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Biweekly FTC Roundup: Throwing Stones in Glass Containers Edition

Daniel Gilman —  17 March 2023 — Leave a comment

In February’s FTC roundup, I noted an op-ed in the Wall Street Journal in which Commissioner Christine Wilson announced her intent to resign from the Federal Trade Commission. Her departure, and her stated reasons therefore, were not encouraging for those of us who would prefer to see the FTC function as a stable, economically grounded, and genuinely bipartisan independent agency. Since then, Wilson has specified her departure date: March 31, two weeks hence. 

With Wilson’s departure, and that of Commissioner Noah Phillips in October 2022 (I wrote about that here, and I recommend Alden Abbott’s post on Noah Phillips’ contribution to the 1-800 Contacts case), we’ll have a strictly partisan commission—one lacking any Republican commissioners or, indeed, anyone who might properly be described as a moderate or mainstream antitrust lawyer or economist. We shall see what the appointment process delivers and when; soon, I hope, but I’m not holding my breath.

Next Comes Exodus

As followers of the FTC—faithful, agnostic, skeptical, or occasional—are all aware, the commissioners have not been alone in their exodus. Not a few staffers have left the building. 

In a Bloomberg column just yesterday, Dan Papscun covers the scope of the departures, “at a pace not seen in at least two decades.” Based on data obtained from a Bloomberg Freedom of Information Act request, Papscun notes the departure of “99 senior-level career attorneys” from 2021-2022, including 71 experienced GS-15 level attorneys and 28 from the senior executive service.

To put those numbers in context, this left the FTC—an agency with dual antitrust and consumer-protection authority ranging over most of domestic commerce—with some 750 attorneys at the end of 2022. That’s a decent size for a law firm that lacks global ambitions, but a little lean for the agency. Papscun quotes Debbie Feinstein, former head of the FTC’s Bureau of Competition during the Obama administration: “You lose a lot of institutional knowledge” with the departure of senior staff and career leaders. Indeed you do.

Onward and Somewhere

The commission continues to scrutinize noncompete terms in employment agreements by bringing cases, even as it entertains comments on its proposal to ban nearly all such terms by regulation (see here, here, here, here, here, here, here, here, and here for “a few” ToTM posts on the proposal). As I noted before, the NPRM cites three recent settlements of Section 5 cases against firms’ use of noncompetes as a means of documenting the commission’s experience with such terms. It’s important to define one’s terms clearly. By “cases,” I mean administrative complaints resolved by consent orders, with no stipulation of any antitrust violation, rather than cases litigated to their conclusion in federal court. And by  “recent,” I mean settlements announced the very day before the publication of the NPRM. 

Also noted was the brevity of the complaints, and the memoranda and orders memorializing the settlements. It’s entirely possible that the FTC’s allegations in one, two, or all of the matters were correct, but based on the public documents, it’s hard to tell how the noncompetes violated Section 5. Commissioner Wilson noted as much in her dissents (here and here).

On March 15, the FTC’s record on noncompete cases grew by a third; that is, the agency announced a fourth settlement (again in an administrative process, and again without a decision on the merits or a stipulation of an antitrust violation). Once again, the public documents are . . . compact, providing little by way of guidance as to how (in the commission’s view), the specific terms of the agreements violated Section 5 (of course, if—as suggested in the NPRM—all such terms violate Section 5, then there you go). Again, Commissioner Wilson noticed. 

Here’s a wrinkle: the staff do seem to be building on their experience regarding the use of noncompete terms in the glass container industry. Of the four noncompete competition matters now settled (all this year), three—including the most recent—deal with firms in the glass-container industry, which, according to the allegations, is highly concentrated (at least in its labor markets). The NPRM asked for input on its sweeping proposed rule, but it also asked for input on possible regulatory alternatives. A smarter aleck than myself might suggest that they consider regulating the use of noncompetes in the glass-container industry, given the commission’s burgeoning experience in this specific labor market (or markets).

Someone Deserves a Break Today

The commission’s foray into labor matters continues, with a request for information  (RFI) on “the means by which franchisors exert control over franchisees and their workers.” On the one hand, the commission has a longstanding consumer-protection interest in the marketing of franchises, enforcing its Franchise Rule, which was first adopted in 1978 and amended in 2007. The rule chiefly requires certain disclosures—23 of them—in marketing franchise opportunities to potential franchisees. Further inquiry into the operation of the rule, and recent market developments, could be part of the normal course of regulatory business. 

But this is not exactly that. The RFI raises a panoply of questions about both competition and consumer-protection issues, well beyond the scope of the rule, that may pertain to franchise businesses. It asks, among other things, how the provisions of franchise agreements “affects franchisees, consumers, workers, and competition, or . . . any justifications for such provision[s].”  Working its way back to noncompetes: 

The FTC is currently seeking public comment on a proposed rule to ban noncompete clauses for workers in some situations. As part of that proposed rulemaking, the FTC is interested in public comments on the question of whether that proposed rule should also apply to noncompete clauses between franchisors and franchisees.

As Alden Abbott observed, franchise businesses represent a considerable engine of economic growth. That’s not to say that a given franchisor cannot run afoul of either antitrust or consumer-protection law, but it does suggest that there are considerable positive aspects to many franchisor/franchisee relationships, and not just potential harms.

If that’s right, one might wonder whether the commission’s litany of questions about “the means by which franchisors exert control over franchisees and their workers” represents a neutral inquiry into a complex class of business models employed in diverse industries. If you’re still wondering, Elizabeth Wilkins, director of the FTC’s Office of Policy Planning (full disclosure, she was my boss for a minute, and, in my opinion, a good manager) issued a spoiler alert: “This RFI will begin to unravel how the unequal bargaining power inherent in these contracts is impacting franchisees, workers, and consumers.” What could be more neutral than that? 

The RFI also seeks input on the use of intra-franchise no-poach agreements, a relatively narrow but still significant issue for franchise brand development. More about us: a recent amicus brief filed by the International Center for Law & Economics and 20 scholars of antitrust law and economics (including your humble scribe, but also, and not for nothin’, a Nobel laureate), explains some of the pro-competitive potential of such agreements, both generally and with a focus on a specific case, Delandes v. McDonald’s.

It’s here, if you or the commission are interested.

In Antitrust & Competition, Biweekly FTC Roundup, Exclusionary Conduct, Federal Trade Commission, Section 5, Truth on the Market, Vertical Restraints , , , , ,
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Biweekly FTC Roundup: Total Drama Island Edition

Daniel Gilman —  17 February 2023

In a Feb. 14 column in the Wall Street Journal, Commissioner Christine Wilson announced her intent to resign her position on the Federal Trade Commission (FTC). For those curious to know why, she beat you to the punch in the title and subtitle of her column: “Why I’m Resigning as an FTC Commissioner: Lina Khan’s disregard for the rule of law and due process make it impossible for me to continue serving.”

