Tim Wu on Section 5 Guidelines Would Make the FTC Stronger and Better

totmauthor —  1 August 2013

Tim Wu is Isidor and Seville Sulzbacher Professor of Law at Columbia Law School

I personally believe that a policy statement on Section 5 would be a very good thing for the Federal Trade Commission, especially over the long run.  I think it would strengthen the agency, renew its distinct sense of purpose, and clarify the jobs of the attorneys who enforce the competition laws on a day-to-day basis.  And so, while there is some possibility that Josh Wright & I may disagree on aspects of substance, on the principle of having a policy statement, we agree entirely.

In this post I’ll explain a few reasons why I think a policy statement is a good idea, and then give a very rough idea of what I think a good one would look like; space obviously forecloses full treatment.

First, I think a policy statement would very useful internally.  It can be natural to think, when you’re working at an agency, that the broadest discretion possible would be best.  Who wants rules?  Without any constraints, you can do what you want, and change your mind later, free from having to consult some policy statement written years ago.  In practice, however, I think limits can be, counter-intuitively, both empowering and clarifying, especially in day-to-day practice.

Consider asking a musician to “write a song” – that’s hard.  Ask him to write country, blues, or R&B – and suddenly it’s easier.  And it’s even easier to “write in the style of 1970s heavy metal” or “a piano ballad like Elton John.”

Lawyers, like musicians, actually don’t do well with too much discretion.  The Anticompetitive Practices division is sometimes in this position.  The division knows that, in theory, the FTC has the power to go beyond the Sherman Act – but how far, it doesn’t really know, because nobody does.  Instead of the blank page serving as an inspiration, it becomes a trap.  I think, for day-to-day work of the division, a policy statement would provide a framework for trying to decide in a clearer way whether a complaint is worth looking into or not.  I would expect this to become more valuable over time.

Relatedly, for the agency’s work, a policy statement could be a useful thing for litigation.  If the agency can stand up in appellate court and say, (1) here are our standards for Section 5, and (2) here’s why we think this firm violated them, that strikes me as much stronger than something along the lines of, “we didn’t like what this firm was doing so we trotted out section 5 to deal with it.”  The former position seems much more likely to get at least Skidmore deference, the latter position, judicial mockery.

Externally, and I’m sure others have said this, for those subject to Section 5 (and by this I suppose I mean just about every business other than common carriers) a policy statement would obviously eliminate some uncertainty, particularly if the agency repudiated some of the wilder visions of what section 5 covers.   For example, I think the FTC could and should walk away from:

  • The “regardless … of its effect on competition” line in Sperry & Hutchison.
  • The “deconcentration” policy pursued in Kellogg.
  • Challenges to methods of operation or manufacturing (such as, for example, questionable tax practices that give an advantage, or something like failing to comply with minimum-wage laws).
  • Any targeting of pure parallel pricing.

The third beneficiary is the agency itself. The FTC has something of an identity problem.  Right now, the FTC’s Bureau of Competition is close to a copy of the Justice Department, minus the criminal element; the agency would be stronger with a clear identity of its own.  Of course, the consumer protection business helps distinguish the agency, but a Section 5 policy statement would help clarify what makes the agency distinctive in the competition sphere.

In a strange way the culprit here is the Sherman Act.  Having the Sherman Act jurisprudence to rely on has made the FTC somewhat lazy about developing its own jurisprudence and vision, the way it was supposed to.  Once upon a time it was unclear whether the FTC would have the power to enforce the Sherman Act at all; that surely would have forced the FTC to develop a clearer vision of what Section 5 meant.  Obviously I don’t see the FTC giving up on the Sherman Act – but it could use the policy statement to give some sense of what the FTC stands for.

* * *

These are the reasons I think a policy statement is a good idea.  What would an ideal policy statement contain?  On this, of course, there is more I’d like to say than I have room for.

I favor an approach that emphasizes elements and categories.  I think the FTC should require two elements in any section 5 case, namely: (1) unfair methods and (2) harm to competition or the competitive process.  Unfair methods is an actus reus, or conduct element, familiar to lawyers, and means conduct that is in some way deceptive, collusive, coercive, predatory, exclusionary, or otherwise oppressive.

While it’s at it, the agency should make clear, also, some of its criteria for deciding whether to bring a case — like its relative institutional expertise, the prospects of follow-on litigation by private plaintiffs, and the possibility of deference to other enforcement agencies or legal institutions.

In addition to elements, I think the Commission should create clearer categories that delineate what kind of Section 5 cases it will bring.  Three categories that come to mind are (1) conduct that violates the letter of the Sherman Act; (2) conduct contrary to the policy of the Sherman Act, though possibly beyond the letter; and (3) conduct that independently threatens the competitive process.  The third category is obviously the most interesting and open-ended, but I think it could be cabined by strict attention to the conduct and harm elements.  In particular, as in Section 2 cases, pro-competitive justifications would have to be taken very seriously.

There’s obviously much more to say, but I’ll end instead with a quote from Justice Cardozo about the FTC that I like.  “The careless and the unscrupulous must rise to the standards of the scrupulous and diligent. The Commission was not organized to drag the standards down.”

Tim Wu was formerly a senior advisor to the FTC, but the views expressed here are entirely his own.

4 responses to Tim Wu on Section 5 Guidelines Would Make the FTC Stronger and Better

  1. 

    Professor Wu’s prescription for what Section 5 should reach is the best evidence for why this statutory authority is useless (and dangerous). He says that it should reach “unfair” conduct, and he defines this as:

    “Unfair methods is an actus reus, or conduct element, familiar to lawyers, and means conduct that is in some way deceptive, collusive, coercive, predatory, exclusionary, or otherwise oppressive.”

    If someone can explain to me how it is even possible for such a statute to be explained to those who would be expected to follow it, or how it is even conceivable that some FTC majority would not want to use this rubber language to expand US competition law in ways they thought useful, I’d be happy to hear it.

    One other point: Wu says that he would use Section 5 to attack three categories of conduct:

    “(1) conduct that violates the letter of the Sherman Act; (2) conduct contrary to the policy of the Sherman Act, though possibly beyond the letter; and (3) conduct that independently threatens the competitive process.”

    The first is unnecessary; we already have a statute that covers that. The second and third are exactly the problem; we do not want FTC Commissioners telling us what they think “threatens” the competitive process or violates the “policy” of the Sherman Act. We already know where that can take us. We have seen that movie and don’t need a sequel.

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