On August 24, the Third Circuit issued its much anticipated decision in FTC v. Wyndham Worldwide Corp., holding that the U.S. Federal Trade Commission (FTC) has authority to challenge cybersecurity practices under its statutory “unfairness” authority.  This case brings into focus both legal questions regarding the scope of the FTC’s cybersecurity authority and policy questions regarding the manner in which that authority should be exercised.

1.     Wyndham: An Overview

Rather than “reinventing the wheel,” let me begin by quoting at length from Gus Hurwitz’s excellent summary of the relevant considerations in this case:

In 2012, the FTC sued Wyndham Worldwide, the parent company and franchisor of the Wyndham brand of hotels, arguing that its allegedly lax data security practices allowed hackers to repeatedly break into its franchiseescomputer systems. The FTC argued that these breaches resulted in harm to consumers totaling over $10 million in fraudulent activity. The FTC brought its case under Section 5 of the FTC Act, which declares “unfair and deceptive acts and practices” to be illegal. The FTCs basic arguments are that it was, first, deceptive for Wyndham – which had a privacy policy indicating how it handled customer data – to assure consumers that the company took industry-standard security measures to protect customer data; and second, independent of any affirmative assurances that customer data was safe, it was unfair for Wyndham to handle customer data in an insecure way.

This case arose in the broader context of the FTCs efforts to establish a general law of data security. Over the past two decades, the FTC has begun aggressively pursuing data security claims against companies that suffer data breaches. Almost all of these cases have settled out of court, subject to consent agreements with the FTC. The Commission points to these agreements, along with other public documents that it views as guidance, as creating a “common law of data security.” Responding to a request from the Third Circuit for supplemental briefing on this question, the FTC asserted in no uncertain terms its view that “the FTC has acted under its procedures to establish that unreasonable data security practices that harm consumers are indeed unfair within the meaning of Section 5.”

Shortly after the FTCs case was filed, Wyndham asked the District Court judge to dismiss the case, arguing that the FTC didnt have authority under Section 5 to take action against a firm that had suffered a criminal theft of its data. The judge denied this motion. But, recognizing the importance and uncertainty of part of the issue – the scope of the FTCs “unfairness” authority – she allowed Wyndham to immediately appeal that part of her decision. The Third Circuit agreed to hear the appeal, framing the question as whether the FTC has authority to regulate cybersecurity under its Section 5 “unfairness” authority, and, if so, whether the FTCs application of that authority satisfied Constitutional Due Process requirements. Oral arguments were heard last March, and the courts opinion was issued on Monday [August 24]. . . . 

In its opinion, the Court of Appeals rejects Wyndhams arguments that its data security practices cannot be unfair. As such, the case will be allowed to proceed to determine whether Wyndhams security practices were in fact “unfair” under Section 5. . . .

 Recall the setting in which this case arose: the FTC has spent more than a decade trying to create a general law of data security. The reason this case was – and still is – important is because Wyndham was challenging the FTCs general law of data security.

But the court, in the second part of its opinion, accepts Wyndhams arguments that the FTC has not developed such a law. This is central to the courts opinion, because different standards apply to interpretations of laws that courts have developed as opposed to those that agencies have developed. The court outlines these standards, explaining that “a higher standard of fair notice applies [in the context of agency rules] than in the typical civil statutory interpretation case because agencies engage in interpretation differently than courts.”

The court goes on to find that Wyndham had sufficient notice of the requirements of Section 5 under the standard that applies to judicial interpretations of statutes. And it expressly notes that, should the district court decide that the higher standard applies – that is, if the court agrees to apply the general law of data security that the FTC has tried to develop in recent years – the court will need to reevaluate whether the FTCs rules meet Constitutional muster. That review would be subject to the tougher standard applied to agency interpretations of statutes.

Stressing the Third Circuit’s statement that the FTC had failed to explain how it had “informed the public that it needs to look at [FTC] complaints and consent decrees for guidance[,]” Gus concludes that the Third Circuit’s opinion indicates that  the FTC “has lost its war to create a general law of data security” based merely on its prior actions.  According to Gus:

The takeaway, it seems, is that the FTC does have the power to take action against bad security practices, but if it wants to do so in a way that shapes industry norms and legal standards – if it wants to develop a general law of data security – a patchwork of consent decrees and informal statements is insufficient to the task. Rather, it must either pursue its cases to a decision on the merits or develop legally binding rules through . . . rulemaking procedures.

2.     Wyndham’s Implications for the Scope of the FTC’s Legal Authority

I highly respect Gus’s trenchant legal and policy analysis of Wyndham.  I believe, however, that it may somewhat understate the strength of the FTC’s legal position going forward.  The Third Circuit also explained (citations omitted):

Wyndham is only entitled to notice of the meaning of the statute and not to the agencys interpretation of the statute. . . . 

[Furthermore,] Wyndham is entitled to a relatively low level of statutory notice for several reasons. Subsection 45(a) [of the FTC Act, which states “unfair acts or practices” are illegal] does not implicate any constitutional rights here. . . .  It is a civil rather than criminal statute. . . .  And statutes regulating economic activity receive a “less strict” test because their “subject matter is often more narrow, and because businesses, which face economic demands to plan behavior carefully, can be expected to consult relevant legislation in advance of action.” . . . .  In this context, the relevant legal rule is not “so vague as to be ‘no rule or standard at all.’” . . . .  Subsection 45(n) [of the FTC Act, as a prerequisite to a finding of unfairness,] asks whether “the act or practice causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition.” While far from precise, this standard informs parties that the relevant inquiry here is a cost-benefit analysis, . . . that considers a number of relevant factors, including the probability and expected size of reasonably unavoidable harms to consumers given a certain level of cybersecurity and the costs to consumers that would arise from investment in stronger cybersecurity. We acknowledge there will be borderline cases where it is unclear if a particular companys conduct falls below the requisite legal threshold. But under a due process analysis a company is not entitled to such precision as would eliminate all close calls. . . .  Fair notice is satisfied here as long as the company can reasonably foresee that a court could construe its conduct as falling within the meaning of the statute. . . . 

[In addition, in 2007, the FTC issued a guidebook on business data security, which] could certainly have helped Wyndham determine in advance that its conduct might not survive the [§ 45(n)] cost-benefit analysis.  Before the [cybersecurity] attacks [on Wyndhams network], the FTC also filed complaints and entered into consent decrees in administrative cases raising unfairness claims based on inadequate corporate cybersecurity. . . .  That the FTC Commissioners – who must vote on whether to issue a complaint . . . – believe that alleged cybersecurity practices fail the cost-benefit analysis of § 45(n) certainly helps companies with similar practices apprehend the possibility that their cybersecurity could fail as well.  

In my view, a fair reading of this Third Circuit language is that:  (1) courts should read key provisions of the FTC Act to encompass cybersecurity practices that the FTC finds are not cost-beneficial; and (2) the FTC’s history of guidance and consent decrees regarding cybersecurity give sufficient notice to companies regarding the nature of cybersecurity plans that the FTC may challenge.   Based on that reading, I conclude that even if a court adopts a very exacting standard for reviewing the FTC’s interpretation of its own statute, the FTC is likely to succeed in future case-specific cybersecurity challenges, assuming that it builds a solid factual record that appears to meet cost-benefit analysis.  Whether other Circuits would agree with the Third Circuit’s analysis is, of course, open to debate (I myself suspect that they probably would).

