U.S. GOVERNMENT PUBLISHING OFFICE

35–459 PDF WASHINGTON : 2019

S. HRG. 115–541 

FTC STAKEHOLDER PERSPECTIVES: 

REFORM PROPOSALS TO IMPROVE FAIRNESS, 

INNOVATION, AND CONSUMER WELFARE 

HEARING 

BEFORE THE

SUBCOMMITTEE ON CONSUMER PROTECTION, 

PRODUCT SAFETY, INSURANCE, 

AND DATA SECURITY 

OF THE

COMMITTEE ON COMMERCE, 

SCIENCE, AND TRANSPORTATION 

UNITED STATES SENATE 

ONE HUNDRED FIFTEENTH CONGRESS 

FIRST SESSION 

SEPTEMBER 26, 2017 

Printed for the use of the Committee on Commerce, Science, and Transportation 

( 

Available online: http://www.govinfo.gov 

(II) 

SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION 

ONE HUNDRED FIFTEENTH CONGRESS 

FIRST SESSION 

JOHN THUNE, South Dakota, Chairman 

ROGER F. WICKER, Mississippi 

ROY BLUNT, Missouri 

TED CRUZ, Texas 

DEB FISCHER, Nebraska 

JERRY MORAN, Kansas 

DAN SULLIVAN, Alaska 

DEAN HELLER, Nevada 

JAMES INHOFE, Oklahoma 

MIKE LEE, Utah 

RON JOHNSON, Wisconsin 

SHELLEY MOORE CAPITO, West Virginia 

CORY GARDNER, Colorado 

TODD YOUNG, Indiana 

BILL NELSON, Florida, Ranking 

MARIA CANTWELL, Washington 

AMY KLOBUCHAR, Minnesota 

RICHARD BLUMENTHAL, Connecticut 

BRIAN SCHATZ, Hawaii 

EDWARD MARKEY, Massachusetts 

CORY BOOKER, New Jersey 

TOM UDALL, New Mexico 

GARY PETERS, Michigan 

TAMMY BALDWIN, Wisconsin 

TAMMY DUCKWORTH, Illinois 

MAGGIE HASSAN, New Hampshire 

CATHERINE CORTEZ MASTO, Nevada 

NICK ROSSI, Staff Director 

ADRIAN ARNAKIS, Deputy Staff Director 

JASON VAN BEEK, General Counsel 

KIM LIPSKY, Democratic Staff Director 

CHRIS DAY, Democratic Deputy Staff Director 

RENAE BLACK, Senior Counsel 

SUBCOMMITTEE ON CONSUMER PROTECTION, PRODUCT SAFETY, 

INSURANCE, AND DATA SECURITY 

JERRY MORAN, Kansas, Chairman 

ROY BLUNT, Missouri 

TED CRUZ, Texas 

DEB FISCHER, Nebraska 

DEAN HELLER, Nevada 

JAMES INHOFE, Oklahoma 

MIKE LEE, Utah 

SHELLEY MOORE CAPITO, West Virginia 

TODD YOUNG, Indiana 

RICHARD BLUMENTHAL, Connecticut, 

Ranking 

AMY KLOBUCHAR, Minnesota 

EDWARD MARKEY, Massachusetts 

CORY BOOKER, New Jersey 

TOM UDALL, New Mexico 

TAMMY DUCKWORTH, Illinois 

MAGGIE HASSAN, New Hampshire 

CATHERINE CORTEZ MASTO, Nevada 

(III) 

C O N T E N T S 

Page 

Hearing held on September 26, 2017 ..................................................................... 1 

Statement of Senator Moran .................................................................................. 1 

Prepared statement .......................................................................................... 2 

Statement of Senator Blumenthal .......................................................................... 3 

Letter dated September 25, 2017 to Hon. Richard Blumenthal from Paul 

Zurawski, Senior Vice President, External Affairs, Equifax ..................... 61 

Statement of Senator Inhofe ................................................................................... 63 

Statement of Senator Capito .................................................................................. 64 

Statement of Senator Young ................................................................................... 66 

Statement of Senator Hassan ................................................................................. 68 

Statement of Senator Klobuchar ............................................................................ 70 

Statement of Senator Markey ................................................................................. 72 

Statement of Senator Cortez Masto ....................................................................... 74 

WITNESSES

William MacLeod, Partner, Kelley Drye & Warren LLP ..................................... 5 

Prepared statement .......................................................................................... 7 

Lydia Parnes, Esq., Partner, Wilson Sonsini Goodrich & Rosati PC .................. 12 

Prepared statement .......................................................................................... 14 

Jessica Rich, Vice President, Consumer Policy and Mobilization, Consumer 

Reports .................................................................................................................. 18 

Prepared statement .......................................................................................... 19 

Berin Szo ́ka, President, TechFreedom ................................................................... 23 

Prepared statement .......................................................................................... 25 

APPENDIX

Joshua D. Wright, Professor, George Mason University School of Law and 

Director, Global Antitrust Institute, prepared statement ................................ 79 

Scott Smith, President, Precious Metals Association of North America, prepared statement ................................................................................................... 94 

Report dated May 2016 from Berin Szo ́ka and Geoffrey A. Manne entitled, 

‘‘The FTC Trade Commission: Restoring Congressional Oversight of the 

Second National Legislature—An Analysis of Proposed Legislation ............... 96 

Presidential Transition Report: The State of Antitrust Enforcement dated 

January 2017 from the American Bar Association Section of Antitrust Law . 162 

Comments dated September 11, 2017 from Cory L. Andrews and Richard 

A. Samp of the Washington Legal Foundation to the Federal Trade Commission concerning Proposed Consent Agreements and Request for Public 

Comments in Zero-VOC Paint Claims Cases ..................................................... 205 

Letter dated September 26, 2017 to Hon. Jerry Moran and Hon. Richard 

Blumenthal from Marc Rotenberg, EPIC President; Caitriona Fitzgerald, 

EPIC Policy Director; and Christine Bannan, EPIC Policy Fellow ................. 213 

(1) 

FTC STAKEHOLDER PERSPECTIVES: 

REFORM PROPOSALS TO IMPROVE FAIRNESS, 

INNOVATION, AND CONSUMER WELFARE 

TUESDAY, SEPTEMBER 26, 2017 

U.S. SENATE, 

SUBCOMMITTEE ON CONSUMER PROTECTION, PRODUCT

SAFETY, INSURANCE, AND DATA SECURITY, 

COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 2:20 p.m. in room 

SR–253, Russell Senate Office Building, Hon. Jerry Moran, Chairman of the Subcommittee, presiding. 

Present: Senators Moran [presiding], Blumenthal, Inhofe, Capito, 

Young, Hassan, Klobuchar, Markey, Cortez Masto, Booker, and 

Fischer. 

OPENING STATEMENT OF HON. JERRY MORAN, 

U.S. SENATOR FROM KANSAS 

Senator MORAN. The hearing will come to order. Good afternoon, 

and welcome to today’s hearing on FTC Stakeholder Perspectives: 

Reform Proposals to Improve Fairness, Innovation, and Consumer 

Welfare. 

This is our second attempt at this hearing, and many of our panelists have been polite and kind enough to return. In fact, last September, the full Committee heard testimony from the FTC’s three 

sitting Commissioners at the time: Chairman Ramirez, Commissioner Ohlhausen, and Commissioner McSweeny. We had planned 

to convene a Subcommittee hearing on that same day, but had to 

cancel due to scheduling conflicts. The canceled hearing would have 

consisted of a panel of stakeholders offering their own perspectives 

about the Commission. 

Today we will hear from Berin Szo ́ka, President of TechFreedom, 

one of the witnesses who was scheduled to testify last September, 

as well as three former directors of the FTC’s Bureau of Consumer 

Protection: William MacLeod, Lydia Parnes, and Jessica Rich. We 

thank these former FTC officials for their public service and all the 

witnesses for appearing today to offer their insights on how we can 

improve the work of the Commission. 

For over a century, the FTC has been protecting competition and 

consumers by enforcing the Nation’s antitrust laws and combating 

deception and unfairness in a wide variety of industries. Through 

its efforts, the FTC has often helped to prevent anticompetitive 

practices that stifle innovation, lower quality, or raise prices. It has 

2 

also helped to ensure that consumers can make informed decisions 

based on accurate advertising and avoid injury from fraud and unfair trade practices, such as unauthorized credit card charges. 

Although the FTC’s efforts have produced many benefits for consumers and the economy, this Committee and others have questioned the way it sometimes exercises its authority under Section 

5 of the FTC Act, which addresses unfair and deceptive acts in 

commerce. Others have argued that the FTC sometimes conducts 

investigations and issues orders that impose unnecessary costs, 

and it does not always provide adequate guidance to businesses 

seeking to comply with the laws the FTC enforces. 

These concerns have sparked numerous proposals for reforming 

the FTC. For example, last December, the House Energy and Commerce Committee reported H.R. 5510, the FTC Process and Transparency Reform Act of 2016, a bill incorporating eight separate reform bills designed to clarify the FTC’s unfairness authority, improve the way the FTC operates, foster greater transparency, and 

reduce unnecessary costs. 

Similarly, in January 2017, earlier this year, the American Bar 

Association Antitrust Section issued a 60-page Presidential Transition Report. It makes a number of recommendations for improving 

the FTC’s handling of antitrust and consumer protection issues, including repeal of the common carrier exemption and better coordination on privacy between the FTC and other agencies, greater 

transparency and fairness in the enforcement process, and more judicious use of civil investigative demands, better communication 

with investigation targets, less burdensome boilerplate order provisions, and monetary relief proportional to the injury caused and 

the defendant’s culpability. 

The report also urges the FTC to provide additional guidance on 

topics relating to unfair practices, data security, monetary remedies, advertising interpretation, and ‘‘clear and conspicuous’’ disclosure requirements. Other private groups, such as TechFreedom, 

have also proposed various reforms designed to address concerns 

about the FTC. 

The FTC has already taken steps to address some of the concerns 

addressed by the House bill, by the ABA Report, and other stakeholders. Specifically, this year, the Commission adopted several initiatives to eliminate waste and unnecessary regulation, streamline 

agency information demands, improve transparency, and promote 

economic liberty. 

As we look ahead to the White House’s nominations of candidates 

to serve as FTC Commissioners, it is especially important for the 

Committee to provide a forum to address these issues. 

We look forward to hearing the testimony of our witnesses and 

to engaging in a dialogue on the best ways to advance reforms of 

the Commission. 

[The prepared statement of Senator Moran follows:] 

PREPARED STATEMENT OF HON. JERRY MORAN, U.S. SENATOR FROM KANSAS

Good afternoon, and welcome to today’s hearing on ‘‘FTC Stakeholder Perspectives: Reform Proposals to Improve Fairness, Innovation, and Consumer Welfare.’’ 

Last September, the full Committee heard testimony from the FTC’s three sitting 

commissioners at the time: Chairman Ramirez, Commissioner Ohlhausen (OL’— 

how—sin), and Commissioner McSweeny. We had planned to convene a SubVerDate Nov 24 2008 07:37 Mar 18, 2019 Jkt 000000 PO 00000 Frm 00006 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\35459.TXT JACKIE
3 

committee hearing on the same day, but had to cancel it due to scheduling conflicts. 

The cancelled hearing would have consisted of a panel of stakeholders offering their 

own perspectives about the Commission. 

Today we will hear from Berin Szo ́ka, President of TechFreedom, one of the witnesses who was scheduled to testify last September, as well as three former directors of the FTC’s Bureau of Consumer Protection: William MacLeod, Lydia Parnes, 

and Jessica Rich. We thank these former FTC officials for their public service and 

all of the witnesses for appearing today to offer their insights on how to improve 

the Commission. 

For over a century, the FTC has been protecting competition and consumers by 

enforcing the Nation’s antitrust laws and combatting deception and unfairness in 

a wide variety of industries. Through its efforts, the FTC has often helped to prevent anticompetitive practices that stifle innovation, lower quality or raise prices. 

It has also helped ensure that consumers can make informed choices based on accurate advertising, and avoid injury from fraud and unfair trade practices, such as unauthorized credit card charges. 

Although the FTC’s efforts have produced many benefits for consumers and the 

economy, this Committee and others have questioned the way it sometimes exercises its authority under Section 5 of the FTC Act, which addresses unfair and deceptive acts in commerce. Others have argued that the FTC sometimes conducts investigations and issues orders that impose unnecessary costs, and that it does not 

always provide adequate guidance to businesses seeking to comply with the laws the 

FTC enforces. 

These concerns have sparked numerous proposals regarding how to reform the 

FTC. For example, last December the House Energy and Commerce Committee favorably reported H.R. 5510, the FTC Process and Transparency Reform Act of 2016, 

a bill incorporating eight separate reform bills designed to clarify the FTC’s unfairness authority, improve the way the FTC operates, foster greater transparency and 

reduce unnecessary costs. 

Similarly, in January 2017, the American Bar Association Antitrust Section 

issued its 60-page Presidential Transition Report. It makes a number of recommendations for improving the FTC’s handling of antitrust and consumer protection issues, including repeal of the common carrier exemption and better coordination on privacy between the FTC and other agencies, greater transparency and fairness in the enforcement process, more judicious use of civil investigative demands, 

better communication with investigation targets, less burdensome ‘‘boilerplate’’ 

order provisions and monetary relief proportional to the injury caused and the defendant’s culpability. 

The report also urges the FTC to provide additional guidance on topics relating 

to unfair practices, data security, monetary remedies, advertising interpretation and 

‘‘clear and conspicuous’’ disclosure requirements. Other private groups, such as 

TechFreedom, have also proposed various reforms designed to address concerns 

about the FTC. 

The FTC has already taken steps to address some of the concerns addressed by 

the House bill, the ABA Report, and other stakeholders. Specifically, this year the 

Commission adopted several initiatives to eliminate waste and unnecessary regulation, streamline agency information demands, improve transparency and promote 

economic liberty. 

As we look ahead to the White House’s nominations of candidates to serve as FTC 

commissioners, it is especially important for this Committee to provide a forum to 

address these issues. 

We look forward to hearing the testimony of our witnesses this afternoon and to 

engaging in a dialog on the best ways to advance reforms at the Commission. 

With that, I will turn to the Ranking Member, Senator Blumenthal, for his opening statement. 

Senator MORAN. With that, I turn to the Ranking Member, Senator Blumenthal, for his opening statement. 

STATEMENT OF HON. RICHARD BLUMENTHAL, 

U.S. SENATOR FROM CONNECTICUT 

Senator BLUMENTHAL. Thank you, Mr. Chairman. Thank you 

very much for holding this hearing. 

This hearing is critical in reviewing and overseeing the work of 

the Federal Trade Commission in today’s rapidly evolving world 

4 

and economy. Congress has long empowered and directed the FTC 

to protect consumers from unfair, deceptive acts or practices, and 

unfair methods of competition. 

Since the FTC Act was signed into law exactly 103 years ago 

today, incredibly today, the FTC has proved to be a nimble and 

agile and sometimes aggressive agency with the experience and expertise necessary to stand up for consumers and promote competitive markets and combat a variety of fraud and other deceptive activity. I know from my personal experience during my service for 

many years as attorney general of the State of Connecticut how 

strong and important a partner it can be and should be, even more 

often than it is, because there are times that the FTC comes down 

much too softly on industries it oversees, putting the very consumers it is charged with protecting at risk and jeopardy from the 

harms that it has responsibility to stop. 

Last December, to give you one example, the FTC finalized a profoundly flawed consent order that permits used car dealers to advertise that they have rigorously inspected their vehicles for safety, 

including that they are, quote/unquote, certified, even if the vehicle 

has unrepaired safety recalls. The settlement had really inadequate 

and feeble disclosure requirements that failed to fully inform and, 

worse, create a kind of safe harbor for unscrupulous dealers. Far 

from protecting consumers, this settlement enables dealers to continue selling dangerous cars with, for example, deadly Takata airbags to unsuspecting buyers. The sale of any car, any car, with an 

unrepaired safety recall is a threat to public safety, not just the 

driver, not just the owner, but anybody out there driving alongside 

or on the road with such a car. 

The FTC should have simply prohibited the defendants from advertising the sale of used cars with unrepaired recalls. The courts 

are clear that the FTC Act empowers the FTC to do more than simply admonish defendants to go sin no more, so to speak, but to 

proactively prevent defendants from engaging in similar deceptive 

practices in the future through so-called fencing-in provisions. 

I was also dismayed, quite honestly, by the FTC’s apparent inaction with respect to Google, even as evidence mounts suggesting 

Google has repeatedly and consistently abused competition law. 

This summer, the EU fined Google a record $2.7 billion for abusing 

its position as the world’s dominant search engine by pushing 

smaller rivals’ results down in search rankings and manipulating 

the results to promote its own services. The FTC has a duty to investigate and discipline Google or any other company for any illegal actions that may have unfairly disadvantaged competitors and 

limited consumer choice. Our economy, particularly when it comes 

to the rapidly growing tech sector, needs robust competition to 

thrive and ensure consumer protection, and the FTC ought to be 

an engine and a driver using its muscle to that end. 

Equally important are potential limits to the FTC’s authority 

that may constrain its ability to proactively and aggressively protect consumers, and that has been made painfully clear by 

Equifax’s recent disclosure of a massive data breach exposing the 

personal information of up to 143 million Americans, including 

their Social Security, birthdates, address histories, and driver license numbers, among other sensitive data. 

5 

If the entities that hold our data can’t be trusted to protect it, 

then the government needs to have the right tools to not only go 

after the hackers and thieves, but also the companies that treat 

our financial lives with such abandon, negligence, and carelessness. 

Let me just say the FTC has brought numerous enforcement actions over the years against companies for lax data security practices, but this piecemeal, after-the-fact, ad-hoc approach would be 

better served if the Commission had a clear and unlimited civil 

penalty authority and the ability to prescribe rules requiring reasonable security practices in the first place. 

I will push for a measure that I propose that would provide such 

authority, expanded FTC powers. I also urge that the Justice Department proceed vigorously and promptly with a criminal investigation, and that any other agency with jurisdiction and authority 

in the Equifax matter seek penalties that protect consumers, deter 

these kinds of negligent and lax practices in the future, and send 

a message that data security has to be a number one priority for 

anybody having our information, and any kinds of negligence or lax 

practices will not be tolerated. 