This is the seventh FTC roundup I’ve posted to Truth on the Market since joining the International Center for Law & Economics (ICLE) last September, having left the FTC at the end of August. Relentlessly astute readers of this column may have observed that I cited (and linked to) Commissioner Wilson’s dissents in five of my six previous efforts—actually, to three of them in my Nov. 4 post alone.

As anyone might guess, I’ve linked to Wilson’s dissents (and concurrences, etc.) for the same reason I’ve linked to other sources: I found them instructive in some significant regard. Priors and particular conclusions of law aside, I generally found Wilson’s statements to be well-grounded in established principles of antitrust law and economics. I cannot say the same about statements from the current majority.

Commission dissents are not merely the bases for blog posts or venues for venting. They can provide a valuable window into agency matters for lawmakers and, especially, for the courts. And I would suggest that they serve an important institutional role at the FTC, whatever one thinks of the merits of any specific matter. There’s really no point to having a five-member commission if all its votes are unanimous and all its opinions uniform. Moreover, establishing the realistic possibility of dissent can lend credence to those commission opinions that are unanimous. And even in these fractious times, there are such opinions.     

Wilson did not spring forth fully formed from the forehead of the U.S. Senate. She began her FTC career as a Georgetown student, serving as a law clerk in the Bureau of Competition; she returned some years later to serve as chief of staff to Chairman Tim Muris; and she returned again when confirmed as a commissioner in April 2018 (later sworn in in September 2018). In between stints at the FTC, she gained antitrust experience in private practice, both in law firms and as in-house counsel. I would suggest that her agency experience, combined with her work in the private sector, provided a firm foundation for the judgments required of a commissioner.

Daniel Kaufman, former acting director of the FTC’s Bureau of Consumer Protection, reflected on Wilson’s departure here. Personally, with apologies for the platitude, I would like to thank Commissioner Wilson for her service.  And, not incidentally, for her consistent support for agency staff.

Her three Democratic colleagues on the commission also thanked her for her service, if only collectively, and tersely: “While we often disagreed with Commissioner Wilson, we respect her devotion to her beliefs and are grateful for her public service. We wish her well in her next endeavor.” That was that. No doubt heartfelt. Wilson’s departure column was a stern rebuke to the Commission, so there’s that. But then, stern rebukes fly in all directions nowadays.

While I’ve never been a commissioner, I recall a far nicer and more collegial sendoff when I departed from my lowly staff position. Come to think of it, I had a nicer sendoff when I left a large D.C. law firm as a third-year associate bound for a teaching position, way back when.

So, what else is new?

In January, I noted that “the big news at the FTC is all about noncompetes”; that is, about the FTC’s proposed rule to ban the use of noncompetes more-or-less across the board The rule would cover all occupations and all income levels, with a narrow exception for the sale of the business in which the “employee” has at least a 25% ownership stake (why 25%?), and a brief nod to statutory limits on the commission’s regulatory authority with regard to nonprofits, common carriers, and some other entities.

Colleagues Brian Albrecht (and here), Alden Abbott, Gus Hurwitz, and Corbin K. Barthold also have had things to say about it. I suggested that there were legitimate reasons to be concerned about noncompetes in certain contexts—sometimes on antitrust grounds, and sometimes for other reasons. But certain contexts are far from all contexts, and a mixed and developing body of economic literature, coupled with limited FTC experience in the subject, did not militate in favor of nearly so sweeping a regulatory proposal. This is true even before we ask practical questions about staffing for enforcement or, say, whether the FTC Act conferred the requisite jurisdiction on the agency.

This is the first or second FTC competition rulemaking ever, depending on how one counts, and it is the first this century, in any case. Here’s administrative scholar Thomas Merrill on FTC competition rulemaking. Given the Supreme Court’s recent articulation of the major questions doctrine in West Virginia v. EPA, a more modest and bipartisan proposal might have been far more prudent. A bad turn at the court can lose more than the matter at hand. Comments are due March 20, by the way.

Now comes a missive from the House Judiciary Committee, along with multiple subcommittees, about the noncompete NPRM. The letter opens by stating that “The Proposed Rule exceeds its delegated authority and imposes a top-down one-size-fits-all approach that violates basic American principles of federalism and free markets.” And “[t]he Biden FTC’s proposed rule on non-compete clauses shows the radicalness of the so-called ‘hipster’ antitrust movement that values progressive outcomes over long-held legal and economic principles.”

Ouch. Other than that Mr. Jordan, how did you like the play?

There are several single-spaced pages on the “FTC’s power grab” before the letter gets to a specific, and substantial, formal document request in the service of congressional oversight. That does not stop the rulemaking process, but it does not bode well either.

Part of why this matters is that there’s still solid, empirically grounded, pro-consumer work that’s at risk. In my first Truth on the Market post, I applauded FTC staff comments urging New York State to reject a certificate of public advantage (COPA) application. As I noted there, COPAs are rent-seeking mechanisms chiefly aimed at insulating anticompetitive mergers (and sometimes conduct) from federal antitrust scrutiny. Commission and staff opposition to COPAs was developed across several administrations on well-established competition principles and a significant body of research regarding hospital consolidation, health care prices, and quality of care.

Office of Policy Planning (OPP) Director Elizabeth Wilkins has now announced that the parties in question have abandoned their proposed merger. Wilkins thanks the staff of OPP, the Bureau of Economics, and the Bureau of Competition for their work on the matter, and rightly so. There’s no new-fangled notion of Section 5 or mergers at play. The work has developed over decades and it’s the sort of work that should continue. Notwithstanding numerous (if not legion) departures, good and experienced staff and established methods remain, and ought not to be repudiated, much less put at risk.    

Oh, right, Meta/Within. On Jan. 31, U.S. District Court Judge Edward J. Davila denied FTC’s request for a preliminary injunction blocking Meta’s proposed acquisition of Within. On Feb. 9, the commission announced “that this matter in its entirety be and it hereby is withdrawn from adjudication, and that all proceedings before the Administrative Law Judge be and they hereby are stayed.”

So, what happened? Much ink has been spilled on the weakness of the FTC’s case, both within ToTM (you see what I did there?) and without. ToTM posts by Dirk Auer, Alden Abbott, Gus Hurwitz, Gus again, and I enjoyed no monopoly on skepticism. Ashley Gold called the case “a stretch”; Gary Shapiro, in Fortune, called it “laughable.” And as Gus had pointed out, even the New York Times seemed skeptical.

