By: Andrew Regitsky
In a Statement issued on November 10, 2022, the Federal Trade Commission (FTC) stated that it would once again restore the agency’s policy of rigorously enforcing the federal ban on unfair methods of competition. The announcement undoubtedly will impact ISPs as more and more of their Internet service offerings are now under FTC control. Here are the details:
Congress created the FTC Act in 1914 to stop anti-competitive behavior. Section 5 of that Act authorizes the FTC to enforce that prohibition. In 2015, under the Trump administration, the agency narrowed the meaning of anti-competitive behavior by using the Sherman Act’s “rule of reason” test, which asks whether a given restraint of trade is “reasonable” in economic terms. This minimal regulatory approach is unsatisfactory to the current FTC which consists of three Democrats and one Republican and loves throwing its weight around. In a News Release, the FTC explains its new policy:
Unfair methods of competition…are tactics that seek to gain an advantage while avoiding competing on the merits, and that tend to reduce competition in the market…Through enforcement and rulemaking, the Commission will put businesses on notice about how to compete fairly and legally. This is in contrast with the rule of reason, which requires judges to make difficult case-by-case economic predictions.
The new Statement describes the most significant general principles concerning whether conduct is an unfair method of competition under Section 5 of the FTC Act.
The Conduct Must be a Method of Competition – A method of competition is conduct undertaken by an actor in the marketplace—as opposed to merely a condition of the marketplace, not of the respondent’s making, such as high concentration or barriers to entry.
That is Unfair – meaning that the conduct goes beyond competition on the merits. There are two key criteria to consider when evaluating whether conduct goes beyond competition on the merits. First, the conduct may be coercive, exploitative, collusive, abusive, deceptive, predatory, or involve the use of economic power of a similar nature. Second, the conduct must tend to negatively affect competitive conditions. This may include, for example, conduct that tends to
foreclose or impair the opportunities of market participants, reduce competition between rivals, limit choice, or otherwise harm consumers.
The FTC provides historical example of unfair competition:
Practices deemed to violate Sections 1 and 2 of the Sherman Act or the provisions of the Clayton Act, as amended (the antitrust laws).
Conduct deemed to be an incipient violation of the antitrust laws. Incipient violations include conduct by respondents who have not gained full-fledged monopoly or market power, or by conduct that has the tendency to ripen into violations of the antitrust laws. Past examples of such use of Section 5 of the FTC Act include:
Invitations to collude
Mergers, acquisitions, or joint ventures that have the tendency to ripen into violations of the antitrust laws
A series of mergers, acquisitions, or joint ventures that tend to bring about the harms that the antitrust laws were designed to prevent, but individually may not have violated the antitrust laws
Loyalty rebates, tying, bundling, and exclusive dealing arrangements that have the tendency to ripen into violations of the antitrust laws by virtue of industry conditions and the respondent’s position within the industry.
Conduct that violates the spirit of the antitrust laws. This includes conduct that tends to cause potential harm similar to an antitrust violation, but that may or may not be covered by the literal language of the antitrust laws or that may or may not fall into a “gap” in those laws.
The new policy appears to enable the FTC to have almost unchecked authority over the behavior of companies. The one Republican at the agency Christine Wilson dissented from the new Policy. She states that the policy Statement gives the FTC freewheeling authority to outlaw conduct “subject to the whims and political agendas of sitting Commissioners, unconstrained by guardrails.” She specifically claims that the policy statement “abandons” the rule of reason and “repudiates” consumer welfare, ushering in an “unbounded” approach. Only time will tell if Commissioner Wilson is correct.