The Federal Trade Commission (FTC) plays a vitally important role in protecting consumers and the competitive process. However, this role is limited to the enforcement of existing laws as enacted by Congress and focused on cases where there is demonstrable and legitimate harm. Under current leadership, the FTC has brought complaints against companies using untested legal theory and pursued rulemaking authority under an expansive reading of Section 5. In response to the Innovation, Data and Commerce Subcommittee Hearing, the American Consumer Institute has released a series addressing the changes at the FTC and how they undermine consumer interests in the competitive process.
Changes at the Federal Trade Commission are cause for concern. The agency seeks to expand its domain by changing the interpretation of its authority while pushing consumer interests to the wayside. To protect consumers, the FTC should return to its consumer-focused approach.
For the last few decades, antitrust enforcement has been carried out using the legal norm of the Consumer Welfare Standard (CWS), which guides enforcement to focus on consumer harm. An additional norm comes from officials’ interpretation of Section 5 of the Federal Trade Commission Act. This provision prohibits “unfair or deceptive practices,” and traditionally the FTC would likely only bring a complaint under Section 5 if the behavior in question also violated other antitrust laws such as the Sherman and Clayton Acts.
Enforcement under Section 5 of the Federal Trade Commission Act faced a shift in July 2021 when the commission voted to rescind its existing policy of Section 5 enforcement. In the new policy statement released in November 2022, the agency reiterated its commitment to a broad reading of its authority and an equally broad reading of what constitutes “unfair” actions. The FTC stated that “Section 5 does not require a separate showing of market power or market definition when the evidence indicates that such conduct tends to negatively affect competitive conditions.” It expanded on this proclamation by stating that “the inquiry will not focus on the ‘rule of reason’ inquiries.”
In effect, these changes add a great deal of subjectivity to antitrust enforcement by reducing the role that quantitative analysis plays. Reliance on market definition to assess market power is crucial when attempting to determine the competitive harm of a company’s behavior. According to the Department of Justice, market power describes a company’s ability to increase prices without losing consumers.
While the definitions of markets are open to some subjectivity, this ambiguity was previously balanced by the agency’s use of the rule of reason. The rule of reason is an analytical tool that balances both the positive and negative effects and the market circumstances of behaviors before determining legality. Combined with the agency’s intent to “focus on stopping unfair methods of competition in their incipiency based on their tendency to harm competitive conditions,” this suggests a move toward an assumption of per se illegality. If behaviors are assumed to be per se illegal, the FTC wouldn’t consider the context and the implications of the behavior on the consumer — as the CWS would demand — when determining its legality.
In addition to removing the market power safeguards, the FTC’s policy statement regarding Section 5 includes a list of behaviors “deemed to be an incipient violation of antitrust laws.” Among these behaviors are loyalty programs, bundling and tying, which are components of a broader practice known as self-preferencing.
This type of behavior is common in the marketplace. One example is Amazon. The company’s retail ability and vast shipping infrastructure allow it to leverage its two-day shipping to attract and benefit customers. Amazon bundles these services for business partners by allowing them to use the shipping system through a Fulfilled by Amazon service. This bundling attracts customers competitively by bettering services. Using an expansive Section 5 authority interpretation to target such practices would be in opposition to consumer benefits.
The purpose of the FTC is to protect consumers and a competitive marketplace using existing law. Efforts to drive legislative change and codify broad presumptions of anticompetitive behavior stray from this purpose. Congress should take back its authority and rein in the FTC.
Published in the DC Journal.