Regulatory Policy

The FTC’s Repeal of Enforcement Guidance Is Bad News for Business

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Without the proper guardrails guiding the agency’s hand, there will likely be major losses for the competitive health of the American economy.

Anyone without a law degree or an intimate familiarity with the nuances of antitrust statutes would be forgiven if the words “Section 5 of the FTC Act” or “unfair methods of competition” did not sound particularly significant. Those who are more accustomed with the federal regulatory and statutory landscape, however, would understand their importance. And, had those folks — consumers and businesses alike — tuned into the webcast of the Federal Trade Commission’s July 1 open meeting, they would have felt the hairs on the back of their neck stand up at the biggest result of the meeting: the revocation of the FTC’s “Section 5 policy statement.”

That statement was a bipartisan document adopted by the agency in 2015. Four of the five commissioners who ran the FTC agreed to it, including all three Democrats. Section 5 of the FTC Act forbids “unfair methods of competition,” giving the agency a broad — and largely undefined — enforcement power. The statement effectively says that the FTC will not challenge business behavior as “an unfair method of competition” unless it imposes harm on competition that outstrips benefits to consumers — consistent with the legal doctrine of “antitrust rule of reason.” Promoting consumer welfare, which the Supreme Court has established as the goal of antitrust, is another guiding principle of the statement.

In effect, the policy works much like bumpers in a bowling lane: It pushes an FTC investigation in a certain direction. Since it was adopted, it has ensured that potential cases have been thoroughly thought out and reasoned before they’ve been filed by the FTC.

Revoking that statement, then, is like removing the bumpers. It may lead to the same result as before, but if you aren’t careful, one wrong throw could break the pin-setting machine.

This lack of a guardrail might mean that nothing will change at the FTC and that the agency will continue to use its broad powers as a last resort when all evidence points that way. Nevertheless, companies and the public as a whole should be wary of a future without guidance, particularly given the views of the commission’s new leadership.

Last month, noted Big Tech critic and member of the “hipster antitrust” movement, Lina Khan, was named head of the commission. She has said the consumer-welfare standard is ill-suited for our modern economy and that the policy statement has hindered the agency’s enforcement efforts. Indeed, eliminating the statement’s guidance was her first major act as the FTC chair, and it may have wide-ranging implications for the economy as we know it.

Contrary to Chair Khan’s assertion, the consumer-welfare standard and rule of reason have proven to be the best course of action in cases involving anticompetitive conduct. Further, reducing the clarity and continuity of FTC competition-enforcement guidance is contrary to the rule of law.

Companies must have clear guidance to determine which investments to make and how to run their business so that they are not found guilty of breaking the law. Without such guidance, firms all over the country will face unsurmountable uncertainty. Lowering prices, integrating online search results with map or review data, or bringing a new product to market could all be deemed “unfair competition” simply because the company in question is large.

This high degree of uncertainty spells bad news for consumers. Companies large and small will start to think twice about innovating or introducing new products to the marketplace. A day may soon come where your Google search does not show you all of the information you were looking for, news stories may not be integrated into your Facebook feed, or AmazonBasics products are no longer able to be sold on Amazon. Each of these products and services, if uninhibited, makes consumers better off and affords them more information and choice — but in the absence of clear guidance, they could all be deemed “unfair.”

Businesses and consumers alike come to rely on the policies set forth by various government agencies. In the best of times, businesses around the country know exactly what conduct is likely to get them in hot water with the government. These are not the best of times, however. In the coming months, Chairwoman Khan and the FTC will examine key issues dealing with the high-tech economy, with enormous implications for American businesses and the general public. The commission may (or may not) set forth new guidance. But without the consumer-welfare standard and the rule of reason guiding the agency’s hand, there will likely be major losses for consumers — and for the competitive health of the American economy.

Alden Abbott is a senior research fellow with the Mercatus Center at George Mason University and formerly served as the Federal Trade Commission’s general counsel. Andrew Mercado is a research assistant with the Mercatus Center, focusing on innovation and governance.


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