WHEN: Today, Monday, January 29, 2024
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, Monday, January 29. Following is a link to video on CNBC.com: https://www.cnbc.com/video/2024/01/29/ftc-chair-lina-khan-on-scrutinizing-big-tech-ai-deals-the-goal-here-is-to-look-under-the-hood.html.
All references must be sourced to CNBC.
ANDREW ROSS SORKIN: Welcome back to "Squawk Box." This morning, the Federal Trade Commission looking into recent deals made between big tech giants Microsoft, Alphabet, Amazon with artificial intelligence companies like OpenAI and Anthropic. The agency saying it's going to scrutinize, quote, partnerships and investments to better understand their impact on the competitive landscape. Joining us right now in an exclusive interview is FTC Chair Lina Khan. And we're thrilled to have you at the table this morning. Nice to see you.
LINA KHAN: Good to see you. Thanks for having me.
SORKIN: So help us understand how you're -- how you're looking at this. These deals, if you will, are not classic mergers, if you will. These are effectively investments but maybe they look a little bit like mergers to you.
KHAN: So we are looking closely at the strategic investments and partnerships between Microsoft and OpenAI, Alphabet, Amazon, and Anthropic. And the goal here is really to look under the hood and understand precisely what is the nature of the relationship here. What are the deal terms? Is there exclusivity that's expected or required? Is there going to be privileged access? Are there rights to board seats or other mechanisms to be exerting control or influence over the business strategy? And just to step back, I want to explain why we're doing this, right? At this moment, AI is a nascent technology that could catalyze enormous growth and innovation. There is enormous opportunity here for a vibrant market. But we also see risk. We see risk of consolidation. We see risk of monopolization. We're already hearing some of the classic national champion arguments. The idea that it's in somehow America's national interests to be protecting monopolies. And unfortunately, we've been down that road before. We see very clearly now with Boeing, some of the dangers of that strategy where you had United CEO Scott Kirby draw a straight line between the 1997 merger between Boeing and McDonnell Douglas and some of the problems we're seeing now with planes falling apart in the sky. So, we need to be careful.
SORKIN: Let me ask you this, part of the advance and frankly the advance of the U.S. companies, OpenAI, Anthropic and the likes have had is the scale of capital that they've been able to access. So, one of the things that AI requires more than anything else is literally just server farms, and it is super expensive, billions and billions of dollars. And, effectively, as you know, OpenAI was a not for profit. It effectively needed the money ostensibly from Microsoft. But the question is, are there private markets or other money that you think that these companies could have accessed rather than doing it with the traditional folks that are probably most incentivized to provide those funds?
KHAN: Look, I think you're absolutely right that these markets and some of these layers require enormous scale, be it at the compute level, be it at the data level. I think we just need to be very wary when you have some of the existing incumbents that are threatened by this moment of technological disruption that they could be using this moment to try to protect their moats and protect their monopolies rather than allow the opportunity that this technology presents to fully flourish.
BECKY QUICK: Look, the weekend that Sam Altman left AI -- left OpenAI and then came back in and everything we heard from that -- I mean, it did seem like a possibility that Microsoft was going to get basically a stealth takeover of Sam, his team, all of that information.
SORKIN: Right.
QUICK: That did make me look at it a little differently. Have you figured out what happened? Is that what kind of set things off for you?
KHAN: So, we've been watching this space quite closely. As a general matter, we -- you know, launched an inquiry into cloud computing. That's another layer where you see a significant amount of concentration. You know, there was a lot of commentary in response to that incident, which I think really called into question what is the relationship here?
SORKIN: Right.
KHAN: Is this really a passive investment or is something more going on? And I think anytime you have control or influence being exercised through some of these partnerships, it's something that --
QUICK: You mean, who sits on the board now?
KHAN: Right. And, you know, we're a competition enforcer. And so, it could have implications for competition and so, we want to understand what's going on.
SORKIN: Interestingly, you called this a study and not an inquiry or investigation. Why did you do that?
KHAN: We have a particular authority that lets us do market-wide studies rather than a law enforcement investigation into a particular target. So, we thought, given where we are right now, it was more appropriate to take a holistic look.
SORKIN: Does that change the dynamic, though, with which you have ability to subpoena or access internal emails and other types of information that you might want to get access to, to better understand what's really happening under the hood?
KHAN: No, the information request we sent has the force of law. We can enforce them in court if the companies defy them. So, from that perspective, it's the same.
SORKIN: Do you use these services yourself?
KHAN: I have used them in the past. You know, they're remarkable in a whole set of ways.
SORKIN: How do you use them? I mean, like you use them to send emails? I mean, what are you doing?
KHAN: I used one to contest a medical bill. You know, sent -- typed in my general complaint and it spat out back a response. So, it was useful.
SORKIN: Have you -- you have not used one yet to see whether you could produce a suit against one of these companies?
KHAN: We haven't. I know --
SORKIN: I thought about doing that this morning before you got here. I have not done it yet, but that's on my list.
KHAN: Yeah. I know some lawyers who got into trouble with courts and judges, you know, fake citations, and that sort of thing. So, you got to be careful.
