Today, Federal Trade Commissioner Josh Wright released a draft Policy Statement on Unfair Methods of Competition in a speech to the New York State Bar Association’s Antitrust Section. Wright had announced plans for such a statement in March.
“This statement is long overdue,” said TechFreedom President Berin Szoka. “After nearly a century, the FTC has never clearly defined what its authority over unfair methods of competition covers that the antitrust laws don’t. The last time the Supreme Court addressed the FTC’s core Section 5 authority was 1972.”
“Ultimately, Commissioner Wright’s proposal boils down to minimizing error costs,” said Geoffrey Manne, Executive Director of the International Center for Law & Economics, Lecturer in Law at Lewis & Clark Law School and TechFreedom Senior Fellow. “Regulators always have to weigh the costs of over- and under-enforcing. The last forty years of antitrust scholarship have concluded that, as Judge Easterbrook put it in his seminal 1984 article on the ‘Limits of Antitrust,’ our ‘economic system corrects monopoly more readily than it corrects judicial errors.’ So antitrust regulators should err on the side of allowing competition to play out in all its messiness—and intervene only where they can show that real harm will occur.”
Commissioner Wright’s draft statement provides that “an unfair method of competition is an act or practice that (1) harms or is likely to harm competition significantly and (2) lacks cognizable efficiencies”—a term of art used in the FTC and DOJ’s Horizontal Merger Guidelines since 1997, and defined as “those that have been verified and do not arise from anticompetitive reductions in output or service.” Wright’s draft statement notes that “Where conduct plausibly produces both costs and benefits for consumers it is fundamentally difficult to identify the net competitive consequences associated with the conduct. This is particularly true if business conduct is novel or takes place within an emerging or rapidly changing industry, and thus where there is little empirical evidence about the conduct’s potential competitive effects.”
“Wright’s Statement recognizes that the costs of getting it wrong increase as technology accelerates,” Szoka noted “That doesn’t mean there’s no role for antitrust law, but it does demand regulatory humility about deeming innovative modes of competition that are legal under antitrust to be unfair under Section 5. Commissioner Wright is fond of quoting the Nobel Prize winning economist Ronald Coase: ‘If an economist finds something—a business practice of one sort or another—that he does not understand, he looks for a monopoly explanation. And as in this field we are very ignorant, the number of ununderstandable practices tends to be very large, and the reliance on a monopoly explanation, frequent.’ Coase would have been the first to applaud Wright today.”
Manne concluded: “Ironically, this is former Chairman Leibowitz’s true legacy. His efforts to expand Section 5 to challenge novel conduct without proof of anticompetitive harm brought into stark relief the costs of unfettered Section 5 enforcement. Commissioner Wright’s statement can be seen as the unintended culmination of—and backlash against—Leibowitz’s Section 5 campaign. The FTC should adopt Wright’s proposed statement, it would also do well to flesh out its existing policy statements on Unfair and Deceptive Acts and Practices through guidelines—as happens in antitrust law. But in the end, policy statements alone don’t bind agencies—courts do. If agencies consistently settle out of court, they can avoid building real law for years, even decades.”
Szoka and Manne are available for comment at firstname.lastname@example.org . They have previously explained the problems with the FTC’s use of Section 5 in numerous writings, including this short primer . TechFreedom and ICLE recently filed an amicus brief in FTC v. Wyndham arguing that the FTC needs to do more to explain how its existing authority applies in data security and other consumer protection cases.