The Federal Trade Commission (FTC) appears committed—at least, for the moment—to a path of regulatory overreach. The commission’s Dec. 10 Statement of Regulatory Priorities (SRP) offers, in addition to a periodic review of existing rules and the status of proposed rules in the pipeline, a sneak preview of new “unfair methods of competition” (UMC) and “unfair or deceptive acts or practices” (UDAP) rulemakings that the body will consider developing next year.
In issuing its regulatory wish list, the FTC’s current “majority” (actually, only two of the four sitting members) pay no heed to spirited dissents by Commissioners Christine S. Wilson and Noah Phillips. Wilson’s well-reasoned statement particularly merits a close read, as it lays bare serious flaws with the wish list.
Highly problematic from the start, the SRP praises the July 2021 decision to streamline the commission’s consumer-protection rulemaking procedures, thus ignoring Wilson’s concerns (shared by Phillips) that “those changes fast-track regulation at the expense of public input, objectivity, and a full evidentiary record.”
The SRP also asserts that case-by-case antitrust enforcement “has proven insufficient, leaving behind a hyper-concentrated economy whose harms to American workers, consumers, and small businesses demand new approaches.” This attempt to justify new far-reaching rulemakings is made without a shred of substantiation, and without mention of solid economic research to the contrary.
Having failed to establish a broad economic predicate for novel rules, the SRP immediately turns to describing rulemaking possibilities.
It begins by describing a possible hybrid consumer-protection and competition rule focused on “abuses stemming from surveillance-based business models,” including possible lax security practices and discriminatory algorithms. The SRP claims, without citing any evidence, that such abuses are “particularly alarming.”
Next, the SRP sails further into uncharted FTC regulatory waters by stating that the commission will consider initiating a host of possible competition rulemakings that deal with “non-compete clauses, surveillance, the right to repair, pay-for-delay pharmaceutical agreements, unfair competition in online marketplaces, occupational licensing, real-estate listing and brokerage, and industry practices that substantially inhibit competition.”
The SRP also highlights two public petitions for competition rulemaking, dealing with (1) curtailing the use of non-compete clauses and (2) limiting exclusionary contracting by dominant firms. It adds that “the Commission also solicited additional examples of unfair terms” and is “carefully reviewing” thousands of public comments. As if that’s not enough, the SRP further notes that “[t]he Commission will explore the benefits and costs of these and other competition rulemaking ideas.”
This compilation of rulemaking desiderata is stunning in both its breadth and in its impracticality. Any efforts to follow through and actually put forth rulemakings along the lines suggested in the SRP would be harmful to producer and consumer welfare. Three points, in particular, are worth noting.
- As I have previously explained, the legal justification for promulgating FTC UMC rules is highly problematic, to say the least. Moreover, the “streamlining” of consumer-protection rules under Section 18 of the FTC Act raises substantial Due Process problems. These difficulties are compounded by the reality that the commission lacks the administrative law resources to conduct the fulsome fact-finding proceedings and legal analyses that would provide credible record support for a raft of highly unprecedented rule proposals. As such, there is only a modest, at best, chance that most (if any) of the new rulemakings the FTC suggests would survive judicial review. Devoting substantial commission resources to novel and time-consuming rulemakings that will likely fail—resources that could be far better applied to more traditional law enforcement—would not appear to meet any rational cost-benefit test.
- The suggested rulemakings involve categories of business conduct that have major efficiency justifications. Imposing inflexible one-size-fits-all rule provisions to limit such conduct would generate enormous error costs, and would doubtless deter a great deal of economically efficient behavior. Business innovations that enhance market offerings would slow, harming consumers and denying potential gains to producers’ product and service improvements. Relatedly, regulatory strictures on industry practices would discourage third-party entrepreneurial activities that could have generated new markets and product and service improvements. These problems would be compounded by the error costs that would inevitably attend the design of rules.
- Novel rules would not be an effective means to address any FTC concerns about alleged dominant firm depredations. Indeed, to the contrary, the long and sordid history of regulatory manipulation by powerful firms in response to regulation suggests that new rules could create or enhance barriers to entry and raise less connected rivals’ costs. Such an outcome would, of course, harm consumers while reducing economic efficiency and innovation.
I have only scratched the surface of the problems raised by the SRP’s novel rule proposals. Fortunately, none of the troublesome rulemakings are yet under way. One may hope that the eventual confirmation of a fifth commissioner will lay the groundwork for a reconsideration of the wisdom of new and overly expansive rulemaking proceedings.
