CNBC Exclusive: CNBC Transcript: FTC Chair Lina Khan Speaks with CNBC’s “Squawk Box” Today

WHEN: Today, Wednesday, May 10, 2023

WHERE: CNBC's "Squawk Box"

Following is the unofficial transcript of a CNBC exclusive interview with FTC Chair Lina Khan on CNBC's "Squawk Box" (M-F, 6AM-9AM ET) today, Wednesday, May 10. Following are links to video on CNBC.com: https://global-deals.online/video/2023/05/10/ftc-chair-khan-on-regulation-to-ensure-incumbents-dont-squash-competition-with-existing-dominance.html%3C/a%3E and https://global-deals.online/video/2023/05/10/ftc-chair-lina-khan-what-best-produces-breakthrough-innovations-is-competition.html%3C/a%3E.%3C/p%3E%3Cp%3E%3Cstrong%3EAll references must be sourced to CNBC.

ANDREW ROSS SORKIN: The Federal Trade Commission calling for a scrutiny of companies that are developing artificial intelligence technologies. In an op-ed just last week, the FTC Chair Lina Khan warning about what she calls quote, "The expanding adoption of AI risks, risks further locking in the market dominance of large incumbent technology firms." We want to talk about that and more joining us right now in an exclusive interview with FTC Chair Lina Khan as we discuss the world of competition which has become probably the most important thing inside boardrooms around the country and now the world these days. Chair Khan, thank you for joining us.

LINA KHAN: Great to be here.

SORKIN: Let's let's talk about AI specifically and how you're looking at big tech. Of course, Microsoft just partnered up with ChatGPT. We're going to be hearing later today actually from Google around their AI technology Bard but how do you think about big tech and AI at this point?

KHAN: So look, these are new tools, but it's important to know that the existing rules still apply. There is no exemption or legal shield that AI enjoys. And so for the FTC, that means that our laws prohibiting unfair practices, deceptive practices, unfair methods of competition, discrimination, collusion, all of those laws are still going to be applying and companies need to be on notice accordingly.

SORKIN: But how do you think about competition in this context? One of the things that's clear about AI is it requires remarkable amounts of compute power, you can it consider an infrastructure if you will and you talk about incumbents being the winners in this game which I imagine is something you would like to avoid. How do you avoid that if that if you think that that is the right outcome, how do you avoid that in with a technology that requires vast amounts of money? I mean, the reason that ChatGPT and OpenAI, you know, did this deal with Microsoft, for example to begin with was because they needed access to lots and lots of capital.

KHAN: Look, there's no doubt that so far, we've seen how these technologies really thrive on huge data sets, huge amounts of compute power, and that certain larger firms may have an advantage. What we need to do as law enforcers is ensure that the types of opportunities and openings for competition that these moments of technological disruption can present, that those moments are not getting squashed out by the incumbents. And so historically, we've seen that these moments can allow new firms, can allow startups to really enter and thrive and provide new innovations and make sure those innovations are being provided to all Americans and as enforcers that's what we need to be especially vigilant about to make sure that incumbents are not using their existing dominance in ways that are unlawful or anti-competitive to squash out innovation and squash out competition.

SORKIN: But you have no problem if a Microsoft or a Google or an Apple or an Amazon, a big tech company ends up winning the AI game if you will?

KHAN: Well, look, it's going be a very fact specific inquiry. I think history has to be a cautionary tale for us here. We need to look at what transpired the last time around when there was a significant technological inflection point where unfortunately and lawsuits from both the FTC and DOJ note this unfortunately, the dominant firms were able to engage in anti-competitive practices in ways that shifted the trajectory of that innovation and I think we need to be especially vigilant to make sure it's not unlawful practices that might be contributing to that.

SORKIN: I just mentioned Microsoft before. Let me ask you about Microsoft and Activision, this is a transaction that you have been investigating. As you know, the UK competition authorities have effectively blocked that transaction. They actually blocked it effectively using a slightly narrower or a different argument than I think perhaps you were looking at this was specifically around cloud, the cloud gaming market as opposed to simply the console market. But can you see how your views of this transaction and their views differ?

