The following is a transcription of Geoff Manne’s oral remarks before the House Energy & Commerce Committee:
Chairman Terry, Ranking member Schakowsky, and members of the Committee, thank you for the opportunity to testify today.
The FTC does much very well. Compared to other regulatory agencies, it’s a paragon of restraint and economic analysis. This has long been true of its antitrust enforcement, disciplined by the courts and internal practice.
Not so for the Commission’s ambiguous and cavalier use of Section 5.
The FTC’s essential dilemma is clear: very often, a challenged practice could either harm consumers, benefit them, or both. Everyone agrees that wrongly deterring the helpful can be just as bad as failing to deter the harmful. Indeed, it may be much worse.
Principled restraint is key to ensuring the FTC actually protects consumers. Restraint requires two key things: Objective economic analysis and transparent decision-making reviewable by the courts.
Both are increasingly lacking at the FTC.
Consider the recent Nielsen/Arbitron merger.
The FTC imposed structural conditions, claiming the merger would lessen competition in the market for national syndicated cross-platform audience measurement services. But no such market exists.
The majority presumed to predict the future business models and technologies of these companies. They assumed the merger would reduce competition in a hypothetical market.
That’s an economic question. As Cmr Wright noted in his dissent: without rigorous economics, the FTC’s enforcement decisions will rest on non-economic considerations, intuition, and personal policy preferences. That will hardly benefit consumers.
Economics’ fundamental lesson is humility: how little we know about the future, indeed how little we understand even the markets of today.
Economics isn’t perfect. But increasingly, major policy decisions increasingly rest on theoretical ideas or non-economic evidence about what companies intended to do, not actual effects. Or the economics is missing entirely.
Perhaps Nielsen is an outlier. In Sherman and Clayton cases, the FTC and its staff usually do apply economic reasoning and are appropriately humble. Those cases almost always come before courts.
Not so in pure Section 5 competition cases.
The term “unfair methods of competition” is, as Cmr Wright has put it, “as broad or as narrow as a majority of commissioners believes it is.” The Commission has issued no limiting principles, unlike its two policy statements on consumer protection.
There is broad agreement that UMC guidelines would be helpful, and overwhelming agreement that UMC should be limited, at minimum, to cases where there is consumer harm. The Chairman even seems to agree. Yet the Chairman continues to resist doing anything with policy statements proposed by two sitting Commissioners.
Her arguments boil down to maximizing the FTC’s discretion.
Last year, our “FTC: Technology & Reform” Project issued a 40 page report detailing how the FTC’s unchecked discretion may harm consumers. Most importantly, the FTC has pushed the boundaries of the law through consent agreements, with essentially no judicial oversight. Yet Chairman Ramirez insists the agency needs more discretion.
This problem is most acute in Consumer Protection.
First, let me say that even more than in competition cases, the large majority of Consumer Protection cases are uncontroversial and require no methodological overhaul. Deception cases, like fraud or placing unauthorized charges on bills, are usually straightforward.
But the FTC is increasingly dealing with more complex cases. The FTC is using its unfairness authority and stretching its deception authority to determine when ambiguous conduct harms consumers. The process is opaque. The Commission’s discretion is unchecked.
Consider the recent Apple case. The FTC concluded that Apple’s design of its billing interface insufficiently disclosed to iTunes users when their kids, not Apple, might make charges. Apple left parents’ accounts open to make more purchases for a brief window. This balanced convenience for all users with unauthorized charges by children.
The economic framework to assess that balancing was built right into the statute. But STILL, that didn’t make it into the majority’s decision.
The majority treated Apple’s design decisions as if Apple were cramming its own unauthorized charges. The majority saw no redeeming benefit to Apple’s design.
But as any user of an Apple product can attest, design is everything. Apple faced real trade-offs about exactly how and when to notify customers that they may be charging themselves.
Section 5(n) says a practice cannot be held “unfair” if whatever harm it causes is “outweighed by countervailing benefits to consumers or to competition.” The FTC simply ignored this requirement.
The FTC often does the same in privacy and data security cases, where it’s not clear what’s really best for consumers. Of course, stolen data can harm consumers, but so can spending too much protecting against it or limiting otherwise desirable product features.
The outcome of the Apple case was possible only because it never went before a judge. It was just a settlement. The only balancing the Commission had to do was convince Apple to settle rather than litigate.
That doesn’t fulfill the Commission’s statutory balancing obligation. The majority pushed the law as far as it could without Apple balking. Beyond a certain point, Apple didn’t care anymore how the FTC justified or explained its decision.
This happens all the time in privacy and data security cases. The Commission explains little of its analysis because it doesn’t have to. Commissioner Wright’s dissent is a breath of fresh air. It forced the majority to at least mount a defense that was not embarrassing. But this is a much lower bar than what a court would require.
The FTC calls this “common law.” But what’s missing is a true, rigorous adversarial process. If Wright’s dissent had any real possibility of becoming the blueprint for a court to overrule the majority, is there any doubt there would be better cases, more dissents, and better-argued majority opinions?
Increasingly, the Commission isn’t weighing harms with benefits, isn’t focusing on real problems, and isn’t tailoring remedies to each case.
Instead of protecting consumers, the Commission presuming to choose for them in ways that economics suggests will actually hurt them. The Commission is ignoring both sound economics and the text of the statute itself. The two go hand in hand.
If the courts won’t force the FTC to start taking its statutory mandate seriously, Congress must.
Manne is available for comment at firstname.lastname@example.org.