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Popular Media The Federal Trade Commission’s recent enforcement actions against Amazon and Apple raise important questions about the FTC’s consumer protection practices, especially its use of economics. . . .
The Federal Trade Commission’s recent enforcement actions against Amazon and Apple raise important questions about the FTC’s consumer protection practices, especially its use of economics. How does the Commission weigh the costs and benefits of its enforcement decisions? How does the agency employ economic analysis in digital consumer protection cases generally?
Join the International Center for Law and Economics and TechFreedom on Thursday, July 31 at the Woolly Mammoth Theatre Company for a lunch and panel discussion on these important issues, featuring FTC Commissioner Joshua Wright, Director of the FTC’s Bureau of Economics Martin Gaynor, and several former FTC officials. RSVP here.
Commissioner Wright will present a keynote address discussing his dissent in Apple and his approach to applying economics in consumer protection cases generally.
Geoffrey Manne, Executive Director of ICLE, will briefly discuss his recent paper on the role of economics in the FTC’s consumer protection enforcement. Berin Szoka, TechFreedom President, will moderate a panel discussion featuring:
The FTC recently issued a complaint and consent order against Apple, alleging its in-app purchasing design doesn’t meet the Commission’s standards of fairness. The action and resulting settlement drew a forceful dissent from Commissioner Wright, and sparked a discussion among the Commissioners about balancing economic harms and benefits in Section 5 unfairness jurisprudence. More recently, the FTC brought a similar action against Amazon, which is now pending in federal district court because Amazon refused to settle.
The “FTC: Technology and Reform” project brings together a unique collection of experts on the law, economics, and technology of competition and consumer protection to consider challenges facing the FTC in general, and especially regarding its regulation of technology. The Project’s initial report, released in December 2013, identified critical questions facing the agency, Congress, and the courts about the FTC’s future, and proposed a framework for addressing them.
The event will be live streamed here beginning at 12:15pm. Join the conversation on Twitter with the #FTCReform hashtag.
Thursday, July 31 11:45 am – 12:15 pm — Lunch and registration 12:15 pm – 2:00 pm — Keynote address, paper presentation & panel discussion
Woolly Mammoth Theatre Company – Rehearsal Hall 641 D St NW Washington, DC 20004
Questions? – Email [email protected]. RSVP here.
See ICLE’s and TechFreedom’s other work on FTC reform, including:
The International Center for Law and Economics is a non-profit, non-partisan research center aimed at fostering rigorous policy analysis and evidence-based regulation.
TechFreedom is a non-profit, non-partisan technology policy think tank. We work to chart a path forward for policymakers towards a bright future where technology enhances freedom, and freedom enhances technology.
Filed under: administrative, announcements, antitrust, consumer protection, cost-benefit analysis, error costs, federal trade commission, international center for law & economics, law and economics, regulation, section 5, technology Tagged: Amazon, Apple, consumer protection, Federal Trade Commission, ftc, icle, section 5, techfreedom, Unfairness
Popular Media Today the FTC filed its complaint in federal district court in Washington against Amazon, alleging that the company’s in-app purchasing system permits children to make . . .
Today the FTC filed its complaint in federal district court in Washington against Amazon, alleging that the company’s in-app purchasing system permits children to make in-app purchases without parental “informed consent” constituting an “unfair practice” under Section 5 of the FTC Act.
As I noted in my previous post on the case, in bringing this case the Commission is doubling down on the rule it introduced in Apple that effectively converts the balancing of harms and benefits required under Section 5 of the FTC Act to a per se rule that deems certain practices to be unfair regardless of countervailing benefits. Similarly, it is attempting to extend the informed consent standard it created in Apple that essentially maintains that only specific, identified practices (essentially, distinct notification at the time of purchase or opening of purchase window, requiring entry of a password to proceed) are permissible under the Act.
Such a standard is inconsistent with the statute, however. The FTC’s approach forecloses the ability of companies like Amazon to engage in meaningful design decisions and disregards their judgment about which user interface designs will, on balance, benefit consumers. The FTC Act does not empower the Commission to disregard the consumer benefits of practices that simply fail to mimic the FTC’s preconceived design preferences. While that sort of approach might be defensible in the face of manifestly harmful practices like cramming, it is wholly inappropriate in the context of app stores like Amazon’s that spend considerable resources to design every aspect of their interaction with consumers—and that seek to attract, not to defraud, consumers.
Today’s complaint occasions a few more observations:
Filed under: consumer protection, federal trade commission, markets, section 5, technology Tagged: Amazon, Amazon.com, Apple, Commissioner Wright, Free Time, ftc, In-app purchases, Kindle, section 5, Unfair Practices, Unfairness
TOTM The Wall Street Journal reports this morning that Amazon is getting — and fighting — the “Apple treatment” from the FTC for its design of its . . .
