opportunities, right? So we're agnostic in many respects to the technology itself, at least at the antitrust division. What we're trying to do is make sure that particularly at these inflection points that competition has the ability to thrive.

34:14It's also not lost on us, and we've talked about this, that AI is, particularly, for example, like a large language model is based on data and mountains of it. And so when you think about AI being deployed, not just in the consumer tech space, but in enterprise tech and healthcare and energy and agriculture and everything in between, we're looking at a world where companies that have access to the most data are going to be able to pay the cost of entry. And so if you want to build those foundational platforms, you're going to need a corpus. You're going to need data at scale. And so competition, or lack thereof, in a predecessor technology could very much limit the ability for there to be vibrant competition for technologies and AI that depend on data.

35:08So we have to think about making sure that we're opening up all avenues to competition in this space. But we can't do that effectively, in my view, unless we understand it, unless we have the right experts in-house in order to appreciate those nuances and see clearly what is actually happening in the marketplace and then skate to where the puck is going.

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36:44Introducing the all-new Adobe Acrobat Studio, now with AI-powered PDF spaces. Do more with PDFs than you ever thought possible. Need AI to turn 100 pages of market research into five insights with a click? Do that with Acrobat. Need templates for a sales proposal that'll close that deal? Do that with Acrobat. Need an AI specialist to tailor the tone of your market report to sound real smart in real time? Do that with the all-new Adobe Acrobat Studio. Learn more at adobe.com slash do that with Acrobat. I want to ask a question about how antitrust thinking dovetails with other priorities. And this is also sort of a segue into consolidation in banks.

37:25So obviously, Silicon Valley Bank blew up in March. And perhaps one reason that it blew up is because there are lower sort of regulatory requirements for smaller banks. And I wonder if there is a tension where you want there to be competition with the gigantic money center banks that are based in New York. But on the other hand, there are many who argue that, say, a Canadian-style banking system of essentially like six banks, all of which are very big and regulated to the max, is the most stable system. And so I wonder how you think about tension where it's like, OK, we want there to be a competitor to the big ones.

38:02one way to make sure that there's competition is to lower maybe the capital requirement standards, et cetera. But if you have this competition, then does that run into priorities potentially of financial stability? Sure. It's a great question. So the word dovetail or words, I guess it's a word, right? I'll look it up while you're in. Yes, is the perfect way to describe it. So because we have some authority here, But that authority dovetails with the bank regulators. And the two sides of the coin work very well together and are important complements. And so there's something called the Bank Merger Act, which gives us the antitrust division the ability to provide a report to the bank regulators to assess competition.

38:49And we do that on the regular when there are certain bank mergers that we're obligated to address. And then if we decide we want to challenge an acquisition, we still have independent authority to do that, even after the bank regulators weigh in. I gave a speech at Brookings a few weeks ago where I talked about many respects a lot of the things that we've already discussed today, which is how our economy has changed. And in the context of banks, I talked about how competition and banking might have been reflected in giving away free toasters when you sign up for an account. But those days are over, and banking is very different today than it was 30 years ago.

39:32And the last bank merger guidelines were written in the 90s when people still got toasters, and that's outdated. And I think we realize now that bank fees and overdraft fees, I think something one of your guests a few weeks ago, Jared Bernstein, talked about that. Those are in different technologies and customer service are all nuances of a modern banking economy. And we want to make sure we understand that well so that we can provide appropriate analysis to the bank regulators. The other distinction that I called out in that speech is that a lot of bank merger analysis, at least on the competition concentration side, had been done using a very stylized model of what we called HHI index, Herfendahl-Hirschman index, which is just a fancy way to talk about measuring market shares and concentration levels.

40:27It's actually a relatively simple mathematical exercise, quantitative exercise, but it's based on deposits in local branch overlaps. And one of the things I tried to stress is that while in some instances that may be helpful, that it's probably not the most sophisticated or relevant way to assess competition in today's markets. So we want to make sure that we're also updating our bank merger guidelines, which is something that we're working on, also under the executive order from President Biden. And in that discussion, we're going to think about all these different dimensions of competition. There's different roles of banks, but also making sure that we understand that different banks have different kinds of customers.