The FTC has demonstrated time and again it knows how to play 

this critical role in today’s economy, and I hope that it will continue to do so and work with this Committee. 

Thank you, Mr. Chairman. 

Senator MORAN. Thank you, Senator Blumenthal. 

Now, again, we welcome our panel of witnesses. And let me introduce them. Mr. William MacLeod. He is a partner of Kelley Drye 

and a former Director of the FTC’s Bureau of Consumer Protection. 

Welcome. 

Ms. Lydia Parnes is a partner with Wilson Sonsini Goodrich & 

Rosati and former Director of the FTC’s Bureau of Consumer Protection. Ms. Jessica Rich, Vice President, Policy and Modernization, 

Consumer Union, and former Director of the FTC’s Bureau of Consumer Protection. And Mr. Berin Szo ́ka, President of TechFreedom. 

And with that, I will turn to Mr. MacLeod. 

STATEMENT OF WILLIAM MACLEOD, PARTNER, 

KELLEY DRYE & WARREN LLP 

Mr. MACLEOD. Thank you, Mr. Chairman, Ranking Member 

Blumenthal, and members of the Committee. It is a pleasure and 

a privilege to be here today. 

As you mentioned, I am with the law firm of Kelley Drye & Warren, but I am speaking today solely in my own capacity. I am not 

representing Kelley Drye or any client of Kelley Drye or any other 

institution for that matter. I’m here today to discuss two institutions that are very dear to me: the first is the Federal Trade Commission, where I spent 8 years, about 4 of which as Director of the 

Bureau of Consumer Protection; and the second is the Antitrust 

Section of the American Bar Association. I had the privilege of 

chairing that section last year, and I was instrumental in assembling the Task Force about which the Chairman spoke, and that 

was the Task Force to report on the state of antitrust and consumer protection enforcement and make some recommendations. 

We are here today to talk about some of those recommendations. 

6 

But I’d like to start with a story of a case that I handled 19 years 

ago for a client whose name I won’t mention. It was almost exactly 

19 years ago when the Federal Trade Commission and eight states, 

not including the State of Connecticut, brought an action against 

my client, and the company had just introduced a pesticide product. It was a product that until that time was available only 

through professionals; you had to subscribe to an expensive exterminator if you wanted to have this product for your home. 

The Federal Trade Commission brought an action against the 

company, not because it alleged anything deceptive in what the 

company had advertised, but, rather, because it believed the company did not have substantiation in support of its claims. Its claims 

actually came right off of the label of the product, which the Environmental Protection Agency had approved, but the Federal Trade 

Commission staff and the Federal Trade Commission ultimately 

disagreed that the company had enough substantiation for those 

claims, and even though they did not disagree with any claim the 

company made, they did think the company should have made 

more claims, they brought a case, which the company ultimately 

settled. 

That was 19 years ago. That order still exists today. This company is under a regulation of the Federal Trade Commission. Its 

competitors aren’t under this regulation, but this order of about 25 

pages, which is now older than some of the voters who will be 

going to the polls this fall in the elections, still governs the conduct 

of the company that simply introduced a product to empower consumers. Unless the company mounts an expensive petition or a 

court motion to modify or terminate this order, it will be around 

in 2040 when the children of today’s new voters are going to the 

polls the first time. 

I never told this story to the Task Force, the ABA Antitrust Section Task Force, but the three lessons I learned in that case and 

that my client learned the hard way are exactly the highlights that 

I want to feature in the report. And the first is the age of orders 

of the Federal Trade Commission. It is a growing body of regulation that is permanent in the case of court orders, is 20 years long 

in the case of administrative orders, and it is very hard for a company to make those go away. 

We propose in our recommendations and report that the FTC impose sunsets in all orders. The Antitrust Division of the Department of Justice does that. Other agencies of the Federal Government do that. They do not have the growing body of regulations. 

Second, the story of the disagreement between the Environmental Protection Agency and the Federal Trade Commission is a 

story that we see today. It is very difficult for a company to organize its affairs and engage in pro-competitive activity if it doesn’t 

know the rules, and, most importantly, if the referees that govern 

its conduct disagree as to what the rules are. 

And the third point is the importance of guidance from the Federal Trade Commission, especially guidance as to the boundaries of 

advertising: What should be illegal and what should not be illegal? 

I’m not talking about messages to the con artists; they are not 

going to pay attention. But the good and honest companies want 

to know what rules they should abide by, and the Federal Trade 

7 

1 American Bar Association, Section of Antitrust Law, Presidential Transition Report: The 

State of Antitrust Enforcement (January 2017), https://www.americanbar.org/content/dam/ 

aba/publications/antitrust_law/state_of_antitrust_enforcement.authcheckdam.pdf [hereinafter 

‘‘Report’’]. 2 Available at: https://www.americanbar.org/content/dam/aba/publishing/antitrust_source/ 

jan17_full_source.authcheckdam.pdf 3 Report at 1. The Task Force was co-chaired by Theodore Voorhees and Leah Brannon. 

Samantha Knox served as the Reporter and Organizer. Members included Roxane Busey, Mary 

Ellen Callahan, Dennis Carlton, Michael A. Carrier, Paul T. Denis, Douglas H. Ginsburg, Louis 

Kaplow, Donald C. Klawiter, William Kovacic, Jon Leibowitz, Abbott B. Lipsky, Jr., A. Douglas 

Melamed, Fiona Scott Morton, James H. Mutchnik, Richard Parker, Lydia Parnes, James Rill, 

and Joel Winston. Megan Browdie served as the ABA Young Lawyer Division’s Representative 

to the Task Force. 4 Id. at 2. 

Commission can help them with more guidance on how it interprets ads. 

Thank you very much. 

[The prepared statement of Mr. MacLeod follows:] 

PREPARED STATEMENT OF WILLIAM MACLEOD, PARTNER, 

KELLEY DRYE & WARREN LLP 

Summary 

Thank you for inviting me to testify today. I am William MacLeod, a partner in 

the law firm Kelley Drye & Warren LLP. I will be speaking solely in my individual 

capacity today and not as an official representative of any organization. 

It was my honor to serve as Chair of the Section of Antitrust Law of the American 

Bar Association for the 2016–2017 ABA year, and my privilege to join my predecessor, Roxann Henry, in appointing a Task Force to examine the state of antitrust 

and consumer protection in the United States and to make recommendations to improve enforcement. The Section’s Presidential Transition Task Force issued a comprehensive Report,1 which was published in the Antitrust Source 2 and is appended 

to this Statement. The views expressed in that Report are those of the Antitrust 

Section, and they have not been approved by the House of Delegates or the Board 

of Governors of the American Bar Association. Therefore, unless otherwise noted, 

the Section’s views expressed in the Report should not be construed as representing 

the position of the Association. 

The Section of Antitrust law is the leading professional organization for the practice of laws pertaining to antitrust and competition, trade regulation, consumer protection and economics. Its members include attorneys and non-lawyers from private 

law firms, in-house counsel, non-profit organizations, consulting firms, Federal and 

state government agencies, as well as judges, professors and law students. The Section’s objectives boil down to four words that appear on its logo: Promoting Competition/Protecting Consumers. These were the objectives that guided the work of the 

Task Force. 

For the composition of the Task Force, we selected attorneys representing defendants and plaintiffs, a member of the Federal judiciary, and law and economics scholars from the Nation’s leading universities. More than half of the members had 

served in leadership positions in the Antitrust Division of the Department of Justice 

or the Federal Trade Commission, including several former Assistant Attorneys 

General and Commissioners as well as officials from every administration over the 

last four decades.3

At the outset, it should be noted that the Task Force found that the agencies have 

been in good hands, and that enforcement should remain ‘‘firmly tethered’’ to the 

statutory basis of enforcement.4 Recommending fidelity to the law might seem superfluous, but it was an important response to proposals for radical reorientation 

of enforcement policy. Prohibiting ‘‘unfair’’ and ‘‘deceptive’’ acts, practices and methods of competition is essential to consumer welfare, but the proscriptions do not 

have obvious definitions, which makes them tempting tools for tinkering with the 

outcomes of a competitive market. Clear and transparent enforcement policy is 

therefore key to distinguishing legal from illegal conduct. By the same token, judicious application of that policy in deciding when and where to prosecute is critical 

to obtaining the economic benefits of the Commission’s interventions. The Report 

advises the agency to recognize the enormous impact a prosecution can have on a 

company, and to focus its ‘‘limited enforcement resources on cases involving signifiVerDate Nov 24 2008 07:37 Mar 18, 2019 Jkt 000000 PO 00000 Frm 00011 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\35459.TXT JACKIE
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5 Id. at 27. 6 In 1969, and again in 1980, the Commission faced intense criticism for straying from its mission. An ABA Report on the FTC in 1969 was instrumental in refocusing the Commission. AM. 

BAR ASS’N, REPORT OF THE ABA COMMISSION TO STUDY THE FEDERAL TRADE COMMISSION (1969) (commissioned by President Nixon in response to a critique of the FTC by researchers assembled by Ralph Nader, COX, R. FELLMETH & J. SCHULZ, THE CONSUMER 

AND THE FEDERAL TRADE COMMISSION (1969). A decade later, President Carter intervened to rescue the Commission from Congressional repudiation. See, e.g., MacLeod & 

Rogowsky, ‘‘Consumer Protection under the Reagan Administration,’’ in Regulation and the 

Reagan Years, R. Meiners and B. Yandle, eds. (Holmes & Meier, New York, 1989) 7See, e.g., Report at 24; FTC Annual Reports, collected at https://www.ftc.gov/policy/reports/ 

policy-reports/ftc-annual-reports. 8FTC, 2016 Annual Highlights, available at https://www.ftc.gov/node/1205233. 9 Id. 

10FTC, National Do Not Call Registry Data Book for Fiscal Year 2016, available at https:// 

www.ftc.gov/news-events/press-releases/2016/12/ftc-issues-fy-2016-national-do-not-call-registrydata-book 11 Report at 29 (footnotes omitted). 12FTC, Annual Reports, collected at https://www.ftc.gov/policy/reports/policy-reports/ftc-annual-reports. 13 Report at 30, n. 94, citing POM Wonderful v. FTC, 777 F.3d 478, 505 (D.C. Cir. 2015).’’ 

cant consumer harm.’’ 5 This is sound advice. Pursuing minor infractions and challenging economic activity outside its statutory authority not only can distract an 

agency from its mission, but can be hazardous to an agency itself.6

The Report’s recommendations covered both competition and consumer protection, 

and many of the observations apply to both sides of Commission enforcement, but 

my testimony today will focus on the consumer side of the agency. For years, consumer protection has consumed more resources, generated more cases, and garnered 

more public attention than the competition mission.7 In 2016, for example, consumer protection actions and orders outnumbered their competition counterparts by 

more than two to one.8 Consumers lodged three million complaints last year with 

the Commission,9 and they have registered over 226 million phone numbers on the 

Commission’s Do Not Call Registry.10 From care labels on clothes to disclosures in 

advertisements to privacy and security of personal information, consumers encounter the effects of FTC regulations, guidelines and enforcement decisions every day. 

The Report covered a broad spectrum of consumer protection. Today I will focus 

on three areas that the Task Force highlighted in its Report. First, I will address 

a growing body of barnacles on the economy—aging and perpetual regulations in the 

form of orders and decrees that result from Commission enforcement. Second, I will 

discuss the need for guidance on Commission interpretations of advertising and the 

role of disclosures. Third, I will discuss the growing problem of different laws, different agencies and different policies governing the same conduct. Uncoordinated 

and inconsistent standards make consumer protection compliance more difficult, and 

can leave gaps in the very protection the rules are intended to provide. 

A RISING TIDE OF UNREVIEWED REGULATIONS

[S]ince 1996—the past 20 years—the FTC has required companies signing 

administrative orders to agree to an order duration of 20 years (longer, if 

there are subsequent violations) and Federal court orders that last in perpetuity.. . .Especially in areas where technology is rapidly evolving, order 

provisions that make sense when they are entered may no longer be appropriate in 10 years, let alone 20 years later, and may serve to chill innovative and useful corporate practices.11

The Commission obtains about 150 consumer protection orders a year against corporations and individuals.12 Some of the orders keep common con artists away from 

consumers. But many of the defendants and respondents include the largest corporations in the world, and the orders they must observe can impose extensive regulations—obligations that go beyond injunctions against violations of the law. The 

Commission typically will seek ancillary relief in the form of specific obligations that 

make it easier for future enforcers to prove that the company violated the terms of 

the order. For example, a company alleged to have made unsubstantiated claims 

about the efficacy of a dietary supplement may face an order that requires prescribed levels of substantiation for claims about the health benefits, efficacy, or performance of any food, drug, or dietary supplement.13 Once under order, a company 

faces the peril of civil penalties or a contempt citation for a violation if the FTC alleges that a future advertisement made a covered claim, or that the substantiation 

9 

14 Report at 30, n. 93. 15 Id. 16 Id. at 31. 17See, e.g., U.S. v. Ebay, Case No. 12–CV–05869–EJD–PSG (2014), available at https:// 

www.justice.gov/atr/case-document/file/494626/download. 18See, e.g., FTC, Regulatory Review Schedule, 82 Fed Reg 29259 (June 28, 2017) (To ensure 

that its rules and industry guides remain relevant and are not unduly burdensome, the Commission reviews them on a ten-year schedule. Each year the Commission publishes its review schedule, with adjustments made in response to public input, changes in the marketplace, and resource demands.) 19FTC, Release, FTC Announces Regulatory Reform Measures Ranging from TVs and Textiles 

to Energy Labels and E-mail (June 28, 2017), available at https://www.ftc.gov/news-events/ 

press-releases/2017/06/ftc-announces-regulatory-reform-measures-ranging-tvs-textiles. 20 Report at 33–34, citing POM Wonderful v. Federal Trade Commission, 777 F.3d 478 (D.C. 

Cir. 2015). 

did not meet the specific requirements—even if the claim was truthful and substantiated by the standards appropriate at the time it is made. 

Recognizing the potential anticompetitive effects and regulatory burdens of perpetual orders, the Commission decided in 1995 to limit administrative orders—those 

entered in the course of the agency’s internal adjudication—to twenty years duration.14 But the agency declined to limit Federal court orders, because it said those 

orders primarily addressed fraudulent activity.15 To this day, most of those orders 

are perpetual, and they now account for two-thirds of the orders the FTC enters. 

Many of them come from cases that do not allege fraud. A failure of a company to 

produce what the Commission deems to be satisfactory substantiation for a claim 

can result in an order that stays on the books indefinitely. Every year, in the ordinary course of enforcement, the Commission adds another hundred perpetual regulations to the economy, without the periodic reviews typically applicable to Federal 

regulations. It is up to the companies struggling with an order provision to do something. The only relief comes in the form of an expensive legal proceeding—a motion 

in court or a petition to the FTC—that a company under the orders must commence. 

The burdens to do so are high. Respondents face serious obstacles when they seek 

to modify or terminate Commission orders.16 As a result, the typical order will follow the company, and any other company that subsequently acquires it, for twenty 

years—or forever. 

The Commission’s insistence on twenty-year orders and permanent decrees stands 

in contrast to the practice of other agencies. The Antitrust Division of the Department of Justice traditionally has included ten-year terms in its civil orders, and now 

sometimes limits them to five years.17 Indeed, the Commission’s practice is inconsistent with its own application of the Regulatory Flexibility Act (or RFA), in which 

the agency reviews its guides and regulations every ten years.18 A bipartisan Congressional mandate, the RFA has been a hallmark of responsible Federal regulation 

for four decades. The purpose of the statute was stated eloquently by Acting Chairman Maureen Ohlhausen this year, ‘‘Regulations can be important tools in protecting consumers, but when they are outdated, excessive, or unnecessary, they can 

create significant burdens on the U.S. economy, with little benefit.’’ 19 Unfortunately, regulations that come in the form of FTC orders and decrees are not included in RFA reviews, and these regulations now count in the thousands, amounting to tens of thousands of pages of specific requirements that can handicap a competitor. The mandates continue to accumulate with little or no examination after 

their temporary reporting obligations are entered. There is no plan to revisit whether the orders’ benefits justify their costs. It is time for the Commission to follow the 

lead of the Antitrust Division and other agencies that sunset such burdens. 

DIVINING THE MEANING OF MESSAGES AND THE NEED FOR DISCLOSURES

The agencies have pursued failure to disclose theories and imposed ‘‘clear 

and conspicuous’’ disclosure requirements with increasing vigor in recent 

years. This has created considerable uncertainty for businesses in determining what information is sufficiently important (e.g., material and necessary to prevent unfairness or deception) that it must be disclosed and 

where the disclosures must appear (e.g., in advertising or at point of sale). 

The different opinions on claim interpretation and disclosure clarity at the 

Commission in POM Wonderful were not reconciled in the decision of the 

D.C. Circuit, leaving additional uncertainty as to whether and what kind 

of substantiation is needed for a claim, what claims trigger a disclosure, 

and how much information should be disclosed. 20

10 

21Kraft, Inc. v. Federal Trade Commission, 970 F.2d 311 (7th Cir. 1992) 22 Id. 23See, e.g., AM. BEVERAGE ASS’N V. CITY & CTY. OF SAN FRANCISCO, No. 16–16073 

(9th Cir., Sept. 19, 2017) available at http://cdn.ca9.uscourts.gov/datastore/opinions/2017/09/ 

19/16–16072.pdf. 24 Report at 35. 25See, e.g., Release, Professional Associations Settle FTC Charges by Eliminating Rules That 

Restricted Competition Among Their Members, (December 16, 2013), available at https:// 

www.ftc.gov/news-events/press-releases/2013/12/professional-associations-settle-ftc-chargeseliminating-rules. 

What does an advertisement communicate? How much information must an advertisement disclose to prevent deception or injury? How should the medium in 

which an ad appears affect disclosures? These are questions that have preoccupied 

advertising authorities for decades, and the answers are more elusive today than 

they were when TV, radio, and print delivered most ads. As long ago as 1992, the 

Seventh Circuit Court of Appeals encouraged the Commission to explain how it interpreted advertisements.21 As recently as POM Wonderful, the Commission was divided on which ads were deceptive. When the agency is unsure after years of investigation and adjudication, advertisers are hard-pressed to predict with confidence 

what they can say without running afoul of the law. 

