The FTC Continues to Prioritize Ideology over Consumers

E arlier this year, the Federal Trade Commission (FTC) ordered biotechnology company Illumina to unwind its $7 billion acquisition of Grail, a cancer-screening start-up. The case, pending before the Fifth Circuit Court of Appeals, highlights the agency’s continued hostility towards mergers and acquisitions — even when the deal would be good for consumers.

As I noted in National Review Capital Matters back in March, this saga began when Illumina founded Grail in 2015 and spun it off one year later. Grail then developed a product capable of detecting early signs of 50 types of cancer from a single blood test. The product, called Galleri, faced prohibitively high costs of production, prompting Illumina to buy back the company to expedite consumer applications. The acquisition would very likely have given Grail’s team sufficient resources to make the Galleri test widely available. By the company’s estimates, a one-year acceleration of access to the Galleri test could save 10,000 lives over a nine-year period. Despite Galleri’s potential to improve cancer-screening, however, the FTC is trying to block the deal based on speculative claims.

The FTC believes that the potential harm to hypothetical competitors outweighs the real benefits the merger stands to offer consumers. In its 2021 complaint, the FTC claimed that Grail is “racing against several other firms to develop and ultimately commercialize this revolutionary technology.” At the time, neither Grail nor any other company in the multi-cancer-early-detection (MCED) market had any sales, received FDA approval, or successfully launched their product.

In the race to develop this revolutionary technology, the government has proved to be a hindrance. The FTC penalized the front-runner instead of encouraging free-market competition and innovation, thereby delaying the development of Galleri and improvements to cancer diagnosis. Since there is no evidence of anticompetitive harm, the commission could only substantiate its concerns with guesses about the hypothetical future market.

In many ways, the FTC’s allegations are unsurprising and representative of its broad rejection of mergers and acquisitions, and of the agency’s recently acquired penchant for speculative legal theories. The complaint alleges that Illumina is the sole provider of one of the inputs for MCED tests, and that the company would have both the ability and an “increased incentive to disadvantage close competitors.” The FTC’s in-house administrative-law judge, however, found that the agency had “failed to prove” this claim about Illumina’s foreclosing the competition. The commissioners overruled their own administrative judge’s decision, and, in April, Illumina appealed to the Fifth Circuit Court of Appeals.

At the center of this dispute is an agency now acting with little accountability. For 40 years, the FTC seldom litigated vertical-merger challenges, yet that record has changed under the Biden administration. The current FTC leadership does not want to be restrained by the guidelines and policies that the agency previously set for itself. According to Chairwoman Lina Khan, vertical mergers are inherently anticompetitive: In particular, she has stated that the 2020 Vertical Merger Guidelines, which were introduced during the Trump administration, “contravene statutory text, improperly suggesting that efficiencies or ‘procompetitive effects’ may rescue an otherwise unlawful transaction.” Khan asserts that antitrust law leaves little room for regulators to consider the benefits derived from such a merger.

Professor Carl Shapiro of the University of California at Berkeley and Herbert Hovenkamp, professor at the University of Pennsylvania, called this statement “baffling” because efficiencies have to be taken into account. Since the Clayton Act forbids mergers whose effect “may be substantially to lessen competition, or to tend to create a monopoly,” pro-competitive effects must inherently be part of the government’s antitrust analysis. The commission cannot say that a transaction would lessen competition without considering such efficiencies.

As the case progresses in federal court, it is important to consider how the FTC’s actions have affected consumers: A cancer-detecting test has been stalled and remains out of reach because government officials want to exert greater authority over our markets.