41:15And so making sure that local communities have access to banking and competition and viable, resilient banks is a really important part of making sure that it's competitive because after all, the needs of a local business might be different than a multinational. And local banks and regional banks are quite good at investing in their local communities because they want to build that vibrant local competitive economy. And so this is all agnostic to specific deals. It's simply just saying that it's important for us to make sure that our analysis understands those considerations. But that's against the backdrop of a multi-factor analysis that the bank regulators have to undertake.

41:59And we have a part of that, but it's just a part, including convenience needs and other factors that are related to but not perfectly overlapping with competition. You know, it feels like there's sort of a high level philosophical tension or disagreement here where on the one hand, it might be nice to have thousands of local banks with significant expertise and they know their customers and are able to sort of decide who gets a loan and who doesn't. versus the financial stability sort of efficiency concerns where maybe it would make more sense to have a Canada-style model where we have six dominant banks or something like that.

42:44And I think we've seen various expressions of those disagreements recently. I think Elizabeth Warren has sort of clapped back at some of Janet Yellen's thinking on this topic. But when you're at the DOJ, Do you think about this from a sort of holistic top level perspective? Do you think this is maybe what the banking system should look like or this is where we would like to see the banking system go? Does it kind of reach that level? So I'll leave it to the banking experts and regulators and policymakers and legislators to determine or discuss that big picture. We have the luxury, I guess, of focusing on this one narrow question is how do we make sure that these portions of our economy are competitive and how do we make sure that we are enforcing the law and providing expert reports to the regulators on the impacts of competition.

43:39And as I talked about in my Brookings speech, our belief is that the law promotes and encourages there to be a competitive economy, including in banking, and we try to enforce that faithfully. I'm curious about just firm size. And this comes up, I see a lot of Twitter fights about this, which is that there is this sort of school of progressive thought, which says small businesses aren't really that great, that we like to extol them, that we like the idea of like, you know, competition and all these like small businesses, but that by and large, you know, labor protections that small businesses are worse, that wages are worse, that environmental concerns are worse, that large companies are more likely to be unionized, that large companies are more likely to invest in things related to decarbonization and so forth.

44:32And that, you know, the economy is run by, too much of the economy is run by small business owners that have incredible leverage over their own employees in their own area. I'm curious, like, how you think about, like, size? Is size good or bad per se? Are there concerns about too much deconsolidation? I mean, I get most of the conversations about consolidation, but are there concerns about like too much distribution and some of the costs that sort of come with the management labor relationship? And I'm curious how that fits into your thinking. Yeah. So again, I think, you know, I try to start from the premise of, well, what does the law say?

45:12Yeah. And how do we go from there? And so So when you're talking about E &I Trust historically, you're talking – we mentioned earlier the Standard Oils and AT &Ts and such of the world. We're often talking about some of the biggest companies exclusively, but those are where a lot of the biggest choke points occur. And that's sort of at the origin of anti-monopoly and antitrust law. Statutes provide different requirements. And so we talked about the Clayton Act and mergers, and it takes the view that not only a merger is problematic if it substantially lessens competition, but also if it tends to create a monopoly, right?

45:50So that's a value judgment that if something tends to create a monopoly, it could be illegal. There is a monopolization prong of the Sherman Act, Section 2 of the Sherman Act. So certain kinds of conduct that is used to create a monopoly can be illegal, and that was a judgment that Congress made, and we have the obligation to enforce. And I would also say in terms of small, there's a lot of – and I'll refer you to some of the legislative history and discussions around the creation and amendments to the antitrust laws about the importance of small business opportunity. But I guess I approach this discipline from the perspective of that we're preserving economic opportunity.

