“The most important case that the FTC has brought in its 109-year history”

The government’s landmark lawsuit against Amazon filed yesterday marks a historic test of the century-old antitrust law by the Federal Trade Commission and could reshape how competition law is applied, a former agency chair says.

Amazon stands accused of using illegal and anti-competitive tactics to build its $1.3 trillion empire, business practices that the FTC alleges impaired its third-party sellers, stifled its competition and, ultimately, denied consumers a more vibrant market.

Former FTC Chair Bill Kovacic said in an interview on the POLITICO Tech podcast that the FTC’s argument is an interpretation of U.S. antitrust laws for modern digital businesses — in which current chair Lina Khan is challenging some of the long-standing assumptions about how corporate monopolies harm consumers.

Kovacic gave the commission credit for filing its complaint alongside 17 states, saying it signaled to the court and political class that there’s “wide public support” for the approach, though it’s not clear whether Amazon will manage to successfully parry the attack.

Now a global competition law professor at George Washington University Law School, Kovacic was a Republican FTC commissioner from 2006 to 2011 and served as chair during the end of the George W. Bush administration. The following interview has been edited for length and clarity. To hear more of his views, including on current FTC Chair Lina Khan and the prospect of breaking up Amazon, listen to the full interview on POLITICO Tech.

Steven Overly: I've seen this lawsuit billed as the federal government's most significant attack yet on big tech companies. A historic test for Amazon and the FTC. Sweeping. Groundbreaking. Landmark. How would you characterize it?

Bill Kovacic: It's unmistakably important. I hesitate to say it's more significant in its aims and its scope than the Department of Justice pending case against Google on search, and then the DOJ case that will go to trial later on ad serving. But by any measure, it's an extraordinarily important case. You can argue, I think without exaggeration, it's the most important case that the FTC has brought in its 109-year history.

Well, let's talk about the case that the FTC has filed here. It argues that Amazon has become a monopoly, really, by locking sellers onto the platform in a lot of ways, by making it harder for other online retailers to achieve the same size and the same success and scale. What was your impression when reading the FTCs argument?

Part of what the commission has done, I think skillfully, is to write a good story. The art of writing a good complaint, in the modern era of antitrust policies, is to write a good story. And it's a good story that tells the FTC's version of events, but also integrates comments and observations that come out of the company's own documents. So notice throughout the complaint, you have sprinkled public comments that have been made by key executives like Jeff Bezos.

Now, the complaint, a doorstoping 171 pages, contains a number of sections that have been excised. That is, they've been excised for public consumption. The unredacted version will tell us more about what was going on. Almost certainly, those redacted portions not only give us the details about Amazon's market position, but contain more quotations that come from Amazon itself. But the FTC, I think, has done a good job here telling that story.

And the crucial feature of the case will be the arguments that Amazon marshals against it, both attacking the FTC’s version of the facts, that is, has the FTC correctly interpreted what it's looking at, but also add its own view about how the behavior in question arguably made the experience of users better than it would have been otherwise. That's the heart and soul of the debate in the courtroom.

So that feeds well into my next question. Most of us engage with Amazon as shoppers. And Amazon and its supporters have said their size is good because it means shoppers find goods that are cheaper, they get them faster. So it did strike me in reading the case that much of the harm the FTC identifies seems to actually be harm to sellers on the platform.

And the FTC would say that the immediate argument they're making is that other sellers suffered. And the restrictions on other sellers had a couple of effects. One is to make it difficult for other platforms to emerge, to make it difficult for them to achieve the scale of operations that would make them successful. But an argument that the FTC ultimately is seeking to develop is that these adverse effects on sellers and other platforms ultimately operated to the disservice of consumers themselves. That is, had sellers had more options, had other online platforms had greater capacity to emerge and thrive, that the experience that users have today would have been significantly better.

Now, that's a bit of a tricky argument for the FTC. If I'm talking to a body of users, who presently, in many respects, are happy with what they get, they enjoy the convenience, the breadth of options. It's a little bit of a different argument to say, "As happy as you are now, life would have been even better. … And you'll never know what you're missing, because those alternative possibilities are forestalled in the way that Amazon operates its platform."

