You’re no doubt aware that we’ve had a presidential election since my last column. Agency news seems pallid, in comparison, but those of you who’ve come here looking for deep insights into what it all means are liable to be disappointed, not to mention zero in number. “The Meaning of Life” is a movie by Monty Python. I recommend it.
Staying closer to my lane, I’d like to tell you what the vote means for antitrust; I just don’t happen to know what that is. We can, and should, expect a change in leadership. And we can, and should, expect less enthusiasm for competition rulemaking. At some point, some of the recent and more creative policy statements issued by the Federal Trade Commission (FTC) and the U.S. Justice Department (DOJ)) should be withdrawn or, at least, redrawn. But y’all knew all of that already.
New leadership at the enforcement agencies? Plainly, there are two sitting Republican FTC commissioners, and I can think of a couple or three former agency people who would do well, and who might be in the running. But the truth is that I’m well out of the loop on such considerations and I’d rather leave the rumor mongering and guesswork to others.
Back to our scheduled programming.
First, Two Cheers for the Agency
Economics provides much of value to policy analysis, within and without antitrust. Its contributions include theoretical models and empirical findings that can, should, and often do inform and constrain potential policy reforms.
And then there’s what I like to call “the eternal economic relativity question”: compared to what?
Consider the changes to the Hart-Scott-Rodino (HSR) Act reporting rules adopted in the final rule the FTC published in October (with the concurrence of the DOJ). Specifically, the amendments to:
…the Premerger Notification Rules (the ‘Rules’) that implement the Hart-Scott-Rodino Antitrust Improvement Act (‘the HSR Act’ or ‘HSR’), including the Premerger Notification and Report Form for Certain Mergers and Acquisitions (‘Form’) and Instructions to the Notification and Report Form for Certain Mergers and Acquisitions (‘Instructions’).
Good, bad, or ugly? If we ask “compared to what,” and the “what” is the set of changes that the FTC proposed in late June 2023, then the answer is easy: good—very good, indeed.
I wrote about the FTC’s notice of proposed rulemaking (NPRM) at Truth on the Market (here), and the International Center for Law & Economics (ICLE) filed comments on the NPRM (here and here). I signed onto comments filed by a group of FTC alumni, as well. I also recommend an article by my ICLE colleague Gus Hurwitz (here) that provides a useful compact primer for the uninitiated on the HSR Act, in addition to a discussion of the NPRM. For a few of the many additional comments, see here, here, and here—the last provides a useful compendium of law-firm comments.
A few of the proposed changes seemed salutary, but others seemed no such thing, and conspicuously so. As I wrote in August:
In a nutshell, the proposed revisions are controversial because they promise to make pre-merger filing more cumbersome and, not incidentally, more costly, and it’s not at all clear what the payoff is likely to be.
The final rule eliminates some of the worst aspects of the NPRM, as thoughtful concurring statements by Commissioners Melissa Holyoak and Andrew Ferguson recognize. For example, several proposed requirements related to labor have, as Holyoak points out, been struck in their entirety. As I noted last year, the NPRM would have required both merging parties to compile and submit information on:
…any penalties or findings issued against the filing person by the U.S. Department of Labor’s Wage and Hour Division (WHD), the National Labor Relations Board (NLRB), or the Occupational Safety and Health Administration (OSHA) in the last five years and/or any pending WHD, NLRB, or OSHA matters. For each identified penalty or finding, provide (1) the decision or issuance date, (2) the case number, (3) the JD number (for NLRB only), and (4) a description of the penalty and/or finding.
It was purported that such information might be tied to competition concerns in relevant labor markets. That seemed unlikely, which is not to say that there cannot be legitimate antitrust concerns to do with labor markets. As I noted at the time, even leaving questions of cause and effect aside, the identified violations didn’t seem well-correlated with high concentration, much less with anticompetitive transactions or conduct. Gathering and submitting (and, for the FTC staff, reviewing) such information would be costly, but seemed unlikely to be helpful in the preliminary screening of proposed mergers.
We might make similar observations about the employee classifications and (putatively, if not actually) geographic labor-market information that was proposed in the NPRM, but absent from the final rule. These and other now-moribund proposals for the submission of various documents not produced in the ordinary course of business, draft documents, etc., are well absent from the final rule.
Commissioner Holyoak’s statement provides useful summary tables of the deletions and modifications. Many of those no longer with us were, at best, fodder for fishing expeditions and, at worst, attempts to impose a sort of regulatory tax on all transactions and, in some cases, evade the limitations of 6(b) studies (including those imposed by the Paperwork Reduction Act). They would have imposed a serious misallocation of limited staff resources as well. This is no small matter, given that there are indeed productive things for the staff to do, staff who know how to do such things, and real—sometimes pressing—resource constraints.
