Earlier this month, the FTC issued a new policy statement regarding the prohibition on unfair methods of competition under Section 5 of the FTC Act. This statement, as Chair Khan emphasized, reverses the Commission’s position in recent decades, during which it either ignored or severely restricted its mandate to police such practices. To help sort through the meaning and implications of this new policy statement, we asked Sanjukta Paul, Matthew Buck, Sandeep Vaheesan, Luke Herrine, Marshall Steinbaum, Katharine Jackson, Mark Glick and Darren Bush for their initial reactions.
This (excellent) FTC policy statement highlights, among other things, a cluster of confusions within current debate about the appropriateness of identifying and measuring effects or consequences in competition law and policy. Drawing on both judicial decisions and the legislative history of its authorizing statute, the statement explains that it isn’t necessary to specifically demonstrate harmful effects for every type of unfair conduct, much less in every individual case to which those rules are applied. Instead, if the conduct is sufficiently unfair—exploitative, coercive, exclusionary, etc.—on its face, then the effects analysis is proportionally less imperative. Even when effects are expressly considered, they are a matter for the agency to consider in its core function of formulating ground-up rules of competition as an expert on industry and commerce, rather than primarily in reactive case-by-case determinations.
While faithful to statutory purpose, this approach may also mark an important departure from the way neoclassical welfare economics has encouraged us to think about effects analysis, usually in a case-by-case way, in antitrust law. Indeed, the evident controversy around the agency’s (belated, in historical terms) preparation to make use of its statutory unfair methods of competition authority may reveal a basic shortcoming of neoclassical analysis, at least when applied to deliberation over law and policy. Creating and laying out rules of the road that will effectively channel competition—understood as real world economic rivalry—in particular ways, simply has no clear place within the conceptual space of neoclassical competition. Most managerial or entrepreneurial activity that we might understand as methods of competition are largely assumed away within this framework! Things like technology and skill (which are fair methods of competition, per the legal authorities) are also largely exogenous to the questions of neoclassical analysis.
The mismatch between the categories of neoclassical competition and our real world understanding of competition—an understanding manifested, for example, in the FTC Act—seems to be refracted out in various ways: in the increasingly byzantine epicycles by which status quo ‘consumer welfare standard’ antitrust tries to take in ‘new’ issues (e.g., issues of labor exploitation) and in the considerable miscommunications that seem to occur in the debates over any antitrust reform, including but not limited to UMC authority. For law and policy to move forward in a productive way, I think we must begin to revisit these foundations more systematically.
The FTC’s 2022 Policy Statement is a big deal, as well as another instance in which Biden’s administrative appointments are outperforming Obama’s on antitrust. To appreciate this, one has to understand the disappointing 2015 Statement that it replaced.
The 2015 Statement came about after years of discussion within the antitrust community about the FTC’s power to police “unfair methods of competition” under Section 5 of the FTC Act. Hopes were high. In 2007, as a candidate, Obama had promised to “reinvigorate” antitrust enforcement. “Everyone can agree,” then-FTC Commissioner Jon Leibowitz said in October 2008, “that the FTC Act goes well beyond the metes and bounds of the Sherman Act.” One commentator predicted that “we’re going to enter a new stage of the relationship between government and private enterprise.”
That new stage never came. The eventual, one-page 2015 Statement of Enforcement Principles mostly disavowed the distinct and expansive authority that Congress gave the FTC. Instead of formulating guidance for how the FTC might use its power under Section 5 to address the escalating problem of corporate power in society, the FTC collapsed its special authority into merely enforcing the antitrust laws and pursuing “consumer welfare,” despite the body of law’s weakening over the past generation, as well as the inappropriate narrowness of consumer welfare as a goal for antitrust law. Then-Chairwoman Edith Ramirez said the 2015 Statement “marks no change in course” and that the Obama-era FTC used Section 5 in “a far narrower class of cases than we did throughout most of the twentieth century.” The current FTC majority rightly called the 2015 statement a “full retreat” and “an abdication” of the FTC’s mission that “simply ignore[d]” the FTC Act’s text and purpose.
The 2015 moment and the broader Obama administration approach to antitrust and political economy was a missed opportunity, with hope followed by disillusionment. The 2022 Statement exemplifies the kind of approach to egalitarian policymaking that American society needs in this moment to address rampant corporate power. Just as important as the renewed enforcement direction the FTC announces, the FTC’s 2022 Statement announces a change in values that the commissioners bring to the agency’s mission. The agency makes a strong case to the public that administrative agencies, leaders, and bureaucrats can and should use their legal tools to fight for fairness and against the ubiquitous exploitation and coercion in peoples’ lives.
