FTC chair addresses noncompete agreements, private equity investors

Lina Khan, chair of the Federal Trade Commission (FTC), opened the 2024 AVMA Veterinary Business and Economic Forum October 8 with an update on the ongoing litigation against the agency's attempt to eliminate most noncompete agreements. Then she gave an explanation of what the FTC's new merger guidelines mean for the veterinary industry.

Lina Khan, chair of the Federal Trade Commission, speaks at the 2024 AVMA Veterinary Business and Economic Forum. She says when mergers affect workers because they limit competition for them is "something that antitrust enforcers are absolutely also supposed to be paying attention to and bringing law enforcement actions."

Khan also addressed the FTC's approach to artificial intelligence (AI). She voiced concerns about its potential to amplify harmful practices, such as monopolizing markets through control over consumer data and cloud computing. Specifically, she called out the practice of surveillance pricing, when a business uses a customer's personal data to set individualized pricing for goods and services, and its implications for consumer privacy.

Noncompete agreements

This is the second time Khan has spoken at an AVMA Veterinary Business and Economic Forum. Last year, she told forum attendees that the Biden administration wanted the FTC to take a more active role in its "trust-busting" duties and protecting Americans from uncompetitive markets. That included the FTC banning most noncompete agreements, which prevent employees from hiring on with a business or starting one of their own that competes with their current employer.

The FTC introduced a final rule this April but was prevented from enforcing it for now. The U.S. District Court for the Northern District of Texas in August ruled the agency lacked the legal authority to ban noncompete agreements, declaring the proposed regulation "arbitrary and capricious." The Chair pointed to contrary rulings, including from a judge in Philadelphia, and highlighted another proceeding Florida, where the FTC is still in the appeal stage.

"This was a top priority for us this year, finalizing our noncompete rule," Khan said. "That rule was set to go into effect on September 4, but several big business groups sued the FTC, and we are still in litigation.

"Regardless of the rule, we also have our enforcement tools, which allow us to bring lawsuits and litigations to address noncompetes that we believe are unlawful and unfair methods of competition."

During the rulemaking process, the FTC received around 26,000 comments from citizens sharing how noncompete agreements had negatively impacted them.

"I was struck by the extent to which we heard from veterinarians-hundreds of people sharing stories about how noncompetes had buried them in expensive litigation, cost them job opportunities with better wages and conditions, and even forced people to uproot their families or commute hours away from their families," Khan said.

"I want to thank everybody," she added, "including those folks in the audience who took the time to share your comment with the FTC. We firmly believe we have the authority to do this rule, and so we're going to keep fighting, and can also do litigation and lawsuits in tandem."

Mergers, acquisitions, and private equity

Khan also discussed veterinary practice mergers within the context of market consolidation, and how the FTC's merger guidelines, introduced this past December, can help the agency keep up with how companies are doing business in the 21st century. These updated guidelines incorporate labor market considerations into the FTC's evaluation of mergers

Significant consolidation has occurred within the veterinary services sector, according to Khan, with 25%-30% of veterinary practices, including nearly 75% of specialty clinics, now under large corporate or private equity ownership. The FTC has been watching for serial acquisitions-where a firm buys up several small practices-which can lead to market dominance.

"Each one individually can be relatively small, but in the aggregate, a series of deals can still effectively consolidate a market or roll up the market," said Khan, adding that the new merger guidelines allow the FTC to evaluate the cumulative impact of these acquisitions, including on labor markets.

Khan said not all PE firms are the same and that the FTC's evaluation depends on specific facts, such as a firm's business strategy and its impact on the market after purchasing assets. For instance, some PE firms employ a "strip and flip" model in which they acquire assets, strip them of their value, and then lease them back, often burdening the business with debt. This can weaken the competitiveness of the business over time.

The FTC is also monitoring research that shows negative impacts from private equity in areas such as health care, in which PE investment has been associated with higher prices, lower quality, and inadequate staffing levels

"The stakes here could be enormously high, with people not just paying more, but sometimes even getting worse quality of service and care, which in the health care space is just so incredibly important," Khan said.

Artificial intelligence

Regarding AI technologies, Khan said that, while the FTC does not have AI-specific regulations, the agency applies existing laws to prevent fraud and anticompetitive practices.

"We want to make sure that to the extent that those opportunities exist that people are able to make use of them," she said. "But what we don't want is for certain types of fraud and deceptive practices to be turbocharged, which is already what we're seeing, because these tools allow fraudulent practices to be disseminated much more quickly, much more cheaply, and on a much wider scale."

Khan concluded her presentation by touching on the issue of surveillance pricing.

"We are living in a world where our devices are collecting an enormous amount of data on each of us, and there is an ecosystem of players buying and selling a lot of this data, including pretty sensitive data," she said. "There's a real question about how firms and retailers are actually using this information and where they may be able to set person-specific prices based on exactly what they know about you."

"We're trying to figure out to what extent is this already happening," Khan continued, "because we do believe that the means are already available to make it happen, given the degree to which firms have access to an enormous amount of very sensitive personal information about all of us. So, we've launched an inquiry, and we're scrutinizing some of these middlemen that are marketing services to end retailers."

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