Big Tech is trying to disarm the FTC by going after its biggest weapon: Lina Khan

Amazon and Facebook have filed petitions seeking Federal Trade Commission Chair Lina Khan’s recusal in antitrust cases involving their companies.

Khan’s confirmation to the FTC and appointment to lead the agency presents one of the clearest threats of major regulatory action in the tech sector in years. By seeking to recuse Khan, the companies are going after one of the biggest antitrust weapons the FTC has and, whether Khan is recused or not, the decision could muck up the antitrust charges against either company.

Experts told CNBC that it makes sense for Facebook and Amazon to try to get Khan removed from the suits. And by doing so, the companies may be able to cast doubt on Khan, even if she doesn’t recuse.

There’s a bit of a Catch-22: Khan could recuse herself and leave the votes on future antitrust cases against the two companies to a group of commissioners who were evenly split on whether to file the initial charges against Facebook. Or, Khan may not be recused and either company could argue the whole case was tainted from her involvement.

Here’s what’s going on.

Both companies argue Khan’s past writing show she’s already made up her mind on the tech firms’ liability, which the companies say should disqualify her from their cases.

It’s not yet clear how Khan will handle the requests or how a federal court would deal with the challenges if it came to that point. The FTC previously declined to comment on the petitions.

Khan said at her Senate confirmation hearing that she has no financial conflicts that would be grounds for recusal under ethics law and that she would follow the facts of a case where they lead.

Her participation in antitrust matters about the two companies appears vital to their advancement. Both sitting Republican commissioners voted against bringing the Facebook lawsuit, which was recently dismissed by a federal judge. The FTC has an opportunity to file an amended complaint this month, but would need to vote to do so. Assuming both Republicans vote against a new complaint and the other two Democratic commissioners were to vote for one, there would likely be a stalemate without Khan as a tiebreaker.

Even if the companies are unsuccessful in getting Khan recused, they could cast a shadow over future FTC proceedings involving their businesses.

Khan has been heralded as one of the leading progressive thinkers in antitrust since publishing “Amazon’s Antitrust Paradox” in the Yale Law Journal while a law student in 2017.

The article argued that enforcers should apply a more expansive view of antitrust laws to digital companies like Amazon. Khan argued that traditional frameworks that largely assess whether prices go up or down for consumers could miss incentives for high-growth firms to engage in predatory pricing, among other aspects unique to their business models.

Khan also worked for the Open Markets Institute, a political advocacy group that has been critical of several of the major tech firms’ power. More recently, she worked for Democrats on the House Judiciary subcommittee on antitrust, where she helped compile findings from the panels’ investigation into Amazon, Apple, Facebook and Google into a report that made several recommendations for reforms. Khan worked on the Google section of that report.

Amazon and Facebook argue in their petitions that Khan’s past statements and work show she’s already judged their cases, which should disqualify her participation.

Experts interviewed by CNBC said petitions for recusal of FTC commissioners happen but aren’t common. That makes the two petitions in a matter of weeks seem like an outlier.

But, the experts said, it makes sense the companies would pull out all the stops given their opportunity to do so.

“The last thing a party would want to do would be to sleep on its rights, so it’s not surprising that they would go ahead and raise the issue now,” said Stephen Calkins, a law professor at Wayne State University and a former FTC general counsel. “And raising it could serve a purpose even if all it does is to provide an argument the parties could make if any matter ever goes forward and ends up in a court.”

One difference between Amazon and Facebook’s petitions is that Amazon is seeking to block Khan’s participation in a possible future case, while Facebook is seeking to stop her from being involved in an ongoing one.

Calkins and former FTC Bureau of Competition Director Bruce Hoffman said they were unaware of any time restrictions for considering recusal. But, speaking generally about petitions for recusal and not about the Facebook case in particular, Hoffman said a commissioner would want to seriously consider consequences of participation regardless. That’s because a company could use what it sees as the unfair participation of a commissioner in future arguments to show the case against it was unjust.

“That’s a material, real threat to the viability of any decision the FTC might reach on things where a serious recusal issue comes up,” Hoffman said.

The key case both Amazon and Facebook point to as precedent in their petitions is known as Cinderella Career & Finishing School v. FTC.

In that case, the court determined that then-Chair Paul Rand Dixon denied due process by participating in the case after making public statements that appeared to forecast his opinion.

But there’s an important detail in that case that could make it different from current and future cases involving Amazon and Facebook.

In the Cinderella case, Dixon effectively served as a judge during an internal proceeding through the FTC’s administrative law process. Through that process, an administrative law judge will hear a case and make a decision, which either party can appeal up to the full commission. From there, it can be appealed to federal court.

If Khan were to bring a case through the administrative law process, it would more closely resemble the Cinderella case. But if she and other commissioners decide to re-file the Facebook case in federal court, she’d still be handing over the ability to rule on the outcome of the case to a federal judge. Because she wouldn’t be serving as an adjudicator in that scenario, a court might consider a different standard for recusal.

Another case the FTC could point to as precedent is the Association of National Advertisers v. FTC. In that case, then-FTC Chairman Michael Pertschuk was initially ordered by a federal court to recuse himself from a rulemaking inquiry because of past criticism of its subject. But an appeals court later overturned that decision.

Still, Pertschuk ended up withdrawing from the matter because he said it created a distraction.

Even if Amazon and Facebook are unsuccessful in securing Khan’s recusal from their cases, it could continue to cast doubt on litigation against them. The public could be convinced that the lawsuits are politically motivated, for example.

More importantly, a court could decide Khan’s involvement in a case was in fact inappropriate, which could put the lawsuit in jeopardy. So even if Khan’s participation doesn’t trigger the FTC’s rules about recusal and Khan herself does not choose to step away, the decision will hang over the case.

For that reason, any commissioner facing significant recusal requests must consider them carefully, Hoffman said. Still, he added, commissioners can take steps to ensure that their proceedings are “beyond reproach,” such as by having another commissioner preside over an internal case and being especially meticulous with the facts.

“It’s the sort of thing where the FTC might want to look very seriously and carefully and the commissioner at issue might want to look very seriously and carefully at the grounds for the recusal request and determine if they should be recused,” Hoffman said. “Because you don’t want to go through all the work to do a proceeding, get an outcome and then have the whole thing be set aside because of a recusal problem.”

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