I won’t recapitulate the much-discussed case, but on the somewhat-less-discussed matter of the withdrawal, I’ll consider why the FTC announced that the matter “is withdrawn from adjudication, and that all proceedings before the Administrative Law Judge be and they hereby are stayed.” While the matter was not litigated to its conclusion in federal court, the substantial and workmanlike opinion denying the preliminary injunction made it clear that the FTC had lost on the facts under both of the theories of harm to potential competition that they’d advanced.

“Having reviewed and considered the objective evidence of Meta’s capabilities and incentives, the Court is not persuaded that this evidence establishes that it was ‘reasonably probable’ Meta would enter the relevant market.”

An appeal in the 9th U.S. Circuit Court of Appeals likely seemed fruitless. Stopping short of a final judgment, the FTC could have tried for a do-over in its internal administrative Part 3 process, and might have fared well before itself, but that would have demanded considerable additional resources in a case that, in the long run, was bound to be a loser. Bloomberg had previously reported that the commission voted to proceed with the case against the merger contra the staff’s recommendation. Here, the commission noted that “Complaint Counsel [the Commission’s own staff] has not registered any objection” to Meta’s motion to withdraw proceedings from adjudication.

There are novel approaches to antitrust. And there are the courts and the law. And, as noted above, many among the staff are well-versed in that law and experienced at investigations. You can’t always get what you want, but if you try sometimes, you get what you deserve.

In Antitrust & Competition, Biweekly FTC Roundup, Economic Theory, Facebook, Federal Trade Commission, Platforms, Section 5, Truth on the Market , , , , , , , , ,
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Biweekly FTC Roundup: A Guide for the Perplexed Edition

Daniel Gilman —  27 January 2023

In a prior post, I made the important if wholly unoriginal point that the Federal Trade Commission’s (FTC) recent policy statement regarding unfair methods of competition (UMC)—perhaps a form of “soft law”—has neither legal force nor precedential value. Gus Hurwitz offers a more thorough discussion of the issue here. 

But policy statements may still have value as guidance documents for industry and the bar. They can also inform the courts, providing a framework for the commission’s approach to the specific facts and circumstances that underlie a controversy. That is, as the 12th century sage Maimonides endeavored in his own “Guide for the Perplexed,” they can elucidate rationales for particular principles and decisions of law. 

I also pointed out (also unoriginally) that the statement’s guidance value might be undermined by its own vagueness. Or as former FTC Commissioner and Acting Chairman Maureen Ohlhausen put it:

While ostensibly intended to provide such guidance, the new Policy Statement contains few specifics about the particular conduct that the Commission might deem to be unfair, and suggests that the FTC has broad discretion to challenge nearly any conduct with which it disagrees.

There’s so much going on at (or being announced by) my old agency that it’s hard to keep up. One recent development reaches back into FTC history—all the way to late 2021—to find an initiative at the boundary of soft and hard law: that is, the issuance to more than 700 U.S. firms of notices of penalty offenses about “fake reviews and other misleading endorsements.” 

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. In that way, it’s like soft law. 

On the other hand, it’s not entirely anemic. 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.

That serves as useful background to observe that, among the FTC’s recent advanced notices of proposed rulemakings (ANPRs) is one about regulating fake reviews. (Commissioner Christine S. Wilson’s dissent in the matter is here.) 

Here it should be noted that Section 5(m) of the FTC Act also permits monetary penalties if “the Commission determines in a proceeding . . . that any act or practice is unfair or deceptive, and issues a final cease and desist order” and the firm has “actual knowledge that such act or practice is unfair or deceptive and is unlawful.”  

What does that mean? In brief, if there’s an agency decision (not a consent order, but not a federal court decision either) that a certain type of conduct by one firm is “unfair or deceptive” under Section 5, then another firm can be assessed statutory monetary penalties if the Commission determines that it has undertaken the same type of conduct and if, because the firm has received a notice of penalty offenses, it has “actual knowledge that such act or practice is unfair or deceptive.” 

So, now we’re back to monetary penalties for violations of Section 5 in the first instance if a very special form of mens rea can be established. A notice of penalty offenses provides guidance, but it also carries real legal risk. 

Back to pesky questions and details. 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 decisions make for interesting reading. For example, in R.J. Reynolds, we learn 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.

I’ll confess: In my misspent youth, I did some research at the National Institutes of Health (NIH), but I did not know that.

Interesting reading but, dare I suggest, not super helpful from the standpoint of notice or guidance. R.J. Reynolds manufactured, advertised, and sold cigarettes and other tobacco products; and they advertised that “the effect that the smoking of its cigarettes was either beneficial to or not injurious to a particular bodily system.” So, “not appreciably harmful,” but that doesn’t mean therapeutic.

A few things stand out. First, all of the complaints were brought prior to the birth of the internet. Second, five of the eight complaints were brought before the 1975 Magnuson-Moss Act amendments to the FTC Act that, among other things, revised the standards for finding conduct “unfair or deceptive” under Section 5.  Third, having read the cases, I have no idea how the old cases are supposed to provide notice to the myriad recipients of these letters. 

Section 5 provides that “unfair methods of competition” and “unfair or deceptive acts or practices in or affecting commerce” are unlawful. Section 5(n)—courtesy of the 1975 amendments—qualifies the prohibition: 

The Commission shall have no authority under this section … to declare unlawful an act or practice on the grounds that such act or practice is unfair unless 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. … the Commission may consider established public policies as evidence to be considered with all other evidence. Such public policy considerations may not serve as a primary basis for such determination.

As Geoff Manne and I have noted, the amendment was adopted by a Congress that thought the FTC had been overreaching in its application of Section 5. Others have made (and expanded upon) the same observation: former FTC Chairman William Kovacic’s 2010 Senate testimony is one excellent example among many. Continued congressional frustration actually briefly led to a shutdown of the FTC. 

Here’s my take on the notice provided by the Notices of Penalty Authority: they might as well tell firms that the FTC has found that violating Section 5’s prohibition of unfair or deceptive acts or practices violates Section 5’s prohibition of unfair or deceptive acts or practices and (b) we’re not saying you violated Section 5, and we’re not saying you didn’t, but if you do violate Section 5, you’re subject to statutory monetary penalties, statutory and judicial impediments to monetary penalties notwithstanding.     

What sort of notice is that? Might the federal courts see this as an attempt at an end-run around statutory limits on the FTC’s authority? Might Congress? If you’re perplexed by the FTC’s mass notice action, which authority will provide you a guide?     

