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Popular Media The FTC Act, in addition to being an early manifestation of the “can we help” school of antitrust, was a reaction to the perceptions of some that the Sherman Act, two decades old at the time, had not been enforced aggressively enough.
Joe Sims is a Partner at Jones Day
I find that discussions on antitrust policy, if they are not to devolve into simple recitations of preferred industrial policy, are most focused when grounded in first principles and, frequently, a little history. So a few words on both with respect to Section 5, starting with the history.
The FTC Act, in addition to being an early manifestation of the “can we help” school of antitrust, was a reaction to the perceptions of some that the Sherman Act, two decades old at the time, had not been enforced aggressively enough. Indeed, there was considerable concern that the Supreme Court’s invention, just a couple of years earlier in the Standard Oil decision, of a Rule of Reason doctrine in interpreting the otherwise very broad words of the Sherman Act was going to effectively gut the statute. Of course, that interpretation almost certainly saved the Sherman Act from an early demise, and opened the door for the extremely wide-ranging enforcement regime we have today. So in large part, the premises underlying the FTC Act (including the now quaint notion that FTC Commissioners would be business experts) have proven completely wrong. Does anyone really want to argue today that Standard Oil’s creation of a broad but limiting principle for the unworkable literal language of the Sherman Act was a bad idea?
The main point to take from this history is that the world has changed just a little bit in the last 100 years, so whatever Congress may have intended (of course, the notion of Congressional intent is itself almost a complete oxymoron) in 1914 tells us virtually nothing about what is sensible today. So I hope we do not hear today the silly argument that the authority exists, so therefore we must use it, or the even sillier argument that if the FTC does not use this “unique” authority, it might as well go out of business. Whether we need two antitrust agencies is a very valid question, but as we have seen for the last hundred years, Section 5 has very little to add to that debate.
So the real issue today is not what Congress intended a century ago, but what is sensible today – in a very different world. And to intelligently answer that, we need to return to first principles of competition policy. Here is how I would phrase the question: Is even intelligent application (a heroic assumption, no doubt, but appropriate for a policy debate) of an unbounded statutory power by whoever happens to be the majority of FTC Commissioners at any given time likely to improve the competitive environment in the US?
It is very difficult for me to see how that is possible, and even harder to see how it is likely. We know what the downside is. Remember Mike Pertschuck saying that Section 5 could possibly be used to enforce compliance with desirable energy policies or environmental requirements, or to attack actions that, in the opinion of the FTC majority, impeded desirable employment programs or were inconsistent with the nation’s “democratic, political and social ideals.” The two speeches he delivered on this subject in 1977 were the beginning of the end for increased Section 5 enforcement in that era, since virtually everyone who heard or read them said: “Whoa! Is this really what we want the FTC to be doing?”
Oh, but you say: this is unfair, since that was then and this is now. No FTC Chair or Commissioner would take this position today. Well, I refer you to Jon Leibowitz’s concurring opinion in Rambus, where he says that Section 5 is “a flexible and powerful Congressional mandate to protect competition from unreasonable restraints, whether long-since recognized or newly discovered, that violate the antitrust laws, constitute incipient violations of those laws, or contravene those laws’ fundamental policies.” Of course, unlike Mike Pertschuck, he does recognize that there must be some constraints, so his version of Section 5 would “only” reach actions that are “collusive, coercive, predatory, restrictive or deceitful, or otherwise oppressive, and without a justification grounded in legitimate, independent self-interest.” Does that make you feel better?
Let’s be honest. Enforcement of Section 5, if it actually becomes a regular part of the FTC toolbox, will depend solely on the common sense, good faith, and modesty of the FTC Commissioners as a group. For purposes of this discussion, we can even assume the former two traits, although history tells us that they are not universal in this sample, because modesty will surely be the toughest test to meet. By and large, people become FTC Commissioners to do things, not to be modest. The Rambus dissent quotes, apparently approvingly, a statement from one Senator at the time of the FTC Act debate that “five good men [a reflection of the times] could hardly make mistakes about whether a particular practice is contrary to good morals or not.” Really? Don’t we have irrefutable evidence over the years that this assumption about government is clearly wrong? But even if you don’t agree with that perception, aren’t we well past the time that we are willing to let five men or women enforce their personal moral or social or even business views with the force of law? As Leibowitz’s outline of “reasonable” criteria shows – and as in fact the Commission’s history clearly demonstrates — if Section 5 is in the toolbox, it will be impossible to resist stretching the language to meet the perceived ill of the day, especially if and when it is too hard – meaning not enough factual or economic evidence – to carry the burden of a Sherman Act challenge. And who knows what tomorrow’s reverse payment issue will be?