46:34And so to me, opportunity and freedom go hand in hand. And one of the things that makes our country so amazing and such a wonderful place to be is that we provide opportunities to everybody when things are going well and things are going right. And the small business on the corner can lead to upward mobility for the next generation, for industrious and ambitious people. And we want to make sure that we're providing those opportunities. And if those opportunities and those avenues to upward mobility are clogged, not only are we depriving citizens of the freedoms, the fundamental economic freedoms that they crave and that we promise to our citizens, but we're also losing out on all of those benefits.

47:28And so competition is a value. It's a value that we have invested in as a country because we believe that providing opportunity and freedom of opportunity can generate so many benefits in so many different ways. And I often say it's not a switch that you can flip on and on when you need it. You have to invest in it. And I think that's why Congress was wise when it wrote the antitrust laws because it preserved those avenues for opportunity and competition. And the courts and Congress have been clear that those avenues and opportunities should not be limited to a select few. they should be open to everyone including small businesses farmers who are themselves small business owners entrepreneurs they should be geographically dispersed in those opportunities and they should be merit-based they should be based on the merits of your innovations your customer service your commitment in your imagination and so to me we don't have any of that as a society unless we have competitive marketplaces so the polar opposite perhaps of the you know iconic American small business is probably American private equity.

48:45And there have been tons of negative headlines over the years. And I know this is something that's on your radar that you've talked about. I think you specifically talked about private equity's ability to exercise command and control over markets. Can you tell us a little bit more about how you're thinking of private equity's role in competition and what exactly the issues might be there? Yeah. So let me start by saying that the antitrust laws are business agnostic or business model agnostic. And so I think they apply equally across all businesses, including private equity. As I mentioned before, it's important for us as enforcers to be mindful of developments on the ground, including economic realities.

49:32And I think we can all agree that private equity today means something very different than it did 30 years ago. and its prevalence and importance or at least impact on our economy and our industry is quite significant and different than it was in the past. And again, that's just in an agnostic way. I'm not suggesting it's good, bad, or otherwise. Simply a fact. And so if we want to be relevant in understanding whether there is an antitrust violation or where to focus, we just need to make sure that we understand those market realities. And so issues that show up in non-private equity markets can show up in private equity too, but there also might be distinguishing characteristics.

50:20So for example, private equity might lead to a greater number of board interlocks, and it might result in more need to enforce Section 8. We talk about roll-ups and we talk about serial acquisitions, which is something we see in private equity and out of private equity, but it might be an issue that becomes something we have to address with greater frequency if the business model is, in fact, to roll up industries in order to reduce competition. Again, I think we just have to call the balls and strikes as we see them. But if there are changes in how companies or businesses are run, invested in, then I think we have to be mindful of that.

51:00And we also have to be mindful of what is improving productivity and what's not. Again, these are all business model agnostic, but they're important concepts that apply in antitrust. And if we are being relevant, we have to be aware and knowledgeable of those developments. I know in the beginning of the conversation, I think you sort of perhaps downplayed the degree to which the sort of your thinking about antitrust is like some big departure. or like, you know, some new thinking. And you're like, look, there's the law. And over time, the rules get rewritten and maybe there's some interpretations.

51:36But basically, you're enforcing the law as written by Congress. That being said, and it's been, you know, Bloomberg has reported on this, the DOJ and the FTC have suffered a handful of setbacks in courts relating to some of these deals and mergers. I think there was recently a sugar deal. I know we're not going to talk about specific deals. But when you think about how you think about antitrust and perhaps how maybe the sitting judiciary, which may have judges who have been sitting there for 20, 30 years, maybe appointed by the Reagan administration, think about antitrust, does that affect your strategy in terms of thinking about which cases you can bring essentially based on like, you know, your perspective on what antitrust law says, and maybe the sort of stock of judges that are out there have a separate perspective.