In Antitrust & Competition, Biweekly FTC Roundup, Federal Trade Commission, Section 5, Truth on the Market , , , , , , , , , ,
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Biweekly FTC Roundup: Highly Skilled Sandwich Maker Edition

Daniel Gilman —  12 January 2023

Happy New Year? Right, Happy New Year! 

The big news from the Federal Trade Commission (FTC) is all about noncompetes. From what were once the realms of labor and contract law, noncompetes are terms in employment contracts that limit in various ways the ability of an employee to work at a competing firm after separation from the signatory firm. They’ve been a matter of increasing interest to economists, policymakers, and enforcers for several reasons. For one, there have been prominent news reports of noncompetes used in dubious places; the traditional justifications for noncompetes seem strained when applied to low-wage workers, so why are we reading about noncompetes binding sandwich-makers at Jimmy John’s? 

For another, there’s been increased interest in the application of antitrust to labor markets more generally. One example among many: a joint FTC/U.S. Justice Department workshop in December 2021.

Common-law cases involving one or another form of noncompete go back several hundred years. So, what’s new? First, on Jan. 4, the FTC announced settlements with three firms regarding their use of noncompetes, which the FTC had alleged to violate Section 5. These are consent orders, not precedential decisions. The complaints were, presumably, based on rule-of-reason analyses of facts, circumstances, and effects. On the other hand, the Commission’s recent Section 5 policy statement seemed to disavow the time-honored (and Supreme-Court-affirmed) application of the rule of reason. I wrote about it here, and with Gus Hurwitz here. My ICLE colleagues Dirk Auer, Brian Albrecht, and Jonathan Barnett did too, among others. 

The Commission’s press release seemed awfully general:

Noncompete restrictions harm both workers and competing businesses. For workers, noncompete restrictions lead to lower wages and salaries, reduced benefits, and less favorable working conditions. For businesses, these restrictions block competitors from entering and expanding their businesses.

Always? Distinct facts and circumstances? Commissioner Christine Wilson noted the brevity of the statement in her dissent: 

…each Complaint runs three pages, with a large percentage of the text devoted to boilerplate language. Given how brief they are, it is not surprising that the complaints are woefully devoid of details that would support the Commission’s allegations. In short, I have seen no evidence of anticompetitive effects that would give me reason to believe that respondents have violated Section 5 of the FTC Act. 

She did not say that the noncompetes were fine. In a separate statement regarding one of the matters, she noted that various aspects of noncompetes imposed on security guards (running two years from termination of employment, with $10,000 liquidated damages for breach) had been found unreasonable by a state court, and therefore unenforceable under Michigan law. That seemed to her “reasonable.” I’m no expert on Michigan state law, but those terms seem to me suspect under general standards of reasonability. Whether there was a federal antitrust violation is far less clear.    

One more clue–and even bigger news–came the very next day: the Commission published a notice of proposed rulemaking (NPRM) proposing to ban the use of noncompetes in general. Subject to a limited exception for the sale of a business, noncompetes would be deemed violative of Section 5 across occupations, income levels, and industries. That is, the FTC proposed to regulate the terms of employment agreements for nearly the whole of the U.S. labor force. Step aside federal and state labor law (and the U.S. Labor Department and Congress); and step aside ongoing and active statutory experimentation on noncompete enforcement in the states. 

So many questions. There are reasons to wonder about many noncompetes. They do have the potential to solve holdup problems for firms that might otherwise underinvest in employee training and might undershare trade secrets or other proprietary information. But that’s not much of an explanation for restrictions on a counter person at a sub shop, and I’m pretty suspicious of the liquidated damages provision in the security-guards matter. Credible economic studies raise concerns, as well. 

Still, this is an emerging area of study, and many positive contributions to it (like the one linked just now, and this) illustrate research challenges that remain. An FTC Bureau of Economics working paper (oddly not cited in the 215-page NPRM) reviews the body of literature, observing that results are mixed, and that many of the extant studies have shortcomings. 

For similar reasons, comments submitted to an FTC workshop on noncompetes by the Antitrust Section of the American Bar Association said that cross-state variations in noncompete law “are seemingly justified, as the views and literature on non-compete clauses (and restrictive covenants in employment contracts generally) are mixed.”

So here are a few more questions that cannot possibly be resolved in a single blog post:

  1. Does the FTC have the authority to issue substantive (“legislative”) competition regulations? 
  2. Would a regulation restricting a common contracting practice across all occupations, industries, and income levels raise the major questions doctrine? (Ok, skipping ahead: Yes.)
  3. Does it matter, for the major questions doctrine or otherwise, that there’s a substantial body of federal statutory law regarding labor and employment and a federal agency (a good deal larger than the FTC) charged to enforce the law?
  4. Does it matter that the FTC simply doesn’t have the personnel (or congressionally appropriated budget) to enforce such a sweeping regulation?
    • Is the number of experienced labor lawyers currently employed as staff in the FTC’s Bureau of Competition nonzero? If so, what is it? 
  5. Does it matter that this is an active area of state-level legislation and enforcement?
  6. Do the effects of noncompetes vary as the terms of noncompetes vary, as suggested in the ABA comments linked above? And if so, on what dimensions?
    • Do the effects vary according to the market power of the employer in local (or other geographically relevant) labor markets and, if so, should that matter to an antitrust enforcer?
    • If the effects vary significantly, is a one-size-fits-all regulation the best path forward?
  7. Many published studies seem to report average effects of policy changes on, e.g., wages or worker mobility for some class of workers. Should we know more about the distribution of those effects before the FTC (or anyone else) adopts uniform federal regulations? 
  8. How well do we know the answer to the myriad questions raised by noncompetes? As the FTC working paper observes, many published studies seem to rely heavily on survey evidence on the incidence of noncompetes. Prior to adopting  a sweeping competition regulation, should the FTC use its 6b subpoena authority to gather direct evidence? Why hasn’t it?
  9. The FTC’s Bureau of Economics employs a large expert staff of research economists. Given the questions raised by the FTC Working Paper, how else might the FTC contribute to the state of knowledge of noncompete usage and effects before adopting a sweeping, nationwide prohibition? Are there lacunae in the literature that the FTC could fill? For example, there seem to be very few papers regarding the downstream effects on consumers, which might matter to consumers. And while we’re in labor markets, what about the relationship between noncompetes and employment? 

Well, that’s a lot. In my defense, I’ll  note that the FTC’s November 2022 Advance Notice of Proposed Rulemaking on “commercial surveillance” enumerated 95 complex questions for public comment. Which is more than nine. 