As the Task Force noted, ‘‘Especially in the case of short-form broadcast advertising, there simply is not sufficient space to include all of the information the agencies have deemed necessary in forms of advertising.’’ 22 It is important that regulators demonstrate the need for additional or qualifying information, since the cost 

of the qualification could be the loss of other information or the loss of the advertisement itself. This is not just responsible regulation, but a constitutional mandate. As 

the courts regularly remind us, the First Amendment recognizes the value of commercial information and requires regulators to strike the right balance between burdens and benefits of communications.23 Moreover, in any medium, increasing the 

amount of information that must be disclosed can obscure the most important messages, thus creating a tension with the ‘‘clear and conspicuous’’ objectives of the disclosure. 

Not surprisingly, the Task Force also noted uncertainty among advertisers as to 

how the Commission would apply the ‘‘clear and conspicuous’’ standard in particular 

fact situations, and recommended that the agency look for additional opportunities 

to clarify its expectations in guidance and to give businesses an opportunity to come 

into compliance before the agencies start bringing enforcement actions. Citing cases 

in which the Commission pursued auto dealers for failure to disclose terms and conditions of their offers, and suggesting the Commission could have offered more 

warning of the policy it would pursue, the Report recommended an exploration of 

each element of disclosure policy—from the representation that could trigger a disclosure to the clarity and prominence of the disclosure—and how those factors vary 

across media.24

A laudable example of the Commission’s efforts to tailor its guidance to the advance of technology can be found in the Online Disclosure Guidelines (often called 

the Dot Com Disclosures) in which the agency has acknowledged that smaller 

screens can justify shorter disclosures. Nonetheless, the latest revision of the guidance contained an ominous warning: 

If a disclosure is needed to prevent an online ad claim from being deceptive or 

unfair, it must be clear and conspicuous. Under the new guidance, this means 

advertisers should ensure that the disclosure is clear and conspicuous on all devices and platforms that consumers may use to view the ad. The new guidance 

also explains that if an advertisement without a disclosure would be deceptive 

or unfair, or would otherwise violate a Commission rule, and the disclosure cannot be made clearly and conspicuously on a device or platform, then that device 

or platform should not be used. 

The consequence the Commission contemplates for a disclosure that does not fit— 

disqualifying a medium for a message—emphasizes the importance of determining 

whether a disclosure is necessary in the first place (and if so how much is necessary) to cure deception, avoid unfairness, or comply with a rule. If a disclosure 

mandated for other media would fill an entire screen of a smartphone, it is worth 

asking whether all the required language is necessary to cure deception. That is 

what the Commission does when it investigates advertising restraints that trade associations and professional societies adopt. If a restraint is not necessary to cure deception or avoid injury, then the agency may prosecute it as an antitrust violation.25

The Commission has traditionally taken a dim view of private restrictions based on 

speculative harm. Under Section 5 of the FTC Act, deception depends on a represenVerDate Nov 24 2008 07:37 Mar 18, 2019 Jkt 000000 PO 00000 Frm 00014 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\35459.TXT JACKIE
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26Fed. Trade Comm’n, FTC Policy Statement on Deception (Oct. 14, 1983), available at 

https://www.ftc.gov/system/files/documents/public_statements/410531/ 

831014deceptionstmt.pdf. 27Fed. Trade Comm’n, FTC Policy Statement on Unfairness (Dec. 17, 1980), available at 

https://www.ftc.gov/public-statements/1980/12/ftc-policy-statement-unfairness, codified at 15 

U.S.C. § 45(n). 28See generally, William MacLeod, Elizabeth Brunins & Anna Kertesz, Three Rules and a 

Constitution: Consumer Protection Finds Its Limits in Competition Policy, 72 Antitrust L.J. 943 

(2005). 29 Report at 3. 30 Report at 25. 31See, e.g., Comments of the Staff of the Bureau of Consumer Protection, the Bureau of Economics and the Office of Policy Planning of the Federal Trade Commission In FDA’s Request 

for Comments on Nutrient Content Claims (July 27, 2004), available at https://www.ftc.gov/ 

sites/default/files/documents/advocacy_documents/ftc-staff-comment-food-and-drug-administration-concerning-nutrient-claims/v040020.pdf. 

tation or omission, likely to mislead reasonable consumers, to their detriment,26 and 

unfairness turns on the threat of substantial injury, not reasonably avoidable by 

consumers and not outweighed by benefits to consumers or competition.27 Whether 

imposed by cases, guides or self-regulation, a thorough examination of an advertising restraint advances the mission of the Commission. The same analysis of a 

regulation or other mandate addresses the requirements in the First Amendment 

of the Constitution.28

INCONSISTENT RULES UNDERMINE CONSUMER PROTECTION

This Report notes numerous initiatives of the FTC . . . that have enhanced 

protection of the Nation’s consumers. However, the overlapping jurisdictions of the FTC [and other agencies] give rise to risks of inconsistent regulatory approaches that cause confusion and complicate compliance, particularly with respect to privacy protection. Such inconsistencies could undermine the objectives the Agencies seek to advance.29

It is inevitable in an economy as complex as ours that companies will face multiple regulatory agencies, and that the standards those agencies apply to the same 

conduct will differ. Those differences can stifle economic activity and diminish consumer protection. The examples cited in the Report deal with approaches to privacy 

and definitions of unfair and abusive conduct. Inconsistent approaches to privacy 

have contributed not only to inconsistent standards that companies must try to follow, but also gaps in coverage that could leave loopholes for sectors of the economy 

without Federal regulation at all. Such a prospect loomed when the Federal Communication Commission adopted its 2015 Open Internet Order and reclassified the 

provision of Internet broadband access as a ‘‘telecommunications service’’ under 

Title II of the Telecommunications Act. The Order would have deprived the FTC 

of jurisdiction over Internet Service Providers, potentially even for conduct that 

would not have been subject to FCC regulation.30 The discordant policies had international repercussions. As the Task Force observed: 

Based in part on its negative perception of the U.S. sectoral approach to privacy, the European Court of Justice issued a decision in 2015 finding that the 

EU-U.S. Safe Harbor insufficiently protected EU residents’ personal data. . . . 

Reducing the ability for U.S. companies to transfer personal data effectively and 

appropriately could impact the U.S.’s competitive posture. Although the Section 

is not advocating for an umbrella privacy law at this time, it does observe that 

the inconsistent privacy approaches pose a risk of harm to U.S. companies and 

competition internationally. More consistency among the regulatory approaches 

would likely yield reduced compliance costs and promote competitiveness with 

resulting benefit to consumers. 

History provides many examples of unintended consequences of regulations. The 

lawyers and economists at the FTC have long performed a valuable public service 

by calling attention to regulatory policies that may be at odds with the interests of 

consumers and competition. Indeed, the Commission has dedicated a staff, in the 

Office of Policy Planning, to the advocacy of reasonable regulation in the United 

States. Over the years, the Commission has brought attention to the value of nutritional claims on labels of foods,31 consumer-friendly disclosures on financial docuVerDate Nov 24 2008 07:37 Mar 18, 2019 Jkt 000000 PO 00000 Frm 00015 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\35459.TXT JACKIE
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32See, e.g., Lacko & Pappalardo, Improving Consumer Mortgage Disclosures/Bureau of Economics Staff Report, June 2007, available at https://www.ftc.gov/sites/default/files/attachments/educational-materials/p025505mortgagedisclosurereport.pdf. 33See, e.g., Ohlhausen, ‘‘Advancing Economic Liberty,’’ Remarks at the George Mason Law Review’s 20th Annual Antitrust Symposium, February 23, 2017, available at https://www.ftc.gov/ 

system/files/documents/public_statements/1098513/ohlhausen_-_advancing_economic_liberty_ 

2-23-17.pdf 34 Report at 27. 35 Release, Acting FTC Chairman Ohlhausen Announces Internal Process Reforms: Reducing 

Burdens and Improving Transparency in Agency Investigations, July 17, 2017, available at 

https://www.ftc.gov/news-events/press-releases/2017/07/acting-ftc-chairman-ohlhausen-announces-internal-process-reforms 

ments,32 and unnecessary restrictions in professions and trades.33 It is important 

that the Commission continue this advocacy, and that agencies consider whether 

their policies conflict with other regulations that impose duties on businesses. A 

company that answers to multiple authorities, and which cannot satisfy one without 

offending another, is tempted to abandon the activity rather than risk prosecution. 

Consumers deprived of the goods and services that the company would have offered 

under a coordinated regulatory policy could suffer the type of injury that competition and consumer protection agencies try to prevent. 

PROGRESS ON TRANSPARENCY

The Section recommends that the FTC adopt a number of reforms to help it deploy its limited enforcement resources in a manner that enhances the impact 

of its actions while, at the same time, treating target companies in a way that 

is fair and proportionate to the alleged offenses.34

At the outset of this testimony, I noted a 1969 ABA Report that was credited for 

sound suggestions on the future of FTC enforcement. The Commission heeded many 

of those suggestions and improved its protection of consumers as a result. I am 

gratified to see the current Commission taking the recommendations of our Task 

Force to heart. This spring, Acting Chairman Ohlhausen announced the formation 

of internal working groups to implement process reforms at the agency. The Commission revealed the first results of those efforts in July: 

The process reforms announced today address CIDs (Civil Investigative Demands) 

in consumer protection cases, and include: 

• Providing plain language descriptions of the CID process and developing business education materials to help small businesses understand how to comply; 

• Adding more detailed descriptions of the scope and purpose of investigations to 

give companies a better understanding of the information the agency seeks; 

• Where appropriate, limiting the relevant time periods to minimize undue burden on companies; 

• Where appropriate, significantly reducing the length and complexity of CID instructions for providing electronically stored data; and 

• Where appropriate, increasing response times for CIDs (for example, often 21 

days to 30 days for targets, and 14 days to 21 days for third parties) to improve 

the quality and timeliness of compliance by recipients.35

I look forward to the FTC building on this progress and adopting more of the recommendations in the Task Force’s Report. 

And of course, I would be happy to answer any questions the Committee might 

have. 

Senator MORAN. Thank you very much. 

Ms. Parnes. 

STATEMENT OF LYDIA PARNES, ESQ., PARTNER, 

WILSON SONSINI GOODRICH & ROSATI PC 

Ms. PARNES. Thank you, Chairman Moran, Ranking Member 

Blumenthal, distinguished members of the Committee. 

My name is Lydia Parnes. As you mentioned, I am currently a 

partner at Wilson Sonsini Goodrich & Rosati. Before that, I had the 

very clear privilege of working at the FTC for over 27 years, and 

served as Director of the FTC’s Bureau of Consumer Protection for 

13 

my last 5. Thank you so much for inviting me here today to present 

testimony on FTC reform proposals. 

The views that I express in my written and oral testimony reflect 

recommendations of the ABA Antitrust Section’s Presidential Task 

Force Report as well as my own personal views. 

Last year, I was a member of that task force that prepared the 

report, an impressive bipartisan group of lawyers, professors, 

economists, and a Federal appellate court judge, all with very deep 

FTC experience. The report sets out the Section’s recommendations 

on how to enhance consumer protection enforcement efforts, and I 

want to underscore what the Section recognizes. 

The FTC is a highly respected and effective agency, and for decades has engaged in vigorous law enforcement activities to protect 

consumers and halt unfair or deceptive acts and practices. Of 

course, there is always room for improvement. And I’d like to focus 

my remarks on two of the areas where the task force made process 

improvement recommendations, improving the use of CIDs and 

clarifying the FTC’s legal basis for seeking monetary relief. 

CIDs, essentially administrative subpoenas, are an important 

part of an FTC investigation, but responding to a CID can be exceptionally costly, burdensome, and confusing. Companies also 

have very limited means to narrow the scope of a CID, which is 

often overly broad. It is true that the FTC staff will typically negotiate at least some of these terms, but if the staff does not willingly 

agree to modifications, the company faces a dilemma: It can file a 

petition to quash or limit the CID, but these petitions are made 

public, which imposes considerable reputational costs on companies, and for smaller companies, these costs can be existential. 

Acting Chairman Ohlhausen recently acknowledged these and 

other procedural issues, and this summer announced CID reforms 

responsive to the Section’s recommendations. I would urge the Subcommittee and the Commission to consider steps to make these reforms permanent and to address other issues raised in the report, 

such as by permitting companies to file confidential petitions to 

challenge overly broad CIDs. 

Let me turn next to monetary relief. In recent years, the FTC 

has sought significant monetary relief in cases that don’t involve 

fraud or other tangible consumer injury. This marks a departure 

from the agency’s prior practices where it sought restitution for injured consumers or disgorgement of ill-gotten gains that were 

traceable to the violations at issue. 

For example, earlier this year, the FTC entered into a settlement 

agreement with Vizio over claims that the company’s smart TVs 

were collecting television viewing data without the informed consent of customers. The settlement included injunctive provisions 

that you would expect in an order like this, but on top of the injunctive provisions, Vizio was required to pay $1.5 million to the 

Commission with no explanation offered as to the basis for that 

monetary relief. 

Congress gave the FTC broad consumer protection authority, but 

more limited authority to obtain money. But the FTC’s current approach to monetary relief seems to push the limits of this authority. To address this issue, the Section recommends, first, that the 

FTC tie monetary relief more closely to the nature of the violation, 

14 

1 American Bar Association, Section of Antitrust Law, Presidential Transition Report: The 

State of Antitrust Enforcement (January 2017), https://www.americanbar.org/content/dam/ 

aba/publications/antitrust_law/state_of_antitrust_enforcement.authcheckdam.pdf [hereinafter 

Section Presidential Transition Report]. 2 As stated in the report, the views of the task force members were provided in their individual capacities and should not be attributed, in any way, to their law firms, clients or academic institutions, as applicable. See Section Presidential Transition Report, supra note 1, at 

1 n.1. This written testimony sets out the Task Force recommendations as well as my own personal views. 3The report mentions In the matter of Nomi Techs., Inc., Docket No. C–4538, 2015 WL 

5304114 (F.T.C. Aug. 28, 2015), where dissenting Commissioners Ohlhausen and Wright criticized the majority’s decision to bring the case given the technical nature of the violations and 

the absence of evidence of actual consumer harm. See id. at *5, *8. 

the extent of consumer injury, and the culpability of the defendant; 

and, second, that the FTC issue a policy statement setting forth the 

theories on which it relies to justify its demands for money. These 

recommendations appropriately reflect the intent of the FTC Act 

while also providing greater clarity and transparency. 

I very much appreciate your time and will be happy to answer 

questions. 

[The prepared statement of Ms. Parnes follows:] 

PREPARED STATEMENT OF LYDIA PARNES, ESQ., PARTNER, WILSON SONSINI GOODRICH & ROSATI PC 

Introduction 

Mr. Chairman and Members of the Subcommittee: thank you for the opportunity 

to present testimony on FTC reform proposals. My name is Lydia Parnes and I am 

currently a Partner at Wilson Sonsini Goodrich & Rosati. Prior to that, I was the 

Director of the Bureau of Consumer Protection (BCP) at the Federal Trade Commission (FTC or Commission). 

Earlier this year, the Section of Antitrust Law of the American Bar Association 

(the Section) submitted its Presidential Transition Report.1 I am attaching a copy 

of this report along with my written testimony.2 The Section’s Presidential Transition Task Force was responsible for compiling this report and was comprised of a 

bi-partisan group of lawyers, professors, economists, and a Federal appellate court 

judge with deep knowledge of, and extensive work with, the relevant issues and 

agencies. In fact, over half of the task force members have served in a senior leadership position with either the Commission or the Antitrust Division of the Department of Justice. As a member of this task force, I saw firsthand just how significantly the team’s diverse backgrounds and experiences contributed to the crafting 

of this report. 

This report presents the Section’s views on the current state of Federal consumer 

protection enforcement, as well as its recommendations regarding how the new administration could enhance that enforcement. As the Section recognizes, the FTC is 

a highly respected agency and, over the last several decades, its vigorous efforts in 

the area of consumer protection have been effective in protecting consumers and in 

halting unfair or deceptive acts or practices. The Section’s thoughtful recommendations would build upon the FTC’s excellent work to further refine the FTC’s practices and processes. These recommendations are based on the task force’s comprehensive experience with the agencies—and with subjects of FTC investigations— 

to pinpoint areas of concern and to identify practical means for improving results. 

These are important recommendations that deserve serious consideration. 

Today I will highlight four specific areas where the task force made recommendations: (1) case selection; (2) civil investigative demands (CIDs); (3) information sharing in investigations; and (4) order provisions. 

I. Case Selection 

The FTC has broad prosecutorial discretion to select subjects for its enforcement 

actions—including which subjects to initially investigate and, subsequently, whether 

to bring a case or to close that investigation. As the Section notes, the FTC also 

has limited resources to conduct such investigations and litigations. Accordingly, the 

Section recommends the FTC focus its efforts on cases where significant consumer 

harm exists. While the Commission does bring many important cases involving serious consumer harm, the Section notes that, at times, the agency has also prosecuted 

small companies for technical violations where consumer harm was not apparent.3

15 

4 As the Section explained, some CIDs demand all information that could potentially relate 

to violations of essentially every consumer protection law that could possibly apply. Section 

Presidential Transition Report, supra note 1, at 29 n.91. 5Press Release, U.S. Fed. Trade Comm’n, Acting FTC Chairman Ohlhausen Announces Internal Process Reforms: Reducing Burdens and Improving Transparency in Agency Investigations 

(July 17, 2017), https://www.ftc.gov/news-events/press-releases/2017/07/acting-ftc-chairmanohlhausen-announces-internal-process-reforms. 

Such cases appear to underutilize the FTC’s valuable assets, given the lack of meaningful consumer harm. They can also have extreme negative effects on small businesses that have more limited resources with which to respond to and defend such 

enforcement actions and may, as a result of such actions, lose the financing, customers, and business relationships they depend upon for their continued viability. 

II. Civil Investigative Demands (CIDs) 

A typical FTC investigation begins with the issuance of a civil investigative demand (CID), which compels the subject to submit written responses, documents, and 

other information and materials to the Commission. CIDs are an important component of the FTC’s investigative process. Responding to a CID, however, can be exceptionally costly and burdensome to a company under investigation. The Section 

thus recommends the Commission act more judiciously in crafting and issuing CIDs 

to companies and individuals to avoid imposing unnecessary costs. Specifically, the 

Section suggests the Commission issue more narrowly focused initial CIDs, leaving 

open the option to issue follow up CIDs if needed. 