52:27Yeah. So let me address that question and also try to at least give you some perspective from the Department of Justice. When we bring a case, it's a matter of law enforcement. We have the burden. It's on us to make sure that we are following the facts of the law and presenting it to a court or jury in a way that convinces the court. And so that burden and is honest, and it's up to us to make sure that we are bringing the right tools, the right facts, and the right legal analysis to persuade a court. And we play to win. And if we think we have a case that is sustainable in the facts and the law, and that it is the right use of our prosecutorial discretion, we move forward.

53:09And we do so in a very passionate and fact and legal-based way. You know, I will speak just from the Department of Justice perspective because I've heard people, sometimes not all the information. It's all out there, but it's sometimes harder to collect. I'm very proud of our track record. So in this administration, we filed nine cases in court. We've had two litigated victories, including a significant victory in a publisher merger, Penguin Random House, Simon & Schuster. We've had the AA JetBlue Northeast Alliance case in Boston. We had an out-of-court settlement in a merger case. Two cases were mergers were abandoned after we filed.

53:53And we've had, by our count, 12 mergers abandoned right before we were going to file or in the face of filing litigation. And we have one pending. And so when you take that against a track record of a few negative outcomes in court, which we accept and learn from with humility, I think that's a pretty strong record. When you look at the whole of the significant, programmatically significant cases that we've won, and I think 15 or more abandonments, including some after we filed in court, that's a pretty good track record. And I'm proud of that, and I'm proud of the hardworking and professionals at the Antitrust Division and Department of Justice who have fought capably and professionally and with vigor and sophistication on behalf of the public and competition.

54:45And we're getting really good results that I'm extremely proud of. Can modern antitrust enforcement work without an update to existing antitrust laws? In other words, do we need more work on the actual legislative underpinnings of this in order to make it more effective? Yeah. So I have a couple of views on this. First is our job is to enforce the law. It's the job of Congress to write it. So on some level, that is a decision that needs to be made by Congress. And so they'll give us the tools and we'll use them. I believe that the antitrust laws today still matter and they still can protect competition and the public.

55:31And we are going to enforce them in a way that's appropriate and consistent with the facts on the ground. At the same time, there have been proposals in Congress to update the antitrust laws. We have weighed in as the Department of Justice in select instances, both in terms of providing technical assistance and in other instances with a full-throated endorsement of legislation. And so we take that on a case-by-case basis, but ultimately that's a decision that comes from Congress. And we're very mindful of the fact that they write the law, not us. And it's our job to enforce the law as they write it.

56:05I just have one last small question. Can mergers be good? And by that, I mean, you know, companies, when they buy other companies, they're like efficiency gains, one common platform, ways to like improve productivity, et cetera, across firms. Like, are you open? Is that a consideration? Do you believe in that possibility? Or in your view, is that mostly like spin when they say that? So I'll start with the most diplomatic answer, which is, and the accurate one, which is my view doesn't matter. Okay. Which, and by that I mean, our job is really to determine whether the merger substantially lessens competition or tends to create a monopoly.

56:45And so that is what we are trying to do in a very fact-oriented way. I think that's kind of different from the separate state of the union question on whether mergers are good or bad and whether efficiencies are realized or not. In any given transaction, companies will often explain why they think their mergers will generate certain benefits that they either offset or mitigate competition concerns. And we have a framework for how we evaluate those efficiencies. This came up in our book publishing case that we won. And I think the court in that case laid out some pretty specific requirements for verifiability and making sure that those claims are something that can be supported in the court of law.

57:30And so we are appropriately skeptical. It's not – or not skeptical. We are appropriately scrutinizing, I should say, to make sure that if folks come in with claims that they're accurate and that they are – can be verified. But I also come back to the foundation, which is antitrust merger law is ultimately an exercise in risk assessment. And our job is to assess the risk that the merger may harm competition or tend to create a monopoly. And that requires a whole range of considerations that have been laid out in the statute but ultimately refined by courts over the last century. And we deploy those considerations in a way that's faithful to the legal precedent.