I didn’t even get to the once-again dismal ratings of FTC’s senior agency leadership in the 2022 OPM Federal Employee Viewpoint Survey. Last year’s results were terrible—a precipitous drop from 2020. This year’s results were worse. Worse yet, they show that last year’s results were not mere transient deflation in morale. But a discussion will have to wait for another blog post.

In Antitrust & Competition, Biweekly FTC Roundup, Exclusionary Conduct, Federal Trade Commission, Section 5, Truth on the Market, Vertical Restraints , , , , , ,
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Biweekly FTC Roundup: Grail-Shaped Beacon Edition

Daniel Gilman —  9 December 2022

The lame duck is not yet dead, and the Federal Trade Commission (FTC) is supposed to be an independent agency. Work continues. The Commission has announced a partly open oral argument in the Illumina-Grail matter.  That is, parts of the argument will be open to the public, via webcast, and parts won’t. This is what’s known as translucency in government.

Enquiring minds: I have several questions about Illumina-Grail. First, for anyone reading this column, am I the only one who cannot think of the case without thinking of Monty Python’s grail-shaped beacon? Asking for a friend who worries about me.

Second, why seek to unwind this merger? My ICLE colleagues Geoff Manne and Gus Hurwitz are members of a distinguished group of law & economics scholars who filed a motion for leave to file an amicus brief in the matter. They question the merits of the case on a number of grounds.

Pertinent, not dispositive: this is a vertical merger. Certainly, it’s possible for vertical mergers to harm competition but theory suggests that they entail at least some efficiencies, and the empirical evidence from Francine Lafontaine and others tends to suggest that most have been beneficial for firms and consumers alike. One might wonder about the extent to which this case is built on analysis of the facts and circumstances rather than on Chair Lina Khan’s well-publicized antipathy to vertical mergers.

Recall that the FTC and U.S. Justice Department (DOJ) jointly issued updated vertical-merger guidelines in June 2020. (The Global Antitrust Institute’s 2018 comments are worth review). The FTC—but not DOJ—promptly withdrew them in 2021, with a new majority, a partisan vote, and a questionable rationale for going it alone. Carl Shapiro and Herbert Hovenkamp minced no words, saying that the Commission’s justification rested on “specious economic arguments.”

There’s also a question of whether FTC’s likely foreclosure argument is all that likely. Illumina, which created Grail and had retained a substantial interest in it all along, would have strong commercial incentives against barring Grail’s future competitors from its platform. Moreover, Illumina made an open offer—contractually binding—to continue providing access for 12 years to its NGS platform and other products, on terms substantially similar to those available pre-merger. That would seem to undercut the possibility of foreclosure. Complaint counsel discounts this as a remedy (with behavioral remedies disfavored), but it is relatively straightforward and not really a remedy at all, with terms both private parties and the FTC might enforce. Thom Lambert and Jonathan Barnett both have interesting posts on the matter.

This is about a future market and potential (presumed) competitors. And it’s an area of biologics commerce where the deep pockets and regulatory sophistication necessary for development and approval frequently militate in favor of acquisition of a small innovator by a larger, established firm. As I noted in a prior column, “[p]otential competition cases are viable given the right facts, and in areas where good grounds to predict significant entry are well-established.” It can be hard to second-guess rule-of-reason cases from the outside, but there are reasons to think this is one of those matters where the preconditions to a strong potential competition argument are absent, but merger-related efficiencies real.  

What else is going on at the FTC? Law360 reports on a staff brief urging the Commission not to pitch a new standard of review in Altria-Juul on what look to be sensible grounds, independent of the merits of their Section I case. The Commission had asked to be briefed on the possibility of switching to a claim of a per se violation or, in the alternative, quick look, and the staff brief recommends maintaining the rule-of-reason approach that the Commission’s ALJ found unpersuasive in dismissing the Commission’s case, which will now be heard by the Commission itself. I have no non-public information on the matter. There’s a question of whether this signals any real tension between the staff’s analysis and the Commission’s preferred approach or simply the Commission’s interest in asking questions about pushing boundaries and the staff providing good counsel. I don’t know, but it could be business as usual.

And just this week, FTC announced that it is bringing a case to block Microsoft’s acquisition of Activision. More on that to follow.

What’s pressing is not so clear. The Commission announced the agenda for a Dec. 14 open meeting. On it is a vote on regulatory review of the “green guides,” which provide guidance on environmental-marketing claims. But there’s nothing further on the various ANPRs announced in September, or about rulemaking that the Chair has hinted at for noncompete clauses in employment contracts. And, of course, we’re still waiting for merger guidelines to replace the ones that have been withdrawn—likely joint FTC/DOJ guidelines that will likely range over both horizontal and vertical mergers.

There’s the Altria matter, Meta, Meta-Within, the forthcoming Supreme Court opinion in Axon, etc. The FTC’s request for an injunction in Meta-Within will be heard in federal district court in California over the next couple of weeks. It’s a novel (read, speculative) complaint. I had a few paragraphs on Meta-Within in my first roundup column; Gus Hurwitz covered it, as well. We shall see. 

Wandering up Pennsylvania Avenue onto the Hill, various bills seem not so much lame ducks as dead ones. But perhaps one or more is not dead yet. The Journalism Competition and Preservation Act (JCPA) might be one such bill, its conspicuous defects notwithstanding. “Might be.” First, a bit of FTC history. Way back in 2010, the FTC held a series of workshops on the Future of Journalism. There were many interesting issues there, if no obvious room for antitrust. I reveal no secrets in saying THOSE WORKSHOPS WERE NOT THE STAFF’S IDEA. We failed to recommend any intervention, although the staff did publish a clarification of its discussion draft:

The FTC has not endorsed the idea of making any policy recommendation or recommended any of the proposals in the discussion draft

My own take at the time: many newspapers were struggling, and that was unfortunate, but much of the struggle had to do with the papers’ loss of local print-advertising monopolies, which tended to offer high advertising prices but not high quality. Remember the price of classified ads? For decades, many of the holders of market power happened to turn large portions of their rents over to their news divisions. Then came the internet, then Craigslist, etc., etc., and down went the rents. Antitrust intervention seemed no answer at all.

Back to the bill. In brief, as currently drafted, the JCPA would permit certain “digital journalism providers” to form cartels to negotiate prices with large online platforms, and to engage in group boycotts, without being liable to the federal antitrust laws, at least for four years. Dirk Auer and Ben Sperry have an overview here.

This would be an exemption for some sources of journalism, but not all, and its benefits would not be equally distributed. I am a paying consumer of digital (and even print) journalism. On the one hand, I enjoy it when others subsidize my preferences. On the other, I’m not sure why they should. As I said in a prior column, “antitrust exemptions help the special interests receiving them but not a living soul besides those special interests. That’s it, full stop.”  