3.     Sound Policy in Light of Wyndham

Apart from our slightly different “takes” on the legal implications of the Third Circuit’s Wyndham decision, I fully agree with Gus that, as a policy matter, the FTC’s “patchwork of consent decrees and informal statements is insufficient to the task” of building a general law of cybersecurity.  In a 2014 Heritage Foundation Legal Memorandum on the FTC and cybersecurity, I stated:

The FTCs regulation of business systems by decree threatens to stifle innovation by companies related to data security and to impose costs that will be passed on in part to consumers. Missing from the consent decree calculus is the question of whether the benefits in diminished data security breaches justify those costs—a question that should be at the heart of unfairness analysis. There are no indications that the FTC has even asked this question in fashioning data security consents, let alone made case-specific cost-benefit analyses. This is troubling.

Equally troubling is the that the FTC apparently expects businesses to divine from a large number of ad hoc, fact-specific consent decrees with varying provisions what they must do vis-à-vis data security to avoid possible FTC targeting. The uncertainty engendered by sole reliance on complicated consent decrees for guidance (in the absence of formal agency guidelines or litigated court decisions) imposes additional burdens on business planners. . . .

[D]ata security investigations that are not tailored to the size and capacity of the firm may impose competitive disadvantages on smaller rivals in industries in which data protection issues are paramount.

Moreover, it may be in the interest of very large firms to support costlier and more intrusive FTC data security initiatives, knowing that they can better afford the adoption of prohibitively costly data security protocols than their smaller competitors can. This is an example of a “raising rivalscosts” strategy, which reduces competition by crippling or eliminating rivals.

Given these and related concerns (including the failure of existing FTC reports to give appropriate guidance), I concluded, among other recommendations, that:

[T]he FTC should issue data security guidelines that clarify its enforcement policy regarding data security breaches pursuant to Section 5 of the Federal Trade Commission Act. Such guidelines should be framed solely as limiting principles that tie the FTC’s hands to avoid enforcement excesses. They should studiously avoid dictating to industry the data security principles that firms should adopt. . . .

[T]he FTC should [also] employ a strict cost-benefit analysis before pursuing any new regulatory initiatives, legislative recommendations, or investigations related to other areas of data protection, such as data brokerage or the uses of big data.

In sum, the Third Circuit’s Wyndham decision, while interesting, in no way alters the fact that the FTC’s existing cybersecurity enforcement program is inadequate and unsound.  Whether through guidelines or formal FTC rules (which carry their own costs, including the risk of establishing inflexible standards that ignore future changes in business conditions and technology), the FTC should provide additional guidance to the private sector, rooted in sound cost-benefit analysis.  The FTC should also be ever mindful of the costs it imposes on the economy (including potential burdens on business innovation) whenever it considers bringing enforcement actions in this area.

4.     Conclusion

The debate over the appropriate scope of federal regulation of business cybersecurity programs will continue to rage, as serious data breaches receive public attention and the FTC considers new initiatives.  Let us hope that, as we move forward, federal regulators will fully take into account costs as well as benefits – including, in particular, the risk that federal overregulation will undermine innovation, harm businesses, and weaken the economy.

Recently, the en banc Federal Circuit decided in Suprema, Inc. v. ITC that the International Trade Commission could properly prevent the importation of articles that infringe under an indirect liability theory. The core of the dispute in Suprema was whether § 337 of the Tariff Act’s prohibition against “importing articles that . . . infringe a valid and enforceable United States patent” could be used to prevent the importation of articles that at the moment of importation were not (yet) directly infringing. In essence, is the ITC limited to acting only when there is a direct infringement, or can it also prohibit articles involved in an indirect infringement scheme — in this case under an inducement theory?

TOTM’s own Alden Abbott posted his view of the decision, and there are a couple of points we’d like to respond to, both embodied in this quote:

[The ITC’s Suprema decision] would likely be viewed unfavorably by the Supreme Court, which recently has shown reluctance about routinely invoking Chevron deference … Furthermore, the en banc majority’s willingness to find inducement liability at a time when direct patent infringement has not yet occurred (the point of importation) is very hard to square with the teachings of [Limelight v.] Akamai.

In truth, we are of two minds (four minds?) regarding this view. We’re deeply sympathetic with arguments that the Supreme Court has become — and should become — increasingly skeptical of blind Chevron deference. Recently, we filed a brief on the 2015 Open Internet Order that, in large part, argued that the FCC does not deserve Chevron deference under King v. Burwell, UARG v. EPA and Michigan v. EPA (among other important cases) along a very similar line of reasoning. However, much as we’d like to generally scale back Chevron deference, in this case we happen to think that the Federal Circuit got it right.

Put simply, “infringe” as used in § 337 plainly includes indirect infringement. Section 271 of the Patent Act makes it clear that indirect infringers are guilty of “infringement.” The legislative history of the section, as well as Supreme Court case law, makes it very clear that § 271 was a codification of both direct and indirect liability.

In taxonomic terms, § 271 codifies “infringement” as a top-level category, with “direct infringement” and “indirect infringement” as two distinct subcategories of infringement. The law further subdivides “indirect infringement” into sub-subcategories, “inducement” and “contributory infringement.” But all of these are “infringement.”

For instance, § 271(b) says that “[w]hoever actively induces infringement of a patent shall be liable as an infringer” (emphasis added). Thus, in terms of § 271, to induce infringement is to commit infringement within the meaning of the patent laws. And in § 337, assuming it follows § 271 (which seems appropriate given Congress’ stated purpose to “make it a more effective remedy for the protection of United States intellectual property rights” (emphasis added)), it must follow that when one imports “articles… that infringe” she can be liable for either (or both) § 271(a) direct infringement or § 271(b) inducement.

Frankly, we think this should end the analysis: There is no Chevron question here because the Tariff Act isn’t ambiguous.

But although it seems clear on the face of § 337 that “infringe” must include indirect infringement, at the very least § 337 is ambiguous and cannot clearly mean only “direct infringement.” Moreover, the history of patent law as well as the structure of the ITC’s powers both cut in favor of the ITC enforcing the Tariff Act against indirect infringers. The ITC’s interpretation of any ambiguity in the term “articles… that infringe” is surely reasonable.

The Ambiguity and History of § 337 Allows for Inducement Liability

Assuming for argument’s sake that § 337’s lack of specificity leaves room for debate as to what “infringe” means, there is nothing that militates definitively against indirect liability being included in § 337. The majority handles any ambiguity of this sort well:

[T]he shorthand phrase “articles that infringe” does not unambiguously exclude inducement of post-importation infringement… By using the word “infringe,” § 337 refers to 35 U.S.C. § 271, the statutory provision defining patent infringement. The word “infringe” does not narrow § 337’s scope to any particular subsections of § 271. As reflected in § 271 and the case law from before and after 1952, “infringement” is a term that encompasses both direct and indirect infringement, including infringement by importation that induces direct infringement of a method claim… Section 337 refers not just to infringement, but to “articles that infringe.” That phrase does not narrow the provision to exclude inducement of post-importation infringement. Rather, the phrase introduces textual uncertainty.

Further, the court notes that it has consistently held that inducement is a valid theory of liability on which to base § 337 cases.

And lest you think that this interpretation would give some new, expansive powers to the ITC (perhaps meriting something like a Brown & Williamson exception to Chevron deference), the ITC is still bound by all the defenses and limitations on indirect liability under § 271. Saying it has authority to police indirect infringement doesn’t give it carte blanche, nor any more power than US district courts currently have in adjudicating indirect infringement. In this case, the court went nowhere near the limits of Chevron in giving deference to the ITC’s decision that “articles… that infringe” emcompasses the well-established (and statutorily defined) law of indirect infringement.