QUICK: Ro Khanna was here, and he said that he might push for everyone around OpenAI and some of these other artificial intelligence companies and projects to try and find out what really happened that weekend of the OpenAI, the Sam Altman battle. Might push to try to find out what the relationships were with some of these things. Which agency -- is it Congress, do you think, will have more power to write laws, and do some of these things? Do you think it's the FTC that will be able to dig deeper and break down some of these relationships? Who -- who's going to have the authority, and who's frankly is going to have the ability to get things done?
KHAN: Yeah. I mean, as a general matter, this is really an all-hands-on-deck kind of moment. And we truly see interest across the federal government. The White House, the other month put out an executive order on artificial intelligence, really, you know, charging agencies across the border to bring all of their authorities to bear to make sure that regarding again some of the risks and dangers of this technology and really safeguarding the opportunities, including on the competition front. And so, we're already seeing great intellectual leadership. Now is time for the policy to follow on.
QUICK: I know you've said it's kind of the standard playbook to say nationalistically we need to get ahead, and that's why you protect some of the monopolies. But they do have a point in that China is pushing so hard and so fast on AI, there is a concern that you don't want to get left behind as American. And as Andrew pointed out, this requires some really deep pockets, deep spending. China's government is spending a lot of money on this. What happens if American enterprise is not doing the same?
KHAN: It's a really good question. And we've heard these arguments before, right? I mean, go back several decades when the antitrust division was investigating AT&T. You heard a lot of arguments about how we shouldn't break up AT&T, because we needed them to allow us to compete globally. We at that moment instead chose competition. We doubled down. We brought the suit. We required AT&T to open up its patent vault. We ended up broking them -- breaking them up. That ended up feeding huge amounts of innovation. Countries at that moment then instead doubled down to protect their monopolies unfortunately got left behind.
SORKIN: I tell you about opening up moats or things like that, I wanted to ask about something that took place last week. I don't know if you saw Apple announcing that it's going to change the way its App Store works in Europe to comply with the new EU rules effectively allowing side -- what they call side doors, software that's not in the app stream. You can create your own App Store, all sorts of other things. However, they created all sorts of other charges and things that folks like Daniel Ek on Spotify are now complaining about. I'm curious what you thought of what they announced. And also, whether you think that you're going to helping the EU in terms of how American companies comply with that law?
KHAN: So, look, it's a really interesting moment as we see some of these rules come into effect. I think we're going to see it firsthand, what about it works, what about it doesn't work. You know, we're really focused on U.S. enforcement --
SORKIN: Right.
KHAN: -- U.S. policymaking. As you know Congress has been considering some analogous rules and policies that haven't yet gone into effect. And so, if we, in fact, see that European citizens are benefiting from competition in ways that American citizens and companies are not, I think that could create additional incentive to move forward here.
SORKIN: Other headline I don't know if you saw, I'm sure you did -- Microsoft Activision announcing they're going to be firing 1,900 people. Elizabeth Warren came out and said, here's -- here's the reason why this deal should have never approved in the first place. You obviously didn't want it to be approved in the first place. How much should your job be about protecting employees' jobs in terms of how you think about a merger? But second in -- maybe in this specific case, we're now seeing layoffs in all sorts of parts of the technology stock. And so, other companies in the industry. And so, when you look at something like that, do you say to yourself, that's a function of the deal itself? Do you say that would have happened anyway? Do you say, well, maybe it wouldn't have been 1,900, it might have been 800 people? Tell me -- tell me what you think when you -- when you read a headline like that?
KHAN: Yeah. I mean, first of all, let me say my heart really goes out to the 1,900 employees that got a red slip -- pink slip last week. You know, unfortunately from where I sit, this is not all too uncommon after these megamergers. You often see layoffs. From our perspective, as an antitrust enforcer, we're supposed to protect competition in all markets. That includes labor markets. I think one of the things to think about is, you know, these 1,900 employees that were laid off, there could be among them the next big game developer, right? What does the market now look like for their employment? I mean, over the last few years through these waves of acquisitions, you had a lot of the independent studios gobbled up, and just in terms of getting your idea to market, there are fewer and fewer pathways. And so, that's bad for the workers, but it's ultimately also bad for consumers and for the market as a whole.
SORKIN: But you don't think one of those people laid off, hopefully -- I mean, that you think is super talented to the extent that they have this sort of genius idea in their head, can't go find a venture capitalist, or some other capital, create their game and then, frankly, get gobbled up all over again by somebody else, and that that's sort of fabulous version of capitalism if it works that way?
KHAN: Maybe. But in order for that to happen, they have to get their video game to market, right? What are the pathways of doing that? You increasingly now have a very small number of walled gardens. And so, the big question is that independent gamer going to be able to get their game in front of players in the first instance, right? And so, I think as you've seen a shift from a more independent model, where you have multiple pathways to reach gamers to instead now increasingly these --
SORKIN: Right.
KHAN: -- you know, to walled gardens, are you going to be able to get into the walled garden? Are they going to have an interest to let you in? I think these are some of the big questions.
SORKIN: Lina Khan, thank you for being here this morning. We went through a lot of stuff. It's very, very helpful. Thank you.
KHAN: Thanks.
SORKIN: We're coming right back, after this.