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TOTM One must applaud the efforts of Commissioners Ohlhausen and Wright to begin the dialogue about the proper use of Section 5 as a tool of . . .
One must applaud the efforts of Commissioners Ohlhausen and Wright to begin the dialogue about the proper use of Section 5 as a tool of antitrust enforcement. It was 99 years ago that Congress was debating the creation of the Federal Trade Commission and increased guidance on the Commission’s thinking on Section 5 is in order.
Read the full piece here.
TOTM FTC Commissioner Josh Wright’s recent issuance of a proposed policy statement on Section 5 of the FTC Act has reignited the debate on the appropriate . . .
FTC Commissioner Josh Wright’s recent issuance of a proposed policy statement on Section 5 of the FTC Act has reignited the debate on the appropriate scope of the agency’s authority to prosecute “unfair methods of competition” as standalone Section 5 violations. While the Supreme Court has held, consistent with clear congressional intent, that the FTC’s authority under Section 5 extends to conduct that is well beyond the reach of the Sherman and Clayton Acts, its last decision on the issue (S&H) is over four decades old. Given that antitrust jurisprudence has changed dramatically since, and all three subsequent circuit court decisions (Boise Cascade, OAG, Ethyl) have gone against the FTC, it is questionable whether today’s Supreme Court would give as expansive a reading to the Commission’s enforcement discretion.
TOTM I personally believe that a policy statement on Section 5 would be a very good thing for the Federal Trade Commission, especially over the long . . .
I personally believe that a policy statement on Section 5 would be a very good thing for the Federal Trade Commission, especially over the long run. I think it would strengthen the agency, renew its distinct sense of purpose, and clarify the jobs of the attorneys who enforce the competition laws on a day-to-day basis. And so, while there is some possibility that Josh Wright & I may disagree on aspects of substance, on the principle of having a policy statement, we agree entirely.
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.
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.
Amicus Brief "The power to determine whether the practices of almost any American business are “unfair” makes the Federal Trade Commission (FTC) uniquely powerful..."
“The power to determine whether the practices of almost any American business are “unfair” makes the Federal Trade Commission (FTC) uniquely powerful. This power allows the FTC to protect consumers from truly harmful business practices not covered by the FTC’s general deception authority. But without effective enforcement of clear limiting principles, this power may be stretched beyond what Congress intended.
In 1964, the Commission began using its unfairness power to ban business practices that it determined offended “public policy.” Emboldened by vague Supreme Court dicta comparing the agency to a “court of equity,” FTC v. Sperry & Hutchinson Co., 405 U.S. 233, 244 (1972), the Commission set upon a series of rulemakings and enforcement actions so sweeping that the Washington Post dubbed the agency the “National Nanny.” The FTC’s actions eventually prompted Congress to briefly shut down the agency to reinforce the point that it had not intended the agency to operate with such expansive authority.
But in the last nine years, the unfairness power has risen again as the Commission has increasingly grappled with consumer protection questions raised by the accelerating pace of technological change brought by the Digital Revolution. Today, unfairness is back—but without the limiting principles that Congress agreed were essential to properly restraining the FTC’s power…”
“Denying the motion to dismiss will vindicate the FTC’s enforcement of Section 5 through poorly plead complaints that fail to satisfy the statutory requirements for the FTC’s use of is unfairness authority. The questions raised below are not questions about the adequacy of Wyndham’s data security practices in particular, or even whether they could conceivably be declared unfair upon a full analysis of the facts and proper development of limiting principles. Instead, this brief speaks to the fundamental problems of vagueness and due process raised by the FTC’s routine enforcement actions prior to adjudication by any court.,,”
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.
Popular Media I’ve spent the last few days in DC at the ABA Antitrust Section’s Spring Meeting. The Spring Meeting is the extravaganza of the year for . . .
I’ve spent the last few days in DC at the ABA Antitrust Section’s Spring Meeting. The Spring Meeting is the extravaganza of the year for antitrust lawyers, bringing together leading antitrust practitioners, enforcers, and academics for in-depth discussions about developments in the law. It’s really a terrific event. I was honored this year to have been invited (by my old law school classmate, Adam Biegel) to present the “antitrust economics” and “monopolization” sections of the Antitrust Fundamentals session. Former TOTM blogger (now FTC Commissioner) Josh Wright has taught those sections in the past, so I had some pretty big shoes to fill. It was great fun.