The Wall Street Journal reports this morning that Amazon is getting — and fighting — the “Apple treatment” from the FTC for its design of its in-app purchases…
Read the full piece here.
Popular Media Commissioner Brill and a few academics have described the FTC’s data security settlements as developing a “common law” of data security. It is not readily apparent, however, that the over 50 independent complaints . . .
Commissioner Brill and a few academics have described the FTC’s data security settlements as developing a “common law” of data security. It is not readily apparent, however, that the over 50 independent complaints and settlement agreements between the FTC and particular companies amounts to what is traditionally understood as the common law. Moreover, because the FTC’s enforcement and adjudication process differs so substantially from traditional civil adjudication, even if the FTC’s data security settlements have certain common law characteristics, it is likely that the content of the FTC’s data security law differs substantially from what would emerge in a traditional common law process.
Download the paper: L&E of Data Security – CONFERENCE
Popular Media Commissioner Brill and a few academics have described the FTC’s data security settlements as developing a “common law” of data security. It is not readily . . .
Commissioner Brill and a few academics have described the FTC’s data security settlements as developing a “common law” of data security. It is not readily apparent, however, that the over 50 independent complaints and settlement agreements between the FTC and particular companies amounts to what is traditionally understood as the common law. Moreover, because the FTC’s enforcement and adjudication process differs so substantially from traditional civil adjudication, even if the FTC’s data security settlements have certain common law characteris- tics, it is likely that the content of the FTC’s data security law differs substantially from what would emerge from – and what would be desirable in – in a traditional common law process. As it happens, however, we do have an actual common law of data security — that is, data secu- rity cases adjudicated in civil courts — with which to compare the FTC’s process and settle- ments. Those who defend the notion of an FTC data security common law identify the shortcomings of common law in civil courts—alleging, in essence, a sort of “market failure”—and they suggest that the FTC’s common law approach can and should correct this market failure, in part be- cause the FTC does have a common law process. These claims are often largely descriptive, but, as suggested, there must be a normative preference inherent in the “common law” conclusion – or else, who cares?
Commissioner Brill and a few academics have described the FTC’s data security settlements as developing a “common law” of data security. It is not readily apparent, however, that the over 50 independent complaints and settlement agreements between the FTC and particular companies amounts to what is traditionally understood as the common law. Moreover, because the FTC’s enforcement and adjudication process differs so substantially from traditional civil adjudication, even if the FTC’s data security settlements have certain common law characteris- tics, it is likely that the content of the FTC’s data security law differs substantially from what would emerge from – and what would be desirable in – in a traditional common law process.
As it happens, however, we do have an actual common law of data security — that is, data secu- rity cases adjudicated in civil courts — with which to compare the FTC’s process and settle- ments.
Those who defend the notion of an FTC data security common law identify the shortcomings of common law in civil courts—alleging, in essence, a sort of “market failure”—and they suggest that the FTC’s common law approach can and should correct this market failure, in part be- cause the FTC does have a common law process. These claims are often largely descriptive, but, as suggested, there must be a normative preference inherent in the “common law” conclusion – or else, who cares?
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Scholarship While several scholars and policymakers have proposed that threats to privacy and competition from concentration of data be incorporated into antitrust analysis, no one has yet articulated a coherent theory as to how degrading privacy or aggregating data can be anticompetitive...
While several scholars and policymakers have proposed that threats to privacy and competition from concentration of data be incorporated into antitrust analysis, no one has yet articulated a coherent theory as to how degrading privacy or aggregating data can be anticompetitive — nor even what, precisely, privacy harms are in this context. In this paper, we survey and evaluate the various attempts to incorporate privacy concerns into antitrust’s domain. We find that those more skeptical of antitrust law’s ability to deal with privacy concerns have the better of the argument.
We approach the question by applying law and economics insights, including the error cost framework associated with antitrust scholars such as Frank Easterbrook, Joshua Wright, and Douglas Ginsburg. This is the first paper in the literature to evaluate all of the proposed approaches in a systematic way. While there have been a few skeptics of incorporating privacy into antitrust, we complement those papers by considering the literature arguing the aggregation of data can itself be a privacy harm that has developed since their publication.
We highlight several problems with the theories advanced thus far. First, some of the theories rely on outdated economic models that assume big is bad, rather than on modern consumer welfare analysis. Second, none of the proposed approaches adequately defines the market for data. Third, none of the proposed approaches adequately explains how concentrations of data alter a firm’s ability or incentive to degrade privacy, nor why such degradations would amount to anticompetitive conduct. Fourth, the theories of harm identified by advocates of including privacy in antitrust analysis are inconsistent with one another: Some of the competitive harms identified have little to do with privacy, and some of the privacy harms identified are not antitrust-relevant, or at least not of the type normally condemned by antitrust law. Finally, there are no reasonable or antitrust-relevant remedies available for alleged anticompetitive harms arising from data or the privacy threats supposedly posed by increased data aggregation.