These recommendations are largely a response to the Commission’s tendency to 

issue overly-broad CIDs, which are not tailored to the company or conduct under 

investigation. While the Commission needs some leeway in composing CIDs to ensure the necessary information and materials are covered—particularly when the 

Commission is unfamiliar with how the company creates and stores its records—the 

Commission has tended to issue CIDs that go beyond merely affording the Commission this leeway and leave the subject both confused as to the potential theories 

being investigated and facing a substantial burden in terms of its response.4 In fact, 

the legal fees alone, which subjects incur to negotiate scope with the Commission 

and then to make the productions, can be prohibitive. These costs are compounded 

by strict production requirements the FTC often imposes. These requirements may 

vary significantly depending on how a subject stores its records in the ordinary 

course, and thus require the subject to retain an expensive vendor to make the required production. 

The trend toward broader CIDs is also problematic because respondents have limited means to narrow the scope. If the Commission does not willingly agree to modifications, the respondent can file a petition to quash or limit a CID. But these petitions are made public, which imposes considerable reputational costs on the investigative targets. For smaller businesses, in particular, these reputational costs can 

be significant and even life-threatening. 

Acting Chairman Maureen K. Ohlhausen recently acknowledged these (and other) 

procedural issues, and established new internal Working Groups on Agency Reform 

and Efficiency to investigate the causes of such issues and to identify potential solutions. This summer, the Commission announced process reforms concerning consumer protection CIDs, some of which seem directly to respond to the Section’s recommendations.5 For instance, the reforms include ‘‘[a]dding more detailed descriptions of the scope and purpose of investigations to give companies a better understanding of the information the agency seeks,’’ and ‘‘[w]here appropriate, significantly reducing the length and complexity of CID instructions for providing electronically stored data.’’ Such procedural changes have the potential to significantly 

reduce the burden of responding to CIDs without negatively impacting the FTC’s 

ability to obtain the necessary information. I would urge the Subcommittee and the 

Commission to consider steps to make these reforms permanent and to address 

other issues raised in the report, such as by permitting companies to file confidential petitions to challenge overly broad CIDs. 

III. Information Sharing in Investigations 

Information sharing is critical in Commission investigations. The information 

shared by a company being investigated helps the FTC to discern whether a violation has occurred. At the same time, if the FTC shares its concerns, the company 

can better understand what is being investigated and what information and defenses are relevant. The extent to which the FTC staff actually reveals its theories 

and concerns, however, varies significantly from case to case. 

In cases where the staff engage in open discussions early on regarding what it 

is investigating, there is more opportunity for both sides to explore the issues and 

16 

6See Press Release, U.S. Fed. Trade Comm’n, FTC Rule Incorporating Sunset Policy for Existing Administrative Orders in Consumer Protection and Antitrust Cases (Nov. 20, 1995), https:// 

www.ftc.gov/news-events/press-releases/1995/11/ftc-rule-incorporating-sunset-policy-existingadministrative. The Commission justified keeping Federal court orders unlimited because ‘‘many 

of these orders are against defendants involved in hard-core fraud.’’ Id. 7The FTC typically includes ‘‘fencing-in’’ relief in its consumer protection orders, which is relief that stretches beyond violations identified in the Commission’s complaint to reach allegedly 

related practices. For instance, in matters involving unsubstantiated claims regarding health 

benefits, the Commission typically imposes a term requiring scientific substantiation for any 

claim about the health benefits, efficacy, or performance of any food, drug, or dietary supplement. See e.g., POM Wonderful v. FTC, 777 F.3d 478, 505 (D.C. Cir. 2015). This often leaves 

the respondent with much confusion and uncertainty regarding which implied claims the Commission might find in future advertising or what substantiation it would find sufficient. Other 

burdensome affirmative obligations the FTC requires include, for data security matters, expensive biennial security audits. See e.g., In the Matter of Snapchat, Inc., Docket No. C–4501, 2014 

WL 1993567, at *14 (F.T.C. May 8, 2014). 

test their theories. Open communication leads to sounder outcomes, as both sides 

have real opportunities to present evidence and see how that evidence does—or does 

not—align with the Commission’s theories of harm. On the flip side, in cases where 

the staff does not disclose its theories to the respondent or inform the respondent 

of what evidence allegedly supports its theories, the respondent is left at a serious 

disadvantage in defending its conduct. Moreover, this lack of information sharing 

can undermine the investigative process itself. If the respondent does not know 

what the Commission’s legal theory is, it cannot subject this theory to its best defenses. Thus, while the goal of the investigative process is to analyze the facts to 

understand whether a violation has occurred, not sharing the underlying theory and 

the evidence allegedly supporting it effectively short-circuits a thorough factual and 

legal analysis. 

Creating open lines of communication begins with the CID’s issuance, as noted. 

The clearer the CID is regarding the Commission’s intent, the more responsive the 

subject can be from the outset. To this end, the Commission’s recent process reforms 

are likely to enhance information sharing efforts. But information sharing should 

not stop here. The FTC’s theories and concerns are likely to evolve as they receive 

more information. Keeping respondents informed of these changes is key to reaching 

thoughtful outcomes supported by the full set of evidence. 

To improve communication between the Commission and parties in a consistent 

fashion, the Section recommends that the FTC adopt internal guidelines for staff to 

follow in communicating with respondents. The Section suggests that, beginning as 

early as possible, the staff should be as transparent as possible and encourage open 

dialogue regarding their substantive concerns (absent compelling circumstances suggesting otherwise, such as clear bad faith by the respondent). These recommendations would both improve the fairness of the process and help the Commission reach 

better supported decisions. 

IV. Order Provisions 

The terms the Commission includes in its consent orders are of critical importance. Realistically, a company may not have the resources or capacity to litigate, 

and—to a large extent—the Commission relies on consent orders to resolve investigations. Consent order terms that are unduly restrictive may do more harm than 

good and, compounding this problem, may gain the mantle of precedent over time, 

making appropriate modifications increasingly unlikely. As such, consent orders 

should be carefully crafted. The Section offers some specific proposals to assist in 

this effort. 

First, the Section recommends reducing the burden of ‘‘boilerplate’’ provisions. The 

Commission has established a number of administrative provisions that it reuses in 

the same or substantially similar terms in each consent order. While this practice 

can expedite the negotiation process, inappropriately broad terms can impose unnecessary costs. For instance, since 1996 the Commission has required companies entering consent decrees to agree to administrative orders lasting 20 years and Federal court orders lasting in perpetuity.6 This practice does not account for the nature of the underlying market, nor for how quickly that market might be changing. 

Accordingly, it may unnecessarily constrain the company’s ability to react to competitive changes or consumer demands, particularly when coupled with the ‘‘fencing 

in’’ provisions and other burdensome affirmative obligations that the Commission 

routinely includes in consent orders.7 The Section therefore recommends the FTC 

adopt a sunset period of around 5 years for both administrative and district court 

orders, allowing upward deviation for extenuating circumstances such as fraud or 

recidivism. 

17 

8See AM. BAR ASS’N, MODEL RULES OF PROF’L CONDUCT, R. 4.2 (2014) (‘‘In representing a client, a lawyer shall not communicate about the subject of the representation with a person the 

lawyer knows to be represented by another lawyer in the matter, unless the lawyer has the consent of the other lawyer or is authorized to do so by law or a court order.’’). 9 U.S. Fed. Trade Comm’n, Policy Statement on Monetary Equitable Remedies—Including in 

Particular Disgorgement and Restitution—in Federal Trade Commission Competition Cases Addressing Violations of the FTC Act, the Clayton Act, or the Hart-Scott-Rodino Act (July 31, 

2003), https://www.ftc.gov/public-statements/2003/07/policy-statement-monetary-equitableremedies-including-particular. This statement established, for instance, that the FTC would seek 

disgorgement only where (1) the underlying violation was clear, and (2) there was a reasonable 

basis for calculating the payment amount, and (3) it would take into account the other remedies 

available, including private actions and criminal proceedings. The FTC withdrew this statement 

less than 10 years after unanimously adopting it, finding it ‘‘overly restrictive.’’ Press Release, 

U.S. Fed. Trade Comm’n, FTC Withdraws Agency’s Policy Statement on Monetary Remedies in 

Competition Cases; Will Rely on Existing Law (July 31, 2012), https://www.ftc.gov/newsevents/press-releases/2012/07/ftc-withdraws-agencys-policy-statement-monetary-remedies. 

Relatedly, the Section recommends the FTC reconsider its standard implementation of ‘‘Scofflaw’’ provisions, to alleviate their burdensome requirements for respondents operating legitimate businesses. Scofflaw provisions include requirements 

such as distributing the order to various individuals, keeping records, reporting 

changes (like asset sales, mergers, or bankruptcy), and filing compliance reports, 

that typically last between 3 and 20 years. Federal court boilerplate Scofflaw provisions often go beyond the Commission’s standard ones, including by providing the 

FTC the right to gather information from the respondent in various ways that can 

be very burdensome. Federal court orders, for instance, often allow the Commission 

to contact the respondent directly—not through counsel—regarding order-related 

matters, which contradicts longstanding ethical rules prohibiting such conduct.8

While such terms were originally intended to permit proper oversight when defendants behaved fraudulently, the FTC has increasingly filed cases in Federal court in 

non-fraud cases, but continued to incorporate these onerous terms. This practice imposes unnecessary costs on respondents and should be reconsidered. 

Second, the Section recommends tying monetary relief more closely to critical 

issues including the nature of the violation, the extent of consumer injury, and the 

culpability of the respondent. In recent years, the Commission has increasingly 

sought significant monetary relief, including civil penalties, restitution, and/or 

disgorgement, in Section 5 cases that do not involve fraud or tangible consumer injury. This marks a departure from the Commission’s prior practices, in which it 

sought restitution or disgorgement tethered to injury or unjust enrichment that was 

traceable to the violation(s). More recently, the staff has sought monetary relief even 

when violations are marginal, technical, or unintentional and the injury is minimal 

or nonexistent—and it often seeks the maximum possible amount regardless of the 

underlying facts or litigation risks. 

These changes to FTC practice inappropriately penalize respondents beyond what 

is necessary to deter the same or similar conduct. They also create unnecessary uncertainty, as the respondents cannot rely on ex ante calculations as to the costs of 

the conduct at issue to estimate likely fines. Consider, for instance, that the public 

perceives larger fines as indicative of more egregious conduct, and reasonably judges 

the respondent according to this perceived level of misconduct. By detaching fines 

from actual wrongdoing, the Commission creates a situation in which the public is 

judging a respondent more harshly—potentially significantly so—than is warranted. 

The Section’s recommendations would help realign the costs, both monetary and 

reputational, to the misconduct and harm identified. These recommendations, moreover, mirror the FTC’s prior statement on monetary relief, including disgorgement 

and restitution, in competition cases, which was unanimously adopted but is not in 

effect today.9

Conclusion 

The Section’s Presidential Transition Report offers numerous recommendations 

for enhancing the FTC’s consumer protection enforcement processes and outcomes. 

These recommendations would alleviate unnecessary burdens on businesses while 

facilitating better FTC decisions and outcomes. 

Thank you for your time. I would be happy to answer any questions. 

Senator MORAN. Thank you for your testimony. 

Ms. Rich. 

18 

STATEMENT OF JESSICA RICH, VICE PRESIDENT, CONSUMER 

POLICY AND MOBILIZATION, CONSUMER REPORTS 

Ms. RICH. Chairman Moran, Ranking Member Blumenthal, and 

members of the Subcommittee, thank you for the opportunity to be 

here today on behalf of Consumer Reports and our Policy and Mobilization Division, Consumers Union, to discuss the important 

work of the Federal Trade Commission. 

I arrived at Consumers Union in May of this year following 26, 

believe me, years in the FTC’s Bureau of Consumer Protection, the 

last four as its Director. My tenure at the agency spanned several 

Democratic and Republican administrations, and I am equally 

proud of the work I did under all of them. 

Consumers Union has always regarded the FTC as a leader in 

ensuring consumers are protected in the marketplace and that they 

have the accurate information needed to make informed choices. 

Every year, the FTC returns millions of dollars to consumers and 

saves billions more through its law enforcement efforts. Every year, 

it halts ongoing fraud and deception and helps legitimate companies that offer consumers valuable products and services compete 

on a level playing field. Every year, it educates the public through 

consumer and business education, public workshops, and policy reports, and it does so on a shoestring compared with the budgets of 

many other Federal agencies, and without many of the tools and 

remedies that other agencies routinely employ. 

Notably, the FTC pursues its work as a bipartisan group of 

President-appointed and Senate-confirmed Commissioners. All 

cases, rulemakings, and other significant FTC actions require formal approval by a majority of them, and despite the occasional dissenting or concurring statement, virtually all decisions over the 

years have been unanimous. 

In creating the FTC more than a century ago, Congress vested 

it with broad jurisdiction so it could address a wide range of unfair 

or deceptive practices across the marketplace. The breadth and 

flexibility inherent in the FTC Act has proven to be critical to the 

FTC’s effectiveness. Who could have anticipated when the FTC Act 

was passed that there would be spyware, spam, massive data 

breaches, or tech support scams? It was 100 years ago. And who 

knew that cars would someday be able to drive themselves, or that 

your refrigerator or your children’s toys would connect to a network 

of computers in your home, creating risk to personal data and documents you reasonably thought were secure? 

But despite the breadth of the FTC Act, the agency’s effectiveness is limited by certain restrictions on its authority. Notably, for 

historical reasons that no longer make sense, the FTC can’t address unfair and deceptive practices by common carriers, creating 

an uneven playing field for businesses and consumers alike. 

The FTC also has very limited rulemaking authority, and it can 

only seek penalties for law violations in very specific instances. I’m 

aware of various proposals that would change the way the FTC operates, some of which may be discussed here today. 

Last year, as was mentioned, the House Energy and Commerce 

Committee considered proposals that would have altered the FTC’s 

investigation and enforcement procedures. For example, one bill 

would have capped the length of FTC consent decrees to 8 years. 

19 

1 Consumers Union is the policy and mobilization division of Consumer Reports. Consumers 

Union is an expert, independent, nonprofit organization whose mission is to work for a fair, just, 

and safe marketplace for all consumers and to empower consumers to protect themselves. Its 

work focuses on auto and product safety, financial services, healthcare, food safety, privacy and 

technology, and many other areas. Consumer Reports is the world’s largest independent product-testing organization. Using its more than 50 labs, auto test center, and survey research center, the nonprofit organization rates thousands of products and services annually. Founded in 

1936, Consumer Reports has over 7 million subscribers to its magazine, website, and other publications. 

Another would have enacted select portions of the FTC’s Unfairness Statement into law, which could limit the FTC’s ability to address the wide range of harms in today’s marketplace. 

Earlier this year, the ABA Section of Antitrust Law also made 

some proposals, for example, echoing the call for shorter orders and 

recommending that the FTC lower the monetary relief it obtains in 

non-fraud cases. All of these recommendations would weaken an 

agency that already lacks authority and resources in critical areas 

at a time when consumers need the FTC’s help the most. 

Today, consumers face enormous challenges navigating the marketplace, making it harder than ever for them to avoid fraud, deception, and other harms. Every day, they encounter 24-hour data 

collection and advertising, phishing attempts, imposter scams, massive data breaches, highly sophisticated frauds, and confusion 

about who they can trust. In this environment, the FTC needs 

more authority to protect consumers, not less, including stronger 

laws to protect consumers’ privacy and security, repeal of the common carrier exemption, strong remedies to hold wrongdoers accountable, and more resources. 

My long-time experience at the FTC informs how the proposals 

under consideration would affect the agency’s work, so I’m very 

pleased to have been invited here today to assist the Subcommittee 

in its deliberations. Consumers Union stands ready to assist staff 

in evaluating any recommendations that the Subcommittee believes 

may have merit. 

Thanks again for the opportunity to testify. 

[The prepared statement of Ms. Rich follows:] 

PREPARED STATEMENT OF JESSICA RICH, VICE PRESIDENT, CONSUMER POLICY AND

MOBILIZATION, CONSUMER REPORTS

Chairman Moran, Ranking Member Blumenthal, and Members of the Subcommittee, thank you for the opportunity to be here today on behalf of Consumer 

Reports and our policy and mobilization division, Consumers Union (hereinafter 

‘‘Consumers Union’’), to discuss the important work of the Federal Trade Commission.1 Consumers Union has been a strong and longtime supporter of the FTC’s 

work and mission. 

I arrived at Consumers Union in May of this year. Before that, I spent 26 years 

working in the FTC’s Bureau of Consumer Protection, the last four as its Director 

of Consumer Protection. My tenure at the FTC spanned several Democratic and Republican Administrations, and I am equally proud of the work I did under all of 

them. For me, moving to Consumer Reports, a strong, nonpartisan advocate for U.S. 

consumers, was a natural continuation of the work I have pursued throughout my 

professional life. 

We—and I mean ‘‘we’’ at Consumers Union—have always regarded the FTC as 

a leader in ensuring that consumers are protected in the marketplace, and that they 

have the accurate information needed to make informed decisions. Every year, the 

FTC returns millions of dollars to consumers and saves billions more through its 

law enforcement efforts. Every year, it halts ongoing fraud and deception, and helps 

legitimate companies that offer consumers valuable products and services compete 

on a level playing field. Every year, it educates the public through consumer and 

business education, public workshops, and policy reports. And it does so on a shoeVerDate Nov 24 2008 07:37 Mar 18, 2019 Jkt 000000 PO 00000 Frm 00023 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\35459.TXT JACKIE
20 

2https://www.ftc.gov/news-events/press-releases/2015/05/ftc-all-50-states-dc-charge-four-cancer-charities-bilking-over (with State Attorneys General). 3https://www.ftc.gov/news-events/press-releases/2017/01/western-union-admits-anti-moneylaundering-violations-settles (with Department of Justice). 4https://www.ftc.gov/news-events/press-releases/2014/12/t-mobile-pay-least-90-million-including-full-consu mer-refunds;https://www.ftc.gov/news-events/press-releases/2016/12/ftc-providing-over-88-million-refunds-att-customers-who-were (with FCC and State Attorneys General). 5https://www.ftc.gov/news-events/press-releases/2016/07/herbalife-will-restructure-its-multilevel-marketing-operations. 6https://www.ftc.gov/news-events/press-releases/2016/07/warner-bros-settles-ftc-charges-itfailed-adequately-disclose-it. 7https://www.ftc.gov/news-events/press-releases/2015/01/website-operator-banned-revengeporn-business-after-ftc-charges. 8https://www.ftc.gov/news-events/press-releases/2016/10/us-court-finds-ftcs-favor-imposesrecord-13-billion-judgment. 9https://www.ftc.gov/news-events/press-releases/2016/12/operators-ashleymadisoncom-settleftc-state-charges-resulting (with State Attorneys General). 

string, compared with the budgets of many other Federal agencies, and without 

many of the tools and remedies that other agencies routinely employ. 