Moreover, as Brian Albrecht points out, the bill’s mandatory final arbitration provision is likely to lead to a form of price regulation.

England v. France on Saturday. Allez les bleus or we few, we happy few? Cheers.  

In Antitrust & Competition, Antitrust Division, Biweekly FTC Roundup, Federal Trade Commission, Justice Department, Mergers & Acquisitions, Section 5, Truth on the Market , , , , , , , , , , , ,
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Biweekly FTC Roundup: Commissioners Bite Horse Edition

Daniel Gilman —  18 November 2022

The massive New Deal sculptures that frame Federal Trade Commission headquarters are both called “Man Controlling Trade.” And according to the Commission’s new Policy Statement Regarding Unfair Methods of Competition Under Section 5 of the Federal Trade Commission Act, “Three Commissioners Controlling the Economy” appears to now be one of the agency’s guiding principles. The last FTC roundup suggested that winter is coming. This week’s theme: bundle up because, baby, it’s getting cold outside.

By now, you’ve probably seen the statement. Or maybe it’s three statements. There’s the official statement, adopted by a three-to-one vote (Chair Lina Khan and Commissioners Rebecca Slaughter and Alvaro Bedoya, with Commissioner Christine Wilson dissenting); the chair’s statement (joined by Slaughter and Bedoya); and Bedoya’s statement (joined by Khan and Slaughter). Nothing from Slaughter?

As Gus Hurwitz pointed out, the policy statement lacks legal force or precedential value. Its value, if any, is as guidance. There’s probably a point to distinguishing the Commission’s guidance and the separate statements signed by each member of the Commission who voted for the guidance, but I have no idea what it is.

I commend Wilson’s dissenting statement. To cut to the chase: “Unfortunately, instead of providing meaningful guidance to businesses, the Policy Statement announces that the Commission has the authority summarily to condemn essentially any business conduct it finds distasteful.” Other than that, Commissioner Wilson, how did you like the play?

Inspired by the current majority’s penchant for self-citation, I’ll begin by pilfering ICLE’s day-after string of tweets about the new statement:

But wait, there’s more, and more self-reference, including the ICLE issue “brief” that I wrote with Gus Hurwitz.

To recap, the statement expressly disavows the rule of reason, the consumer welfare standard, actual or likely impact on competition or consumers, measurement (or estimation) of harms, and the potential for countervailing efficiencies, at least in the form of net efficiency or a “numerical cost-benefit analysis.”

It’s all supposed to be grounded in the legislative history and case law, but it’s a highly selective reading of the historical record and case law, with a skew to old cases and a number of citations seeming inapt. It’s supposed to add rigor and predictability to FTC enforcement, but it’s hard to see how it could. If actual or likely impact on competition and consumers is supposed to be unwieldy and unpredictable, how does it help to focus on a “tendency” (not necessarily a likelihood) for analogous conduct to affect “competitive conditions,” and thus “consumers, workers, or other market participants”?    

Discussion—including trenchant criticism—continues apace. Themes of an enforcement policy unmoored, overreaching, and unpredictable can be found in additional Truth on the Market posts from Dirk Auer,  Jonathan Barnett, and Brian Albrecht.

As Jonathan Barnett puts it:

FTC rejected the applicability of the balancing test set forth in the rule of reason (and with it, several decades of case law, agency guidance, and legal and economic scholarship). … In the statement …the agency has now adopted this “just trust us” approach as a permanent operating principle.

Former Commissioner Maureen Ohlhausen also emphasizes the broad discretion claimed by the Commission, and its failure to provide specific guidance:

While ostensibly intended to provide such guidance, the new Policy Statement contains few specifics about the particular conduct that the Commission might deem to be unfair, and suggests that the FTC has broad discretion to challenge nearly any conduct with which it disagrees.

No doubt there’s more commentary on the way. But because the statement has no legal force, it’s hard to see how it can be challenged in court until it’s cited by the Commission in an enforcement action or rulemaking. Stay tuned.

There’s much more on the horizon. Axon Enterprises, Inc. v. FTC was argued before the U.S. Supreme Court, with questioning from several justices suggesting skepticism about the FTC’s position. As we’ve noted in recent weeks, the Commission has announced a raft of potential competition rulemakings, and new horizontal merger guidelines may be forthcoming. Among other things. We shall see.

Happy Thanksgiving.

In Antitrust & Competition, Biweekly FTC Roundup, Federal Trade Commission, Section 5, Truth on the Market , , ,
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FTC Biweekly UMC Roundup – Mountain of Puffery Edition

Daniel Gilman —  4 November 2022

Research still matters, so I recommend video from the Federal Trade Commission’s 15th Annual Microeconomics Conference, if you’ve not already seen it. It’s a valuable event, and it’s part of the FTC’s still important statutory-research mission. It also reminds me that the FTC’s excellent, if somewhat diminished, Bureau of Economics still has no director; Marta Woskinska concluded her very short tenure in February. Eight-plus months of hiring and appointments (and many departures) later, she’s not been replaced. Priorities.

The UMC Watch Continues: In 2015, the FTC issued a Statement of Enforcement Principles Regarding “Unfair Methods of Competition.” On July 1, 2021, the Commission withdrew the statement on a 3-2 vote, sternly rebuking its predecessors: “the 2015 Statement …abrogates the Commission’s congressionally mandated duty to use its expertise to identify and combat unfair methods of competition even if they do not violate a separate antitrust statute.”

That was surprising. First, it actually presaged a downturn in enforcement. Second, while the 2015 statement was not empty, many agreed with Commissioner Maureen Ohlhausen’s 2015 dissent that it offered relatively little new guidance on UMC enforcement. In other words, stating that conduct “will be evaluated under a framework similar to the rule of reason” seemed not much of a limiting principle to some, if far too much of one to others. Eye of the beholder. 

Third, as Commissioners Noah Phillips and Christine S. Wilson noted in their dissent, given that there was no replacement, it was “[h]inting at the prospect of dramatic new liability without any guide regarding what the law permits or proscribes.” The business and antitrust communities were put on watch: winter is coming. Winter is still coming. In September, Chair Lina Khan stated that one of her top priorities “has been the preparation of a policy statement on Section 5 that reflects the statutory text, our institutional structure, the history of the statute, and the case law.” Indeed. More recently, she said she was hopeful that the statement would be released in “the coming weeks.”  Stay tuned. 

There was September success, and a little mission creep at the DOJ Antitrust Division: Congrats to the U.S. Justice Department for some uncharacteristic success, and not a little creativity. In U.S. v. Nathan Nephi Zito, the defendant pleaded guilty to illegal monopolization for proposing that he and a competitor allocate markets for highway-crack-sealing services.  