Inducement Liability Isn’t Precluded by Limelight

Nor does the Supreme Court’s Limelight v. Akamai decision present any problem. Limelight is often quoted for the proposition that there can be no inducement liability without direct infringement. And it does stand for that, as do many other cases; that point is not really in any doubt. But what Alden and others (including the dissenters in Suprema) have cited it for is the proposition that inducement liability cannot attach unless all of the elements of inducement have already been practiced at the time of importation. Limelight does not support that contention, however.

Inducement liability contemplates direct infringement, but the direct infringement need not have been practiced by the same entity liable for inducement, nor at the same time as inducement (see, e.g., Standard Oil. v. Nippon). Instead, the direct infringement may come at a later time — and there is no dispute in Suprema regarding whether there was direct infringement (there was, as Suprema notes: “the Commission found that record evidence demonstrated that Mentalix had already directly infringed claim 19 within the United States prior to the initiation of the investigation.”).

Limelight, on the other hand, is about what constitutes the direct infringement element in an inducement case. The sole issue in Limelight was whether this “direct infringement element” required that all of the steps of a method patent be carried out by a single entity or entities acting in concert. In Limelight’s network there was a division of labor, so to speak, between the company and its customers, such that each carried out some of the steps of the method patent at issue. In effect, plaintiffs argued that Limelight should be liable for inducement because it practised some of the steps of the patented method, with the requisite intent that others would carry out the rest of the steps necessary for direct infringement. But neither Limelight nor its customers separately carried out all of the steps necessary for direct infringement.

The Court held (actually, it simply reiterated established law) that the method patent could never be violated unless a single party (or parties acting in concert) carried out all of the steps of the method necessary for direct infringement. Thus it also held that Limelight could not be liable for inducement because, on the facts of that case, none of its customers could ever be liable for the necessary, underlying direct infringement. Again — what was really at issue in Limelight were the requirements to establish the direct infringement necessary to prove inducement.

On remand, the Federal Circuit reinforced the point that Limelight was really about direct infringement and, by extension, who must be involved in the direct infringement element of an inducement claim. According to the court:

We conclude that the facts Akamai presented at trial constitute substantial evidence from which a jury could find that Limelight directed or controlled its customers’ performance of each remaining method step. As such, substantial evidence supports the jury’s verdict that all steps of the claimed methods were performed by or attributable to Limelight. Therefore, Limelight is liable for direct infringement.

The holding of Limelight is simply inapposite to the facts of Suprema. The crux of Suprema is whether the appropriate mens rea existed to support a claim of inducement — not whether the requisite direct infringement occurred or not.

The Structure of § 337 Supports The ITC’s Ability to Block Inducement

Further, as the majority in Suprema notes, the very idea of inducement liability necessarily contemplates that there will be a temporal separation between the event that gives rise to indirect liability and the future direct infringement (required to prove inducement). As the Suprema court briefly noted “Section 337(a)(1)(B)’s ‘sale . . . after importation’ language confirms that the Commission is permitted to focus on post-importation activity to identify the completion of infringement.”

In particular, each of the enforcement powers in § 337(a) contains a clause that, in addition to a prohibition against, e.g., infringing articles at the time of importation, also prohibits “the sale within the United States after importation by the owner, importer, or consignee, of articles[.]” Thus, Congress explicitly contemplated that the ITC would have the power to act upon articles at various points in time, not limiting it to a power effective only at the moment of importation.

Although the particular power to reach into the domestic market has to do with preventing the importer or its agent from making sales, this doesn’t undermine the larger point here: the ITC’s power to prevent infringing articles extends over a range of time. Given that “articles that … infringe” is at the very least ambiguous, and, as per the Federal Circuit (and our own position), this ambiguity allows for indirect infringement, it isn’t a stretch to infer that that Congress intended the ITC to have authority under § 337 to ban the import of articles that induce infringement that occurs only after the time of importation..

To interpret § 337 otherwise would be to render it absurd and to create a giant loophole that would enable infringers to easily circumvent the ITC’s enforcement powers.

A Dissent from the Dissent

The dissent also takes a curious approach to § 271 by mixing inducement and contributory infringement, and generally making a confusing mess of the two. For instance, Judge Dyk says

At the time of importation, the scanners neither directly infringe nor induce infringement… Instead, these staple articles may or may not ultimately be used to infringe… depending upon whether and how they are combined with domestically developed software after importation into the United States (emphasis added).

Whether or not the goods were “staples articles” (and thus potentially capable of substantial noninfringing uses) has nothing to do with whether or not there was inducement. Section 271 makes a very clear delineation between inducement in § 271(b) and contributory infringement in § 271(c). While a staple article of commerce capable of substantial noninfringing uses will not serve as the basis for a contributory infringement claim, it is irrelevant whether or not goods are such “staples” for purposes of establishing inducement.

The boundaries of inducement liability, by contrast, are focused on the intent of the actors: If there is an intent to induce, whether or not there is a substantial noninfringing use, there can be a violation of § 271. Contributory infringement and inducement receive treatment in separate paragraphs of § 271 and are separate doctrines comprising separate elements. This separation is so evident on the face of the law as well as in its history that the Supreme Court read the doctrine into copyright in Grokster — where, despite a potentially large number of non-infringing uses, the intent to induce infringement was sufficient to find liability.

Parting Thoughts on Chevron

We have some final thoughts on the Chevron question, because this is rightly a sore point in administrative law. In this case we think that the analysis should have ended at step one. Although the Federal Circuit began with an assumption of ambiguity, it was being generous to the appellants. Did Congress speak with clear intent? We think so. Section 271 very clearly includes direct infringement as well as indirect infringement within its definition of what constitutes infringement of a patent. When § 337 references “articles … that infringe” it seems fairly obvious that Congress intended the ITC to be able to enforce the prohibitions in § 271 in the context of imported goods.

But even if we advance to step two of the Chevron analysis, the ITC’s construction of § 337 is plainly permissible — and far from expansive. By asserting its authority here the ITC is simply policing the importation of infringing goods (which it clearly has the power to do), and doing so in the case of goods that indirectly infringe (a concept that has been part of US law for a very long time). If “infringe” as used in the Tariff Act is ambiguous, the ITC’s interpretation of it to include both indirect as well as direct infringement seems self-evidently reasonable.

Under the dissent’s (and Alden’s) interpretation of § 337, all that would be required to evade the ITC would be to import only the basic components of an article such that at the moment of importation there was no infringement. Once reassembled within the United States, the ITC’s power to prevent the sale of infringing goods would be nullified. Section 337 would thus be read to simply write out the entire “indirect infringement” subdivision of § 271 — an inference that seems like a much bigger stretch than that “infringement” under § 337 means all infringement under § 271. Congress was more than capable of referring only to “direct infringement” in § 337 if that’s what it intended.

Much as we would like to see Chevron limited, not every agency case is the place to fight this battle. If we are to have agencies, and we are to have a Chevron doctrine, there will be instances of valid deference to agency interpretations — regardless of how broadly or narrowly Chevron is interpreted. The ITC wasn’t making a power grab in Suprema, nor was its reading of the statute unexpected, inconsistent with its past practice, or expansive.

In short, Suprema doesn’t break any new statutory interpretation ground, nor present a novel question of “deep economic or political significance” akin to the question at issue in King v. Burwell. Like it or not, there will be no roots of an anti-Chevron-deference revolution growing out of Suprema.