So that the FTC can continue to perform these important functions, the agency 

needs to be strong and independent, and have the resources and authority needed 

to pursue its vital mission. Indeed, given the enormous challenges that consumers 

face in today’s marketplace, the FTC needs more authority—not less—to fulfill its 

fundamental consumer protection role. 

Our support for the FTC in recent years has included efforts to strengthen its authority in a number of ways. To name just a few: 

• We supported the FTC’s implementation of the Do Not Call Registry, and its 

continuing work to protect consumers from the harassment of unwanted telemarketing calls. 

• We supported the FTC’s implementation of the Children’s Online Privacy Protection Act, one of the seminal privacy laws passed in this country. 

• We supported the clarification and strengthening of consumer disclosures required under the Used Car Rule. 

• We supported the recently enacted Consumer Review Fairness Act, clarifying 

the FTC’s authority to protect consumers against being forced to surrender their 

right to provide others with honest reviews about shoddy products, services, and 

treatment in the marketplace. 

• We supported enactment of the Contact Lens Rule to ensure that consumers get 

their own copy of the prescription so they can shop around for their lenses, as 

well as the recent rulemakings to clarify that rule and its counterpart, the Eyeglass Rule. 

• And right now, we are supporting efforts to preserve the FTC’s authority to protect consumers from being victimized by deceptive pyramid schemes. 

We also commend the FTC for the many law enforcement actions it has successfully pursued to obtain significant benefits for consumers. Some examples from the 

last few years include: 

• Cancer Fund of America (halted fraudulent cancer charity that bilked over $187 

million from consumers).2

• Western Union ($586 million to remedy long-standing use of money transfer system to facilitate fraud).3

• T-Mobile and AT&T (at least $178 million for consumers who had unauthorized 

third party charges ‘‘crammed’’ onto their phone bills).4

• Herbalife ($200 million for consumers who lost money in allegedly deceptive 

multi-level marketing operation, and significant reforms to company operations).5

• Warner Bros. (barring undisclosed payments to social media ‘‘influencers’’ for 

supposedly objective, positive product reviews).6

• Craig Brittain (ban on website operator who posted nude images of women online without their consent and tried to extract payment to remove them).7

• AMG Services ($1.3 billion court judgment against fraudulent payday lending 

scheme that charged consumers multiple undisclosed and inflated fees).8

• Ashley Madison ($1.6 million for alleged failure of online dating service to provide reasonable protections for highly sensitive personal data, and for posting 

fake member profiles to lure in new customers).9

21 

10https://www.ftc.gov/news-events/press-releases/2017/05/federal-judge-approves-ftc-orderowners-certain-volkswagen-audi (with Department of Justice and State of California). 11https://twitter.com/ProfWrightGMU/status/634778695727755264. 12See, e.g., FTC v. Sperry & Hutchinson Trading Stamp Co., 405 U.S. 233, 240 (1972), quoting 

Senate Report No. 597, 63d Cong., 2d Sess., (1914), p. 13: ‘‘The committee gave careful consideration to the question as to whether it would attempt to define the many and variable unfair 

practices which prevail in commerce and to forbid their continuance or whether it would, by a 

general declaration condemning unfair practices, leave it to the Commission to determine what 

practices were unfair. It concluded that the latter course would be the better, for the reason, 

as stated by one of the representatives of the Illinois Manufacturers’ Association, that there 

were too many unfair practices to define, and, after writing 20 of them into the law, it would 

be quite possible to invent others. . . .’’). 13See https://www.ftc.gov/about-ftc/bureaus-offices/bureau-consumer-protection/small-business. 

• Volkswagen (over $11 billion to consumers to remedy deceptive sales of cars 

marketed as ‘‘clean diesel,’’ but that contained secret software designed to evade 

pollution emissions tests).10

Notably, the FTC brought these actions—which address topics ranging from pyramid schemes and charity fraud, to phony reviews and data breaches—as a bipartisan group of President-appointed and Senate-confirmed Commissioners. These actions, like all significant FTC activity, required formal consideration and approval 

by a majority of Commissioners. And while concurring and dissenting statements 

in some FTC cases reveal that the Commissioners disagree on occasion, the vast majority of Commission votes over the years have been unanimous. For example, when 

Commissioner Joshua Wright ended his tenure at the FTC, he noted that he had 

dissented on approximately 4 percent of Commission votes, and issued a written dissent in just half-a-percent of consumer protection motions—all during a period in 

which he was in the minority.11

In creating the FTC more than a century ago, Congress vested it with broad jurisdiction under the Federal Trade Commission Act so that it could reach ‘‘unfair or 

deceptive’’ practices wherever they occur. Congress deliberately provided the FTC 

with broad and flexible authority to ensure that it could address a wide range of 

practices across the marketplace,12 and that has proven to be a wise decision. The 

FTC is the only ‘‘general purpose’’ consumer protection agency at the Federal level, 

so it plays a critical role in promoting fairness and truthfulness across many industry sectors. In addition, companies introduce many new products, services, and features into the marketplace every day, but this progress and growth has also created 

new opportunities for scams and harms that once would have been unimaginable. 

Who could have anticipated in 1914, when the FTC Act was passed, that there 

would be spyware, spam, massive data breaches, or tech support scams? And who 

knew that cars would someday be able to drive themselves, or that your refrigerator 

or your children’s toys would connect to a network of computers in your 

home,creating risks to personal data and documents that consumers reasonably believe they are storing safely? 

The flexibility in the FTC Act also enables the agency to protect, not just individual consumers, but also small businesses that have been preyed upon by other 

companies peddling fraudulent business services.13

But despite the breadth of the FTC Act, the agency’s effectiveness is limited by 

certain restrictions on its authority. Notably, for historical reasons that no longer 

make sense, the FTC lacks authority to address unfair or deceptive practices by 

‘‘common carriers’’ and nonprofit entities. It has very limited rulemaking authority. 

And it can only seek penalties for law violations in very specific instances. 

In my experience, the FTC is very careful about how it pursues its mission and 

how it treats all affected parties. The FTC’s Commissioners and staff take great 

pride in being fair and evenhanded and, given the agency’s relatively small size, 

have no choice but to focus the FTC’s resources strategically and deliberately. The 

agency also takes appropriate care not to interfere with or disrupt legitimate business activity. This care is taken not only at the Commissioner level, but throughout 

the decision-making process in the Bureaus. 

For example, many companies are given an opportunity to negotiate a consent 

order prior to the staff recommending an enforcement action to the Commission. If 

a company chooses not to enter into a consent, it has the opportunity to meet with 

the Director of the Bureau of Consumer Protection and, subsequently, all of the 

Commissioners prior to any decision about whether to issue a complaint. 

In addition, to assist companies seeking to comply with the law, the Commission 

provides online business guidance on a wide range of topics, including data secuVerDate Nov 24 2008 07:37 Mar 18, 2019 Jkt 000000 PO 00000 Frm 00025 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\35459.TXT JACKIE
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14https://www.ftc.gov/tips-advice/business-center/guidance/start-security-guide-business. 15https://www.ftc.gov/news-events/media-resources/truth-advertising/advertisement-endorsements. 16https://www.ftc.gov/news-events/media-resources/truth-advertising/green-guides. 17https://www.ftc.gov/news-events/media-resources/tools-consumers/jewelry-guides. 18https://www.ftc.gov/tips-advice/business-center/guidance/native-advertising-guide-businesses. 19https://www.ftc.gov/news-events/press-releases/2013/03/ftc-staff-revises-online-advertisingdisclosure-guidelines. 20https://www.ftc.gov/news-events/audio-video/ftc-events/workshops. Recent topics include 

military consumers, connected cars, identity theft, artificial intelligence and blockchain technologies, drones, ransomware, charity fraud, and new technologies and research affecting privacy (‘‘PrivacyCon’’). 21https://consumersunion.org/research/joint-comments-to-the-ftc-on-proposed-settlementswith-used-car-dealers-under-the-carmax-asbury-and-west-herr-brands-about-recalled-cars-advertised-as-safe/ (FTC should do more to stop dealer deception regarding cars with open recalls). 22https://consumersunion.org/research/consumers-union-and-partners-urge-u-s-house-committee-in-letter-to-protect-the-ftc/. 23See Consumer Review Fairness Act of 2016, https://www.congress.gov/bill/114th-congress/ 

house-bill/5111; BOTS Act of 2016, https://www.congress.gov/bill/114th-congress/senate-bill/ 

3183. 24For example, we opposed the proposal to cap the length of FTC consent decrees to eight 

years, and to require the FTC to justify continuing non-fraud decrees for more than five years, 

because such requirements would undermine the FTC’s ability to prevent repeat offenses. 

rity,14 endorsements and testimonials,15 environmental claims,16 jewelry claims,17

native advertising,18 and how to make clear and conspicuous online disclosures.19

The Commission also regularly holds public workshops, enlisting a range of stakeholders from the industry, advocacy, academic, and tech communities to discuss 

emerging issues and possible solutions.20 And the FTC employs dozens of economists in its Bureau of Economics, whose role is to consider the effects of potential 

Commission actions on consumers, businesses, and the marketplace as a whole, and 

to advise the Bureaus and the Commission on whether to take such actions. 

In addition, the FTC recently created an Office of Technology Research and Investigations, and has appointed a series of Chief Technologists, to ensure that the Commission thoroughly understands new and emerging technologies as it seeks to address consumer protection issues in our increasingly connected world. 

Understandably, individuals and companies may not like being the focus of an investigation, even in those instances when the investigation is ultimately closed 

without Commission action. However, in my experience, the FTC’s actions are appropriately measured, well-considered, and grounded in the law and in the FTC’s 

fundamental mission to protect U.S. consumers. Some in the consumer advocacy 

community, including my organization, have at times wished that the FTC could 

and would do more.21 Nevertheless, we consider the agency one of our champions. 

Thanks to the FTC, and to Congress’ wisdom in establishing it, consumers enjoy 

a far more fair, dependable, and consumer-friendly marketplace than otherwise 

would exist. Moreover, businesses operating fairly and honestly are rewarded with 

a more level playing field, where bad actors cannot count on getting away with and 

profiting off of their illegal activity. 

We appreciate the interest in the FTC that this Subcommittee is taking as part 

of its oversight responsibilities. I am aware of a number of proposals that have been 

put forward to change the way the FTC operates, some of which may be discussed 

here today. 

We wrote letters to the House Energy and Commerce Committee last year expressing concern about a number of proposals being considered there that would 

have altered, restricted, or encumbered the FTC’s investigation and enforcement 

procedures.22 Those letters were sent before I arrived, but I agree with the concerns 

they raise. While some of the Committee’s proposals would have strengthened the 

FTC’s ability to protect consumers—and indeed, a couple of them were ultimately 

signed into law23—some would have severely hampered the FTC’s ability to protect 

consumers in today’s exciting, but highly challenging consumer marketplace.24

I am also aware that this Subcommittee is reviewing January 2017 recommendations from the American Bar Association (ABA) Section of Antitrust Law, some of 

which address processes and practices related to the FTC’s consumer protection mission. While we share the goals of the ABA and this Subcommittee to ensure fairness, balance, and transparency in the FTC’s operations, we do not support a number of the recommendations as currently framed. Some of them would limit the 

FTC’s effectiveness in protecting consumers, which remains—and should always remain—the paramount mission of the FTC. And some appear to rely on single anecdotes that do not reflect my longtime experience at the FTC. 

23 

Consumers face enormous challenges navigating today’s marketplace, making it 

harder than ever to avoid fraud, deception, and other harms. Every day, they face 

24-hour data collection and advertising, phishing attempts, imposter scams, massive 

data breaches, highly sophisticated frauds, and confusion about who they can trust. 

In this environment, the FTC needs more authority to protect consumers, not less, 

including stronger tools to protect consumers from privacy and security threats; 

broader jurisdiction over common carriers and other entities currently shielded from 

liability; stronger remedies to hold wrongdoers accountable; and greater resources 

to address consumer harms across the entire marketplace. 

Because my first-hand experience at the FTC informs how the many proposals 

under consideration would affect the FTC’s work, I am pleased to have been invited 

here today to assist the Subcommittee in its deliberations. Although the FTC is not 

perfect, my experience is that it employs procedures appropriate to its responsibilities, that it uses them fairly and evenhandedly, and that it pursues its mission 

with dedication, even as it observes the limits of its authority. I and my colleagues 

at Consumers Union stand ready to assist this Subcommittee in evaluating these 

proposals, and to take a careful look at any other recommendations that the Subcommittee believes may have merit. 

Thank you again for the opportunity to testify. 

Senator MORAN. Thank you very much. 

Mr. Szo ́ka. 

STATEMENT OF BERIN SZO ́ KA, PRESIDENT, TECHFREEDOM 

Mr. SZO ́ KA. Chairman Moran, Ranking Member Blumenthal, 

thank you for inviting me here today. As the only person sitting at 

this table who has not been a Director of the Bureau of Consumer 

Protection, I hope I can at least offer an outside perspective. 

I have been studying how the FTC works for nearly a decade, 

since leaving the private practice of law, and have co-chaired the 

FTC Technology and Reform Project, an independent and scholarly 

effort launched in 2013 to study how the Federal Trade Commission operates. And I’ve been referring to the FTC for years now as 

the ‘‘Federal Technology Commission.’’ The name seems to have 

stuck; even the former chairwoman has embraced it. It’s not necessarily good or bad, it’s just a convenient shorthand for an important truth, which is that more than any other government agency 

in the world, the FTC wrestles with a wide range of questions 

about how to protect consumers as technology changes without 

strangling or stifling innovation. 

But as I said in my testimony to this Committee in 2012, what 

the FTC calls its common law of settlements in privacy and data 

security lacks the two key elements of real common law. First is 

the analytical rigor that comes with adversarial litigation. Two 

sides argue their case before a neutral, independent judge, and 

then that judge delivers a written and binding decision premised 

on carefully reasoned analysis of the law. Second is that that decision, those decisions over time, provide clear and authoritative 

precedent. Antitrust law offers a fine example of how the FTC can 

be effective, indeed, often very aggressive, in protecting consumers 

without also being the judge, jury, and executioner, as it effectively 

is today. 

There is no reason that consumer protection laws should be inconsistent with the fundamentals of the rule of law. I think the 

FTC’s Bureau of Consumer Protection can and should work more 

like its Bureau of Competition. I summarize reforms I think Congress should consider in my written testimony and provide more 

24 

detail in the attached testimony I coauthored for last year’s hearing 

in the House on FTC reform. 

I would break down FTC reform into seven broad categories. 

First, ensuring the FTC has the jurisdiction it needs, especially 

over the non-common carrier services provided by common carriers. 

Second, further codifying the Unfairness Policy Statement to ensure that the FTC’s assessment of unreasonableness, including 

data security, satisfies the cost-benefit test that Congress codified 

in 1994. Third, codifying and further clarifying the 1983 Deception 

Policy Statement, especially to ensure that the FTC uses that 

power to focus on claims that are actually material to consumers. 

Fourth, to increase the role of economists in investigations, complaints, settlements, reports, and rulemaking. Fifth, to increase the 

role of Commissioners in overseeing what the Chairman and the 

staff do. Sixth, to remove disincentives against litigation so that 

courts will play more of a role in shaping consumer protection law. 

And, finally, encouraging or requiring the FTC to provide clearer 

and more empirically grounded guidance as to what the law means. 

And these last two reforms are really the crucial parts. 

Perhaps the greatest reason that companies have settled essentially all data security and privacy cases is, as Lydia notes, 

reputational cost. Consider Equifax’s recent data breach. Its stock 

dropped 30 percent, and just today its CEO has resigned. That is 

the reputational market at work. And that’s a good thing, but it’s 

also something the FTC has effectively leveraged. It has used that 

fact to essentially coerce settlements with companies by strongarming them through the very, very burdensome and costly investigative process, threatening to go public, or through the administrative enforcement process that they have to endure before getting 

into a Federal court. 

I think Congress can modify both of these without hampering the 

FTC’s ability to protect consumers, but that would mean requiring 

greater Commissioner oversight of investigations, as Lydia notes, 

keeping investigations confidential until a complaint is filed, filing 

most complaints in Federal court, and explaining charges with 

greater specificity. 

So in the end, consumer protection law probably won’t ever work 

quite like antitrust law. Courts will probably always play less of a 

role, but they should play some role. And regardless of what Congress does, the FTC itself must provide more and better guidance 

on how companies can comply with the law. This will avoid both 

arbitrary enforcement and also ensure that consumers are protected by good data security and fair privacy practices. 

Since 2010, the FTC has issued a flurry of reports asserting what 

companies should do, but without really substantially analyzing 

why or how to strike the right balance. Acting Commissioner 

Ohlhausen should be commended for convening a workshop this 

December on how to define informational injuries. This is a golden 

opportunity for the FTC to take a more empirically grounded approach to data security and privacy, just as it did with environmental marketing claims through the Green Guides that the FTC 

has updated regularly since 1992. 

Not since 1994 has Congress made significant reforms. Such 

course corrections should happen every 2 years, but that has not 

25 

1 Berin Szo ́ka is President of TechFreedom, a nonprofit, nonpartisan technology policy think 

tank. J.D. University of Virginia School of Law; B.A. Duke University. He can be reached at 

bszoka@techfreedom.org. With thanks to my dedicated legal staff at TechFreedom, and in particular Vinny Sidhu and Sunny Seon Kang. 2 I. Graham Owens is a Legal Fellow with TechFreedom. J.D. George Washington University 

School of Law; B.A. University of Virginia. He can be reached at gowens@techfreedom.org. 

happened since 1996. It’s time for the FTC to be reauthorized and 

for this Committee to start looking into these procedural matters. 

And I suspect that how the Committee handles them, how the FTC 

handle them, will prove even more important in determining what 

consumer protection looks like in 2117 than any major enactments 

between now and then. 