The odd part, and an FTC connection that was noted by Pallavi Guniganti and Gus Hurwitz: at issue was a single charge of monopolization in violation of Section 2 of the Sherman Act. There’s long been widespread agreement that the bounds of Section 5 UMC authority exceed those of the Sherman Act, along with widespread disagreement on the extent to which that’s true, but there was consensus on invitations to collude. Agreements to fix prices or allocate markets are per se violations of Section 1. Refused invitations to collude are not, or were not. But as the FTC stated in its now-withdrawn Statement of Enforcement Principles, UMC authority extends to conduct “that, if allowed to mature or complete, could violate the Sherman or Clayton Act.” But the FTC didn’t bring the case against Zito, the competitor rejected the invitation, and nobody alleged a violation of either Sherman Section 1 or FTC Section 5. 

The admitted conduct seems indefensible, under Section 5, so perhaps there’s no harm ex post, but I wonder where this is going.     

DOJ also had a Halloween win when Judge Florence Y. Pan of the U.S. Court of Appeals for the District of Columbia, sitting by designation in the U.S. District Court for the District of Columbia, issued an order blocking the proposed merger of Penguin Random House and Simon & Schuster. The opinion is still sealed. But based on the complaint, it was a relatively straightforward monopsony case, albeit one with a very narrow market definition: two market definitions, but with most of the complaint and the more convincing story about “the market for acquisition of publishing rights to anticipated top-selling books.” Steven King, Oprah Winfrey, etc. 

Maybe they got it right, although Assistant Attorney General Jonathan Kanter’s description seems a bit of puffery, if not a mountain of it: “The proposed merger would have reduced competition, decreased author compensation, diminished the breadth, depth, and diversity of our stories and ideas, and ultimately impoverished our democracy.”

At the margin? The Division did not need to prove harm to consumers downstream, although it alleged such harm. Here’s a policy question: suppose the deal would have lowered advances paid to top-selling authors—those cited in the complaint are mostly in the millions of dollars—but suppose DOJ was wrong about the larger market and downstream effects. If publisher savings were accompanied by a slight reduction in book prices, not output, would that have been a bad result?    

And you thought entry was procompetitive? For some, Halloween fright does not abate with daylight. On Nov. 1, Sen. Elizabeth Warren (D-Mass.) sent a letter to Lina Khan and Jonathan Kanter, writing “with serious concern about emerging competition and consumer protection issues that Big Tech’s expansion into the automotive industry poses.” I gather that “emerging” is a term of art in legal French meaning “possible, maybe.” The senator writes with great imagination and not a little drama, cataloging numerous allegations about such worrisome conduct as bundling.

Of course, some tying arrangements are anticompetitive, but bundling is not necessarily or even typically anticompetitive. As an article still posted on the DOJ website explains, the “pervasiveness of tying in the economy shows that it is generally beneficial,” For instance, in the automotive industry, most consumers seem to prefer buying their cars whole rather than in parts.

It’s impossible to know that none of Warren’s myriad purported harms will come to pass in any market, but nobody has argued that the agencies ought to stop screening Hart-Scott-Rodino submissions. The need to act “quickly and decisively” on so many issues seems dubious. Perhaps there might be advantages to having technically sophisticated, data-rich, well-financed firms enter into product R&D and competition in new areas, including nascent product markets that might want more of such things for the technology that goes into vehicles that hurtle us down the highway.        

The Oct. 21 Roundup highlighted the FTC’s recent flood of regulatory proposals, including the “commercial surveillance” ANPR. Three new ANPRs were mentioned that week: one regarding “Junk Fees,” one regarding “Fake Reviews and Endorsements,” and one regarding potential updates to the FTC’s “Funeral Rule.” Periodic rule review is a requirement, so a potential update is not unusual. On the others, I recommend Commissioner Wilson’s dissents for an overview of legitimate concerns. In sum, the junk-ees ANPR is “sweeping in its breadth; may duplicate, or contradict, existing laws and rules; is untethered from a solid foundation of FTC enforcement; relies on flawed assumptions and vague definitions; ignores impacts on competition; and diverts scarce agency resources from important law enforcement efforts.” And if some “junk fees” are the result of deceptive or unfair practices under established standards, the ANPR also seems to refer to potentially useful and efficient unbundling. Wilson finds the “fake reviews and endorsements” ANPR clearer and better focused, but another bridge too far, contemplating a burdensome regulatory scheme while active enforcement and guidance initiatives are underway, and may adequately address material and deceptive advertising practices.

As Wilson notes, the costs of regulating are substantial, too. New proposals spring forth while overdue projects founder. For instance, the long, long overdue “10-year” review of the FTC’s Eyeglass Rule last saw an ANPR in 2015, following a 2004 decision to leave an earlier version of the rule in place. The Contact Lens Rule, implementing the Fairness to Contact Lens Consumers Act, was initially adopted in 2004 and amended 16 years later, partly because the central provision of the rule had proved unenforceable, resulting in chronic noncompliance. The chair is also considering rulemaking on noncompete clauses. Again, there are worries that some anticompetitive conduct might prompt considerably overbroad regulation, given legitimate applications, a developing and mixed body of empirical literature, and recent activity in the states. It’s another area to wonder whether the FTC has either congressional authorization or the resources, experience, and expertise to regulate the conduct at issue–potentially, every employment agreement in the United States.

In Administrative Law, Antitrust & Competition, Antitrust Division, Biweekly FTC Roundup, Cartels, Federal Trade Commission, Justice Department, Section 5, Tying , , , , , , , , , , ,
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FTC Biweekly UMC Roundup – Refugee from the FTC Edition

Daniel Gilman —  21 October 2022

Faithful and even occasional readers of this roundup might have noticed a certain temporal discontinuity between the last post and this one. The inimitable Gus Hurwitz has passed the scrivener’s pen to me, a recent refugee from the Federal Trade Commission (FTC), and the roundup is back in business. Any errors going forward are mine. Going back, blame Gus.

Commissioner Noah Phillips departed the FTC last Friday, leaving the Commission down a much-needed advocate for consumer welfare and the antitrust laws as they are, if not as some wish they were. I recommend the reflections posted by Commissioner Christine S. Wilson and my fellow former FTC Attorney Advisor Alex Okuliar. Phillips collaborated with his fellow commissioners on matters grounded in the law and evidence, but he wasn’t shy about crying frolic and detour when appropriate.

