Even modest progress sometimes meets with hostile resistance. This is what happened when, on November 10, 2022, the Federal Trade Commission (FTC) issued its Policy Statement on the Scope of Unfair Methods of Competition under Section 5 of the FTC Act.
It is a coherent and modest statement. The FTC sought to return antitrust policy to its traditional roots of respecting Congressional intent and Supreme Court precedent. After decades of failed radical Chicago school doctrine that has resulted in significant reductions in competition in the U.S. economy and attendant losses in productivity and growth, it has been clear to many that such a return was necessary. But in the eyes of neoliberal defenders of the Consumer Welfare Standard, it seemed like a catastrophe.
The FTC Policy Statement
In its Policy Statement, the FTC carefully sought to remain faithful to its mission. When Congress passed the FTC Act in 1914, it delegated the work of defining “unfair methods of competition” to the Commission, and the textual prohibition on “unfair methods of competition in or affecting commerce” does not require any market effect of the kind we find in the text of the Sherman and Clayton Acts. The language alone makes it apparent that Section 5 is more general than the other antitrust statutes, and that it must allow for the prohibition of more than the other antitrust statutes.
Congress was motivated in part by its opposition to the rule-of-reason approach adopted in the Standard Oil decision in 1911. Supporters of the Clayton Act and FTC Act feared that a conservative judiciary may not effectively control abuses by big business. As a result, Congress passed the Clayton Act to outline specific practices that were deemed to potentially harm competition, and the FTC Act to establish an agency of experts that would study industries and business practices to define its own rules to protect the competitive process. Section 5 was to be broader than the Clayton and Sherman Acts, but in exchange, it had no private right of action, and only carried equitable remedies.
The FTC Policy Statement is a straightforward execution of that mission. It defines an unfair method of competition as business conduct that goes beyond competition on the merits. The FTC provides a general definition of what that phrase means and offers historical examples of such conduct. The FTC also has the tools to study and publish further guidelines and rules that will elucidate Section 5 proscriptions. Administrative law is nothing new, even if neoliberals treat it as a stunning development in the realm of antitrust law.
The Policy Statement stresses that the FTC seeks to address anticompetitive practices in their incipiency (a major goal of Congress in passing the Act) and an area where the Sherman Act and the Clayton Act has been particularly deficient. One major stumbling block for addressing the future effects of business behavior is Justice Powell’s herculean standards for succeeding in a potential competition challenge to a merger. The FTC’s statement is particularly valuable because it offers a solution to this impediment.
Commissioner Wilson’s Dissent
All this seems like sensible mainstream competition policy. But not to Commissioner Wilson and like-minded thinkers. Her dissent characterizes the Policy Statement as “the work of an academic or a think tank fellow who dreams of banning unpopular conduct and remaking the economy. It does not reflect the thinking of litigators who know that legal precedent cannot be ignored, case-specific facts and evidence must be analyzed, and the potential for anticompetitive effects must be assessed.” After reading the Policy Statement, these comments defy comprehension. Although it is understandable that Commissioner Wilson reverts yet again to ad hominem, there is nothing about unpopular conduct or remaking the economy in the Policy Statement, nor does the statement ignore legal precedent. So, what is going on?
Commissioner Wilson’s dissent makes clear that she is concerned that the Policy Statement is returning antitrust policy to more faithful deference to Congressional intent and Supreme Court precedent, and away from the radical neoliberal approach of deference to big business.
Commissioner Wilson’s Plea For Adoption of The Rule of Reason Standard to…Clarify Ambiguity
Commissioner Wilson argues that the Policy Statement is defective because it should require a Section 5 action to follow the rule of reason. Rather than the certainty Commissioner Wilson claims she desires, adopting the rule of reason will result in the opposite. As Jessie Markham writes, “the rule of reason is no rule at all, but rather a set of vague and inconsistent objectives.” In Maurice Stucke’s estimation, “The rule of reason has been criticized for its inaccuracy, its poor administrability, its subjectivity, its lack of transparency, and its yielding inconsistent results.”
The only consistent thing about the Rule of Reason is that big business always wins. Michael Carrier calculates that in recent decades defendants win in rule-of-reason cases 99 percent of the time. This result is because the rule of reason allows numerous avenues for the defendant to escape liability and relies on consultants and experts—a domain that creates advantages to large corporations.