Over the past forty years, the Supreme Court has ignored the text and the purposes of the antitrust statutes. Instead, it has asserted the power to make and remake the Sherman Act on the basis of “economics,” in a manner much like common law courts once fashioned rules of property and contract. It has also ignored precedent, overruling previous decisions that depart from its ideology. For instance, five Supreme Court justices decided in 1977 to discard a traditional purpose of antitrust law—protecting businesses’ autonomy—and adopt a new one in its place—the efficient distribution of goods.
Given the Supreme Court’s assertion of raw power, lower court judges have been emboldened to minimize older precedent that is not to their liking. In one particularly audacious dissent when he was on the D.C. Circuit, then-Judge Brett Kavanaugh asserted that Supreme Court decisions on the Sherman Act effectively overruled Clayton Act precedents he disliked. The majority called him out and wrote that “our dissenting colleague applies the law as he wishes it were, not as it currently is.”
The current FTC, in contrast to the Supreme Court, developed its new policy statement on unfair methods of competition by examining statutory text, legislative history, and judicial precedents. In doing so, the FTC adopted an expressly moral approach to competition policy, as compelled by the text of the FTC Act. The law prohibits unfair methods of competition. But an open acknowledgement of morality has been, like the law itself, missing from antitrust. The courts have long treated competition as something categorically good, even as the law restricts certain methods of competition, such as below-cost pricing. In an important antitrust decision in 2020, the Ninth Circuit went so far as to label good conduct as “hypercompetitive” and bad conduct as “anticompetitive.”
Given its statutory mandate, the FTC recognized there are healthy and unhealthy forms of competition. Drawing on case law, it listed an array of practices that may be unfair methods of competition, including deceptive marketing, exclusive dealing, patent fraud, and tying. At the same time, it identified good forms of competition (or “competition on the merits”), such as production of high-quality goods, honest advertising, investment in research and development, and offering higher wages and better benefits to workers.
The FTC’s policy statement is a laudable first step. Heeding the dissent of Republican Commissioner Christine Wilson, the FTC should next provide further guidance for businesses and the public by announcing rules of per se and presumptive illegality for a host of practices. While the list of competitive methods deserving FTC attention is long, the Open Markets Institute, as part of broader public interest coalitions, offered two ideas for FTC action: rulemakings to prohibit non-compete clauses for all workers and to ban exclusive dealing and related practices by dominant firms.
In its new Policy Statement, the FTC moves away from a notion of fairness based on promoting “output” (or “consumer welfare”) and toward a notion based on preventing abuses of power. To appreciate the significance of this move, we should view it as part of a broader trend in administrative lawmaking.
For one thing, the FTC also has a consumer protection authority that is defined in terms of “unfair acts or practices,” and, over the past couple years, it has begun to move away from its previous notion of unfairness as interfering with free and informed consumer choice toward a notion of unfairness as the taking advantage of consumer vulnerabilities. The CFPB also has an unfair practices authority, and it has recently been engaged in a rethinking along similar lines (part of which is already under challenge from the banking lobby). A bit more under the radar: the USDA has been considering expanding the scope of its authority over “unfair, unjustly discriminatory, or deceptive practice[s] or device[s]” to prevent abuses of power from poultry companies.
In each case, the agency is repudiating an interpretation of the authority that emerged in the 1980s (in the case of the CFPB, created in 2010, it inherited the FTC’s interpretation). In each case, it is revisiting (without entirely reviving) pre-neoliberal methods of policy analysis. And, in each case, it is breathing new life into administrative lawmaking rather than leaving it up to courts to define the scope of its power. It’s starting to look like we’re in the middle of a paradigm shift, pivoting around what counts as “unfair” commercial conduct. It remains to be seen what practical effect this shift will have.
As I have written here and elsewhere, dominant platforms deploy coercive practices against relatively-disempowered counterparties to diminish competition at the platform level and thus enable their high profits. This conduct is distinguished from outright collusion by the fact that it involves either vertical restraints (even though their effects are felt well beyond a narrow bilateral relationship between a supplier and a distributor), or it does not constitute a legal “agreement,” at least as that term has been narrowly defined within the Sherman Act. In the aftermath of Ohio v. American Express, these features have often (though not necessarily) limited a company’s liability under the Section 2. Moreover, in the two decades following Microsoft, federal agencies have been reluctant to enforce Section 2, the exact period during which these practices have become widespread, leaving ambiguity as to whether they fall within the shadow of that statute.
Since this behavior has the same economic consequences as horizontal collusion between platforms, it is ripe for targeting by the FTC under a reinvigorated Section 5, especially given its possible connection to macroeconomic inflation.
What type of dominant platform conduct am I talking about? Here’s a partial list:
- Most Favored Nations clauses (MFNs) that inhibit or punish discounting on alternative retail channels.
- Resale Price Maintenance that has the same effect as an MFN when used by all or most platforms in a tight oligopoly.
- Non-linear “Loyalty” pricing and other “conditional pricing practices” that inhibit multi-homing by offering discounts in exchange for exclusivity.