So I look forward to helping this Committee ensure the Federal 

Technology Commission remains focused on serving consumers in 

the century to come. 

[The prepared statement of Mr. Szo ́ka follows:] 

PREPARED STATEMENT OF BERIN SZO ́ KA1 AND GRAHAM OWENS,2 TECHFREEDOM

TABLE OF CONTENTS

I. Introduction 

Background of FTC Enforcement in the Digital Economy 

II. Summary of Proposed Legislative Reforms 

A. The Common Carrier Exception 

B. More Economic Analysis 

C. Clarification of the FTC’s Substantive Standards 

D. Clarifying the FTC’s Pleading Standards 

E. Encouraging More Litigation to Engage the Courts in the Development of 

Section 5 Doctrine and Provide More Authoritative Guidance 

F. The Civil Investigative Demand Process 

G. Fencing-In Relief 

H. Closing Letters 

I. Re-opening Past Settlements 

III. Reasonable Siblings: Background on Section 5 and Negligence 

IV. Informational Injuries In Practice: Data Security & Privacy Enforcement to Date 

V. The Green Guides as Model for Empirically Driven Guidance 

A. The Green Guides (1992–2012) 

B. What the Commission Said in 2012 about Modifying the Guides 

VI. Eroding the Green Guides and their Empirical Approach 

A. Modification of the Green Guides by Policy Statement (2013) 

B. Modification of the Green Guides by Re-Opening Consent Decree (2017) 

C. Remember Concerns over Revocation of the Disgorgement Policy? 

D. What Re-Opening FTC Settlements Could Mean for Tech Companies 

VII.Better Empirical Research & Investigations 

A. What the FTC Does Now 

B. The Paperwork Reduction Act 

VIII. Pleading, Settlement and Merits Standards under Section 5 

A. Pleading & Complaint Standards 

1. Deception Cases 

2. Unfairness Cases 

B. Preponderance of the Evidence Standard 

IX. Conclusion 

26 

3THOM FILE, U.S. CENSUS BUREAU, COMPUTER AND INTERNET USE IN THE UNITED STATES 1 

(May 2013), https://www.census.gov/prod/2013pubs/p20-569.pdf; see also Steve Case, The 

Complete History of the Internet’s Boom, Bust, Boom Cycle, Business Insider (Jan. 14, 2011), 

available at http://www.businessinsider.com/what-factors-led-to-the-bursting-of-the-internet-bub 

ble-of-the-late-90s-2011-1. 4See FED. TRADE COMM’N, PRIVACY ONLINE: FAIR INFORMATION PRACTICES IN THE ELECTRONIC

MARKETPLACE: A REPORT TO CONGRESS 1 (2000), https://www.ftc.gov/sites/default/files/documents/reports/privacy-online-fair-information-practices-electronic-marketplace-federal-trade-commission-report/privacy2000.pdf. 5PONEMON INST. LLC, FOURTH ANNUAL STUDY: IS YOUR COMPANY READY FOR A BIG DATA

BREACH? 1 (2016), http://www.experian.com/assets/data-breach/white-papers/2016-experiandata-breach-preparedness-study.pdf [hereinafter PONEMON, DATA BREACH]. 6 Id. 

7 Hope Hamashige, Cybercrime can kill venture, CNN (March 10, 2000), http://cnnfn. 

cnn.com/2000/03/10/electronic/q_crime/index.htm (reporting the findings of the Computer Security Institute at Carnegie Mellon University). 8PONEMON INST. LLC, 2014: A YEAR OF MEGA BREACHES 1 (2015), http://www.ponemon.org/ 

local/upload/file/2014%20The%20Year%20of%20the%20Mega%20Breach%20FINAL3.pdf. 9 Hamashige, Cybercrime (noting that, just as today, in 2000, ‘‘[e]ven the biggest Internet companies with the most sophisticated technology are vulnerable to hackers, a trend highlighted 

last month when hackers stopped traffic on several popular Internet sites including Yahoo!, 

Amazon.com and eBay.’’). 10See, e.g., ALAN CHARLES RAUL, TASHA D MANORANJAN & VIVEK MOHAN, THE PRIVACY, DATA

PROTECTION AND CYBERSECURITY LAW REVIEW 268 (Alan Charles Raul, 1st ed. 2014) (‘‘With certain notable exceptions, the U.S. system does not apply a ‘precautionary principle’ to protect privacy, but rather, allows injured parties (and government agencies) to bring legal action to recover damages for, or enjoin, ‘unfair or deceptive’ business practices.’’). 11 Berin Szo ́ka & Geoffrey Manne, The Second Century of the Federal Trade Commission, 

TECHDIRT (Sept. 26, 2013), available at https://www.techdirt.com/blog/innovation/articles/ 

20130926/16542624670/secondcentury-federal-trade-commission.shtml; see also Consumer Protection & Competition Regulation in a High-Tech World: Discussing the Future of the Federal 

Trade Commission, Report 1.0 of the FTC: Technology & Reform Project, 3 (Dec. 2013), available 

at http://docs.techfreedom.org/FTC_Tech_Reform_Report.pdf. 12Kai Ryssdal, The FTC is Dealing with More High Tech Issues, MARKETPLACE (Mar. 7, 

2016) (quoting then-Chairman Edith Ramirez), available at http://www.marketplace.org/2016/ 

03/07/tech/ftc-dealing-more-high-tech-issues. 

I. Introduction 

Over the last two decades, use of, and access to, the Internet has grown exponentially, connecting people and businesses and improving the human condition in ways 

never before imagined. In 2011, 71.7 percent of households reported accessing the 

Internet, a sharp increase from 18 percent in 1997 and 54.7 percent in 2003.3 This 

digital growth—from a network of computers that only a few consumers could reach, 

to a seemingly infinite marketplace of ideas accessible by almost all Americans— 

has benefited society beyond measure, affording consumers the ability to access information, purchase goods and services, and interact with each other almost instantaneously without having to leave the home.4

However, as use and benefits of the Internet has grown, so too has the collection 

of personal data and, consequently, cyber-attacks endeavoring to steal that data. 

Since 2013, the number of companies facing data breaches has steadily increased.5

In 2016, 52 percent of companies reported experiencing a breach—an increase from 

49 percent in 2015—with 66 percent of those who experienced a breach reporting 

multiple breaches.6 Perhaps not surprisingly, not much has changed since 2000, 

where one report revealed that system penetration by outsiders grew by 30 percent 

from 1998 to 1999.7 Interestingly, despite immense improvements in companies’ 

ability to anticipate and prevent cyber-attacks, some of the largest and most sophisticated companies in the world, including Sony, Target, eBay, and JPMorgan, continue to experience data breaches today,8 just as they did in 2000.9 In spite of these 

statistics, the United States currently has no comprehensive legal framework in 

which to inform companies of the best practices to both prevent or respond to cyberattacks, as well as to ensure that they’re acting responsibly in the eyes of the Government.10

Absent a comprehensive statutory framework, the Federal Trade Commission 

(‘‘FTC’’ or ‘‘Commission’’) happily stepped in to police the vast number of data security and privacy practices not covered by the few Internet privacy and cyber security 

statutes enacted at the time. For two decades, the FTC has grappled with the consumer protection issues raised by the Digital Revolution. Armed with vast jurisdiction and broad discretion to decide what is unfair and deceptive, the agency has 

dealt with everything from privacy to data security, from online purchases to child 

protection, and much more. The FTC has become the Federal Technology Commission—a term we coined,11 but which the FTC and others have em-braced.12

27 

See, e.g., Omer Tene, With Ramirez, FTC became the Federal Technology Commission, IAPP 

(Jan. 18, 2017), https://iapp.org/news/a/with-ramirez-ftc-became-the-federal-technology-commission/. 13Fed. Trade Comm’n, FTC Policy Statement on Unfairness (1980), available at https:// 

www.ftc.gov/public-statements/ 

1980/12/ftc-policy-statement-unfairness (hereinafter 1980 Unfairness Policy Statement). 14See, e.g., Oren Bracha & Frank Pasquale, Federal Search Commission? Access, Fairness, 

and Accountability in the Law of Search, 93 CORNELL L. REV. 1149 (2008), available at http:// 

www.lawschool.cornell.edu/research/cornell-law-review/upload/Bracha-Pasquale-Final.pdf. 15See, e.g., Ryan Calo, The case for a Federal robotics commission, Brookings Institute 

(Sept. 15, 2014), available at https://www.brookings.edu/research/the-case-for-a-federal-robotics-commission/; Nancy Scola, Why the U.S. might just need a Federal Commission on Robotics, 

Washington Post (Sept. 15, 2014), available at https://www.washingtonpost.com/news/theswitch/wp/2014/09/15/why-the-u-s-might-just-need-a-federal-commission-on-robots/?utm_term =.38dfc4bec72e. 16Steve Morgan, Cyber Crime Costs Projected to Reach $2 Trillion by 2019, Forbes (Jan. 17, 

2016), available at https://www.forbes.com/sites/stevemorgan/2016/01/17/cyber-crime-costs 

-projected-to-reach-2-trillion-by-2019/#6e10063a3a91. 17See F.T.C. v. Wyndham Worldwide Corp., 799 F.3d 236, 257, n.22. (3d Cir. 2015). Notably, 

this practice is not entirely limited to data security and privacy enforcement—though for reasons later discussed, the effects on companies are arguably more severe in this context—by the 

Commission, with one study finding that 1,524 of the 2,092 enforcement action brought by the 

FTC in either Federal or administrative courts have ended in consent decrees without any adjudication. This means that almost 73 percent of the FTC’s enforcement actions have ended in 

legally enforceable orders, despite no impartial judicial guidance as to the factual and legal legitimacy of the FTC’s claims. See Daniel A. Crane, Debunking Humphrey’s Executor, 83 GEO. 

WASH. L. REV. 1835, 1867 (2015). But in tech-related cases its almost 100 percent, meaning the 

courts have played essentially no role at all in disciplining the FTC’s use of unfairness in ‘‘informational injury’’ cases. See infra note 122 (providing list of a few cases that did not result in 

settlement). 

This was inevitable, given the nature of the FTC’s authority. Enforcing the promises made by tech companies to consumers forms a natural baseline for digital consumer protection. On top of that deception power, the FTC has broad power to police 

other practices, without waiting for Congress to catch up. As the FTC said in its 

1980 Unfairness Policy statement: 

The present understanding of the unfairness standard is the result of an evolutionary process. The statute was deliberately framed in general terms since 

Congress recognized the impossibility of drafting a complete list of unfair trade 

practices that would not quickly become outdated or leave loopholes for easy 

evasion.13

The question is not whether the FTC should be the Federal Technology Commission, but how it wields its powers. For all that academics like to talk about creating 

a Federal Search Commission 14 or a Federal Robotics Commission,15 and for all the 

talk in Washington of passing ‘‘comprehensive baseline privacy legislation’’ or data 

security legislation, the most important questions turn on the FTC’s processes, 

standards, and institutional structure. How the FTC and Congress handle these 

seemingly banal matters could be even more important in determining how consumer protection works in 2117 than will any major legislative lurches over the next 

century. Indeed, with the costs of cybercrimes expected to reach $2 trillion by 

2019,16 the business community can ill afford to have to anticipate the approaches 

of both hackers and Federal regulators simultaneously, and it would seem more 

practical for the agency to help guide businesses by providing best practices to better protect their consumers. Yet, rather than promulgate rules or provide any clear 

guidance, the FTC has instead chosen to approach the issue through case-by-case 

enforcement actions, almost always ending in consent decrees, which do not admit 

liability and only focus on prospective requirements of the specific defendant in that 

case.17

This approach, and the resulting ambiguity, has left companies facing uncertainty 

in terms of whether their data security and privacy practices are not only sufficient 

to safeguard against an FTC enforcement action, but more importantly, whether 

they’re utilizing the best practices available to protect their consumers’ data and 

privacy. 

Understandably, this ambiguity has frustrated judges and legal commentators 

alike, even resulting in one company’s demise. Such frustration was made abundantly clear by the Third Circuit when, despite affirming the FTC’s authority to regulate cyber security practices under the ‘‘unfair practices’’ prong of Section 5, the 

court nonetheless questioned the Commission’s assertion that its consent decrees 

and ‘‘guidance’’ somehow create standards against which companies’ cyber practices 

28 

18F.T.C. v. Wyndham Worldwide Corp., 799 F.3d 236, 252–253, 255 (3d Cir. 2015). 19 Id. at 257 n.22. 20 Id. at 257 n.23. 21 Id. at 257. 22 Id. at 257 n.21. 23 Nat’l Petroleum Refiners Ass’n v. F.T.C., 482 F.2d 672, 675–76 (D.C. Cir. 1973), cert. denied, 

415 U.S. 951 (1974). 24The Magnuson-Moss Warranty Federal Trade Commission Improvement (Magnuson-Moss) 

Act, Pub.L. No. 93–637, § 202(a), 88 Stat. 2193 (1975). 25The Federal Trade Commission Improvements Act of 1980 (Improvements Act), Pub.L. No. 

96–252, 94 Stat. 374 (1980). 26 Editorial, WASH. POST (Mar. 1, 1978), reprinted in MICHAEL PERTSCHUK, REVOLT 

AGAINST REGULATION, 69–70 (1982); see also J. Howard Beales III, Advertising to Kids and 

the FTC: A Regulatory Retrospective that Advises the Present, 8 n.37 (2004), available at https:// 

www.ftc.gov/sites/default/files/documents/public_statements/advertising-kidsand-ftc-regula 

tory-retrospective-advises-present/040802adstokids.pdf. (‘‘Former FTC Chairman Pertschuk characterizes the Post editorial as a turning point in the Federal Trade Commission’s fortunes.’’). 

can be tested for ‘‘unfairness.’’ 18 In fact, the Third Circuit emphatically agreed with 

the defendant’s claim that ‘‘consent orders, which admit no liability and which focus 

on prospective requirements on the defendant, were of little use to it in trying to 

understand the specific requirements imposed by § 45(a).’’ 19 The court continued: 

We recognize it may be unfair to expect private parties back in 2008 to have 

examined FTC complaints or consent decrees. Indeed, these may not be the 

kinds of legal documents they typically consulted. At oral argument we asked 

how private parties in 2008 would have known to consult them. The FTC’s only 

answer was that ‘‘if you’re a careful general counsel you do pay attention to 

what the FTC is doing, and you do look at these things.’’ Oral Arg. Tr. at 51. 

We also asked whether the FTC has ‘‘informed the public that it needs to look 

at complaints and consent decrees for guidance,’’ and the Commission could 

offer no examples. Id. at 52.20

The court’s frustration did not end with the Commission’s use of consent decrees 

either, making sure to also address issues with the FTC’s 2007 guidebook, Protecting Personal Information, A Guide for Businesses, which, according the FCC, ‘‘describes a ‘checklist[ ]’ of practices that form a ‘sound data security plan.’ ’’21 Ultimately, the court recognized that ‘‘[t]he guidebook does not state that any particular 

practice is required by [Section 5],’’ and ‘‘[f]or this reason, we agree . . . that the 

guidebook could not, on its own, provide ‘‘ascertainable certainty’’ of the FTC’s interpretation of what specific cybersecurity practices fail [Section 5].’’ 22

Despite being rebuked by practitioners and courts alike, the FTC has brushed 

aside this frustration and continued to rely on consent decrees, conclusory guidebooks/reports, and ‘‘blog posts’’ to inform businesses as to what constitutes reasonable data security and privacy practices. By contrast, the FTC has pursued a radically different course, providing significantly more thorough guidance in an area not 

considered to be the FTC’s primary jurisdiction—environmental regulations through 

‘‘Green Guides.’’ As explained below, these Green Guides reflect a sincere and 

thoughtful effort by the FTC to gather relevant data as the basis for analyzing not 

only ‘‘what’’ is required, but more significantly ‘‘why’’ is it essential and ‘‘how much’’ 

of a certain practice is necessary. 

On privacy and data security, the Commission has refused to do such empirical 

work or to issue clear guidance, relying instead on consent decrees and conclusory 

reports and guidebooks that lack any evident empirical foundation. This has deprived businesses of the regulatory certainty and clarity they need to comply with 

the law—and deprived consumers of better, more consistent data security and privacy practices. The Commission has flaunted the warning given it by the D.C. Circuit over forty years ago, that ‘‘courts have stressed the advantages of efficiency and 

expedition which inhere in reliance on rulemaking instead of adjudication alone,’’ including in providing businesses with greater certainty as to what business practices 

are not permissible.23 Ironically, the D.C. Circuit made that statement in a case 

where the FTC fought vehemently—and the court agreed—for the authority to provide the very guidance they refuse to provide to the digital economy today. Congress 

did provide that rulemaking authority a year later, with the Magnuson-Moss Act 

of 1975,24 but also found it necessary to institute new procedural safeguards in 

1980, after the FTC’s gross abuse of its rulemaking powers in the intervening five 

years,25 which culminated in the agency being denounced as the ‘‘National 

Nanny.’’ 26

With this backdrop in mind, I come before this Committee today with two goals. 

