With the Federal Trade Commission (FTC) under new leadership, companies should be on the look-out for new agenda items, priorities and rules that may impact their business or industry. This article provides an overview of these priorities and serves as a road map for navigating the FTC's direction under this new leadership. FTC Chair Lina Khan has proposed a wide variety of new policies to address various concerns, such as rampant industry consolidation, market dominant firms, labor markets, and supply chains, as well as consumer protection issues such as data security and privacy. The FTC's leading priorities likely reside in these new and expansive policies, behaviors and practices that have not previously been the priority of FTC enforcement or investigations.
Merger Priorities and Changes
This year the FTC withdrew the 2020 Vertical Merger Guidelines based on concerns that it gave too much weight to efficiencies, especially double marginalization (i.e. do not pay twice for something). The 2010 Horizontal Merger Guidelines are currently under review by the FTC and DOJ and are likely to be revised to include a broader scope of review, most notably the impact of a transaction on the relevant labor market. In light of the broader scope of review to be reflected in any revised merger guidelines, transactions previously not scrutinized as a restraint on competition by the FTC may become vulnerable to FTC investigation.
The FTC has made clear that there is going to be more scrutiny on proposed mergers and that such scrutiny will be more expansive than it has been in the past.1 Bureau Director Holly Vedova also confirmed an increase in FTC merger investigations, or Second Requests, on these broader issues, instead of the previous "unduly narrow approach to merger review," and that the information obtained through the investigative process will now be "securely accessible to all commissioners and relevant agency offices." The FTC has further noted that it will continue to be reluctant to use behavioral remedies and will instead propose structural remedies, preferring standalone operating businesses as settlements. Parties considering a transaction that may be reviewed by the FTC should be prepared for heightened scrutiny, a greater likelihood of investigation, agency-wide sharing of information gathered in any investigation and a demand for structural remedies.
Historically, vertical mergers have not been seen as problematic as horizontal mergers - a perspective that has been changing.2 The withdrawal of the vertical merger guidelines, concerns about supply-chain health and questions about whether mergers should be segmented between vertical and horizontal suggest that transactions between non-competitors within the same supply chain are also going to be under increased scrutiny.3 The FTC's rejection of the vertical merger guidelines and the current supply chain issues suggest that companies considering a vertical transaction should be aware of the FTC's concerns.
The FTC revoked a 2015 Statement that limited the scope of FTC's enforcement under Section 5 of the FTC Act to the antitrust issues already addressed by the Sherman and Clayton Acts and a rule of reason review analysis that greatly benefits defendants.4 The FTC has yet to issue new guidance or to propose rules that the agency will consider "unfair methods of competition in or affecting commerce" under Section 5. The FTC indicated that the 2015 Statement did not allow the agency "to combat incipient wrongdoing before it becomes likely to harm consumers or competition" suggesting that it intends to address potential anticompetitive practices. While this may largely impact big tech entities previously beyond the reach of the FTC's enforcement power, practitioners should watch for the FTC's next steps and carefully consider their business strategies with this enforcement expansion in mind.
The FTC has indicated that it will be "scrutinizing dominant firms" and consolidated industries, such as:5Agriculture (including processing, seeds, equipment, feed, and fertilizer); Digital Technology; Healthcare (including hospitals, health services, and insurance); Pharmaceuticals; Telecommunications (including broadband and cable); Transportation (including air, rail and shipping). FTC Chair Khan has also stated that the FTC should focus on "middlemen," "dominant intermediaries" and other "gatekeepers" in the economy, with a focus on the growing role of private equity in abetting business models that may facilitate unfair methods of competition. These broad terms should serve illicit caution for a broad spectrum of companies.
We should also expect a continuation of antitrust-based enforcement of no-poach arrangements6 between companies competing for employees. The FTC may be putting forward a rule establishing limitations on the use of non-compete agreements. Companies and industry groups should also stay alert to any revisions in the 2016 Human Resource Antitrust Guidance to address concerns related to the ability to share wage data with employers through third-parties but not employees.7
Potential FTC Rulemakings
The FTC has not used its rulemaking authority since 1968,8 but the FTC may be poised to consider a number of potential rules. For instance, the FTC reinstated the agency's 1975 Section 18 rulemaking procedures to remove the "self-imposed red-tape and returning to the participatory and dynamic process for issuing Section 18" and established a Rulemaking Group. Potential rules may include:
- Non-Competes: The FTC has been assessing this rule since late 2019. The Competition Executive Order (EO) encouraged the FTC to ban or limit use of non-compete clauses.
- Pay for Delay Agreements: The Competition EO encouraged the FTC to consider a rule to ban pay for delay and similar agreements.
- Original Equipment Manufacturer Repair: The Competition EO encouraged the FTC to issue rules against anticompetitive restrictions on using independent repair shops or doing DIY repairs of your own devices and equipment.
- Online Marketplaces: The Competition EO encouraged the FTC to issue rules limiting an online marketplace access to data concerning businesses selling products on the platform that is later used by the platform to launch their own competing products.
- Real Estate: The Competition EO encouraged the FTC to issue rules to address unfair tying practices or exclusionary practices in the brokerage or listing of real estate.
- Occupational Licensing: The Competition EO encouraged the FTC to consider a rule banning unnecessary occupational licensing.
The FTC has also noted a desire to increase focus on certain consumer protection concerns that have increased over the past few years. These include COVID-19 related fraud, online privacy and data security - especially as it pertains to the "vulnerable" population of adolescents, consumer consent regarding data collection and transmission, and various supply chain issues that present disruption in consumer markets.