There has been a lot of debate about whether antitrust law is fit for purpose in this modern digital era of business. I mean, the reality is that the federal laws Amazon is accused of violating here were passed in 1890 and 1914. Is the FTC taking creative liberties here in how it is applying those laws?

They're engaging in a process that I think they would say is faithful to a tradition of evolution and adaptation. The only way those older statutes can serve a vital and valuable purpose in the modern economy is that interpretations evolved. And the statutes themselves, for the most part, are cast in very broad terms.

So the FTC is saying here, as it has said in other instances, "We're faithful to that tradition. And our application of the law reflects the expectation of Congress that we would be able to address new phenomena." Now, we can ask, still, in the very good question you pose, is this fit for purpose? As one colleague once put it, is this trying to win a Formula One race riding an ostrich while the Formula One racers go sweeping by?

And is that the case? Is this a Formula One race with an ostrich at the starting line?

I guess I see it better than that. But I don't think the government is driving state-of-the-art Formula One racers.

Given that you are a former chair of the FTC and obviously have studied antitrust law much more broadly than that, was there anything novel or surprising to you as you read through the case and the arguments here?

The case is a clear effort to apply a number of concepts that have appeared in the commentary about competition law in the past 20 years. One is to appreciate that businesses don't simply use one technique to succeed. They use a variety of strategies. Second, it's trying to incorporate a modern literature that is much more sensitive to the possibility that a variety of techniques used by large enterprises that reinforce large scale, that take advantage of the growth in the number of users and sellers, gives them a decided advantage over other companies. That in order to prosper, you have to be large.

So another thing I'd say is a bit new here in this instance, this is a major effort to integrate into this case a good deal of economic learning and legal commentary that's emerged in the past 20-30 years dealing with Big Tech. And the chair of the FTC is uniquely well positioned to do that because she was a major contributor to that literature. Her ascent to prominence takes place in 2017 when she writes a large manifesto dealing with Amazon and accuses antitrust law of being too timid in coming to grips with the practices that made Amazon great.

I was going to ask you about this. As you said, Chair Lina Khan has talked about Big Tech and its market dominance, and Amazon in particular, since the very beginnings of her legal career. I'm just curious, as a former chair, what do you think is going through her mind now with this big lawsuit dropping?

I think it's faintly intoxicating to realize it. Six years ago, she was publishing a law student’s paper, a large paper in a law journal. And today, six years later, she's in a position to set in motion, with her two colleagues, a case that is trying to redress some of the concerns that she laid out in that paper. To go from being a third-year law student to being the chair of the Federal Trade Commission in six years is faintly improbable. And it didn't happen by accident. So I think that one thing that's going through her mind is, my goodness, I got the opportunity to not simply talk about what ought to be done, but to give it a try.

At the same time, I suspect there's an awareness that all chairs have of how difficult it is to cross the distance between the policy aspiration and goal, and its realization in practice. Coming up with a plan is one thing, making it work is an entirely different thing. And as an academic, you learn quickly how hard the game is, the difference between watching a sporting match in the stands and being summoned to the field and saying, "You play. Let's see how you do."

The FTC, we should note, is not acting alone here. There were 17 states that also signed on to this complaint. Most with Democratic attorneys general, a couple of Republicans. What do you make of the level of state involvement? And what impact does that practically have?

One practical effect it can have is that it makes a few more resources available to you. That is, especially the larger state governments. New York is one of the named plaintiffs [and] can provide some very capable people to assist.

The fact of the state presence, I think, does give in at least some extent, a broader indication of wide public support. So that if someone steps back and says, "It's the crazy Federal Trade Commission running around on its own, way out of the mainstream of policy," you can say, well, what are these 17 state governments doing here, then? Are they all crazy, too? I think it helps provide a signal, not simply to the court, but to the larger political environment, that our case is not an idiosyncratic case that only we believe in. That there is a larger body of public officials who thoughtfully decided it was worth joining. If you're doing something bold, there is some comfort in not doing it alone.

Annie Rees contributed to this report. 

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