First, to inform this body—through a historical lens—of the FTC’s ongoing procedural issues, particularly as they pertain to data security and privacy practices. SecVerDate Nov 24 2008 07:37 Mar 18, 2019 Jkt 000000 PO 00000 Frm 00032 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\35459.TXT JACKIE
29 

27See FED. TRADE COMM’N, PRIVACY ONLINE: A REPORT TO CONGRESS 2 (June 1998), available 

at https://www.ftc.gov/sites/default/files/documents/reports/privacy-online-report-congress/ 

priv-23a.pdf [hereinafter 1998 FTC Privacy Report] (‘‘In April 1995, staff held its first public 

workshop on Privacy on the Internet, and in November of that year, the Commission held hearings on online privacy as part of its extensive hearings on the implications of globalization and 

technological innovation for competition and consumer protection issues.’’); see also FED. TRADE

COMM’N, A REPORT FROM THE FEDERAL TRADE COMMISSION STAFF: THE FTC’S FIRST FIVE YEARS

PROTECTING CONSUMERS ONLINE (Dec. 1999), available at https://www.ftc.gov/sites/default/ 

files/documents/reports/protecting-consumers-online/fiveyearreport.pdf. 28See Press Release, Fed. Trade Comm’n, Eli Lilly Settles FTC Charges Concerning Security 

Breach (Jan. 18, 2002), available at https://www.ftc.gov/news-events/press-releases/2002/01/ 

eli-lilly-settles-ftc-charges-concerning-security-breach. 29See Complaint, In re BJ’s Wholesale Club, Inc. (F.T.C. Sept. 20, 2005) (No. C–4–4148), 

available at https://www.ftc.gov/sites/default/files/documents/cases/2005/09/092305comp 

0423160.pdf; see also Michael D. Scott, The FTC, the Unfairness Doctrine, and Data Security 

Breach Litigation: Has the Commission Gone Too Far?, 60 Admin. L. Rev. 127, 146 (2008) (discussing BJ’s Wholesale Club enforcement action and use of unfairness prong). 30See Fed. Trade Comm’n, 2016 Privacy & Data Security Update (Jan. 2017), https:// 

www.ftc.gov/reports/privacy-data-security-update-2016 (providing overview of various enforcement actions). 31F.T.C. v. Wyndham Worldwide Corp., 799 F.3d 236, 257 n.22 (3d Cir. 2015). 32See Press Release, Fed. Trade Comm’n, Eli Lilly Settles FTC Charges Concerning Security 

Breach (Jan. 18, 2002), available at https://www.ftc.gov/news-events/press-releases/2002/01/ 

eli-lilly-settles-ftc-charges-concerning-security-breach. 33See Complaint, In re BJ’s Wholesale Club, Inc. (F.T.C. Sept. 20, 2005) (No. C–4–4148), 

available at https://www.ftc.gov/sites/default/files/documents/cases/2005/09/092305comp 

0423160.pdf; see also Michael D. Scott, The FTC, the Unfairness Doctrine, and Data Security 

Breach Litigation: Has the Commission Gone Too Far?, 60 Admin. L. Rev. 127, 146 (2008) (discussing BJ’s Wholesale Club enforcement action and use of unfairness prong). 34See Fed. Trade Comm’n, 2016 Privacy & Data Security Update (Jan. 2017), https:// 

www.ftc.gov/reports/privacy-data-security-update-2016 (providing overview of various enforcement actions). 

ond, to use that historical analysis as a framework with which to propose practical 

process reforms that will ensure American businesses and the FTC work together 

as partners, not enemies, to make certain that consumers’—including Americans as 

well as foreign consumers who patronize U.S. businesses—data and privacy are afforded the greatest respect and protection possible. 

To that end, we herein provide a more indepth historical analysis of the FTC’s 

enforcement authority, including an examination of the problems that have arisen 

due to the FTC’s current procedural issues. We detail how the FTC has utilized 

data-driven guidance in other contexts—namely the aforementioned Green Guides— 

to guide businesses through empirical analysis of available data. Finally, we use 

that historical context to frame ways that Congress can help urge the FTC to provide the same types of empirical guidance to the tech industry. Finally, I will discuss the underlying issues with the FTC’s very low pleading standard and ex-amine 

ways that Congress can address this problem. 

Background of FTC Enforcement in the Digital Economy 

While the FTC began studying online privacy issues as early as 1995,27 the FTC 

truly started dealing with consumer protection issues related to the Internet in 

1997—settling a series of assorted cases before, in 2001, it brought its first data security enforcement action premised on deception, settled against Eli Lilly in 2002.28

In 2005, the FTC brought its first data security action premised on unfairness 

against BJ’s Wholesale Club.29 According to the FTC’s most recent Privacy & Data 

Security Update, the Commission has brought over 60 data security cases since 

2002, over 40 general privacy cases, and over 130 spam and spyware cases.30 Yet, 

as discussed, rather than promulgate rules or provide any clear guidance, the FTC 

has instead chosen to approach the issue through case-by-case enforcement actions, 

almost always ending in consent decrees, which only focus on prospective requirements of the specific defendant in that case.31 the FTC truly started dealing with 

consumer protection issues related to the Internet in 1997—settling a series of assorted cases before, in 2001, it brought its first data security enforcement action premised on deception, settled against Eli Lilly in 2002.32 In 2005, the FTC brought 

its first data security action premised on unfairness against BJ’s Wholesale Club.33

According to the FTC’s most recent Privacy & Data Security Update, the Commission has brought over 60 data security cases since 2002, over 40 general privacy 

cases, and over 130 spam and spyware cases.34 Yet, as discussed, rather than promulgate rules or provide any clear guidance, the FTC has instead chosen to approach the issue through case-by-case enforcement actions, almost always ending in 

30 

35F.T.C. v. Wyndham Worldwide Corp., 799 F.3d 236, 257 n.22 (3d Cir. 2015). 36Maureen K. Ohlhausen, Acting Chairman, Fed. Trade Comm’n, Painting the Privacy Landscape: Information Injury in FTC Privacy and Data Security Cases, Address Before the Federal 

Communications Bar Association (Sept. 19, 2017), https://www.ftc.gov/system/files/documents 

/public_statements/1255113/privacy_speech_mkohlhausen.pdf [hereinafter Ohlhausen, Informational Injury Speech]. 37Larry Downes, The Tangled Web of Net Neutrality and Regulation, Harvard Business Review (March 31, 2017), available at https://hbr.org/2017/03/the-tangled-web-of-net-neutralityand-regulation (‘‘Despite being a simple idea, net neutrality has proven difficult to translate into 

U.S. policy. It sits uncomfortably at the intersection of highly technical Internet architecture 

and equally complex principles of administrative law. Even the term ‘‘net neutrality’’ was coined 

not by an engineer but by a legal academic, in 2003.’’). Gerard Stegmaier, a veteran attorney 

in the field of data security and privacy, explained it as such: ‘‘Words matter. Net Neutrality. 

Deep Packet Inspection. #Privacy. Businesses beware. There’s a new label in town from the gov’t 

and repeating it could have significant unintended consequences. From a speech yesterday the 

@FTC acting chair declared ‘‘informational injuries’’ exist. Let that sink in.’’ Posting of Gerard 

Stegmaier on LinkedIn.com (Sept. 20, 2017), available at https://www.linkedin.com/feed/ 

update/urn:li:activity:6316291846356115456 (also on file with author). 38Ohlhausen, Informational Injury Speech, supra note 36, at 2–3. 39Ohlhausen, Informational Injury Speech, supra note 36, at 2. 40Plaintiff’s Response In Opposition to the Motion to Dismiss, F.T.C. v. Wyndham Worldwide 

Corp., 10 F. Supp. 3d 602 (D.N.J. 2014), aff’d, 799 F.3d 236 (3d Cir. 2015) (No. 2:13–CV–01887– 

ES–SCM) at 22, n. 8. 

consent decrees, which only focus on prospective requirements of the specific defendant in that case.35

In a speech last week, Acting Chairman Ohlhausen broadly summarized the ‘‘various types of consumer injury addressed in our privacy and data security cases’’ as 

‘‘informational injury.’’ 36 It’s a useful shorthand: one term to describe a cluster of 

consumer protection problems behind a wide range of cases. But for the same reason, it’s also a dangerous term—one that could, like ‘‘net neutrality,’’ take on a life 

its own, and serve to obscure and frustrate analysis rather than inform it.37 Of 

course, Chairman Ohlhausen chose her words carefully: 

[L]et me also emphasize that this is not a discussion of the legal question of 

what constitutes a ‘‘substantial injury’’ under our unfairness standard. My topic 

today may inform the substantial injury question, but I am speaking more 

broadly. Indeed, many of the cases I will mention are deception cases, or allege 

both deception and unfairness. 

. . . 

In my review of our privacy and data security cases, I have identified at least 

five different types of consumer informational injury. Certain of these types are 

more common. Many of our cases involve multiple types of injury. Courts and 

FTC cases often emphasize measurable injuries from privacy and data security 

incidents, although other injuries may be present. And to be clear, not all of 

these types of injury, standing alone, would be sufficient to trigger liability 

under the FTC Act.38

It is fitting that she should emphasize the word ‘‘measurable’’—and also caveat 

it with the word ‘‘often’’—because both speak to the central question facing the Federal Technology Commission as it grapples with an endless, and accelerating, parade of novel consumer protection issues: how does the agency determine what the 

right answer is in any particular case and what should be done about it? Ohlhausen 

defended the FTC’s approach to privacy and data security enforcement: 

Case-by-case enforcement focuses on real-world facts and specifically alleged behaviors and injuries. As such, each case integrates feedback on earlier cases 

from advocates, the marketplace and, importantly, the courts. This ongoing 

process preserves companies’ freedom to innovate with data use. And it can 

adapt to new technologies and new causes of injury.39

Yes, the courts’ ‘‘feedback’’ is ‘‘important.’’ Indeed, in a reply brief the FTC expressly agreed with TechFreedom on this importance of courts’ guidance when it 

said it ‘‘agrees that the field would be aided by a body of law that includes ‘Article 

III court decisions.’ ’’ 40 Yet, such assertions of the importance of courts’ ‘‘feedback’’ 

by the FTC seem empty given there has been precious little of it. Since 1997, not 

counting a handful of cases where the FTC sought injunctive relief against absent 

defendants (generally foreign scammers), the FTC has litigated, even partially, only 

31 

41LabMD, Inc. v. F.T.C., No. 1:14–CV–00810–WSD, 2014 WL 1908716, at *1 (N.D. Ga. May 

12, 2014), aff’d, 776 F.3d 1275 (11th Cir. 2015). 42F.T.C. v. Wyndham Worldwide Corp., 799 F.3d 236, 257 n.22 (3d Cir. 2015). 43F.T.C. v. Amazon.com, Inc., 71 F. Supp. 3d 1158 (W.D. Wash. 2014). 44Fed. Trade Comm’n v. D-Link Sys., Inc., No. 3:17–CV–00039–JD, 2017 WL 4150873, at *1 

(N.D. Cal. Sept. 19, 2017). 45 1980 Unfairness Policy Statement, supra note 12 (quoting FTC v. Raladam Co., 283 U.S. 

643, 648 (1931)). 46Timothy J. Muris, Judicial Constraints, in THE FEDERAL TRADE COMMISSION SINCE 

1970: ECONOMIC REGULATION AND BUREAUCRATIC BEHAVIOR, 35, 49 (Kenneth W. 

Clarkson & Timothy J. Muris, eds., 1981). 47 Hearing on Financial Services and Products: The Role of the Fed. Trade Commission in Protecting Customers, before the Subcomm. on Consumer Protection, Product Safety, and Insurance 

of the S. Comm. on Commerce, Science, and Transportation, 111th Cong. 2 (2010) (statement 

of Timothy J. Muris, Former Chairman, Fed. Trade Comm’n) available at http://lawpro 

fessors.typepad.com/files/muris_senate_testimony_ftc_role_protecting_consumers_3-17-101.pdf. 48 Joshua D. Wright, Revisiting Antitrust Institutions: The Case for Guidelines to Recalibrate 

the Federal Trade Commission’s Section 5 Unfair Methods of Competition Authority, 4 CONCURRENCES: COMPETITION L.J. 1 at 3 (2013), available at https://www.ftc.gov/sites/default/files/ 

documents/public_statements/siting-antitrust-institutions-case-guidelines-recalibrate-federaltrade-commissions-section-5-unfair/concurrences-4-2013.pdf. 

a handful of cases: LabMD,41 Wyndham Worldwide Corp.,42 Amazon.com, Inc.,43

and D-Link Systems, Inc.44 Thus, the way the FTC works today is a far cry from 

what the FTC said about how it would operate back in 1980: 

The statute was deliberately framed in general terms since Congress recognized 

the impossibility of drafting a complete list of unfair trade practices that would 

not quickly become outdated or leave loopholes for easy evasion. The task of 

identifying unfair trade practices was therefore assigned to the Commission, 

subject to judicial review, in the expectation that the underlying criteria would 

evolve and develop over time. As the Supreme Court observed as early as 1931, 

the ban on unfairness ‘‘belongs to that class of phrases which do not admit of 

precise definition, but the meaning and application of which must be arrived 

at by what this court elsewhere has called ‘the gradual process of judicial inclusion and exclusion.’ ’’45

What former FTC Chairman Tim Muris said of the Commission in 1981 remains 

true today: ‘‘Within very broad limits, the agency determines what shall be legal. 

Indeed, the agency has been ‘lawless’ in the sense that it has traditionally been beyond judicial control.’’ 46 As he noted in his 2010 testimony before a Senate Subcommittee, ‘‘the Commission’s authority remains extremely broad.’’ 47 What Commissioner Wright said of the FTC’s competition enforcement—where the Commission 

differs from the DOJ in enforcing (in theory, anyway) the same substantive laws— 

is even more true of consumer protection: 

The combination of institutional and procedural advantages with the vague nature of the Commission’s Section 5 authority gives the agency the ability, in 

some cases, to elicit a settlement even though the conduct in question very likely may not [violate any law or regulation]. This is because firms typically prefer 

to settle a Section 5 claim rather than going through lengthy and costly administrative litigation in which they are both shooting at a moving target and have 

the chips stacked against them. Significantly, such settlements also perpetuate 

the uncertainty that exists as a result of the ambiguity associated with the 

Commission’s [Section 5] authority by encouraging a process by which the contours of Section 5 are drawn without any meaningful adversarial proceeding or 

substantive analysis of the Commission’s authority.48

Without the courts to demand rigor from the FTC in defining ‘‘measurable’’ harm, 

what should the Commission do? And what should Congress do? 

Chairman Ohlhausen’s speech represents a major step in the right direction—precisely because it promises to give more analytical rigor to the term ‘‘informational 

injury’’ than such generalizations generally have. She concludes: 

This analysis raises several important questions. Is this list of injuries representative? When do these or other informational injuries require government 

intervention? Perhaps most importantly, how does this list map to our statutory 

deception and unfairness authorities? 

These are critical and challenging questions. That’s why I am announcing today 

that the FTC will host a workshop on informational injury on December 12 of 

this year. This workshop will bring stakeholders together to discuss these issues 

in depth. I have three goals for this workshop: First, better identify the qualiVerDate Nov 24 2008 07:37 Mar 18, 2019 Jkt 000000 PO 00000 Frm 00035 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\35459.TXT JACKIE
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49Ohlhausen, Informational Injury Speech, supra note 36, at 9. 50See Fed. Trade Comm’n, Environmental Friendly Products: FTC’s Green Guides (last visited 

Sept. 24, 2017), available at https://www.ftc.gov/news-events/media-resources/truth-advertising/green-guides (‘‘The Green Guides were first issued in 1992 and were revised in 1996, 

1998, and 2012. The guidance they provide includes: (1) general principles that apply to all environmental marketing claims; (2) how consumers are likely to interpret particular claims and 

how marketers can substantiate these claims; and (3) how marketers can qualify their claims 

to avoid deceiving consumers.’’). 51See BERIN SZO ́ KA & GEOFFREY A. MANNE, THE FEDERAL TRADE COMMISSION: RESTORING

CONGRESSIONAL OVERSIGHT OF THE SECOND NATIONAL LEGISLATURE 57–60 (2016), available at 

http://docs.house.gov/meetings/IF/IF17/20160524/104976/HHRG-114-IF17-Wstate-ManneG20160524-SD004.pdf [hereinafter White Paper]. 52Federal Trade Commission Act Amendments of 1994, Pub. L. 103–312, 108 Stat. 1691 (Aug. 

26, 1994) available at http://uscode.house.gov/statutes/pl/103/312.pdf. 53Federal Trade Commission Reauthorization Act of 1996, Pub. L. 104–216, 110 Stat. 3019 

(Oct. 1, 1996), available at http://uscode.house.gov/statutes/pl/104/216.pdf. 

tatively different types of injury to consumers and businesses from privacy and 

data security incidents. Second, explore frameworks for how we might approach 

quantitatively measuring such injuries and estimate the risk of their occurrence. And third, better understand how consumers and businesses weigh these 

injuries and risks when evaluating the tradeoffs to sharing, collecting, storing, 

and using information. Ultimately, the goal is to inform our case selection and 

enforcement choices going forward.49

Amen. This is the kind of workshop the FTC should have held two decades ago— 

and several more times since. The FTC has, in fact, conducted such workshops, collected empirical data, and issued corresponding guidance based upon rigorous empirical analysis in another context: the Green Guides first issued for environmental 

marketing in 1992, and updated three times since then.50 As discussed below, these 

offer an excellent model for how the Commission could begin to take a more substantive approach to defining informational injury, while also providing clearer guidance to industry. 

Congress should support and encourage this effort—by holding the FTC to the 

high standards set by its work on the Green Guides. If this effort represents a significant departure with the analytically flimsy, ‘‘know-it-when-we-see-it’’ approach 

the FTC has generally taken to ‘‘informational injury’’ cases thus far, both consumers and companies would benefit from clearer, better substantiated guidance. 

But this will not be an easy change to make; it will require a new degree of rigor 

in how the Bureau of Consumer Protection operates, and a new closeness in BCP’s 

engagement with the Bureau of Economics. 

At best, this could be the beginnings of a ‘‘law and economics’’ revolution in consumer protection law—of the sort that transformed competition law in decades past, 

has guided the Bureau of Competition since, and has informed the courts in their 

development of antitrust case law. 

But at worst, this process could result in blessing the FTC’s current approach 

with a veneer of analytical rigor that merely validates the status quo. The report 

that comes out of this process could resemble the reports the FTC has produced 

since the 2012 Privacy Report, which make broad recommendations as to what industry best practices should be, without any real analysis behind those recommendations or how they relate to the Commission’s powers under Section 5.51

Chairman Ohlhausen’s initial thoughtful framing suggests reason for optimism, 

but everything will depend on how she and whoever becomes permanent Chairman 

(if it is not her) execute on the plan. In any event, the Commission’s own more recent experience with the Green Guides—to say nothing of the last 15 years of experience with data security and privacy—suggests that self-restraint is unlikely to 

prove sustainable, on its own, in disciplining the agency. Ultimately, the kind of analytical quality that has defined antitrust law, and has sustained the law and economics approach there, requires external constraints—namely, regular engagement 

with the courts and oversight by Congress. 

To that end, a careful reassessment of the Commission’s processes is long overdue. 

The last time Congress seriously reconsidered, and revised, the FTC’s processes was 

in 1994.52 The agency has not been reauthorized since 1996.53 Congress should return to its habit—the default assumption prior to Ken Starr, Monica Lewinsky, and 

impeachment—of reauthorizing the FTC every two years and, each time, re-examining how well the agency is working. Modifications to the statute should not be 

made lightly, but they should also happen more often than once in a generation. 

