Shapiro was a former Obama-era antitrust officer. He was hired by the agency to assist in the suit against Facebook in 2019. According to a POLITICO analysis, $5.7 million has been paid to the economics consultancy firm where he works as a senior consultant. This is almost twice the amount the FTC paid for other expert services in the past two year, at a time when the agency told Congress it was tight on cash.The FTC retains all work Shapiro or his associates completed. However, experts say that much of that work will have to be redone by any new economics team hired by the agency to properly defend it in court.This is on top of the growing list of problems facing the FTC as they attempt to press their case against Facebook and pursue an antitrust investigation of Amazon, both of which rank amongst the five most valuable U.S. businesses. Khan was asked by the two tech giants to recuse herself from the cases. This prompted an internal debate about how the FTC should respond. She also faces criticism from GOP lawmakers for being accused of ignoring the two Republican commissioners.The agency refused to comment on Shapiro's departure.Lindsay Kryzak, spokesperson for the FTC, told POLITICO that the FTC doesn't comment on internal discussions regarding any expert engagement. However, the FTC regularly reviews its expert support requirements to make sure it is making the most of the limited public resources available while fulfilling its law enforcement duties.In December, the agency sued Facebook alleging that the company had monopolized social networking by purchasing Instagram and WhatsApp and denying data access to potential competitors. The FTC's complaint was dismissed by a federal judge last month. Prosecutors did not prove that Facebook has more than 60% of the market. The FTC has until August 19 to file a second complaint.FTC is also looking for a replacement to Shapiro. Shapiro was the top antitrust economist in the Justice Department under both Clinton and Obama administrations, and is a well-known figure within antitrust litigation. Over the past eight year, he has been a testifying expert in six FTC and DOJ cases. This includes the failed Trump-era Justice Departments attempt to stop AT&Ts merger of Time Warner with Time Warner. Also, a failed state attorneys general attempt to block Sprint from merging. He consults also for Google.Kryzak, FTC spokesperson, declined to comment about how much money the agency spent on expert witnesses.Congress has been asked to increase funding for the agency, which argues that the $331 million budget it has is not sufficient to handle its growing workload of policing business conduct and mergers. The agency has identified the rising costs of expert witnesses as one of its greatest risks in financial reports.Reasons for exit unknownPOLITICO spoke with individuals who didn't know Shapiro's reason for leaving and whether it was related to disagreements over the future of the case or costs. To speak on internal agency matters, the individuals requested anonymity.Shapiro has voiced her disapproval of Khan's antitrust approach, particularly her view of enforcers focusing too heavily on a consumer welfare standard that places emphasis on price as the primary indicator of lack of competition. Critics of the tech industry claim that the standard is not suited for companies such as Google and Facebook, which offer their main products at no cost to consumers.Khan stated that previous antitrust enforcers had relied too heavily upon economic analysis in order to prove their cases. Khan cited the state challenge to the Sprint-T-Mobile merger, in which Shapiro testified for the attorneys general. The judge stated that the two economic experts were essentially irrelevant and asked Shapiro to predict the future using competing crystal balls.Khan stated that antitrust has been dependent on one type of economic theory over the past few decades. They are very sparse in terms of antitrust statutes. They are quite general. They do not specify which econometric analysis should be used. There are many options for which types of analysis to use.Carl Shapiro, University of California-Berkeley economist, was hired by Federal Trade Commission in 2019 to assist in its lawsuit against Facebook. Photo courtesy UC BerkeleyTwo other people familiar with the case of the FTC against Facebook defended the FTC's spending so far. They noted that monopolization cases such as the one against Facebook are notoriously costly. One person said that it is not unusual for a new chair seeks to replace high-profile experts or top staffers in high-profile cases to better align their priorities. Both spoke anonymously in order to discuss agency dynamics.The FTC's inspector general discovered that experts are paid about $750 an hour by the agency and that cases involving business conduct, such as the case against Facebook, are some of the most costly. Conduct cases accounted for $6million of the $20,000,000 spent on the 15 contracts that the inspector general audited.Investigators suggested that the FTC use its in-house economists to be expert witnesses in more cases.Facebook, however, is able to mount a vigorous court fight. It has a market capitalization of approximately $1 trillion and reported $29 billion in revenue for the last quarter.The Facebook contractIn February, POLITICO made a public records request to the FTC for information about expert witness contracts in the Facebook case. The FTC refused because it would compromise the agency's litigation. POLITICO was able, however, to identify the expert witness contract for Facebook using public data the FTC had reported to a federal contracting database.The FTC spent $21.3million for expert witness services in the fiscal year ending Sept. 30. According to federal government contracting records, the FTC has spent $25 million so far in this fiscal year. The amount paid varies depending on the type of work. This contract, worth $5.7 million, is the largest and nearly twice as large as any other agency contract for expert witness services.Experts have had to consume an inordinate amount of data and documents over the years, which has led to expert costs rising. Bruce Hoffman was the top competition staffer at FTC from 2017 to 2019.Hoffman, who is now a partner in the law firm Cleary Gottlieb, stated that while the FTC does some of this work internally, it doesn't have the infrastructure or computing power to do all the work.The majority of these expenses were likely not incurred by Shapiro, who offers the government a discount at the rate he charges corporate clients. They are incurred by Charles River Associates colleagues who assist him. Shapiro's team of experts standardizes data from companies and performs the economic calculations Shapiro requires. The agency is charged by CRA for Shapiro's hours and those of its employees.According to two anonymous economic consultants, Shapiro would be paid according to the terms of the contract between the firm and its experts.Both consultants stated that they were shocked at how much the FTC has spent so far, given the fact that the Facebook case is only beginning. Expert witness reports, which can be hundreds of pages long, are the most costly part of antitrust litigation. They said that expert witness reports can run between $1 million to $2 million.The FTC could use the data Shapiro and his team compiled for any new expert they hire, but the consultants stated that the person who insists on redoing the economic analysis in order to defend it in court.Hoffman, however, left the agency prior to the Facebook case being fully underway and said that he was not surprised at the expense.This is a complex case. He said that I could see the sheer volume of data. Ironically, people across the country are clamoring that the FTC should become more active while at the same time expressing concern about its excessive spending. You must give the money for the FTC's active work.