Commissioners Holyoak and Ferguson’s statements also identify ways in which some of the NPRM’s proposed rule changes might have been found unlawful, as Gus Hurwitz did in the 2023 article mentioned above.
So, two cheers to the FTC for taking not a little outside input to heart (or, at least, to vote), and a tip of the hat to the commissioners who negotiated a far more reasonable rule than many of us had feared. The prior rules and HSR form needed some updating, and they revised their proposals for the better.
And a third, if distinct, cheer for the announced reinstatement of early termination (the termination of the suspension of early termination?) of review for noticed mergers that do not raise serious antitrust concerns. We’ll see how often that comes into play, but early termination is useful and efficient for the merging firms. It likewise limits the wheel-spinning waste of staff resources on mergers that do not raise competition concerns. The rules and filing form should not impose undue burdens on procompetitive and benign transactions.
At the same time, there are mergers that warrant serious investigation, and some of those need to be challenged. Helping the staff to focus on efforts more likely to help than harm competition and consumers is no small part of what agency management is for.
And yet, some of what remains is costly and unnecessary, especially as the agencies have—and had all along—considerable leeway to gather additional information via “voluntary access letters” during the initial 30-day review period, and nearly unlimited ability to gather additional information after that when they decide to issue a “second request” (which also extends the statutory waiting period).
So, for example, new requirements regarding submission of information on “non-horizontal” or supply relationships still seem excessive. Not because such information couldn’t be pertinent to a merger investigation, but because it is not typically useful to a preliminary screen and can be obtained in those cases where it’s more likely to be pertinent—likewise for required submissions about, e.g., private-equity acquisitions, “roll-up” strategies, and interlocking directorates.
In regulation, the perfect should not be the enemy of the good. But acknowledging the importance of the “compared to what” question, there’s still the question of what we mean by “good,” and how good (or bad) the final rule is. Merging the two questions, we can ask whether the amended rule and form are better, on net, than the old rule and form (which did, as I noted long ago, need some updating). I’m not sure of the answer.
Does Anybody Need a Lyft?
Or does Lyft need to be subject to monetary penalties for knowing violations of the FTC Act? The FTC filed an Oct. 25 complaint in the U.S. District Court for the Northern District of California asking for just such penalties.
What did Lyft do? It advertised certain earnings ranges to drivers it was recruiting. For example, at various times there were ads in Atlanta that said “Drivers in Atlanta make up to $29.00 an hour” (12/21); and there were ads in Boston that said “Drivers in Boston make up to $33.00 an hour” (2/22). According to the FTC’s complaint, these ads were materially misleading, because Lyft advertised “hourly earnings based on the top 20% of Drivers. Thus, most Lyft Drivers were unlikely to earn the advertised pay.”
Did these ads, or others in the complaint, violate the FTC Act? I’m not so sure. And neither was the entire commission. Before getting into the weeds, I’ll point again to clear and useful statements by Commissioners Holyoak and Ferguson (with Holyoak dissenting and Ferguson concurring in part and dissenting in part).
Recall that the pertinent part of Section 5 says: “unfair or deceptive acts or practices in or affecting commerce, are hereby declared unlawful.” There’s no dispute that materially misleading advertising statements may be “deceptive acts” under Section 5.
Were the statements false or materially misleading? On the one hand, a candidate driver could misread the ads as suggesting, or even claiming, that those top quintile earnings were mean, median, modal, or somehow typical compensation. And, in fact, there were drivers who seemed to misunderstand the ads and complained about their compensation. On the other hand, it is not alleged that most were misled; it’s not alleged that no drivers earned what the ads said they might; and it’s not even alleged that the advertised earnings represented outliers or long tails of the earnings distribution. It’s certainly not alleged that the plain meaning of “up to” is “exactly” or even “approximately,” because it isn’t.
Perhaps the FTC could establish, via consumer testing and further investigation, that some of the ads at issue were misleading. But that wouldn’t get to a key issue in Holyoak’s dissent (or the dissenting part of Ferguson’s statement). Part of what’s most interesting here, and most dubious, is what I worried about way back in January 2023, when I wrote about the FTC’s issuance of “notices of penalty offenses” for “fake reviews and other misleading endorsements” to more than 700 U.S. firms.
To be clear, the FTC Act’s UDAP prohibition can properly be applied to various species of fraud, and materially false and misleading reviews and endorsements might properly be seen as Section 5 violations. But as I pointed out at the time:
A notice of penalty offenses is supposed to provide a sort of firm-specific guidance: a recipient is informed that certain sorts of conduct have been deemed to violate the FTC Act. It’s not a decision or even an allegation that the firm has engaged in such prohibited conduct.