As the organizer of this retrospective on Josh Wright’s tenure as FTC Commissioner, I have the (self-conferred) honor of closing out the symposium.

When Josh was confirmed I wrote that:

The FTC will benefit enormously from Josh’s expertise and his error cost approach to antitrust and consumer protection law will be a tremendous asset to the Commission — particularly as it delves further into the regulation of data and privacy. His work is rigorous, empirically grounded, and ever-mindful of the complexities of both business and regulation…. The Commissioners and staff at the FTC will surely… profit from his time there.

Whether others at the Commission have really learned from Josh is an open question, but there’s no doubt that Josh offered an enormous amount from which they could learn. As Tim Muris said, Josh “did not disappoint, having one of the most important and memorable tenures of any non-Chair” at the agency.

Within a month of his arrival at the Commission, in fact, Josh “laid down the cost-benefit-analysis gauntlet” in a little-noticed concurring statement regarding a proposed amendment to the Hart-Scott-Rodino Rules. The technical details of the proposed rule don’t matter for these purposes, but, as Josh noted in his statement, the situation intended to be avoided by the rule had never arisen:

The proposed rulemaking appears to be a solution in search of a problem. The Federal Register notice states that the proposed rules are necessary to prevent the FTC and DOJ from “expend[ing] scarce resources on hypothetical transactions.” Yet, I have not to date been presented with evidence that any of the over 68,000 transactions notified under the HSR rules have required Commission resources to be allocated to a truly hypothetical transaction.

What Josh asked for in his statement was not that the rule be scrapped, but simply that, before adopting the rule, the FTC weigh its costs and benefits.

As I noted at the time:

[I]t is the Commission’s responsibility to ensure that the rules it enacts will actually be beneficial (it is a consumer protection agency, after all). The staff, presumably, did a perfectly fine job writing the rule they were asked to write. Josh’s point is simply that it isn’t clear the rule should be adopted because it isn’t clear that the benefits of doing so would outweigh the costs.

As essentially everyone who has contributed to this symposium has noted, Josh was singularly focused on the rigorous application of the deceptively simple concept that the FTC should ensure that the benefits of any rule or enforcement action it adopts outweigh the costs. The rest, as they say, is commentary.

For Josh, this basic principle should permeate every aspect of the agency, and permeate the way it thinks about everything it does. Only an entirely new mindset can ensure that outcomes, from the most significant enforcement actions to the most trivial rule amendments, actually serve consumers.

While the FTC has a strong tradition of incorporating economic analysis in its antitrust decision-making, its record in using economics in other areas is decidedly mixed, as Berin points out. But even in competition policy, the Commission frequently uses economics — but it’s not clear it entirely understands economics. The approach that others have lauded Josh for is powerful, but it’s also subtle.

Inherent limitations on anyone’s knowledge about the future of technology, business and social norms caution skepticism, as regulators attempt to predict whether any given business conduct will, on net, improve or harm consumer welfare. In fact, a host of factors suggests that even the best-intentioned regulators tend toward overconfidence and the erroneous condemnation of novel conduct that benefits consumers in ways that are difficult for regulators to understand. Coase’s famous admonition in a 1972 paper has been quoted here before (frequently), but bears quoting again:

If an economist finds something – a business practice of one sort or another – that he does not understand, he looks for a monopoly explanation. And as in this field we are very ignorant, the number of ununderstandable practices tends to be very large, and the reliance on a monopoly explanation, frequent.

Simply “knowing” economics, and knowing that it is important to antitrust enforcement, aren’t enough. Reliance on economic formulae and theoretical models alone — to say nothing of “evidence-based” analysis that doesn’t or can’t differentiate between probative and prejudicial facts — doesn’t resolve the key limitations on regulatory decisionmaking that threaten consumer welfare, particularly when it comes to the modern, innovative economy.

As Josh and I have written:

[O]ur theoretical knowledge cannot yet confidently predict the direction of the impact of additional product market competition on innovation, much less the magnitude. Additionally, the multi-dimensional nature of competition implies that the magnitude of these impacts will be important as innovation and other forms of competition will frequently be inversely correlated as they relate to consumer welfare. Thus, weighing the magnitudes of opposing effects will be essential to most policy decisions relating to innovation. Again, at this stage, economic theory does not provide a reliable basis for predicting the conditions under which welfare gains associated with greater product market competition resulting from some regulatory intervention will outweigh losses associated with reduced innovation.

* * *

In sum, the theoretical and empirical literature reveals an undeniably complex interaction between product market competition, patent rules, innovation, and consumer welfare. While these complexities are well understood, in our view, their implications for the debate about the appropriate scale and form of regulation of innovation are not.

Along the most important dimensions, while our knowledge has expanded since 1972, the problem has not disappeared — and it may only have magnified. As Tim Muris noted in 2005,

[A] visitor from Mars who reads only the mathematical IO literature could mistakenly conclude that the U.S. economy is rife with monopoly power…. [Meanwhile, Section 2’s] history has mostly been one of mistaken enforcement.

It may not sound like much, but what is needed, what Josh brought to the agency, and what turns out to be absolutely essential to getting it right, is unflagging awareness of and attention to the institutional, political and microeconomic relationships that shape regulatory institutions and regulatory outcomes.

Regulators must do their best to constantly grapple with uncertainty, problems of operationalizing useful theory, and, perhaps most important, the social losses associated with error costs. It is not (just) technicians that the FTC needs; it’s regulators imbued with the “Economic Way of Thinking.” In short, what is needed, and what Josh brought to the Commission, is humility — the belief that, as Coase also wrote, sometimes the best answer is to “do nothing at all.”

The technocratic model of regulation is inconsistent with the regulatory humility required in the face of fast-changing, unexpected — and immeasurably valuable — technological advance. As Virginia Postrel warns in The Future and Its Enemies:

Technocrats are “for the future,” but only if someone is in charge of making it turn out according to plan. They greet every new idea with a “yes, but,” followed by legislation, regulation, and litigation…. By design, technocrats pick winners, establish standards, and impose a single set of values on the future.

For Josh, the first JD/Econ PhD appointed to the FTC,

economics provides a framework to organize the way I think about issues beyond analyzing the competitive effects in a particular case, including, for example, rulemaking, the various policy issues facing the Commission, and how I weigh evidence relative to the burdens of proof and production. Almost all the decisions I make as a Commissioner are made through the lens of economics and marginal analysis because that is the way I have been taught to think.

A representative example will serve to illuminate the distinction between merely using economics and evidence and understanding them — and their limitations.

In his Nielson/Arbitron dissent Josh wrote:

The Commission thus challenges the proposed transaction based upon what must be acknowledged as a novel theory—that is, that the merger will substantially lessen competition in a market that does not today exist.

[W]e… do not know how the market will evolve, what other potential competitors might exist, and whether and to what extent these competitors might impose competitive constraints upon the parties.

Josh’s straightforward statement of the basis for restraint stands in marked contrast to the majority’s decision to impose antitrust-based limits on economic activity that hasn’t even yet been contemplated. Such conduct is directly at odds with a sensible, evidence-based approach to enforcement, and the economic problems with it are considerable, as Josh also notes:

[I]t is an exceedingly difficult task to predict the competitive effects of a transaction where there is insufficient evidence to reliably answer the[] basic questions upon which proper merger analysis is based.

When the Commission’s antitrust analysis comes unmoored from such fact-based inquiry, tethered tightly to robust economic theory, there is a more significant risk that non-economic considerations, intuition, and policy preferences influence the outcome of cases.