58:13But it is necessarily predictive. It's necessarily forward-looking and does not require certainty and prediction. It's a risk assessment, and that's how we treat it. And we use the best evidence we have available, the best data, the best analytics, the best economic evidence to try to be as accurate and responsive as we can to the facts on the ground. But ultimately, it's a risk assessment. Merger's good. Monopoly's bad. I'm going to have that made as a bumper sticker, I think. Jonathan Cantor, thank you so much for coming on All Thoughts. Really appreciate it. Very good. It's such a pleasure to be with you.

58:51And thanks for such a fun conversation. And I'm going to go home and tell my kids that I'm officially hipster. Maybe not in antitrust, but in. We did it. We converted it. On an econ podcast.

59:17Joe, that was really interesting. There are so many things to pick out of that conversation. I enjoyed hearing Jonathan's anecdote from, I think it was 1996, about how people at the, I think it was the, wasn't it the FTC at that time, how they were sort of generating leads for cases. I know. I think I've like heard about that. It's like, yeah, you're just like, oh, this is - Open the paper. Open the front page of the Wall Street Journal. It's like, hmm, there's an interesting sounding deal. It's like, oh, we find, they find out about him the same way that we do. Or a farmer comes and complains about poultry tournaments.

59:51The other thing that was interesting just in the context of AI and tech was that new, it does seem like more attention being paid to perhaps new types of ownership structures. So not outright mergers, but if you take a minority stake or something like that in a company, it could still garner interest. That was really interesting. The fact that perhaps some of the avenues of where anti-competitive behavior could turn up in data ownership, that's going to be huge, obviously. Right. I mean, that's already this huge deal. You hear it about it in finance all the time, like who has access to financial data, how much they charge for it.

1:00:29But now if these data sources are basically what you build a business off of, I thought that was super interesting as well. Right. And like throughout recent history, data has always been a source of competitive edge and like almost de facto proprietary, right? Yes. Like this is how you become a big and powerful tech company by having access to powerful and exclusive data. It's going to be really interesting to see how they sort of deal with that aspect of it. I'm still like really interested and I don't think there's like an answer that can be even given to the question. But this idea that we talked about, like how it fits into other priorities of like, you know, going back to like the sort of broader biodynamics question of like, you know, I do think that there is like some tension between do we want a consolidated banking system that's really stable or a competitive one in which, you know, some banks aren't too big to fail, et cetera.

1:01:25I think some of these questions about, you know, how small do we are? Can small businesses be bad? There are some really interesting, like fitting it into like the sort of like broader like biodynamics or maybe like the progressive framework is like very interesting to me. Right. And Jonathan was very diplomatic about, you know, saying that it's not his job to sort of sort out what the U.S. banking landscape should look like. It's his job to enforce the existing law. But you do kind of wonder, like, who is making those decisions and whether or not they're being made on a sort of holistic top down level?

1:01:58I think Jonathan would be a great law professor. You know, this is like, no, seriously, I like like I like I said at the beginning, I don't know anything about this stuff. this has really never been my like sort of like realm of like thinking and I actually felt like I genuinely learned a little bit about how our antitrust system works by talking to Jonathan. Now you've been like Sherman Act pilled. I'm Sherman Act pilled. All right. Shall we leave it there? Let's leave it there. All right. This has been another episode of the Odd Lots podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway.

1:02:28And I'm Joe Weisenthal. You can follow me on Twitter at The Stalwart. I don't think Jonathan's on, but you can follow the DOJ Antitrust Division at JusticeATR. Follow our producers, Carmen Rodriguez at CarmenArmin and Dashiell Bennett at DashBot. And check out all of the Bloomberg podcasts under the handle at podcasts. And for more OddLots content, go to Bloomberg.com slash OddLots, where we have transcripts, a blog, and a newsletter. And check out the Discord, discord.gg slash OddLots. listeners hanging out in there 24-7, chatting about all of these topics and more. And if you enjoy Odd Lots, if you too have been antitrust-pilled, then please leave us a favorable review on your favorite podcast platform.

1:03:13Thanks for listening.

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