Insofar as privacy harms need a public policy response, common law remedies of tort and contract supplemented by the FTC’s ongoing enforcement of consumer protection law are a better alternative to antitrust law. There are pro-competitive reasons for allegedly privacy-invasive practices like data collection, analysis, behavioral advertising, and even price discrimination. Applying an error cost framework suggests that barring such activity outright will lead to a decrease in consumer welfare. Targeted enforcement against anti-consumer abuses through common law and consumer protection law could preserve the benefits of data collection and analysis while ameliorating and deterring privacy harms.
This paper is an outgrowth of a presentation given by Geoffrey Manne at the George Mason Law Review’s Symposium on Privacy Regulation and Antitrust on January 17, 2013.
Popular Media In 1914, Congress gave the FTC sweeping jurisdiction and broad powers to enforce flexible rules, to ensure that it would have the ability to serve . . .
In 1914, Congress gave the FTC sweeping jurisdiction and broad powers to enforce flexible rules, to ensure that it would have the ability to serve as the national regulator of trade and business. Much, perhaps even the great majority, of what the FTC does is uncontroversial and is widely supported, even by critics of the regulatory state. However, both Congress and the courts have expressed concern about how the FTC has used its considerable discretion in some areas. Now, as the agency approaches its 100th anniversary, the FTC, courts, and Congress face a series of decisions about how to apply or constrain that discretion. These questions will become especially pressing as the FTC uses its authority in new ways, expands its authority into new areas, or gains new authority from Congress (such as over data security or privacy).
In 1914, Congress gave the FTC sweeping jurisdiction and broad powers to enforce flexible rules, to ensure that it would have the ability to serve as the regulator of trade and business that Congress intended it be. Much, perhaps even the great majority, of what the FTC does is uncontroversial and is widely supported, even by critics of the regulatory state. However, both Congress and the courts have expressed concern about how the FTC has used its considerable discretion in some areas, particularly in its evolving interpretation of “unfairness.” Now, as the FTC approaches its 100th anniversary, the FTC, courts and Congress face a series of decisions about how to apply or constrain that discretion. These questions will become especially pressing as the FTC uses is its authority in new ways, expands its authority into new areas, or gains new authority from Congress. The purpose of this report is not to lambaste the agency, but rather to ask whether more should be done to improve how the agency exercises its discretion, and, if so, how to do so without hamstringing the agency. Indeed, improving the well-considered constraints on the FTC’s use of its discretion may make the Commission more, not less, effective by bringing about clearer, more consistent guidance, in turn increasing the FTC’s credibility and achieving greater compliance. Ultimately, the measure of the FTC’s success should not be how “active” it is, how far it extends its jurisdiction or how far it pushes the boundaries of its discretion, but rather how well it achieves its overarching purpose of maximizing consumer welfare.
In 1914, Congress gave the FTC sweeping jurisdiction and broad powers to enforce flexible rules, to ensure that it would have the ability to serve as the regulator of trade and business that Congress intended it be. Much, perhaps even the great majority, of what the FTC does is uncontroversial and is widely supported, even by critics of the regulatory state. However, both Congress and the courts have expressed concern about how the FTC has used its considerable discretion in some areas, particularly in its evolving interpretation of “unfairness.” Now, as the FTC approaches its 100th anniversary, the FTC, courts and Congress face a series of decisions about how to apply or constrain that discretion. These questions will become especially pressing as the FTC uses is its authority in new ways, expands its authority into new areas, or gains new authority from Congress.
The purpose of this report is not to lambaste the agency, but rather to ask whether more should be done to improve how the agency exercises its discretion, and, if so, how to do so without hamstringing the agency. Indeed, improving the well-considered constraints on the FTC’s use of its discretion may make the Commission more, not less, effective by bringing about clearer, more consistent guidance, in turn increasing the FTC’s credibility and achieving greater compliance. Ultimately, the measure of the FTC’s success should not be how “active” it is, how far it extends its jurisdiction or how far it pushes the boundaries of its discretion, but rather how well it achieves its overarching purpose of maximizing consumer welfare.
Download: Consumer Protection & Competition Regulation in a High Tech World: Discussing the Future of the Federal Trade Commission
Popular Media Below is the text of my oral testimony to the Senate Commerce, Science and Transportation Committee, the Consumer Protection, Product Safety, and Insurance Subcommittee, at its . . .
Below is the text of my oral testimony to the Senate Commerce, Science and Transportation Committee, the Consumer Protection, Product Safety, and Insurance Subcommittee, at its November 7, 2013 hearing on “Demand Letters and Consumer Protection: Examining Deceptive Practices by Patent Assertion Entities.” Information on the hearing is here, including an archived webcast of the hearing. My much longer and more indepth written testimony is here.