- Limited or non-existent data-sharing, or conditioning the sharing of data on exclusivity.
- Platform terms of service that prohibit off-platform transactions.
- Algorithmic pricing that has the effect of facilitating collusion or quasi-collusion.
- Biased search algorithms that either self-preference or favor advertisers at the expense of consumers (or of other sellers who decline to pony up).
- Electronic surveillance that enables platforms to punish counterparties for attempting to circumvent high take rates in any of the above-listed ways, or for engaging in collective action to resist them (such as, in one telling instance recounted by David Dayen in his book Monopolized: Life in the Age of Corporate Power, getting married).
The significance of each of these examples is that they act to inhibit multi-homing and steering that would otherwise be the competitive force to limit platform market power. Alas, after decades of Chicago-influenced jurisprudence favoring vertical control over horizontal coordination by finding ersatz efficiency justifications for coercion and exploitation, they are prevalent, and the public is paying for it. My hope is that the FTC will use its Section 5 powers to take action against it on the public’s behalf.
Typically, when we reach to theories of statutory interpretation, we seek to constrain and delimit the exercise of power. There’s a reason, after all, that those opposed to government regulation enlist originalism and textualism to advance their agenda. It is therefore striking that the FTC invokes text and history not to draw a hard perimeter around its authority. Instead, it conscripts them to justify expanding its campaign against private conduct that runs roughshod over citizens’ rights in the market.
While I appreciate the irony (and cheekiness) of this strategy, I worry about its long-term implications. The goal of this sort of statutory interpretation is to ensure that Congress remains the “supreme legislator.” It insists that Congress, and only Congress, gets to say what the law is. It is Congress’ intent, and Congress’ text, that is our lodestar. To be sure, a commitment to the supremacy of an elected legislature sounds heavenly when compared to a commitment to the supremacy of an unelected, right-wing apex court. But it’s a commitment that can undermine an agency’s independent claim to lawmaking legitimacy. It opens a space for attacks that challenge agency action based on its deviation from congressional intent or text. Attacks like the major questions and nondelegation doctrines. If Congress is the only lawmaker, what’s an agency doing writing regulations at all? Statutory “originalism” will set traps the agency may not be able to avoid.
Given the open-ended balancing tests proposed by the FTC, it’s all the more important that it claim a source of authority not wholly derived from congressional marching orders. Weighing harms and countervailing benefits, both quantifiable and unquantifiable, will be messy. It will involve political decisions and policy choices. Why not show how these choices will involve democratic accountability? Why not emphasize how due process and the rule of law will be well-protected? Why not flaunt the FTC’s expertise and demonstrate how it will support these values? Why not point out that the FTC might actually do a better job vindicating liberal democratic principles than either the Court or Congress? It’s time for the FTC to stop apologizing for its existence. It’s time to start showing us why we need it so badly.
Mark Glick and Darren Bush
The recent FTC Policy Statement defining unfair methods of competition represents a modest yet positive change. It has, however, been met with extreme resistance in the form of a dissenting statement by Commissioner Wilson. Over at The Sling, a new online magazine devoted to competition policy research, you can find our longer analysis of Commissioner Wilson’s dissent. Here, however, we will focus solely on one issue: her discussion of precedent.
Commission Wilson’s seems to believe that the FTC’s Statement must, yet fails, to include an analysis of anticompetitive effects in its criteria for unfair competition. Although the Statement quite clearly targets “unfair conduct with a tendency to negatively affect competition conditions,” Wilson insists that precedent requires more—that unfair conduct must be shown to have actual or likely anticompetitive effects. One would think that a conservative like Commissioner Wilson would feel bound by the plain language of the statute, which does not require any market effects as we find in the language of the Sherman and Clayton Acts. Nor does Commissioner Wilson seriously challenge the fact that the legislative history leaves it up to the FTC to define when competition is unfair. Supreme Court precedent is also against her position. Wilson makes some tortured claims about how the Fashion Originators Case may provide her some support, but after reviewing that case, the Supreme Court in FTC v. Sperry & Hutchinson clearly states that the FTC can prohibit practices regardless of their “effect on competition.”
Her only credible case is E.I Du Pont De Nemours v. FTC. The Court in Du Pont stated that unfair competition is conduct that is “collusive, coercive, predatory, restrictive or deceitful,” very close to the “adjectives” Commissioner Wilson complains about in the Statement. But the opinion goes on to say that only when the conduct at issue is not of this nature, does a Section 5 violation require a showing of “anticompetitive purpose or [that it] cannot be supported by an independent legitimate reason.” Given the disjunctive, this case again appears to support the Statement, not Commissioner Wilson. For Commissioner Wilson, all this can be ignored because apparently the statute of limitations has run out on statutory language, Congressional intent, and Supreme Court precedent. Instead, her position is supported by “modern analysis” (which remains undefined), but we all know what that means.