Research Programs
More
What are you looking for?
Showing 9 of 132 Results in Consumer Welfare Standard
Presentations & Interviews ICLE President Geoffrey A. Manne joined a panel hosted by the Global Antitrust Institute examining the ever-changing competition policy landscape involving large digital platforms, including . . .
ICLE President Geoffrey A. Manne joined a panel hosted by the Global Antitrust Institute examining the ever-changing competition policy landscape involving large digital platforms, including the litany of conduct alleged to give rise to antitrust violations, theories of harm emphasizing potential and nascent competition, labor market impacts, and, even, “toxic” or “predatory” innovation. Video of the full panel is embedded below.
TL;DR Background: In 2015, the Federal Trade Commission (FTC) issued a policy statement on its “unfair methods of competition” (UMC) authority—the antitrust part of Section 5 . . .
Background: In 2015, the Federal Trade Commission (FTC) issued a policy statement on its “unfair methods of competition” (UMC) authority—the antitrust part of Section 5 of the FTC Act. According to the statement, while Section 5 wouldn’t be strictly limited to conduct illegal under the letter of the Sherman Antitrust Act, it would stick to the “spirit” of the Sherman Act, use roughly the same economic tools and general approach, and maintain the same focus on consumer welfare.
But… Some argue for a more expansive interpretation of the FTC’s UMC authority, seeing Section 5 as allowing government enforcers to evade the judicial limits the Sherman Act places on private plaintiffs. This view, of course, still leaves open the question of what Section 5 should cover: If antitrust is supposed to protect competition without impeding markets and innovation, enforcement without any of the procedural and substantive guardrails developed over the course of 130 years of Sherman Act litigation is surely inappropriate.
Although a few saw the 2015 statement as too expansive, many condemned it as too constraining on enforcement. Those views found support in the new FTC majority appointed by President Joe Biden, which in 2021 moved by a strictly partisan vote to withdraw the 2015 statement. The FTC issued a completely new Section 5 UMC policy statement in November 2022.
The 2022 UMC policy statement omits both the consumer welfare standard and the rule of reason, which have been used to weigh how alleged violations harm and benefit competition and consumers. Under the new statement, conduct deemed problematic by the FTC can no longer be justified by efficiency or by a numerical cost-benefit analysis. It’s not clear that it can be justified at all. The actual and likely effects of conduct are no longer critical either.
The Commission says it will look at the “tendency” of a type of action to have an effect on not just consumers but also workers or “other market participants.” The new statement expresses concern with market conduct that is “exploitative” or “coercive.” Those terms sound bad, to be sure, but they don’t have any established meaning in antitrust law. The new statement reflects the Commission’s belief that it’s simply up to them to decide what constitutes a UMC violation.
The 2022 UMC policy statement also signaled that the FTC would issue rules in accordance with its new interpretation of Section 5, potentially removing certain conduct from traditional rule-of-reason judicial review. Indeed, in January 2023, the FTC issued a notice of proposed rulemaking on noncompete clauses. The proposed rule claims the FTC’s UMC authority as its basis, and eschews a case-by-case approach to assessing the competitive effects of noncompete clauses for, instead, a blanket, per se ban on all such clauses in workplace contracts.
When the FTC was established in 1914, some in Congress wanted the prohibition on “unfair” competition to reach further than the Sherman Act did at the time. But Congress didn’t specify the details, and today’s Sherman Act reflects a century of antitrust developments since then.
Whatever “unfair competition” was intended to mean, it’s unlikely it was intended to operate in a realm entirely divorced from the economic understandings and law developed under the Sherman Act.
In its selective reading of the legislative history, the Commission ignores the checks imposed by Congress and the courts when the FTC last tried a highly expansive “reading” of Section 5. In the 1970s, Congress thought the FTC was running amok, and it imposed new legal restrictions on the agency’s ability to issue regulations. For a brief time, Congress shut the FTC down. In a number of decisions, courts said that the FTC had failed to make a standalone case.
Under the U.S. Constitution, Congress makes the laws. Executive agencies interpret them and carry them out. The “major questions doctrine,” which has gained renewed import with the Court’s 2022 West Virginia v. EPA decision, says there are limits on an agency’s ability to make law under the guise of interpretation. An agency can issue sweeping regulations with major economic import only if Congress has been specific in telling it what to regulate and how to do it.