KHAN: So this is a matter that's under active in active proceedings so there's a limited amount that I can say about it, but the FTC separately sued to block this deal back in early December, and the complaint lays out various concerns that the commission has that includes concerns in the console market but also concerns in the cloud market, in subscription markets that are still expanding and developing. So it's really looking at several markets, including those that are still fast growing and still developing. I think we've seen time and time again, how these nascent markets can be ones where enforcers have a special mandate to make sure we're protecting competition, protecting innovation, and again, not allowing incumbents to thwart competition and innovation.

SORKIN: Let me ask you about this. Jay Clayton, former chair of the SEC and Gary Cohn, formerly of the NEC, were on this program last week. They also had an op-ed in the New York Times I'm sure you read it about what they call the outsourcing of regulatory policy to Europe and they write the following they say, "Some regulators in their zeal to achieve a social policy agenda set by a few extreme progressives in the Democratic Party seem to be embracing a new strategy that evades constitutional impediments outsourcing U.S. regulatory policy to Europe." What do you think of that?

KHAN: Look, those allegations are just flatly untrue. There is long been a history of U.S. enforcers cooperating with, sharing information with international enforcers that's occurred over multiple decades under both Democratic and Republican administrations. Interestingly, the business community has supported and actively encouraged that topic, that type of cooperation and coordination. And so, you know, the FTC here reached an independent judgment back in December looking at the facts before it, looking at the laws of the U.S. as applied to these facts, as applied to this transaction. And each jurisdiction applies its own authorities, applies its own laws. We, of course, engage in best practices in terms of coordination and information sharing, but there's no question that every enforcer is using its own independent judgment to reach the conclusion that it does.

SORKIN: How do you think and this is an international business question, how do you think about U.S. dominance or whether we should want U.S. dominance by certain U.S. companies, relative to the dominance of industries by foreign competitors? I ask because as you know, earlier this month, the FTC proposed a change to the agency's 2020 consent decree for Meta and Meta came back and said, why are you doing this to us? You're gonna injure us even more and look over there in China at TikTok and what it's doing. And I'm curious if you can even talk about to the extent you think about the sort of competition internationally how that plays into your thinking.

KHAN: So look, I think what history and experience has shown us is that what best positions the United States to compete internationally as to stay ahead internationally, is making sure that we're home for innovation and what best produces breakthrough innovations cutting through, cutting edge technologies is competition. I think we've seen time and time again, monopolies and incumbent firms arguing that they need to preserve their monopoly to make sure that the U.S. stays ahead. But historically, the U.S. has instead enforced competition laws, enforced antitrust and that is what has led us to be the comb of cutting edge technologies. I think we saw that you know, back with IBM back with AT&T when the government required AT&T to open up its patent vaults as part of an antitrust action that led to decades and decades of innovation. I think we saw that Silicon Valley was birthed in the wake of strong competition and antitrust enforcement. And so I think we need to be very wary of arguments that it's really a monopoly that's going to best position us to thrive internationally when time and time again, we've seen the exact opposite.

SORKIN: Chair Khan, I think Joe's got a question for you.

JOE KERNEN: I do. Chair Khan, a former SEC Chair Jay Clayton also kind of intimated that it almost appears that that size and power are sort of on the target of the FTC at this point, whether there's unlawful or illegal behavior at the core of what's happening. And I'm, your groundbreaking thesis, whatever you want to call it on sort of a 2.0 and for antitrust with Amazon and platforms and the like and the power that that that that gives the company kind of displaces consumer benefits. I'm wondering is it a whole new approach to doing this? It just because a company is big and powerful and appears to be a monopoly even though it's not doing anything wrong, if you decide that that is grounds for action eventually consumers could be hurt. Consumers have done very well with these big companies I think in the United States, you'd have to say that iPhones, apps, everything else. Are you sure that's the right move and it will benefit consumers down the road?

KHAN: Look, we enforce the laws on the books. Congress passed antitrust laws because Congress was suspicious of monopolies and the abusive and unlawful practices that monopolies can engage in and I think we've seen time and time again that what's best for consumers, what's best for innovation, what's best for ensuring that the U.S. is at the cutting edge is enforcing the antitrust laws. And I think there's no question that when you have dominant incumbence, they can squash opportunity for newcomers. You know, we should celebrate the success of of successful firms. But we also need to make sure that they're not crowding out the opportunity for the next generation of startups, for the next generation of entrepreneurs that could bring those even greater innovations to market and so that's really what we look at is the existing laws how they apply to the facts before us. And we've seen again, lawsuits both from the Federal Trade Commission, from the Justice Department under this administration, under the prior administration, with serious allegations about anti-competitive and unlawful practices, by some of these same firms. And so we need to take that seriously.

