FTC no longer must prove public harm in antitrust actions

The Federal Trade Commission on Thursday expanded its authority to challenge violations of antitrust law by altering the standard under which it decides to pursue claims alleging unfair competition practices.

It will no longer have to prove companies have harmed consumers to bring investigative and enforcement action against them.

The commission, in a 3-2 vote along political party lines, repealed in an open meeting a 2015 policy statement that said it would be guided primarily by the “promotion of consumer welfare.” The statement limited the types of business practices the agency would look to challenge under Section 5 of the FTC Act to those that harm consumers through higher prices.

The decision will allow the FTC to pursue claims that may not constitute violations of the two major antitrust laws, the Sherman Act and Clayton Act. Courts have historically only found violations of those statutes when they harm consumers.

“Withdrawing the 2015 statement is only the start of our efforts to clarify the meaning of Section 5 and apply it to today’s market,” Chair Lina Khan said.

Republican commissioners Noah J. Phillips and Christine S. Wilson voted against the repeal. They denounced the Democratic majority for exceeding their authority and defying how courts have traditionally assessed violations of antitrust laws.

“They mean for just a handful of people to answer major policy questions with no intelligible principles from Congress to guide them,” Phillips said.

The vote will have far-reaching consequences on current and potential antitrust cases brought by the FTC, namely against giant technology companies.

The commission will have to decide how to proceed with its lawsuit against Facebook after a federal judge on Monday dismissed its complaint. The commission can refile its claims under the Sherman Act, or it can instead go through its internal court system to bring the case before an administrative law judge using Section 5 of the FTC Act, a broad tool that gives the agency authority to challenge unfair business practices under which it now won’t have to prove that Facebook’s conduct harmed consumers.

In antitrust law, the so-called consumer welfare standard directs courts to focus on the effects anticompetitive business practices have on consumers, typically through higher prices. The standard is difficult, if not impossible, to satisfy in cases against technology giants, which often offer free or discounted products and services that are subsidized by other parts of the business.

Alphabet’s Google search engine, for example, is offered for free to fuel its ad business.

“If antitrust is limited to price only, you’ve made it very challenging for government agencies to rein in that power,” said David Kesselman, a partner at Kesselman Brantly & Stockinger LLP who specializes in antitrust law.

The decision frees the commission to bring cases under Section 5 of the FTC Act using a different standard. Although the FTC hasn’t provided further guidance, Kesselman argued that it should focus on market concentration.

“They’re going to look at whether there’s actual choice in the market for consumers,” he said. “Is there an opportunity for smaller competitors to actually break through with a new product and compete?”

Bona Law partner Steven Cernak, who was General Motors’ lead antitrust attorney until 2012, agreed that the FTC will look to shift the standard to include an assessment of whether there’s competition in the market if it wants to bring antitrust claims against tech giants.

“Some of Amazon’s actions might have been good for consumers in the short run. You’re getting lower prices, cheaper delivery and so on,” he said. “But they weren’t good for competitors.”

During the meeting, Wilson questioned why the FTC would prioritize the interests of “complaining inefficient competitors” over consumers when she voted against the repeal.

Khan, who rose to prominence arguing that the consumer welfare standard doesn’t properly assess monopolies by dominant technology companies, said that Congress directed the FTC to “identify and combat unfair methods of competition even if they do not violate the Sherman Act.”

“In practice, the 2015 statement has doubled down on the agency’s long-standing failure to investigate and pursue unfair methods of competition,” she added.

Chamber of Progress, a technology industry coalition, said in a statement that the withdrawal of the 2015 guidance “leaves everyone in the dark — consumers, businesses and regulators.” It favored amending the guidance rather than revoking it.

Public Knowledge, which is involved in competition in the digital marketplace and has been critical of large technology companies, said in a statement that the move is “one of the first signs that the FTC is ready for bold and decisive action with Chair Khan at the helm.”

“Rescinding this statement will allow the FTC to bring enforcement cases against those crushing competition and exploiting consumers, as well as engage in forward thinking rule-making without undue administrative burdens,” Competition Policy Director Charlotte Slaiman said.