The FTC, acting swiftly under authority granted through the COVID-19 Consumer Protection Act, filed several lawsuits in 2020 and 2021 against companies that failed to swiftly provide PPE and sanitization products as promised, falsely represented products as a treatment or cure for the virus, and made other false or misleading representations regarding stimulus benefits. The FTC has stated that it "will continue to bring enforcement actions against companies that make false claims related to COVID-19" and that it will continue to aggressively exercise its authority under the COVID-19 Consumer Protection Act. As the Act is broad in nature, FTC scrutiny could potentially impact a wide range of products and services related to combating COVID-19.
Privacy & Data Security
Following a recent workshop and earlier amendments to the Children's Online Privacy Protection Act, the FTC has noted an intent to crack down on targeted advertising and data collection by various technologies and platforms as it relates to minors, including "Internet of Things devices, social media, educational technology, and general audience platforms." Of particular concern is companies "allowing third-party ad networks to collect personal information in the form of persistent identifiers to track users . . . without notifying parents or obtaining verifiable parental consent." Companies that rely on this type of targeted advertising should stay apprised of the FTC's actions in this area.
The FTC also recently issued an updated rule regarding data security safeguards that financial and non-banking financial institutions must take in order to protect customers' financial information. Non-banking institutions include, among others, "mortgage brokers, motor vehicle dealers, and payday lenders" and such institutions are directed to "maintain a comprehensive security system to keep their customers' information safe." Financial institutions face heightened requirements, and must take affirmative steps to limit who can access financial data and encrypt all data for additional security. Further underscoring this as a central priority, the Commission unanimously voted the new Safeguards Rule into effect following a workshop in 2020.
With the growing consumption of internet services comes more-than-ever data collection and transmission. The FTC has placed particular emphasis on consumers' rights to have a full understanding of how personal data is collected and who or what it is transmitted to. Recent FTC action has focused primarily on major internet service providers (ISPs). The FTC has noted particular concern with the rise in limitations on consumer choice, and that many companies "often make it difficult for consumers to exercise such choices" by hiding "disclosures about such practices in fine print of their privacy policies." Moreover, the FTC has concluded that the type of data collected by ISPs has a propensity to "place consumers into sensitive categories such as by race and sexual orientation" by combining data and monitoring app and web usage. While recent action has focused on ISPs, as stated above, any company that maintains a website, application, or similar platform should be weary of its data collection practices and provide an opportunity for informed consent to all such consumers.
Supply Chain Disruption
In the wake of supply chain issues spurred in the aftermath of the COVID-19 pandemic, the FTC has exercised its authority under Section 6(b) of the FTC Act and requested information, in the form of interrogatories and requests for production, from nine companies with influence in the distribution sectors, including retailers, wholesalers and other supply chain entities. The FTC also hosted an open meeting on November 18, 2021, and welcomed public comment from various organizations and interested parties. The purpose of the meeting was to explore the impact that disproportionate buying and negotiating power, possessed by select entities, has on the overall supply chain. The FTC is welcoming additional comment from other interested parties as to how the supply chain issues may be impacting open competition regarding consumer goods. Companies in these sectors, especially large-box retailers and wholesalers, should anticipate additional scrutiny from FTC in the coming years and be mindful as to how buying power may disproportionately impact open competition in the supply chain.
In summary, the FTC has ramped up its focus on certain industries and practices and has demonstrated an aggressive stance in utilizing its investigative and enforcement power under the FTC Act. Companies can expect that this aggressive stance will continue in the coming years and should seek legal advice if any concerns exist as to their practices.
1. See FTC Chair Lina M. Khan Memorandum to Commission Staff and Commissioners, Vision and Priorities for the FTC, September 22, 2021, available at https://www.ftc.gov/system/files/documents/public_statements/1596664/agency_priorities_memo_from_chair_lina_m_khan_9-22-21.pdf. ("A key project will be revising the merger guidelines" noting that "[p]rior guidelines have represented a somewhat narrow and outdated framework for assessing mergers.")
2. See President Biden, in his July 9, 2021 Executive Order on Promoting Competition in the American Economy ("Competition EO") encouraged FTC to expand its enforcement and focus on certain industries vulnerable to competitive restraint because of consolidation and concentration.
3. See Statement of Chair Lina M. Khan, Commissioner Rohit Chopra, and Commissioner Rebecca Kelly Slaughter on the Withdrawal of the Vertical Merger Guidelines Commission File No. P810034, Sept. 15, 2021, available at https://www.ftc.gov/public-statements/2021/09/statement-chair-lina-m-khan-commissioner-rohit-chopra-commissioner-rebecca
4. It is unclear how the FTC is going to proceed in the wake of the Supreme Court's AMG Capital Management v. FTC decision which determined that the FTC is unable to seek monetary relief under Section 13(b) of its authority, which previously served as the primary means by which the Commission returned money to consumers. As a result, where the FTC is seeking monetary relief, it must first obtain a cease and desist order in administrative proceedings (among other things). FTC's recent budget request seeks the addition of four administrative judges suggesting that the FTC's pursuit of money damages through the administrative process is expected to increase. FTC has also urged Congress following the AMG Capital decision to "take prompt action to restore this authority."
5. Khan Memo, supra note 1.
6. Note that the Department of Justice (DOJ) is pursuing criminal indictments in this area (see, e.g., U.S. v. Surgical Care Affiliates LLC et al., Case No. 3:21-cr-00011 (N.D. Tex. 2021)) and the FTC (limited to civil matters) is free to refer any action to the DOJ for criminal prosecution. This is a noteworthy development that breaks from prior DOJ/FTC action.
7. President Biden, in his July 9, 2021 Executive Order on Promoting Competition in the American Economy.
8. See FTC Men's and Boy's Tailored Clothing Rule, 16 C.F.R. § 412 (1968); 16 Notice of Rule Repeal, 59 Fed. Reg. 8527 (1994).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.