Two sessions yesterday really got my blood pumping, albeit for different reasons. The first was a session on counseling clients on RPM after Leegin. Leegin, of course, was the 2007 Supreme Court decision overruling the 1911 Dr. Miles precedent that declared minimum resale price maintenance (RPM) to be per se illegal. Post-Leegin, a manufacturer’s setting of the resale price its downstream dealers may charge is evaluated under the Rule of Reason, at least for purposes of federal antitrust law.
While it was a 5-4 decision, the holding of Leegin is hardly controversial among antitrust scholars. Chicago School and neo-Chicago scholars like myself, Harvard School scholars like Herb Hovenkamp, and even post-Chicago scholars like Einer Elhauge are in agreement that RPM is not always or almost always anticompetitive and thus ought to be analyzed under the Rule of Reason. (Indeed, Elhauge queried: “The puzzle is what provoked a vigorous dissent from Justice Breyer, one of the world’s most sophisticated antitrust justices…”). There’s simply no doubt about Leegin among those who have studied RPM most closely: it was correctly decided.
It was most disheartening, then, to hear a group of esteemed panelist opine that Leegin hasn’t really changed the advice one should give clients considering RPM policies. It’s still wise, the panelists stated, to advise manufacturing clients to avoid RPM and instead to implement either (1) so-called Colgate policies where the manufacturer simply announces and follows a unilateral policy of not selling to dealers who discount, or (2) consignment arrangements where the manufacturer doesn’t sell its product to dealers but instead enlists them as its sales agents and retains title to its product until the product is sold to the end-user consumer. The former approach avoids RPM liability because there is no “agreement” concerning resale prices; the latter, because there is technically no “resale.” Both approaches, though, involve costly and cumbersome methods by which manufacturers may exert control over the resale prices of their products. (See, e.g., golf club manufacturer Ping’s now-classic discussion of the difficulties involved in implementing a Colgate policy.) So why counsel clients to adopt Colgate policies and consignment/agency arrangements when RPM is now adjudged under the Rule of Reason?
Because of the states — a number of them, at least. Maryland has adopted an explicit Leegin-repealer; California’s Cartwright Act uses language that appears to declare RPM to be per se illegal; and the Supreme Court of Kansas recently held that RPM is per se illegal under that state’s predictably unenlightened antitrust laws. (Sorry Kansas folk. Proud Mizzou Tiger here.) In addition, a number of states lack statutes or court decisions harmonizing state antitrust law with federal precendents, and at least six have rejected certain federal precedents –chiefly, Illinois Brick — even without statutory repealers. How those states will treat RPM post-Leegin is anybody’s guess. (For an exhaustive and regularly updated list of state law treatment of RPM, see this helpful article and chart by Michael Lindsay.)
So what’s behind states’ hostility toward RPM? At yesterday’s RPM session, California Senior Assistant Attorney General Kathleen Foote suggested that state attorneys general tend to oppose RPM because they are particularly concerned about consumer protection and because states have had actual experience with RPM under the so-called “Fair Trade” laws that for several decades allowed states to create antitrust immunity for RPM arrangements. The empirical evidence of conditions under Fair Trade, Ms. Foote says, establishes that RPM leads to higher consumer prices and therefore tends to be anticompetitive.
But these arguments, each of which was considered and rejected in Leegin, have been soundly refuted. A heightened concern for consumer protection in no way supports adherence to Dr. Miles, for manufacturers generally have an incentive to impose RPM only when doing so benefits consumers. The retail mark-up — the difference between the price the retailer pays and that which it charges to consumers — is the “price” manufacturers effectively pay for product distribution. Like consumers, they have no incentive to raise that price (i.e., to increase the mark-up through imposition of RPM) unless doing so generates retailer services that are worth more to consumers than the incremental retail mark-up. Only then would RPM enhance a manufacturer’s profits, but in that case, it also enhances overall consumer surplus. In short, manufacturer and consumer interests are generally aligned when it comes to RPM.