Compare in this regard Josh’s words about Nielsen with Deborah Feinstein’s defense of the majority from such charges:

The Commission based its decision not on crystal-ball gazing about what might happen, but on evidence from the merging firms about what they were doing and from customers about their expectations of those development plans. From this fact-based analysis, the Commission concluded that each company could be considered a likely future entrant, and that the elimination of the future offering of one would likely result in a lessening of competition.

Instead of requiring rigorous economic analysis of the facts, couched in an acute awareness of our necessary ignorance about the future, for Feinstein the FTC fulfilled its obligation in Nielsen by considering the “facts” alone (not economic evidence, mind you, but customer statements and expressions of intent by the parties) and then, at best, casually applying to them the simplistic, outdated structural presumption – the conclusion that increased concentration would lead inexorably to anticompetitive harm. Her implicit claim is that all the Commission needed to know about the future was what the parties thought about what they were doing and what (hardy disinterested) customers thought they were doing. This shouldn’t be nearly enough.

Worst of all, Nielsen was “decided” with a consent order. As Josh wrote, strongly reflecting the essential awareness of the broader institutional environment that he brought to the Commission:

[w]here the Commission has endorsed by way of consent a willingness to challenge transactions where it might not be able to meet its burden of proving harm to competition, and which therefore at best are competitively innocuous, the Commission’s actions may alter private parties’ behavior in a manner that does not enhance consumer welfare.

Obviously in this regard his successful effort to get the Commission to adopt a UMC enforcement policy statement is a most welcome development.

In short, Josh is to be applauded not because he brought economics to the Commission, but because he brought the economic way of thinking. Such a thing is entirely too rare in the modern administrative state. Josh’s tenure at the FTC was relatively short, but he used every moment of it to assiduously advance his singular, and essential, mission. And, to paraphrase the last line of the movie The Right Stuff (it helps to have the rousing film score playing in the background as you read this): “for a brief moment, [Josh Wright] became the greatest [regulator] anyone had ever seen.”

I would like to extend my thanks to everyone who participated in this symposium. The contributions here will stand as a fitting and lasting tribute to Josh and his legacy at the Commission. And, of course, I’d also like to thank Josh for a tenure at the FTC very much worth honoring.

Imagine

totmauthor —  27 August 2015 — Leave a comment

by Michael Baye, Bert Elwert Professor of Business at the Kelley School of Business, Indiana University, and former Director of the Bureau of Economics, FTC

Imagine a world where competition and consumer protection authorities base their final decisions on scientific evidence of potential harm. Imagine a world where well-intentioned policymakers do not use “possibility theorems” to rationalize decisions that are, in reality, based on idiosyncratic biases or beliefs. Imagine a world where “harm” is measured using a scientific yardstick that accounts for the economic benefits and costs of attempting to remedy potentially harmful business practices.

Many economists—conservatives and liberals alike—have the luxury of pondering this world in the safe confines of ivory towers; they publish in journals read by a like-minded audience that also relies on the scientific method.

Congratulations and thanks, Josh, for superbly articulating these messages in the more relevant—but more hostile—world outside of the ivory tower.

To those of you who might disagree with a few (or all) of Josh’s decisions, I challenge you to examine honestly whether your views on a particular matter are based on objective (scientific) evidence, or on your personal, subjective beliefs. Evidence-based policymaking can be discomforting: It sometimes induces those with philosophical biases in favor of intervention to make laissez-faire decisions, and it sometimes induces people with a bias for non-intervention to make decisions to intervene.

by Berin Szoka, President, TechFreedom

Josh Wright will doubtless be remembered for transforming how FTC polices competition. Between finally defining Unfair Methods of Competition (UMC), and his twelve dissents and multiple speeches about competition matters, he re-grounded competition policy in the error-cost framework: weighing not only costs against benefits, but also the likelihood of getting it wrong against the likelihood of getting it right.

Yet Wright may be remembered as much for what he started as what he finished: reforming the Commission’s Unfair and Deceptive Acts and Practices (UDAP) work. His consumer protection work is relatively slender: four dissents on high tech matters plus four relatively brief concurrences and one dissent on more traditional advertising substantiation cases. But together, these offer all the building blocks of an economic, error-cost-based approach to consumer protection. All that remains is for another FTC Commissioner to pick up where Wright left off.

Apple: Unfairness & Cost-Benefit Analysis

In January 2014, Wright issued a blistering, 17 page dissent from the Commission’s decision to bring, and settle, an enforcement action against Apple regarding the design of its app store. Wright dissented, not from the conclusion necessarily, but from the methodology by which the Commission arrived there. In essence, he argued for an error-cost approach to unfairness:

The Commission, under the rubric of “unfair acts and practices,” substitutes its own judgment for a private firm’s decisions as to how to design its product to satisfy as many users as possible, and requires a company to revamp an otherwise indisputably legitimate business practice. Given the apparent benefits to some consumers and to competition from Apple’s allegedly unfair practices, I believe the Commission should have conducted a much more robust analysis to determine whether the injury to this small group of consumers justifies the finding of unfairness and the imposition of a remedy.

…. although Apple’s allegedly unfair act or practice has harmed some consumers, I do not believe the Commission has demonstrated the injury is substantial. More importantly, any injury to consumers flowing from Apple’s choice of disclosure and billing practices is outweighed considerably by the benefits to competition and to consumers that flow from the same practice.

The majority insisted that the burden on consumers or Apple from its remedy “is de minimis,” and therefore “it was unnecessary for the Commission to undertake a study of how consumers react to different disclosures before issuing its complaint against Apple, as Commissioner Wright suggests.”

Wright responded: “Apple has apparently determined that most consumers do not want to experience excessive disclosures or to be inconvenienced by having to enter their passwords every time they make a purchase.” In essence, he argued, that the FTC should not presume to know better than Apple how to manage the subtle trade-offs between convenience and usability.

Wright was channeling Hayek’s famous quip: “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” The last thing the FTC should be doing is designing digital products — even by hovering over Apple’s shoulder.

The Data Broker Report

Wright next took the Commission to task for the lack of economic analysis in its May 2013 report, “Data Brokers: A Call for Transparency and Accountability.” In just four footnotes, Wright extended his analysis of Apple. For example:

Footnote 85: Commissioner Wright agrees that Congress should consider legislation that would provide for consumer access to the information collected by data brokers. However, he does not believe that at this time there is enough evidence that the benefits to consumers of requiring data brokers to provide them with the ability to opt out of the sharing of all consumer information for marketing purposes outweighs the costs of imposing such a restriction. Finally… he believes that the Commission should engage in a rigorous study of consumer preferences sufficient to establish that consumers would likely benefit from such a portal prior to making such a recommendation.

Footnote 88: Commissioner Wright believes that in enacting statutes such as the Fair Credit Reporting Act, Congress undertook efforts to balance [costs and benefits]. In the instant case, Commissioner Wright is wary of extending FCRA-like coverage to other uses and categories of information without first performing a more robust balancing of the benefits and costs associated with imposing these requirements

The Internet of Things Report

This January, in a 4-page dissent from the FTC’s staff report on “The Internet of Things: Privacy and Security in a Connected World,” Wright lamented that the report neither represented serious economic analysis of the issues discussed nor synthesized the FTC’s workshop on the topic:

A record that consists of a one-day workshop, its accompanying public comments, and the staff’s impressions of those proceedings, however well-intended, is neither likely to result in a representative sample of viewpoints nor to generate information sufficient to support legislative or policy recommendations.