Commissioner Wilson emphasizes the business justification component of the rule of reason. The Policy Statement makes clear that business justifications remain part of the Section 5 analysis. Yet Commissioner Wilson wants any business justification to be permissible. As John Newman has shown, the courts have already been remarkably deferential to defendants’ justifications for anticompetitive conduct. They have accepted such things as a taste for amateurism, cardholder benefits, the health and welfare of horses, better market penetration, ensuring undivided loyalty, and many other defenses.
In sum, Congressional concern in 1914 about the future of the rule of reason has been prescient, and its solution, the passage of the FTC Act, is still the right remedy for that concern.
Commissioner Wilson’s Fear that the Consumer Welfare Standard Has Been Abandoned
Commission Wilson also faults the Policy Statement for abandoning the Consumer Welfare Standard, and advancing “the welfare of inefficient competitors, ‘workers’ [the quotations surrounding workers are hers, by the way], and other unnamed but politically favored groups – at the expense of consumers.” Perhaps many would have preferred that the FTC repudiated the Consumer Welfare Standard. As we have shown, it is a flawed, biased, and inconsistent theory.
While unfortunate from our point of view, the Policy Statement is fully consistent with the Consumer Welfare Standard. Nowhere does the Policy Statement advocate new goals for antitrust policy. It never mentions or implies anything about inefficient competitors. While the Statement does mention workers and other market participants, the Consumer Welfare Standard can include, at least in theory, the economic surplus of workers and sellers. (In practice, the Consumer Welfare Standard condones a wage-fixing conspiracy against college athletes.)
Perhaps Commissioner Wilson believes that the Consumer Welfare Standard simply means that antitrust applies only to output markets. At one point, she says workers can be protected only “at the expense of consumers.” This statement is patently false.
Commissioner Wilson on Congressional Intent
The dissent does not seriously challenge the Policy Statement’s discussion of Congressional intent or prevailing precedent. At one point Commissioner Wilson states “all legislative history analyses must be taken with a grain of salt,” citing Scalia.
Ignoring legislative history is one thing, but remarkably, Commissioner Wilson does not credit the plain meaning of the words of the statute either, as Justice Scalia would have advised. As we pointed out above, the express language of Section 5 does not include any requirement of competitive effects or analysis of business justifications.
Instead, Commissioner Wilson claims that the 1914 Congress was mistaken because it didn’t anticipate the expanded use of the Sherman Act. But she confuses the role of Congress with that of the agency. Congress has shown no interest in altering the original mission of FTC. Commission Wilson raises the George Rublee memo to President Wilson. She finds the definition of unfair competition significant: “Fair competition is competition which is successful through superior efficiency. Competition is unfair when it resorts to methods which shut out competitors who, by reason of their efficiency, might otherwise be able to continue in business and prosper.”
What Commissioner Wilson seems to find significant is the use of the word “efficiency.” Otherwise, the quotation sounds like fair competition is competition on the merits, and unfair competition is preventing others from competing when they otherwise would be capable of effectively doing so. This is very close to what the Policy Statement says.
In addition, Commission Wilson cherry picks what she reports from the Rublee memo. The memo states in several places that a primary goal of the FTC Act is to protect small business, something Commission Wilson would surely eschew. Yet protecting small business is a part of the portion of legislative history that she endorses.
Commissioner Wilson on Legal Precedent
In the 1980s, the FTC lost several Section 5 cases at the appellate level. These were cases that followed the trend in scaling back antitrust enforcement in accord with the Chicago School and the Reagan administration.
Not coincidentally, Commission Wilson refers to two of these cases in her dissent, but not the earlier endorsement of a broad Section 5 authority found in Supreme Court cases such as Atlantic Refining Co. v. FTC, FTC v. Brown Shoe Co., and FTC v. Sperry & Hutchinson Co. The Court in Sperry stated that the Commission can prohibit practices regardless of their “effect on competition.” Commissioner Wilson dismisses binding Supreme Court precedent by claiming these cases are inconsistent with “modern analysis” (i.e., Chicago School influence).
Instead, Commissioner Wilson endorses three circuit cases from the early 1980s: Official Airline Guides v. FTC, Boise Cascade Corp. v. FTC, and E.I. Du Pont De Nemours v. FTC. It is no surprise that Commissioner Wilson focuses on these three cases. Yet even these cases acknowledge the wide authority of the FTC.
Conclusion
In sum, it is evident that Commissioner Wilson is animated by the Policy Statement’s return to Congressional intent and Supreme Court precedent. The FTC is no longer in the business of clipping its own wings in the interests of big business. Commissioner Wilson is a defender of big business, her own politically favored group. And the group that has benefited from lax antitrust enforcement for decades while everyone else–and the economy as a whole–has suffered.