SORKIN: Right. Chair Khan, wanted to get an update. Last time, you spent time with us and you graciously came on I think was the day that you announced or the day after you announced the plans to to look at non-compete agreements on a federal basis. I'm curious where that now stands. I know that the Chamber of Commerce and others have said that they will go to court over this but you've now been in a listening mode. Obviously, lots of comments have come in, what have you learned?

KHAN: So, we have received over 26,000 comments. Our comment period closed a couple of weeks ago, we also did some listening sessions hearing directly from folks and we're still making our way through those 26,000 comments, but there's no doubt that we've heard directly from people about their experience with these non-competes and how these non-competes have blocked them from taking a better job a better opportunity. We also heard from startups and entrepreneurs and folks in the business community about how these non-competes have locked up talent pools in ways that prohibit them and inhibit them from expanding and scaling up. And so there's effect, an effect not only on workers, but also an effect on competition, and startups and entrepreneurship. And so, we're looking at that evidence closely. There's no doubt that we've heard voices from all sides. We heard in particular from healthcare workers about how these non-competes that are governing works, doctors that are governing healthcare workers may also actually be impeding the quality and access of healthcare. So that's something that we're looking at closely as well.

SORKIN: I'm curious though, and look, we talked about it in the context of healthcare workers who very, very much seem to be in that category where there's non-compete agreement, maybe doesn't make sense or a hairdresser or something of the like. But have you also heard on the other end about some of these senior executives and the kind of payments that they're made and you do make a distinction between the two? Should there be a distinction between the two?

KHAN: That's something we're looking at closely and some of the questions that we asked in our initial proposal was, should there be a line that's drawn here and if so, where should that line be drawn. I will say we also actually got comments from some of those same senior level executives, that also talked about how non-competes that had prevented them from actually starting their own business and creating new competition in the market. And so, we're looking at all of this closely and we'll decide where it lands when we come out—

SORKIN: It's a timely, Chair Khan, it's a timely issue because as you know, Tucker Carlson has just decided that he has been fired from Fox but wants to start a new company, a startup, if you will, on Twitter, but of course this has a non-compete is paid by Fox. Elon Musk and Twitter I think would like him to come to some degree, unclear. What do you think about an example like that?

KHAN: Well, look, I think in instances where we've seen how non-competes are preventing people from starting their own venture that can create a lot of concern. I think we also need to look at, you know, whether somebody's being compensated for a non-compete or not. I will say as a general matter, you know, we're very interested in what is this non-compete looking to achieve? Is it really designed to lock out competition, to prevent somebody from getting a better job a better opportunity, or is it designed instead to protect trade secrets? And if so, why don't we look at trade secrets' laws, at non-disclosure agreements, at other tools that are available that could protect those legitimate interests without blocking competition without keeping people locked into jobs that they no longer want to be in.

SORKIN: Right. And I know we're running out of time. I have a final question for you. As you know, there are a lot of vacancies at the FTC specifically, there are now three Democrats and no Republicans at the FTC in terms of the members that are there. Christine Wilson stepped down earlier this year and as you know, she said she was doing so because she thought that you had a quote, "Disregard for the rule of law." What does that do or not to the credibility of the agency?

KHAN: Look, we're doing the important job that Congress has given us. I think the commission is at its best when it's at full strength. And so we really look forward to new commissioners that the President is appoint, will appoint and the Senate will confirm. Look, there's no doubt that there is significant bipartisan concern, including in Congress, about the fact that markets across the board become less competitive, that we see greater monopolization and that's having a negative effect on consumers, on workers, on new business formation, on innovation. I just testified on the hill over the last few weeks and I heard from members of both parties significant concerns about how monopolies are hollowing out parts of rural America. They're making it difficult for people to be able to afford essential medicine. They're locking workers into jobs. And so, you know, I take those concerns from both parties very seriously and it just underscores what an important job Congress has given the FTC and we're going to continue to do that job and ideally, we'll have new commissioners to welcome at some point as well.

SORKIN: Chair Khan, we want to thank you for joining us in this wide-ranging conversation this morning. We look forward to talking to you again, very, very soon.

KHAN: Great, thanks.