His attack on the report’s methodology was blistering:

The Workshop Report does not perform any actual analysis whatsoever to ensure that, or even to give a rough sense of the likelihood that the benefits of the staff’s various proposals exceed their attendant costs. Instead, the Workshop Report merely relies upon its own assertions and various surveys that are not necessarily representative and, in any event, do not shed much light on actual consumer preferences as revealed by conduct in the marketplace…. I support the well-established Commission view that companies must maintain reasonable and appropriate security measures; that inquiry necessitates a cost-benefit analysis. The most significant drawback of the concepts of “security by design” and other privacy-related catchphrases is that they do not appear to contain any meaningful analytical content.

Ouch.

Nomi: Deception & Materiality Analysis

In April, Wright turned his analytical artillery from unfairness to deception, long the more uncontroversial half of UDAP. In a five-page dissent, Wright accused the Commission of essentially dispensing with the core limiting principle of the 1983 Deception Policy Statement: materiality. As Wright explained:

The materiality inquiry is critical because the Commission’s construct of “deception” uses materiality as an evidentiary proxy for consumer injury…. Deception causes consumer harm because it influences consumer behavior — that is, the deceptive statement is one that is not merely misleading in the abstract but one that causes consumers to make choices to their detriment that they would not have otherwise made. This essential link between materiality and consumer injury ensures the Commission’s deception authority is employed to deter only conduct that is likely to harm consumers and does not chill business conduct that makes consumers better off.

As in Apple, Wright did not argue that there might not be a role for the FTC; merely that the FTC had failed to justify bringing, let alone settling, an enforcement action without establishing that the key promise at issue — to provide in-store opt-out — was material.

The Chamber Speech: A Call for Economic Analysis

In May, Wright gave a speech to the Chamber of Commerce on “How to Regulate the Internet of Things Without Harming its Future: Some Do’s and Don’ts”:

Perhaps it is because I am an economist who likes to deal with hard data, but when it comes to data and privacy regulation, the tendency to rely upon anecdote to motivate policy is a serious problem. Instead of developing a proper factual record that documents cognizable and actual harms, regulators can sometimes be tempted merely to explore anecdotal and other hypothetical examples and end up just offering speculations about the possibility of harm.

And on privacy in particular:

What I have seen instead is what appears to be a generalized apprehension about the collection and use of data — whether or not the data is actually personally identifiable or sensitive — along with a corresponding, and arguably crippling, fear about the possible misuse of such data.  …. Any sensible approach to regulating the collection and use of data will take into account the risk of abuses that will harm consumers. But those risks must be weighed with as much precision as possible, as is the case with potential consumer benefits, in order to guide sensible policy for data collection and use. The appropriate calibration, of course, turns on our best estimates of how policy changes will actually impact consumers on the margin….

Wright concedes that the “vast majority of work that the Consumer Protection Bureau performs simply does not require significant economic analysis because they involve business practices that create substantial risk of consumer harm but little or nothing in the way of consumer benefits.” Yet he notes that the Internet has made the need for cost-benefit analysis far more acute, at least where conduct is ambiguous as its effects on consumers, as in Apple, to avoid “squelching innovation and depriving consumers of these benefits.”

The Wrightian Reform Agenda for UDAP Enforcement

Wright left all the building blocks his successor will need to bring “Wrightian” reform to how the Bureau of Consumer Protection works:

  1. Wright’s successor should work to require economic analysis for consent decrees, as Wright proposed in his last major address as a Commissioner. BE might not to issue a statement at all in run-of-the-mill deception cases, but it should certainly have to say something about unfairness cases.
  2. The FTC needs to systematically assess its enforcement process to understand the incentives causing companies to settle UDAP cases nearly every time — resulting in what Chairman Ramirez and Commissioner Brill frequently call the FTC’s “common law of consent decrees.”
  3. As Wright says in his Nomi dissent “While the Act does not set forth a separate standard for accepting a consent decree, I believe that threshold should be at least as high as for bringing the initial complaint.” This point should be uncontroversial, yet the Commission has never addressed it. Wright’s successor (and the FTC) should, at a minimum, propose a standard for settling cases.
  4. Just as Josh succeeded in getting the FTC to issue a UMC policy statement, his successor should re-assess the FTC’s two UDAP policy statements. Wright’s successor needs to make the case for finally codifying the DPS — and ensuring that the FTC stops bypassing materiality, as in Nomi.
  5. The Commission should develop a rigorous methodology for each of the required elements of unfairness and deception to justify bringing cases (or making report recommendations). This will be a great deal harder than merely attacking the lack of such methodology in dissents.
  6. The FTC has, in recent years, increasingly used reports to make de facto policy — by inventing what Wright calls, in his Chamber speech, “slogans and catchphrases” like “privacy by design,” and then using them as boilerplate requirements for consent decrees; by pressuring companies into adopting the FTC’s best practices; by calling for legislation; and so on. At a minimum, these reports must be grounded in careful economic analysis.
  7. The Commission should apply far greater rigor in setting standards for substantiating claims about health benefits. In two dissents, Genelink et al and HCG Platinum, Wright demolished arguments for a clear, bright line requiring two randomized clinical trials, and made the case for “a more flexible substantiation requirement” instead.

Conclusion: Big Shoes to Fill

It’s a testament to Wright’s analytical clarity that he managed to say so much about consumer protection in so few words. That his UDAP work has received so little attention, relative to his competition work, says just as much about the far greater need for someone to do for consumer protection what Wright did for competition enforcement and policy at the FTC.

Wright’s successor, if she’s going to finish what Wright started, will need something approaching Wright’s sheer intellect, his deep internalization of the error-costs approach, and his knack for brokering bipartisan compromise around major issues — plus the kind of passion for UDAP matters Wright had for competition matters. And, of course, that person needs to be able to continue his legacy on competition matters…

Compared to the difficulty of finding that person, actually implementing these reforms may be the easy part.

by Timothy J. Muris, University Foundation Professor of Law, George Mason University and former Chairman of the FTC

As the premier Antitrust scholar of his generation, Josh Wright’s appointment to the Federal Trade Commission promised to be noteworthy. He did not disappoint, having one of the most important and memorable tenures of any non-Chair over the 40 years that I have followed the agency closely.

In numerous speeches, dissents, and a variety of other statements on matters before the Commission, Josh articulated important messages for Antitrust. In particular, his call for evidence-based decisions has been a welcome reminder of that crucial element of sound  policy. Moreover, he has continued to recognize that most arguments over the Chicago school are stale, reflecting 20th century battles long decided.

Finally, a few words about one area of disagreement, the section 5 statement that the Commission issued shortly before Commissioner Wright’s departure. Having witnessed firsthand the FTC’s overreaching in the 1970s, in both Antitrust and Consumer Protection, I have long thought that section 5 should be read coextensive with the Sherman and Clayton Acts. There is no need, especially with the maturity of the Antitrust Laws represented by the many 21st-century Supreme Court decisions, for separate, more expensive enforcement under section 5. Even here, however, Josh Wright’s numerous speeches and articles on the subject have demonstrated the continued relevance and importance of potential FTC overreaching.

I congratulate Commissioner Wright on his tenure, and look forward to decades to come of contributions on the issues facing the Antitrust and FTC communities.