With Lyft, the FTC is not just seeking an injunction barring similar advertising going forward. Rather, it is asking a federal court to “[i]mpose civil penalties on Defendant for every instance Defendant participated in an act or practice with actual knowledge that it was unfair or deceptive.”
What sort of civil penalties? As I noted before:
In AMG Capital, the Supreme Court held that the FTC cannot obtain equitable monetary remedies for violations of the FTC Act in the first instance—at least, not under Section 13b of the FTC Act. But there are circumstances under which the FTC can get statutory penalties (up to just over $50,000 per violation, and a given course of conduct might entail many violations) for, e.g., violating a regulation that implements Section 5.
Specifically, a notice of penalty offense is supposed to be one of those circumstances that justifies statutory monetary penalties for knowing and repeated violations, even though the FTC does not have penalty authority for violations in the first instance. And if readers will forgive me a bit more self-plagiarism:
Do the letters provide notice? What might 700-plus disparate contemporary firms all do that fits a given course of unlawful conduct (at least as determined by administrative process)? To grab just a few examples among companies that begin with the letter “A”: what problematic conduct might be common to, e.g., Abbott Labs, Abercrombie & Fitch, Adidas, Adobe, Albertson’s, Altria, Amazon, and Annie’s (the organic-food company)?
Well, the letter (or the sample posted) points to all sorts of potentially helpful guidance about not running afoul of the law. But more specifically, the FTC points to eight administrative decisions that model the conduct (by other firms) already found to be unfair or deceptive. That, surely, is where the rubber hits the road and the details are specified. Or is it?
The eight administrative decisions are an odd lot. Most of the matters have to do with manufacturers or packagers (or service providers) making materially false or misleading statements in advertising their products or services.
The most recent case is In the Matter of Cliffdale Associates, a complaint filed in 1981 and decided by the commission in 1984. For those unfamiliar with Cliffdale (nearly everyone?), the defendant sold something “variously known as the Ball-Matic, the Ball-Matic Gas Saver Valve and the Gas Saver Valve.” The oldest decision, Wilbert W. Haase, was filed in 1939 and decided in 1941 (one of two decided during World War II).
The letters also cited the commission’s 1950 decision (following a 1943 complaint) In the Matter of R.J. Reynolds, where we learned that:
…while as a general proposition the smoking of cigarettes in moderation by individuals not allergic nor hypersensitive to cigarette smoking, who are accustomed to smoking and are in normal good health, with no existing pathology of any of the bodily systems, is not appreciably harmful-what is normal for one person may be excessive for another.
Dated much? And what’s that got to do with advertising claimed earnings of “up to” a certain amount? As I worried at the time, having read the eight cases the FTC cited as exemplars:
I have no idea how the old cases are supposed to provide notice to the myriad recipients of these letters.
And now, looking back, I have no idea how those letters were supposed to put Lyft on notice about its ads. In this case, Commissioner Holyoak echoes my prior concern nicely:
I do not believe the Commission should be compensating for its lack of authority by issuing “Notices of Penalty Offenses” to thousands of companies and then seeking civil penalties without demonstrating how the mere receipt of a stock notice summarizing archaic cases transmutes into the specific, two-part “actual knowledge” that Section 5(m)(1)(B) requires. Indeed, I fear that this equivalent of rulemaking will backfire, making Congress far less willing to entrust the Commission with any new authority.
Ferguson makes a similar argument:
[I]n 2021, the Supreme Court unanimously determined that the Commission and lower courts had misinterpreted Section 13(b)’s authorization for a “permanent injunction” against Section 5 violators to permit monetary relief. The Commission responded by digging up the old Section 5(m)(1)(B) mass-mailer strategy. It once again compiled synopses of old cases, called them “Notices of Penalty Offenses” (NPOs), and mailed them en masse to any companies it thought it may want to sue in the future. The Commission has sent these letters to thousands of recipients.
One of these mass-mailers was the “Notice of Penalty Offenses Concerning Money-Making Opportunities.” Lyft received this mailer, and the Commission now relies on it to establish Lyft’s liability for civil penalties. The Commission says that the contents of this notice suffice to establish both the existence of cease-and-desist orders prohibiting the practice in which Lyft was engaged as well as Lyft’s “actual knowledge” that its practices violated Section 5. (internal citations omitted)
Whether or not there is something to the underlying complaint, the action and the FTC’s prayer for relief seem too cute by half. Or more.
They can, and do, bring better cases. Fraud need not be novel to do harm, and intervention, whether by enforcement or consumer education, need not be especially novel or legally interesting to do some good.