With respect to Fair Trade, Ms. Foote was playing a little fast and loose. The Fair Trade laws did not, like Leegin, simply declare RPM arrangements not to be per se illegal; rather, they said that such arrangements were per se legal. Hardly anyone doubts that RPM arrangements may sometimes be harmful and should be scrutinized. But under Leegin — unlike under Fair Trade — anticompetitive instances of RPM (those that facilitate manufacturer or retailer collusion or serve as exclusionary devices for dominant manufacturers or retailers) may be condemned. Thus, the fact that states witnessed consumer harm under Fair Trade’s regime of per se legality says nothing about how consumers will fare under Leegin’s Rule of Reason.
Finally, Ms. Foote’s reasoning that RPM is anticompetitive because the evidence shows it tends to raise prices is fallacious. Of course RPM raises prices. It is, after all, the imposition of a price floor. But that price effect is beside the point. Each one of the procompetitive, output-enhancing justifications for RPM assumes an increase in consumer prices. The key is that the increase in retail mark-up will induce dealer services that consumers value more than the amount of the mark-up and will thereby enhance overall sales. The fact that RPM raises prices, then, is a red herring.
If legislators, courts, and enforcement officials in states like California, Maryland, and Kansas can’t understand these fairly simple points (yes, I realize I’m asking a lot of the Kansans), then the promise of Leegin may go unfulfilled. It was pretty clear from yesterday’s session that legal advice — and, accordingly, manufacturer practice — will look much as it did pre-Leegin unless the states get their act together. That’s pretty depressing.
Fortunately, the session following the RPM session was a good bit more promising. The highlight was a speech by FTC Commissioner Wright, in which he laid out his intentions to promote a more principled understanding of Section 5 of the FTC Act and to pursue the “low-hanging fruit” (his words) of public restraints. Both developments would be warmly welcomed.
Commissioner Wright maintains that the promise of Section 5 (which enables the FTC, but not private parties, to enjoin unfair methods of competition that do not necessarily constitute antitrust violations) will remain unfulfilled until the FTC lays out the guiding and limiting principles that will govern its use of the provision. He’s right. Absent such articulated principles, use of Section 5 could well end up the way Robert Bork once described mid-20th Century antitrust, which he likened to a frontier sheriff who “did not sift the evidence, distinguish between suspects, and solve crimes, but merely walked the main street and every so often pistol-whipped a few people.” The evidence-based principles Commissioner Wright proposes to develop would avoid the frontier sheriff problem by bringing predictability and fairness to the Commission’s implementation of its Section 5 authority.
Even more exciting were Commissioner Wright’s remarks on public restraints. Without doubt, competition-reducing laws and regulations are responsible for the destruction of vast amounts of consumer welfare. State action immunity and other legal hurdles, though, make it difficult to police welfare-reducing public restraints.
But litigation isn’t the only weapon in the FTC’s arsenal. As Commissioner Wright observed, the FTC is uniquely positioned to advocate for the removal of competition-destructive public restraints. I was heartened to learn that the Commission recently helped persuade Colorado officials not to impose regulations that would have squelched Uber, a smart phone application that is creating much-needed competition in the taxi and private car service market. It also took the side of the angels in St. Joseph Abbey case, helping to persuade the Fifth Circuit to strike protectionist regulations that reduced competition among casket sellers in Louisiana. Commissioner Wright also noted that the FTC’s recent victory in the Phoebe Putney case, which narrowed somewhat the scope of state action immunity, will allow it to pursue more public restraints by state and sub-state governmental entities. This all bodes well for consumers.
So here’s an idea for the FTC: How about using some of that advocacy prowess to convince the anti-Leegin states to bring their RPM doctrine into conformity with federal law? It might be tough — and Kansas may be beyond help — but I’m confident that Commissioner Wright and his colleagues could help the anti-Leegin states see that they’re not helping consumers by clinging to moth-eaten Dr. Miles. Instead, they’re just guaranteeing more jobs for lawyers charged with crafting and implementing Colgate policies, consignment relationships, etc.
Filed under: antitrust, consumer protection, markets, regulation, resale price maintenance