So there is a lot of downside to increased utilization of Section 5. What is the argument on the other side of the scale? Is there any need — literally, any need at all — for Section 5 enforcement today? If we did not have this anachronistic vestige of the past already on the books, would there be a groundswell of support to pass a new law giving the FTC this authority? Is there anyone participating in this symposium that is willing to argue that there is any chance that a statue as unhinged as this to any statement of need or standard of application could become law today? (Dodd-Frank and Obamacare are not good answers, even if they meet this prescription; the policy support in this area is not anywhere near the level of financial manipulation or health care.)
I have yet to hear anyone answer this question persuasively. To me, it is instructive that the best illustration – certainly the most common example — anyone can give for an actual “need” for Section 5 is to attack invitations to collude – which, in case anyone has not noticed, involves conduct that by definition has no effect on anyone. So the best argument is that we need to accept all the risks of Section 5 enforcement in order to be able to attack potential anticompetitive agreements that never actually happened? Would we prefer that people not seek to collude? Sure. Does it really matter to anyone if they try and fail? No. And this is the best argument anyone can think of after 100 years of trying? It does not pass the laugh test.
Section 5 is like your appendix – harmless enough if ignored and unused, but very dangerous if aroused or active. We have already exceeded the optimal number of Section 5 cases this century, and we are only in the 14th year. Time to stop for at least the next eight decades. Let’s renew the debate in 2100.
TOTM Josh and Maureen are to be commended for their important contributions to the discussion over the proper scope of the FTC’s Section 5 enforcement authority. . . .
Josh and Maureen are to be commended for their important contributions to the discussion over the proper scope of the FTC’s Section 5 enforcement authority. I have commented extensively on UMC and Section 5, Josh’s statement, and particularly the problems if UMC enforcement against the use of injunctions to enforce FRAND-encumbered SEPs before (see, for example, here, here and here). I’d like to highlight here a couple of the most important issues from among these comments along with a couple of additional ones.
Read the full piece here.
TOTM Section 5 of the FTC Act permits the agency to take enforcement actions against companies that use “unfair or deceptive acts or practices” or that . . .
Section 5 of the FTC Act permits the agency to take enforcement actions against companies that use “unfair or deceptive acts or practices” or that employ “unfair methods of competition.” The Act doesn’t specify what these terms mean, instead leaving that determination to the FTC itself. In the 1980s, under intense pressure from Congress, the Commission established limiting principles for its unfairness and deception authorities. But today, coming up on 100 years since the creation of the FTC, the agency still hasn’t defined the scope of its unfair methods of competition (UMC) authority, instead pursuing enforcement actions without any significant judicial, congressional or even self-imposed limits. And in recent years the Commission has seemingly expanded its interpretation of its UMC authority, bringing a string of standalone Section 5 cases (including against Intel, Rambus, N-Data, Google and others), alleging traditional antitrust injury but avoiding the difficulties of pursuing such actions under the Sherman Act.
TOTM FTC Commissioner Wright issued today his Policy Statement on enforcement of Section 5 of the FTC Act against Unfair Methods of Competition (UMC)—the one he . . .
FTC Commissioner Wright issued today his Policy Statement on enforcement of Section 5 of the FTC Act against Unfair Methods of Competition (UMC)—the one he promised in April. Wright introduced the Statement in an important policy speech this morning before the Executive Committee Meeting of the New York State Bar Association’s Antitrust Section. Both the Statement and the speech are essential reading, and, collectively, they present a compelling and comprehensive vision for Section 5 UMC reform at the Commission.