This One Goes to 11
The Washington Legal Foundation (WLF) sent an interesting petition to the FTC Nov. 6, seeking clarification of recent amendments to the FTC’s “Amplifier Rule”–the colloquial (such as it is) name for the Trade Regulation Rule Relating to Power Output Claims for Amplifiers Utilized in Home Entertainment Products (the “Amplifier Rule”).
The rule was originally adopted in 1974, and it has to do with the labeling and advertising of amplifiers that some of us still use when listening to music (or watching movies, etc.) at home—receivers, integrated amplifiers, power amplifiers, etc. And if you don’t know what those are, then get off my lawn.
The rule restricts what manufacturers and marketers of amplifiers can say about their products’ power output, something some buyers of such things care about. Based on personal recollection (I had a side gig selling such gear in another century), I’ll suggest that some standardization of power-output claims was useful to not a few consumers.
That’s not to opine on the effectiveness or efficiency of the rule, but let’s leave that aside. As the petition notes, after a notice-and-comment process that began in 2022, FTC published a final rule July 12, 2024, that imposed additional restrictions. Notably, the amendments stipulated uniform testing criteria for measuring power output.
Such standardization of the standards might or might not be a good thing. It’s hardly free, but it can at least increase the signal-to-noise ratio in the advertised output numbers. See what I did there?
But that’s not WLF’s main concern. Rather, WLF notes that “an FTC Bureau of Consumer Protection [BCP] attorney informed [the Consumer Technology Association] via an email that the amendments do not exclude ‘covered products that were manufactured prior to [Aug. 12, 2024, the rule’s effective date] or are already on the shelves by that date.’”
That is, according to a warning letter, the rule changes apply retroactively to products already manufactured and, indeed, already on the shelves. And, well, that’s not so great if the products are boxed in or accompanied by labeling with power-output claims based on measurements that once passed muster but don’t any longer.
In my experience, staff did not typically send such emails or letters without approval from management. But I don’t know how high up the chain that went (or from how high up it came down), so there’s that.
Not incidentally, the notice of penalty offenses letters I mentioned above, and rules violations, are both paths to monetary penalties. Per violation? Is that per unit or per instantiation of the claim in all labeling accompanying each unit? So, in other words—gotcha on the retroactive application and gotcha again, and again, and again on potential penalties.
WLF says:
The FTC must stay enforcement of the Amplifier Rule and adopt the amendment CTA proposes in its petition. Basic notions of fair notice reflected in the Fifth Amendment’s Due Process Clause and Article I’s Ex Post Facto Clauses, as well as Supreme Court jurisprudence on retroactivity, compel that Action.
Opting for enforcer flexibility rather than standardization, WLF proposes that the FTC choose one of two simple fixes: either issue a statement of clarification saying that, contra the staff letter, the new rule changes apply only prospectively, or amend the rule further so that the codified regulation stipulates that the rule changes apply prospectively (after some effective date) but not retroactively.
All of that makes good sense, so three cheers for WLF. To the BCP front office and the commission: ok, play that song, prospectively, but maybe turn it down a little?
Addenda
I’ve gone on for a bit. I tend to do that. So, for today, I’ll just highlight a couple other issues of interest.
The Negative Option Rule
On Oct. 16, the FTC announced a “click-to-cancel” rule. According to the commission, the rule “will require sellers to make it as easy for consumers to cancel their enrollment as it was to sign up.”
My quick take cuts two ways: yes, there are issues there, and they include conduct that plainly violates Section 5 of the FTC Act; but no, this is not the best way to amend prior regulations, as it’s both too broad and too hazy. For a good take on process and substance issues with the rule, I’ll once again point to a dissent by Commissioner Holyoak. And to dial back the clock just a bit, a 2023 dissent by then-Commissioner Christine Wilson.
Chevron, Hess, and Exxon
I’m sorry to sound like a broken record, but once more, I’m going to point to dissents: one by Commissioner Holyoak and one co-authored by Commissioners Holyoak and Ferguson. One might well be concerned with competition in the gas and oil sectors, but I struggled to see the antitrust merits (or even logic) to these two merger cases. I’ll quote from Holyoak again:
For the second time in five months, the Majority has used its leverage in the HSR process to extract a consent from merging parties with no reason to believe the law has been violated. To make it worse, once again, the consent targets an individual and deprives him of his contractual rights. I dissent.
…
Rather than accept reality and any political blowback, the Majority creates a sequel to the fairy tale in Exxon where Section 7 of the Clayton Act means whatever the Majority needs it to mean to appease political demands.
Unfortunately for Mr. Hess, the CEO of Hess Corporation, the author of every fairy tale must also fabricate a villain, and today’s action unjustifiably gave him that label.
Until next time.