The FTC without Noah is a lesser place. Still, while it’s not always obvious, many able people remain at the Commission and some good solid work continues. For example, FTC staff filed comments urging New York State to reject a Certificate of Public Advantage (“COPA”) application submitted by SUNY Upstate Health System and Crouse Medical. The staff’s thorough comments reflect investigation of the proposed merger, recent research, and the FTC’s long experience with COPAs. In brief, the staff identified anticompetitive rent-seeking for what it is. Antitrust exemptions for health-care providers tend to make health care worse, but more expensive. Which is a corollary to the evergreen truth that antitrust exemptions help the special interests receiving them but not a living soul besides those special interests. That’s it, full stop.

More Good News from the Commission

On Sept. 30, a unanimous Commission announced that an independent physician association in New Mexico had settled allegations that it violated a 2005 consent order. The allegations? Roughly 400 physicians—independent competitors—had engaged in price fixing, violating both the 2005 order and the Sherman Act. As the concurring statement of Commissioners Phillips and Wilson put it, the new order “will prevent a group of doctors from allegedly getting together to negotiate… higher incomes for themselves and higher costs for their patients.” Oddly, some have chastised the FTC for bringing the action as anti-labor. But the IPA is a regional “must-have” for health plans and a dominant provider to consumers, including patients, who might face tighter budget constraints than the median physician

Peering over the rims of the rose-colored glasses, my gaze turns to Meta. In July, the FTC sued to block Meta’s proposed acquisition of Within Unlimited (and its virtual-reality exercise app, Supernatural). Gus wrote about it with wonder, noting reports that the staff had recommended against filing, only to be overruled by the chair.

Now comes October and an amended complaint. The amended complaint is even weaker than the opening salvo. Now, the FTC alleges that the acquisition would eliminate potential competition from Meta in a narrower market, VR-dedicated fitness apps, by “eliminating any probability that Meta would enter the market through alternative means absent the Proposed Acquisition, as well as eliminating the likely and actual beneficial influence on existing competition that results from Meta’s current position, poised on the edge of the market.”

So what if Meta were to abandon the deal—as the FTC wants—but not enter on its own? Same effect, but the FTC cannot seriously suggest that Meta has a positive duty to enter the market. Is there a jurisdiction (or a planet) where a decision to delay or abandon entry would be unlawful unilateral conduct? Suppose instead that Meta enters, with virtual-exercise guns blazing, much to the consternation of firms actually in the market, which might complain about it. Then what? Would the Commission cheer or would it allege harm to nascent competition, or perhaps a novel vertical theory? And by the way, how poised is Meta, given no competing product in late-stage development? Would the FTC prefer that Meta buy a different competitor? Should the overworked staff commence Meta’s due diligence?

Potential competition cases are viable given the right facts, and in areas where good grounds to predict significant entry are well-established. But this is a nascent market in a large, highly dynamic, and innovative industry. The competitive landscape a few years down the road is anyone’s guess. More speculation: the staff was right all along. For more, see Dirk Auer’s or Geoffrey Manne’s threads on the amended complaint.

When It Rains It Pours Regulations

On Aug. 22, the FTC published an advance notice of proposed rulemaking (ANPR) to consider the potential regulation of “commercial surveillance and data security” under its Section 18 authority. Shortly thereafter, they announced an Oct. 20 open meeting with three more ANPRs on the agenda.

First, on the advance notice: I’m not sure what they mean by “commercial surveillance.” The term doesn’t appear in statutory law, or in prior FTC enforcement actions. It sounds sinister and, surely, it’s an intentional nod to Shoshana Zuboff’s anti-tech polemic “The Age of Surveillance Capitalism.” One thing is plain enough: the proffered definition is as dramatically sweeping as it is hopelessly vague. The Commission seems to be contemplating a general data regulation of some sort, but we don’t know what sort. They don’t say or even sketch a possible rule. That’s a problem for the FTC, because the law demands that the Commission state its regulatory objectives, along with regulatory alternatives under consideration, in the ANPR itself. If they get to an NPRM, they are required to describe a proposed rule with specificity.

What’s clear is that the ANPR takes a dim view of much of the digital economy. And while the Commission has considerable experience in certain sorts of privacy and data security matters, the ANPR hints at a project extending well past that experience. Commissioners Phillips and Wilson dissented for good and overlapping reasons. Here’s a bit from the Phillips dissent:

When adopting regulations, clarity is a virtue. But the only thing clear in the ANPR is a rather dystopic view of modern commerce….I cannot support an ANPR that is the first step in a plan to go beyond the Commission’s remit and outside its experience to issue rules that fundamentally alter the internet economy without a clear congressional mandate….It’s a naked power grab.

Be sure to read the bonus material in the Federal Register—supporting statements from Chair Lina Khan and Commissioners Rebecca Kelly Slaughter and Alvaro Bedoya, and dissenting statements from Commissioners Phillips and Wilson. Chair Khan breezily states that “the questions we ask in the ANPR and the rules we are empowered to issue may be consequential, but they do not implicate the ‘major questions doctrine.’” She’s probably half right: the questions do not violate the Constitution. But she’s probably half wrong too.

For more, see ICLE’s Oct. 20 panel discussion and the executive summary to our forthcoming comments to the Commission.

But wait, there’s more! There were three additional ANPRs on the Commission’s Oct. 20 agenda. So that’s four and counting. Will there be a proposed rule on non-competes? Gig workers? Stay tuned. For now, note that rules are not self-enforcing, and that the chair has testified to Congress that the Commission is strapped for resources and struggling to keep up with its statutory mission. Are more regulations an odd way to ask Congress for money? Thus far, there’s no proposed rule on gig workers, but there was a Policy Statement on Enforcement Related to Gig Workers.. For more on that story, see Alden Abbott’s TOTM post.

Laws, Like People, Have Their Limits

Read Phillips’s parting dissent in Passport Auto Group, where the Commission combined legitimate allegations with an unhealthy dose of overreach:

The language of the unfairness standard has given the FTC the flexibility to combat new threats to consumers that accompany the development of new industries and technologies. Still, there are limits to the Commission’s unfairness authority. Because this complaint includes an unfairness count that aims to transform Section 5 into an undefined discrimination statute, I respectfully dissent.”

Right. Three cheers for effective enforcement of the focused antidiscrimination laws enacted by Congress by the agencies actually charged to enforce those laws. And to equal protection. And three more, at least, for a little regulatory humility, if we find it.

In Administrative Law, Antitrust & Competition, Biweekly FTC Roundup, Data Privacy & Security, Exemptions, Facebook, Federal Trade Commission, Mergers & Acquisitions, Platforms, Regulation, Section 5, Truth on the Market , , , , , , , , , , , , , , , , , , , ,
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