But “unfair” is not at all specific. And, in fact, the current FTC majority has made clear that it is interested in regulating all sorts of significant things for which it has no specific remit under Section 5, including employment agreements and data privacy.
What’s more, the “nondelegation doctrine” says that Congress cannot be too sweeping in telling an agency what to do, because it cannot delegate its constitutional lawmaking duty to unelected agencies. The wording of the FTC’s new policy statement suggests that it remains very interested in promulgating such “legislative” rules, as the noncompete rule bears out.
We don’t know for certain how the courts will view the FTC’s innovations, but there’s ample reason to expect considerable judicial skepticism.
For more on the limits of the FTC’s UMC authority, see the ICLE explainer FTC UMC Authority: Uncertain Scope.
TL;DR Background: U.S. law grants both the Federal Trade Commission (FTC) and the U.S. Justice Department (DOJ) authority to enforce both the Sherman Antitrust Act and . . .
Background: U.S. law grants both the Federal Trade Commission (FTC) and the U.S. Justice Department (DOJ) authority to enforce both the Sherman Antitrust Act and the Clayton Antitrust Act. The FTC also enforces the Federal Trade Commission Act. Indeed, the agency’s antitrust authority is grounded in Section 5 of that act, which prohibits “unfair methods of competition” (UMC).
But… There’s been ongoing controversy about the meaning of these laws and particularly about Section 5. Both the Sherman Act and the FTC Act are written in very broad terms. Section 1 of the Sherman Act prohibits “Every contract, combination… or conspiracy, in restraint of trade.” But which contracts or combinations are illegal restraints of trade? Similarly, which methods of competition are “unfair,” as prohibited under Section 5? Most importantly, what, if anything, does UMC cover that isn’t covered by the Sherman Act?
In writing these antitrust statutes, Congress set down general goals, an institutional structure, and enforcement powers, but left it to the agencies and the courts to develop the details. That provided for flexibility as the economy and our understanding of market competition evolved.
For more than 100 years, that’s roughly how things proceeded. Both agencies brought cases; the FTC also generated research and reports; and the courts weighed in, too. Congress exercised its voice through both amendments and appropriations. The FTC monitored and contributed to economic learning in ways ultimately reflected in legal standards.
An understanding emerged that the FTC’s UMC authority reached somewhat beyond the Sherman Act, but was still tethered to the central antitrust concepts of the consumer welfare standard and the “rule of reason,” both of which offer courts a means to evaluate the legality of market behavior in terms of its likely harms and benefits.
While the various antitrust laws use somewhat different language, there is considerable overlap among them. In 1941, the Supreme Court ruled (and has affirmed many times since) that UMC includes conduct prohibited under the Sherman and Clayton Acts. But UMC also includes some amount of “extra” coverage beyond the other antitrust laws—known as “standalone Section 5 authority.” While there’s been considerable agreement that Section 5 goes beyond the letter of the Sherman Act, there’s much less agreement about what lies beyond.
For one thing, the FTC Act doesn’t say. Also, relatively few decisions are based on standalone Section 5. The FTC has tended to bring cases alleging simultaneous violations of both Section 5 and the Sherman Act, and the DOJ doesn’t enforce the FTC Act. The relevant court decisions are old and likely out of date. Complicating the issue is that many of the cases recognizing standalone authority are ones the government lost, so the decisions suggest that Section 5 reaches something beyond the Sherman Act, but fail to indicate what that might be.
In 1972’s FTC v. Sperry & Hutchinson, the U.S. Supreme Court famously found that there may be Section 5 violations that have “anticompetitive impact” but do not violate the other antitrust laws. But the FTC lost that case because the agency did not appeal the lower court’s decision that there was no Sherman Act violation and because it failed to establish a Section 5 violation on any other grounds. The Court’s ruling didn’t tell us what would constitute a standalone violation of Section 5, except that consideration of “public values beyond… those enshrined… in the… antitrust laws” was permitted.