Alden Abbott and I recently co-authored an article, forthcoming in the Journal of Competition Law and Economics, in which we examined the degree to which the Supreme Court and the federal enforcement agencies have recognized the inherent limits of antitrust law. We concluded that the Roberts Court has admirably acknowledged those limits and has for the most part crafted liability rules that will maximize antitrust’s social value. The enforcement agencies, by contrast, have largely ignored antitrust’s intrinsic limits. In a number of areas, they have sought to expand antitrust’s reach in ways likely to reduce consumer welfare.

The bright spot in federal antitrust enforcement in the last few years has been Josh Wright. Time and again, he has bucked the antitrust establishment, reminding the mandarins that their goal should not be to stop every instance of anticompetitive behavior but instead to optimize antitrust by minimizing the sum of error costs (from both false negatives and false positives) and decision costs. As Judge Easterbrook famously explained, and as Josh Wright has emphasized more than anyone I know, inevitable mistakes (error costs) and heavy information requirements (decision costs) constrain what antitrust can do. Every liability rule, every defense, every immunity doctrine should be crafted with those limits in mind.

Josh will no doubt be remembered, and justifiably so, for spearheading the effort to provide guidance on how the Federal Trade Commission will exercise its amorphous authority to police “unfair methods of competition.” Several others have lauded Josh’s fine contribution on that matter (as have I), so I won’t gild that lily here. Instead, let me briefly highlight two other areas in which Josh has properly pushed for a recognition of antitrust’s inherent limits.

Vertical Restraints

Vertical restraints—both intrabrand restraints like resale price maintenance (RPM) and interbrand restraints like exclusive dealing—are a competitive mixed bag. Under certain conditions, such restraints may reduce overall market output, causing anticompetitive harm. Under other, more commonly occurring conditions, vertical restraints may enhance market output. Empirical evidence suggests that most vertical restraints are output-enhancing rather than output-reducing. Enforcers taking an optimizing, limits of antitrust approach will therefore exercise caution in condemning or discouraging vertical restraints.

That’s exactly what Josh Wright has done. In an early post-Leegin RPM order predating Josh’s tenure, the FTC endorsed a liability rule that placed an inappropriately heavy burden on RPM defendants. Josh later laid the groundwork for correcting that mistake, advocating a much more evidence-based (and defendant-friendly) RPM rule. In the McWane case, the Commission condemned an exclusive dealing arrangement that had been in place for long enough to cause anticompetitive harm but hadn’t done so. Josh rightly called out the majority for elevating theoretical harm over actual market evidence. (Adopting a highly deferential stance, the Eleventh Circuit affirmed the Commission majority, but Josh was right to criticize the majority’s implicit hostility toward exclusive dealing.) In settling the Graco case, the Commission again went beyond the evidence, requiring the defendant to cease exclusive dealing and to stop giving loyalty rebates even though there was no evidence that either sort of vertical restraint contributed to the anticompetitive harm giving rise to the action at issue. Josh rightly took the Commission to task for reflexively treating vertical restraints as suspect when they’re usually procompetitive and had an obvious procompetitive justification (avoidance of interbrand free-riding) in the case at hand.

Horizontal Mergers

Horizontal mergers, like vertical restraints, are competitive mixed bags. Any particular merger of competitors may impose some consumer harm by reducing the competition facing the merged firm. The same merger, though, may provide some consumer benefit by lowering the merged firm’s costs and thereby allowing it to compete more vigorously (most notably, by lowering its prices). A merger policy committed to minimizing the consumer welfare losses from unwarranted condemnations of net beneficial mergers and improper acquittals of net harmful ones would afford equal treatment to claims of anticompetitive harm and procompetitive benefit, requiring each to be established by the same quantum of proof.

The federal enforcement agencies’ new Horizontal Merger Guidelines, however, may put a thumb on the scale, tilting the balance toward a finding of anticompetitive harm. The Guidelines make it easier for the agencies to establish likely anticompetitive harm. Enforcers may now avoid defining a market if they point to adverse unilateral effects using the gross upward pricing pressure index (GUPPI). The merging parties, by contrast, bear a heavy burden when they seek to show that their contemplated merger will occasion efficiencies. They must: (1) prove that any claimed efficiencies are “merger-specific” (i.e., incapable of being achieved absent the merger); (2) “substantiate” asserted efficiencies; and (3) show that such efficiencies will result in the very markets in which the agencies have established likely anticompetitive effects.

In an important dissent (Ardagh), Josh observed that the agencies’ practice has evolved such that there are asymmetric burdens in establishing competitive effects, and he cautioned that this asymmetry will enhance error costs. (Geoff praised that dissent here.) In another dissent (Family Dollar/Dollar Tree), Josh acknowledged some potential problems with the promising but empirically unverified GUPPI, and he wisely advocated the creation of safe harbors for mergers generating very low GUPPI scores. (I praised that dissent here.)

I could go on and on, but these examples suffice to illustrate what has been, in my opinion, Josh’s most important contribution as an FTC commissioner: his constant effort to strengthen antitrust’s effectiveness by acknowledging its inevitable and inexorable limits. Coming on the heels of the FTC’s and DOJ’s rejection of the Section 2 Report—a document that was highly attuned to antitrust’s limits—Josh was just what antitrust needed.

by Dan Crane, Associate Dean for Faculty and Research and Frederick Paul Furth, Sr. Professor of Law, University of Michigan Law School

The FTC was the brain child of Progressive Era technocrats who believed that markets could be made to run more effectively if distinguished experts in industry and economics were just put in charge. Alas, as former FTC Chair Bill Kovacic has chronicled, over the Commission’s first century precious few of the Commissioners have been distinguished economists or business leaders. Rather, the Commissioners have been largely drawn from the ranks of politically connected lawyers, often filling patronage appointments.

How refreshing it’s been to have Josh Wright, highly distinguished both as an economist and as a law professor, serve on the Commission. Much of the media attention to Josh has focused on his bold conservatism in antitrust and consumer protection matters. But Josh has made at least as much of a mark in advocating for the importance of economists and rigorous economic analysis at the Commission.

Josh has long proclaimed that his enforcement philosophy is evidence-based rather than a priori or ideological. He has argued that the Commission should bring enforcement actions when the economic facts show objective harm to consumers, and not bring actions when the facts don’t show harm to consumers. A good example of Josh’s perspective in action is his dissenting statement in the McWane case, where the Commission staff may have had a reasonable theory of foreclosure, but not enough economic evidence to back it up.

Among other things, Josh has eloquently advocated for the institutional importance of the economist’s role in FTC decision making. Just a few weeks ago, he issued a statement on the Bureau of Economics, Independence, and Agency Performance. Josh began with the astute observation that, in disputes within large bureaucratic organizations, the larger group usually wins. He then observed that the lopsided ratio of lawyers in the Bureau of Competition to economists in the Bureau of Economics has led to lawyers holding the whip hand within the organization. This structural bias toward legal rather than economic reasoning has important implications for the substance of Commission decisions. For example, Malcolm Coate and Andrew Heimert’s study of merger efficiencies claims at the FTC showed that economists in BE were far more likely than lawyers in BC to credit efficiencies claims. Josh’s focus on the institutional importance of economists deserves careful consideration in future budgetary and resource allocation discussions.

In considering Josh’s legacy, it’s also important to note that Josh’s prescriptions in favor of economic analysis were not uniformly “conservative” in the trite political or ideological sense. In 2013, Josh gave a speech arguing against the application of the cost-price test in loyalty discount cases. This surprised lots of people in the antitrust community, myself included. The gist of Josh’s argument was that a legalistic cost-price test would be insufficiently attentive to the economic facts of a particular case and potentially immunize exclusionary behavior. I disagreed (and still disagree) with Josh’s analysis and said so at the time. Nonetheless, it’s important to note that Josh was acting consistently with his evidence-based philosophy, asking for proof of economic facts rather than reliance on legal short-cuts. To his great credit, Josh followed his philosophy regardless of whether it supported more or less intervention.