Please note that I am incorrectly identified on the hearing website as speaking on behalf of the Center for the Protection of Intellectual Property (CPIP). In fact, I was invited to testify soley in my personal capacity as a Professor of Law at George Mason University School of Law, given my academic research into the history of the patent system and the role of licensing and commercialization in the distribution of patented innovation. I spoke for neither George Mason University nor CPIP, and thus I am solely responsible for the content of my research and remarks.
Chairman McCaskill, Ranking Member Heller, and Members of the Subcommittee:
Thank you for this opportunity to speak with you today.
There certainly are bad actors, deceptive demand letters, and frivolous litigation in the patent system. The important question, though, is whether there is a systemic problem requiring further systemic revisions to the patent system. There is no answer to this question, and this is the case for three reasons.
Harm to Innovation
First, the calls to rush to enact systemic revisions to the patent system are being made without established evidence there is in fact systemic harm to innovation, let alone any harm to the consumers that Section 5 authorizes the FTC to protect. As the Government Accountability Office found in its August 2013 report on patent litigation, the frequently-cited studies claiming harms are actually “nonrandom and nongeneralizable,” which means they are unscientific and unreliable.
These anecdotal reports and unreliable studies do not prove there is a systemic problem requiring a systemic revision to patent licensing practices.
Of even greater concern is that the many changes to the patent system Congress is considering, incl. extending the FTC’s authority over demand letters, would impose serious costs on real innovators and thus do actual harm to America’s innovation economy and job growth.
From Charles Goodyear and Thomas Edison in the nineteenth century to IBM and Microsoft today, patent licensing has been essential in bringing patented innovation to the marketplace, creating economic growth and a flourishing society. But expanding FTC authority to regulate requests for licensing royalties under vague evidentiary and legal standards only weakens patents and create costly uncertainty.
This will hamper America’s innovation economy—causing reduced economic growth, lost jobs, and reduced standards of living for everyone, incl. the consumers the FTC is charged to protect.
Existing Tools
Second, the Patent and Trademark Office (PTO) and courts have long had the legal tools to weed out bad patents and punish bad actors, and these tools were massively expanded just two years ago with the enactment of the America Invents Act.
This is important because the real concern with demand letters is that the underlying patents are invalid.
No one denies that owners of valid patents have the right to license their property or to sue infringers, or that patent owners can even make patent licensing their sole business model, as did Charles Goodyear and Elias Howe in the mid-nineteenth century.
There are too many of these tools to discuss in my brief remarks, but to name just a few: recipients of demand letters can sue patent owners in courts through declaratory judgment actions and invalidate bad patents. And the PTO now has four separate programs dedicated solely to weeding out bad patents.
For those who lack the knowledge or resources to access these legal tools, there are now numerous legal clinics, law firms and policy organizations that actively offer assistance.
Again, further systemic changes to the patent system are unwarranted because there are existing legal tools with established legal standards to address the bad actors and their bad patents.
If Congress enacts a law this year, then it should secure full funding for the PTO. Weakening patents and creating more uncertainties in the licensing process is not the solution.
Rhetoric
Lastly, Congress is being driven to revise the patent system on the basis of rhetoric and anecdote instead of objective evidence and reasoned explanations. While there are bad actors in the patent system, terms like PAE or patent troll constantly shift in meaning. These terms have been used to cover anyone who licenses patents, including universities, startups, companies that engage in R&D, and many others.
Classic American innovators in the nineteenth century like Thomas Edison, Charles Goodyear, and Elias Howe would be called PAEs or patent trolls today. In fact, they and other patent owners made royalty demands against thousands of end users.
Congress should exercise restraint when it is being asked to enact systemic legislative or regulatory changes on the basis of pejorative labels that would lead us to condemn or discriminate against classic innovators like Edison who have contributed immensely to America’s innovation economy.
Conclusion
In conclusion, the benefits or costs of patent licensing to the innovation economy is an important empirical and policy question, but systemic changes to the patent system should not be based on rhetoric, anecdotes, invalid studies, and incorrect claims about the historical and economic significance of patent licensing
As former PTO Director David Kappos stated last week in his testimony before the House Judiciary Committee: “we are reworking the greatest innovation engine the world has ever known, almost instantly after it has just been significantly overhauled. If there were ever a case where caution is called for, this is it.”
Thank you.
Filed under: antitrust, federal trade commission, intellectual property, licensing, litigation, patent, regulation, section 5 Tagged: antitrust, broken patent system, consumer, demand letters, ftc, legislation, licensing, mccaskill, mossoff, non practicing entity, PAE, patent assertion entity, patent reform, patent troll, podcasting patent, section 5, senate, wifi