Yet in the wake of Sperry & Hutchinson, as well as a dust-up between the FTC and Congress over Section 5’s prohibition of “unfair or deceptive acts or practices” (UDAP), Congress amended Section 5 to make clear that “public policy considerations may not serve as a primary basis” for liability (at least for UDAP).
More recent decisions have reinforced the importance of an integrated approach to the antitrust laws, as well as of both the rule of reason and the consumer welfare standard. This prompted former FTC Chairman Bill Kovacic to write that the FTC “should not… rely on the assertion… that the Commission could use its UMC authority to reach practices outside both the letter and spirit of the antitrust laws. We think the early history is now problematic, and we view the relevant language… with skepticism.”
Most experts recognize that Section 5 operates as a measured extension of the Sherman Act, with the two laws serving a common goal. Thus there is agreement that Section 5 applies to “invitations to collude.” If two or more competing firms agree to fix prices, that’s an illegal agreement that violates the Sherman Act. But if one firm attempts unsuccessfully to collude—inviting a competitor to join in a price fixing scheme only to be rebuffed—there’s no agreement at all, much less an actual restraint. But because it’s an attempt to violate the Sherman Act that presents a risk of harm to competition and consumers but serves no legitimate business purpose, most everyone agrees it would properly be within the scope of Section 5.
For more on ongoing controversies regarding Section 5 UMC, see the ICLE explainer FTC UMC Authority: Enforcement Issues.
Popular Media The U.S. economy has a new labor regulator. Under a just-unveiled proposed rule, the Federal Trade Commission would ban the use of noncompete terms in . . .
The U.S. economy has a new labor regulator. Under a just-unveiled proposed rule, the Federal Trade Commission would ban the use of noncompete terms in employment agreements nationwide.
Read the full piece here.
Popular Media Lina Khan has been an outspoken critic of Big Tech since her law school days, demonstrating a singular focus on the big bad guys—first Amazon . . .
Lina Khan has been an outspoken critic of Big Tech since her law school days, demonstrating a singular focus on the big bad guys—first Amazon and then others. Now, as the chairwoman of the Federal Trade Commission, she has the chance to test her antitrust theories in court. But the FTC’s ongoing challenge against Meta, the parent company of Facebook, reveals the weakness of going after Big Tech in any way possible.
TOTM The blistering pace at which the European Union put forward and adopted the Digital Markets Act (DMA) has attracted the attention of legislators across the globe. In . . .
The blistering pace at which the European Union put forward and adopted the Digital Markets Act (DMA) has attracted the attention of legislators across the globe. In its wake, countries such as South Africa, India, Brazil, and Turkey have all contemplated digital-market regulations inspired by the DMA (and other models of regulation, such as the United Kingdom’s Digital Markets Unit and Australia’s sectoral codes of conduct).
Presentations & Interviews Competition Policy International interviewed ICLE Academic Affiliate David Teece in September 2022. In the video embedded below, he discusses the concept of “potential competition” and . . .
Competition Policy International interviewed ICLE Academic Affiliate David Teece in September 2022. In the video embedded below, he discusses the concept of “potential competition” and the consumer-welfare effects of startup acquisitions.
Popular Media Reflecting on the decades of merger challenges brought to that point under the Clayton Antitrust Act of 1914, Justice Potter Stewart observed in 1966 that . . .
Reflecting on the decades of merger challenges brought to that point under the Clayton Antitrust Act of 1914, Justice Potter Stewart observed in 1966 that “the sole consistency I can find” is that “the Government always wins.”
TOTM The Federal Trade Commission’s (FTC) Nov. 10 Policy Statement Regarding the Scope of Unfair Methods of Competition Under Section 5 of the Federal Trade Commission Act—adopted . . .
The Federal Trade Commission’s (FTC) Nov. 10 Policy Statement Regarding the Scope of Unfair Methods of Competition Under Section 5 of the Federal Trade Commission Act—adopted by a 3-1 vote, with Commissioner Christine Wilson issuing a dissenting statement—holds out the prospect of dramatic new enforcement initiatives going far beyond anything the FTC has done in the past. Of particular note, the statement abandons the antitrust “rule of reason,” rejects the “consumer welfare standard” that has long guided FTC competition cases, rejects economic analysis, rejects relevant precedent, misleadingly discusses legislative history, and cites inapposite and dated case law.
