The DOJ and FTC's antitrust policy will kill tech innovation

Technology startups are crucial drivers of economic growth and my previous experience running a venture fund and serving as general counsel for a small tech firm, I understand how vital it is that we foster a legal and regulatory environment that allows U.S. companies to keep that competitive edge. Unfortunately, the Biden administration ’s overzealous antitrust enforcement strategies threaten to undermine the development of future tech startups. This must change.

Over the past two years, the Department of Justice and the Federal Trade Commission (FTC) have challenged an unprecedented number of proposed mergers and acquisitions. The agencies’ approach, which has essentially made opposition to any consolidation their default position regardless of market conditions, has upended decades of relatively stable antitrust enforcement standards and has had a chilling effect in several economic sectors.

As an elected official from Utah, I am deeply concerned about the DOJ and FTC’s overly aggressive enforcement of antitrust laws, specifically its efforts targeting mergers and acquisitions in the technology industry. These policies threaten the vitality of Utah's growing startup community and the broader U.S. innovation economy.

To be clear, antitrust law plays an important role in our legal system and economy. When properly enforced, laws governing marketplace competition protect consumers from anti-competitive and monopolistic practices. However, problems arise when enforcement agencies fail to consider the specifics of individual markets and the unique needs of market participants. Startup companies, particularly in the technology industry, play a unique role in the broader ecosystem, one that must be considered in context.

Virtually all tech startups exit the market in one of three ways: acquisition, an initial public offering, or failure. Regrettably, failure is the most common outcome for these fledgling companies. When tech startups fail, valuable intellectual property and innovation can be lost forever. Acquisitions and IPOs, on the other hand, offer more favorable outcomes for these companies, their investors, and the overall economy.

For U.S. startups, acquisition has become the preferred exit strategy mostly due to the high costs, regulatory burdens, and scaling challenges associated with IPOs. Most of these companies are built with acquisition by a larger company as the primary end goal. In many respects, the contemporary startup marketplace has been built around the presumption that acquisition will remain a viable and profitable option for the innovators and entrepreneurs that create these small businesses.

The DOJ and FTC’s constant opposition to acquisitions in the technology sector has already hampered the startup marketplace, as the crackdown is making it increasingly harder for startups to find buyers. This is one of many unintended consequences of the federal government’s heavy-handed enforcement of antitrust law.

This ill-advised policy shift is particularly harmful to startups in Utah. As a recognized technology hub, our state has reaped significant benefits from acquisitions of local startups by major technology leaders such as Adobe, Dell, and SAP. These companies have followed up their acquisitions by expanding their presence in Utah, creating jobs, and fostering a thriving innovation ecosystem.

The uncompromising approach taken by the DOJ and FTC disproportionally affects places such as Utah. Setting aside the significant economic and regulatory costs, only about 10 percent of U.S. startups have the necessary technology, leadership, and business model to eventually go public. Moreover, the small number of startups that are able to take the IPO exit is largely concentrated in regions with larger, more established startup ecosystems, such as Silicon Valley and New York.

So, for many Utah-based startups, acquisition offers the only viable exit strategy, making it essential for attracting large companies to invest in our state and create jobs. If federal agencies effectively take that option off the table, it will do significant damage to our state’s economy.

Both the DOJ and FTC have been dealt several high-profile losses when their challenges to proposed acquisitions have gone to court. Yet they have not altered their tactics or modified their aggressive postures. All of this suggests their strategies are based more on ideology than on any defensible interpretation of our competition laws.

While most reasonable people support efforts to promote competition and protect consumers, antitrust enforcement must be approached with nuance and consideration for the unique needs of specific sectors and individual companies. A one-size-fits-all approach to antitrust enforcement will only serve to stifle innovation and harm the very consumers it seeks to protect.

Going forward, the DOJ and FTC should reevaluate their anti trust enforcement efforts and consider the broader implications for startups, particularly those in the technology sector. Doing so would help preserve an economic environment that has been more startup-friendly and made Utah and the United States leaders intechnology and innovation.

Sean Reyes is the attorney general of Utah

Sean D. Reyes
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