In sum, though his service was relatively short, Josh has left an important mark on the Commission, founded in his distinctive perspective as an economist. It is to be hoped that his appointment and service will set a precedent for more economist Commissioners in the future.

by Hon. F. Scott Kieff, Commissioner, International Trade Commission (on leave from academic post as Fred C. Stevenson Research Professor at George Washington University School of Law)

I join all the others in congratulating Professor Wright on his accomplishments at the FTC. As both an academic and government official myself, I’ve long benefited from Dr. Wright’s work in academia and in government. I’ve also greatly enjoyed a ring-side view of the his upbeat and thoughtful manner for constructively engaging the diverse perspectives offered by personnel across the government, academic, and private sectors. Thanks to President Obama’s nomination and the Senate’s confirmation, Commissioner Wright consistently brought to bear a most serious and productive set of carefully considered ideas in both law and economics that he prudently adapted for helpful real world application. I thank Commissioner Wright for all that he has given to our country, and I wish him all continued success in the many important academic endeavors to which he has returned.

by Terry Calvani, of counsel at Freshfields Bruckhaus Deringer LLP and formerly Acting-Chairman and Commissioner of the FTC, & Jan Rybnicek, associate at Freshfields Bruckhaus Deringer LLP, and former attorney advisor to Commissioner Joshua Wright.

When a presidential appointee leaves office, it is quite common to consider the person’s legacy to their department or agency. We are delighted to participate in this symposium and to reflect on the contributions of our friend, Commissioner Joshua Wright, to the Federal Trade Commission.

To be sure, Commissioner Wright’s time at the FTC has been marked by no shortage of important votes, statements, speeches, testimony, and policy proposals that individually have had a positive and meaningful impact on the Commission and on antitrust policy more generally. In our view, however, the hallmark of Commissioner Wright’s most recent stint at the Commission is found in two overarching principles that have guided his approach to pursuing the agency’s mission of promoting consumer welfare and that, as a result, will be important considerations for those entrusted with selecting his replacement as well as future commissioners. We see those overarching principles as: (1) the rigorous application and ceaseless promotion of economics within the Commission and (2) the indefatigable participation in the marketplace of ideas.

A key characteristic of Commissioner Wright’s tenure at the FTC has been his insistence on rigorously applying modern economic principles to US competition law enforcement. Given that competition law is in reality applied industrial organization economics, well-grounded economic analysis is essential to the Commission’s discharge of its competition law enforcement functions. One would be concerned if there was not a trained surgeon in the operating room. Similarly, we are better served by a FTC that includes a professional economist among the ranks of its Commissioners. Indeed, no one has trumpeted the importance of incorporating modern economics into antitrust policy more than Commissioner Wright. Over the last two and a half years, Commissioner Wright has used his platform at the agency both to identify instances where the Commission’s economic analysis failed to live up to its potential and to praise those many occasions on which the talented attorneys and economists worked together to promote economically sound policies and enforcement decisions that the Commission adopted. This increased scrutiny and engagement on the economic analysis that underlies the Commission’s work necessarily has focused the agency’s attention on these core issues and created an environment where economics is more regularly and rigorously incorporated into enforcement decisions. We think that this clearly has been to the benefit of the agency and consumers.

As an independent and expert bureau within the FTC, the Bureau of Economics (“BE”) plays a critical role in the agency’s enforcement decisions. However, the role of BE is not a substitute to the presence of a professional economist Commissioner who can ensure that the Commission considers, addresses, and hopefully more often than not, fully incorporates modern economic analysis into its decision-making at the highest level. The importance of including an economist among the Commissioners has become only more obvious in light of the recent report of the FTC Inspector General that evaluated the effectiveness of BE. There, the Inspector General discussed the organization and use of economists within the existing FTC structure and made several recommendations for areas for improvement to help optimize BE’s effectiveness. Unsurprisingly, in the wake of the report, Commissioner Wright issued a statement that included his own recommendations for institutional changes that might elevate the role of BE. As anyone who has had the privilege of working at the Commission or regularly practices before it knows, the agency is dominated by it attorneys, often at the expense of BE. In such an environment, it is even more critical to have at least one economist as a member of the Commission if we truly are, as we should be, committed to making economics a prominent part of the agency’s work.

Whether this important contribution by Commissioner Wright will be a lasting legacy will depend entirely on whether future presidents, together with the advice and consent of the Senate, will follow the lead of Presidents Reagan and Obama by continuing to appoint economists to the college of commissioners. Certainly, Commissioner Wright’s service demonstrates its value.

A second characteristic of Commissioner Wright’s tenure at the FTC is his willingness to engage frequently in the marketplace of ideas in order to advance antitrust policy. Commissioner Wright is a prolific writer and is well-known for not being shy in expressing his positions in any forum. Over the course of his tenure at the FTC, Commissioner Wright issued 16 dissents, delivered over 25 speeches, testified before Congress on three occasions, and participated in countless more symposia, roundtables, and interviews. Frequently writing in dissent or arguing for fundamental changes to antitrust policy, Commissioner Wright’s opinions and speeches merit a close read by any serious practitioner. Whether it was Ardagh/Saint-Gobain (asymmetrical nature of competitive harm and efficiencies analysis at the FTC), Nielsen/Arbitron (limits of antitrust in double potential competition cases lacking economic evidence), Holcim/LaFarge (structural presumption is unsupported by modern economics), his torrent of writings that culminated in a historic statement on Section 5, or any number of his other statements or speeches, Commissioner Wright’s willingness to express his views and have them debated in the public forum has contributed significantly to the development of antitrust law.

We hasten to note Justice Ginsburg’s observation that powerful dissents force the majority to be more rigorous in their own analyses and ultimately produce better decisions. Donning his professor’s mortar board, Commissioner Wright was not reticent about grading the decisions of the majority. The discipline this brings to the Commission’s decisions should be welcomed by all. Borrowing from former Chief Justice Charles Evans Hughes, such dissents can provide a valuable critique of the prevailing conventional wisdom and discern a better path going forward.

Lastly, we would be remiss not to mention that although Commissioner Wright took an evidenced-based approach to antitrust law and policy grounded in modern economics seriously, he discharged his duties with both humility and humor. He was not one to stand on ceremony and honorifics and was often simply “Josh” to both the staff and those who appeared before the agency. He employed an open-door policy, welcoming staff to discuss and debate matters without ceremony. He made it a priority to nurture the development and careers of his advisors and interns. The simple fact is that as an academic he enjoyed serious discussion and was more than willing to consider the merits of “the other side.” Indeed, Commissioner Wright found the crucible of testing the analysis fun and sought to make it fun for those on his staff.

Commissioner Wright’s service on the FTC is yet another example of how the “revolving door” continues to replenish the intellectual stock of US agencies. Given that the “dismal science” does not respect national boundaries, one might wonder why economic analysis was employed both earlier and more rigorously in the United States than elsewhere. Are not there quality economists around the globe? We suggest that the “revolving door” bringing, as it does, new recruits from the academy and elsewhere fosters agency openness to new ideas. It continuously fertilizes the advancement and development of sound economic competition policy and enforcement. Not surprisingly, agencies that take from the cradle and give to the grave are less likely to benefit.