TOTM As Thom noted (here and here), Josh’s speech at the ABA Spring Meeting was fantastic. In laying out his agenda at the FTC, Josh highlighted two areas on which . . .
As Thom noted (here and here), Josh’s speech at the ABA Spring Meeting was fantastic. In laying out his agenda at the FTC, Josh highlighted two areas on which he intends to focus: Section 5 and public restraints on trade. These are important, even essential, areas, and Josh’s leadership here will be most welcome.
TOTM The Federal Trade Commission yesterday closed its investigation of Google’s search business (see my comment here) without taking action. The FTC did, however, enter into a . . .
The Federal Trade Commission yesterday closed its investigation of Google’s search business (see my comment here) without taking action. The FTC did, however, enter into a settlement with Google over the licensing of Motorola Mobility’s standards-essential patents (SEPs). The FTC intends that agreement to impose some limits on an area of great complexity and vigorous debate among industry, patent experts and global standards bodies: The allowable process for enforcing FRAND (fair, reasonable and non-discriminatory) licensing of SEPs, particularly the use of injunctions by patent holders to do so. According to Chairman Leibowitz, “[t]oday’s landmark enforcement action will set a template for resolution of SEP licensing disputes across many industries.” That effort may or may not be successful. It also may be misguided.
TOTM In the past two weeks, Members of Congress from both parties have penned scathing letters to the FTC warning of the consequences (both to consumers and the agency . . .
In the past two weeks, Members of Congress from both parties have penned scathing letters to the FTC warning of the consequences (both to consumers and the agency itself) if the Commission sues Google not under traditional antitrust law, but instead by alleging unfair competition under Section 5 of the FTC Act. The FTC is rumored to be considering such a suit, and FTC Chairman Jon Leibowitz and Republican Commissioner Tom Rosch have expressed a desire to litigate such a so-called “pure” Section 5 antitrust case — one not adjoining a cause of action under the Sherman Act. Unfortunately for the Commissioners, no appellate court has upheld such an action since the 1960s.
Popular Media I will be speaking at a lunch debate in DC hosted by TechFreedom on Friday, September 28, 2012, to discuss the FTC’s antitrust investigation of Google. Details . . .
I will be speaking at a lunch debate in DC hosted by TechFreedom on Friday, September 28, 2012, to discuss the FTC’s antitrust investigation of Google. Details below.
TechFreedom will host a livestreamed, parliamentary-style lunch debate on Friday September 28, 2012, to discuss the FTC’s antitrust investigation of Google. As the company has evolved, expanding outward from its core search engine product, it has come into competition with a range of other firms and established business models. This has, in turn, caused antitrust regulators to investigate Google’s conduct, essentially questioning whether the company’s success obligates it to treat competitors neutrally. James Cooper, Director of Research and Policy for the Law and Economics Center at George Mason University School of Law, will moderate a panel of four distinguished commenters to discuss the question, “Should the FTC Sue Google Over Search?”
Arguing “Yes” will be:
Arguing “No” will be:
When: Friday, September 28, 2012 12:00 p.m. – 2:00 p.m.
Where: The Monocle Restaurant 107 D Street Northeast Washington, DC 20002
RSVP here. The event will be livestreamed here and you can follow the conversation on Twitter at #GoogleFTC.
For those viewing by livestream, we will watch for questions posted to Twitter at the #GoogleFTC hashtag and endeavor, as possible, to incorporate them into the debate.
Questions? Email [email protected]
Filed under: announcements, antitrust, google Tagged: Allen Grunes, Eric Clemons, Federal Trade Commission, ftc, FTC Act, Glenn Manishin, google, James Cooper, search, search neutrality, Section 2, section 5, Sherman Act, techfreedom
Popular Media In the past weeks, the chatter surrounding a possible FTC antitrust case against Google has risen in volume, thanks largely to the FTC’s hiring of . . .
In the past weeks, the chatter surrounding a possible FTC antitrust case against Google has risen in volume, thanks largely to the FTC’s hiring of litigator Beth Wilkinson. The question remains, however, what this aggressive move portends and, more importantly, why the FTC is taking it.