Last year, the House Committee on Energy and Commerce considered no fewer 

than seventeen bills regarding the FTC. The attached white paper, co-authored with 

Geoffrey Manne, Executive Director of the International Center for Law & EconomVerDate Nov 24 2008 07:37 Mar 18, 2019 Jkt 000000 PO 00000 Frm 00036 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\35459.TXT JACKIE
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54See generally White Paper, supra note 51. 55 15 U.S.C. § 45(a). 56 Notice of Proposed Rulemaking, Restoring Internet Freedom, WC Docket No. 17–108, 32 

FCC Rcd 4434 (2017), https://apps.fcc.gov/edocs_public/attachmatch/FCC-17-60A1_Rcd.pdf. 57Fed. Trade Comm’n v. AT & T Mobility LLC, 835 F.3d 993 (9th Cir. 2016), reh’g en banc 

granted sub nom., Fed. Trade Comm’n v. AT&T Mobility LLC, 864 F.3d 995 (9th Cir. 2017). 58Fed. Trade Comm’n v. AT&T Mobility LLC, 864 F.3d 995 (9th Cir. 2017). 59 United States Court of Appeals for the Ninth Circuit, Fed. Trade Comm’n v. AT&T Mobility 

LLC, 864 F.3d 995 (2017), Oral Arguments, available at https://www.youtube.com/ 

watch?v=Rs8EQU-KIEw. 60 Id. at 13:50. 

ics, surveys those bills and provides recommendations to Congress on how to approach them.54 Together, they form a starting point for the Senate Commerce Committee to begin its work, but they do not cover many of the most important aspects 

of how the agency works. Given this Committee’s extensive knowledge and expertise, we hope that this Committee, along with the broader Senate, should start its 

own work on FTC reform legislation afresh. 

II. Summary of Proposed Legislative Reforms 

Rather than repeat the full analysis provided in the aforementioned white paper 

we presented to the House Energy & Commerce Committee last year, we have instead provided a short overview of how to consider thinking about the main issues 

we believe need to be addressed through legislation. 

A. The Common Carrier Exception 

The FTC Act excludes ‘‘common carriers subject to the Acts to regulate commerce.’’ 55 What this provision means will be crucial—especially for technology cases 

in the coming years—and merits clarification from Congress. 

The Federal Communications Commission has proposed to undo its 2015 reclassification of broadband providers as common carriers.56 Doing so will return the controversial issue of ‘‘net neutrality’’ to the Federal Trade Commission by restoring the 

FTC’s jurisdiction over broadband providers—or rather, there should be a seamless 

transition to ensure that consumers remain protected. But a Ninth Circuit panel decision last year calls into question whether the FTC’s jurisdiction will be fully restored,57 creating the possibility that a company providing broadband service, once 

that service is no longer considered a common carrier service by the FCC, might 

still remain outside the jurisdiction of the FTC either because (1) that particular 

corporate entity also provides a common carrier service such as voice (which will 

remain subject to Title II of the Communications Act even after the FCC’s proposes 

re-reclassification of broadband) or (2) another corporate entity under common ownership provides such a common carrier service. In short, the panel decision rejected 

the FTC’s longstanding ‘‘activity-based’’ interpretation of the statute in favor of an 

‘‘entity-based’’ interpretation. The Ninth Circuit granted rehearing of that decision 

earlier this year, effectively vacating the panel decision.58

At oral arguments last week, AT&T stuck by its general arguments for an entitybases interpretation, but clarified two things.59 First, it read the statute to turn on 

the common carrier or non-common carrier status of each specific corporate entity, 

so that the FTC’s jurisdiction over Oath, for example, the company formed by the 

Verizon parent company after it acquired AOL and Yahoo! and merged them together, would not be affected by the fact that Verizon Wireless provides a common 

carrier voice service. Second, AT&T argued that the FCC has plenary jurisdiction 

to, as it did in the Computer Inquiries, mandate such structural separation to ensure that there is no gap in consumer protection between the FTC and FCC.60

It is impossible to predict how the Ninth Circuit might resolve this case, but it 

is safe to say that if the FCC issues its Third Open Internet Order this year, or 

even early next year, that decision might well come out before the Ninth Circuit’s 

decision. 

Congress should not assume that the Ninth Circuit will fully restore the FTC’s 

activity-based interpretation of its jurisdiction, even though appears to be the most 

likely result of the case. Congress should, instead, consider quickly moving legislation that would codify that interpretation. Even if the Ninth Circuit en banc panel 

accepts AT&T’s argument and simply narrows the panel decision, that would only 

solve part of the problem raised by the panel decision. Requiring structural separation between ‘‘edge’’ companies like Oath and broadband companies like Verizon 

might make business sense anyway, but it might not—especially given the ongoing 

push to restrict the sharing of consumer data even among corporate affiliates under 

common ownership. Furthermore, AT&T’s argument would still raise serious questions about which agency will deal with net neutrality and other consumer protecVerDate Nov 24 2008 07:37 Mar 18, 2019 Jkt 000000 PO 00000 Frm 00037 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\35459.TXT JACKIE
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61Protecting Consumers in Commerce Act of 2016, H.R. 5239, 114th Cong. (2016), available 

at https://www.congress.gov/bill/114th-congress/house-bill/5239/text. 

62 Remarks of Joshua D. Wright, The FTC and Privacy Regulation: The Missing Role of Economics, George Mason University Law and Economics Center (Nov. 12, 2015), available at 

http://masonlec.org/site/rte_up-loads/files/Wright_PRIVACYSPEECH_FINALv2_PRINT.pdf. 63See White Paper, supra note 51, at 42–43. 64See id. at 98–100. 

tion concerns about broadband services once they are returned to Title I: it is difficult to see how the common carrier services provided by these companies, if only 

telephony, could be functionally separated from the broadband service. Would consumers have to deal with, and subscribe to, two separate services, each offered by 

a separate corporate entity? 

The Ninth Circuit may, of course, reject AT&T’s arguments completely, fully reverse the panel decision, and restore the FTC’s activity-based interpretation completely. But it would be far better for Congress to resolve this question before the 

FCC revises the regulatory classification of broadband. It could do so in a one-sentence bill. 

Of course, many have argued that the common carrier exception should be abolished, and the Protecting Consumers in Commerce Act of 2016 (H.R. 5239) would 

have done just that.61 Simply restoring the activity-based exemption need not be 

permanent; it could be stop-gap measure that allows Congress time to consider 

whether to maintain the exemption. 

B. More Economic Analysis 

As many commentators have noted, the FTC has frequently failed to employ sufficient economic analysis in both its enforcement work and policymaking. Former 

Commissioner Josh Wright summarized the problem pointedly in a speech entitled 

‘‘The FTC and Privacy Regulation: The Missing Role of Economics,’’ explaining: 

An economic approach to privacy regulation is guided by the tradeoff between 

the consumer welfare benefits of these new and enhanced products and services 

against the potential harm to consumers, both of which arise from the same free 

flow and exchange of data. Unfortunately, government regulators have instead 

been slow, and at times outright reluctant, to embrace the flow of data. What 

I saw during my time at the FTC is what appears to be a generalized apprehension about the collection and use of data—whether or not the data is actually 

personally identifiable or sensitive—along with a corresponding, and arguably 

crippling, fear about the possible misuse of such data.62

As Wright further noted, such an approach would take into account the risk of 

abuses that will cause consumer harm, weighed with as much precision as possible. 

Failing to do so can lead to significant problems, including creating disincentives for 

companies to innovate and create benefits for consumers. 

Specifically, Congress or the FTC should require the Bureau of Economics to have 

a role in commenting on consent decrees 63 and proposed rulemaking,64 and a greater role in the CID process. But the most effective ways to engage economists in the 

FTC’s decisionmaking would be to raise the FTC’s pleading standards and make reforms to the CID process designed to make litigation more likely: in both cases, the 

FTC will have to engage its economists more closely, either in order to ensure that 

its complaints are well-plead or to prevail on the merits in Federal court. 

C. Clarification of the FTC’s Substantive Standards 

The FTC has departed in significant ways from both the letter and spirit of the 

1980 Unfairness Policy Statement and the 1983 Deception Policy Statement. This 

is mainly due to the FTC essentially having complete, unchecked, discretion to interpret these policy statements as it sees fit—including the discretion to change 

course regularly without notice. The courts simply have not had the opportunity to 

effectively implement Section 5(n), nor has the FTC ever really chosen to constrain 

its own discretion in meaningful ways (as it has done with the Green Guides). Making substantive clarifications to Section 5 will not be adequate without process reforms to ensure that these clarifications are given effect over time. But that does 

not mean they would be without value. 

In order to clarify the FTC’s substantive standards under Section 5, we would 

suggest the following key changes: 

1. Codifying other key aspects of the 1980 Unfairness Policy Statement into Section 5 that were not already added by the addition of Section 5(n) in 1994; 

35 

65See White Paper, supra note 51, at 21–28. 66 In the Matter of Nomi Technologies, Inc., Comments of the International Center for Law 

& Economics & TechFreedom, File No. 1323251 (May 26, 2015), https://www.ftc.gov/system/ 

files/documents/public_comments/2015/05/00011-96185.pdf. 67See infra 69. 68See White Paper, supra note 51, at 28–30; Fed. Trade Comm’n, Statement of Enforcement 

Principles Regarding ‘‘Unfair Methods of Competition’’ Under Section 5 of the FTC Act (Aug. 13, 

2015), available at https://www.ftc.gov/system/files/documents/public_statements/735201/150 

813section5enforcement.pdf. 69 Rombach v. Chang, 355 F.3d 164, 170 (2d Cir. 2004) (‘‘In deciding this issue, several circuits 

have distinguished between allegations of fraud and allegations of negligence, applying Rule 9(b) 

only to claims pleaded under Section 11 and Section 12(a)(2) that sound in fraud.’’). 70See infra at 19. 71See White Paper, supra note 51, at 18–21. 72 15 U.S.C. § 45(b). 

2. Codifying the Deception Policy Statement, just as Congress codified the Unfairness Policy Statement in a new Section 5(n).65 This issue is explored in greater 

depth in my 2015 joint comments with Geoffrey Manne on the FTC’s settlement of its enforcement action with Nomi Technologies, Inc.66 Specifically, in 

codifying the Deception Policy Statement, Congress should: 

a. Clarify—or require the FTC to propose clarifications of—when and how the 

FTC must establish the materiality of statements about products: it made 

sense to presume that all express statements were material in the context 

of traditional advertising: because each such statement was calculated to 

persuade users to buy a product. But the same cannot necessarily be said of 

the myriad other ways that companies communicate with users today, such 

as through online help pages or privacy policies (which companies are required to post online, if only by California law). 

b. Require the FTC to meet the requirements of Section 5(n) when bringing enforcement actions based on the ‘‘reasonableness’’ of a company’s practices, 

such as data security.67

3. Codify the FTC’s 2015 Unfair Methods of Competition Policy Statement, with 

one small modification: the FTC should be barred from going beyond antitrust 

doctrine.68

D. Clarifying the FTC’s Pleading Standards 

Several courts have already concluded that the FTC’s deception enforcement actions must satisfy the heightened pleading standards of Section 9(b) of the Federal 

Rules of Civil Procedure, which applies to claims filed in Federal court that ‘‘sound 

in fraud.’’ 69 As explained below, this requirement would not be difficult for the FTC 

to meet, since the agency has broad Civil Investigative powers that are not available 

to normal plaintiffs before filing a complaint.70 There is no reason the FTC should 

not have to plead its deception claims with specificity. 

The same can be said for unfairness claims, even though they do not ‘‘sound in 

fraud.’’ In both cases, getting the FTC to file more particularized complaints is critical, given that the FTC’s complaint is, in essentially all cases, the FTC’s last word 

on the matter, supplemented by little more than a press release, and an aid for public comment. 

Indeed, the bar should likely be higher, not lower for unfairness cases. The attached white paper recommends a preponderance of objective standard for unfairness cases.71 The critical thing to note is that there is no statutory standard for settling FTC enforcement actions—so the standard by which the FTC really operates 

is the very low bar set by Section 5(b): ‘‘reason to believe that [a violation may have 

occurred]’’ and that ‘‘it shall appear to the Commission that [an enforcement action] 

would be to the interest of the public.’’ 72 In addition to the substantive clarifications 

to the FTC’s substantive standards, Congress must clarify either the settlement 

standard or the pleading standard, if not both. 

E. Encouraging More Litigation to Engage the Courts in the Development of Section 

5 Doctrine and Provide More Authoritative Guidance 

Litigation is important for two reasons. First, having to prove its case before a 

neutral tribunal forces analytical rigor upon the FTC and thus forces it to make better, more informed decisions. Second, court decisions will provide guidance to regulated companies on how to comply with the law that is necessarily more authoritative (since the FTC cannot simply overrule a court decision the way it can change 

its mind about its own enforcement actions or guidance) and also likely (but not necessarily) more detailed and better grounded in the FTC’s doctrines. 

36 

73See White Paper, supra note 51, at 82–85. 74 Id. 75See id. at 84–85. 76 Id. 77Standard Merger and Acquisition Reviews Through Equal Rules Act of 2015, H.R. 2745, 

114th Cong. (2015). 78PONEMON, DATA BREACH, supra note 5, at 6. 79See Help Net Security, After a data breach is disclosed, stock prices fall an average of 5 

percent (May 16, 2017), https://www.helpnetsecurity.com/2017/05/16/data-breach-stock-price/ 

(detailing a study by Ponemon). 80Paul R. La Monica, After Equifax apologizes, stock falls another 15 percent (Sept. 13, 2017), 

available at http://money.cnn.com/2017/09/13/investing/equifax-stock-mark-warner-ftc-probe/ 

index.html. 81See, e.g., Cheryl Conner, When The Government Closes Your Business, Forbes (Feb. 1, 2014), 

https://www.forbes.com/sites/cherylsnappconner/2014/02/01/when-the-government-closesyour-business/#6e7c78971435; Dune Lawrence, A Leak Wounded This Company. Fighting the 

Feds Finished It Off, Bloomberg (April 25, 2016), https://www.bloomberg.com/features/2016- 

labmd-ftc-tiversa/ (‘‘The one company that didn’t settle with the FTC is LabMD. Daugherty 

hoped, at first, that if he were as cooperative as possible, the FTC would go away. He now calls 

that phase ‘the stupid zone.’ ’’). 

One major reason companies settle so often across the board is that the FTC staff 

has the discretion to force companies to endure the process of litigating through the 

FTC’s own administrative process, first before an administrative law judge and then 

before the Commission itself, before ever having the opportunity to go before an 

independent, neutral tribunal. The attached white paper explore three options:73

1. ‘‘[E]mpower one or two Commissioners to insist that the Commission bring a 

particular complaint in Federal court. This would allow them to steer cases out 

of Part III either because they are doctrinally significant or because the Commissioners fear that, unless the case goes to Federal court, the defendant will 

simply settle, thus denying the entire legal system the benefits of litigation in 

building the FTC’s doctrines. In particular, it would be a way for Commissioners to act on the dissenting recommendations of staff, particularly the Bureau of Economics, about cases that are problematic from either a legal or policy perspective.’’ 74

2. Abolish Part III completely, as former Commissioner Calvani has proposed.75

3. Require the FTC to litigate in Federal court while potentially still preserving 

Part III for the supervision of the settlement process and discovery.76 Requiring the FTC to litigate all cases in Federal court (as the SMARTER Act would 

do for competition cases 77) might, in principle, prove problematic for the Bureau of Consumer Protection, which handles many smaller cases. Retaining 

Part III but allowing Commissioners to object to its use might strike the best 

balance. 

F. The Civil Investigative Demand Process 

There are many reasons why companies do not litigate privacy and data security 

cases. Some of them are beyond the control of FTC or Congress—for example, the 

extreme sensitivity of these issues for companies. Studies by the Ponemon Institute 

found that ‘‘[d]ata breaches are more concerning than product recalls and lawsuits,’’ 78 with a company’s stock price falling an average of 5 percent after a data 

breach is disclosed.79 Witness the 30 percent hit Equifax took to its stock price upon 

revelation of its data breach.80 Perhaps most illustrative of the sensitivity of these 

issues was the case of LabMD—a medical testing company and one of the handful 

of companies who dared litigate against the FTC—which ultimately went out of 

business due to litigation costs and reputational damage, even though the judge ultimately found that no consumer was injured.81 But a very significant, if not the 

biggest, reason why companies reflexively, almost invariably settle their cases is 

that the process of the FTC’s investigation can be punishment enough to make settlement seem more attractive. After enduring a burdensome investigative process, 

companies (especially start-ups) frequently lack additional resources to defend themselves and face an informational asymmetry given the intrusiveness inherent in the 

FTC’s current process. Even Chris Hoofnagle, who has long advocated that the FTC 

be far more aggressive on privacy and data security, warns, in his new treatise on 

privacy regulation at the agency, that 

37 

82Darren Bush, The Incentive and Ability of the Federal Trade Commission to Investigate 

Real Estate Markets: An Exercise in Political Economy, 20–21, available at http:// 

www.antitrustinstitute.org/files/517c.pdf. 83See Geoffrey A. Manne, R. Ben Sperry & Berin Szo ́ka, In the Matter of Nomi Technologies, 

Inc.: The Dark Side of the FTC’s Latest Feel-Good Case, ICLE Antitrust & Consumer Protection 

Research Program White Paper 2015–1 (2015). 84D.H. Ginsburg & J.D. Wright, Antitrust Settlements: The Culture of Consent, in I. William 

E. Kovacic: An Antitrust Tribute—Liber Amicorum (Charbit et al., eds., February 2013), 

https://www.ftc.gov/sites/default/files/documents/public_statements/antitrust-settlements-culture-consent/130228antitruststlmt.pdf. 85See White Paper, supra note 51, at 37–40. 86 Id. at 46–48. 87 Id. at 48–53. 88 Coffin v. United States, 156 U.S. 432, 453 (1895). 89LabMD, Inc., No. 9357, 2015 WL 7575033, at *48 (MSNET Nov. 13, 2015), https:// 

causeofaction.org/wp-content/uploads/2015/11/Docket-9357-LabMD-Initial-Decison-electronicversion-pursuant-to-FTC-Rule-3-51c21.pdf. 

[T]he FTC’s investigatory power is very broad and is akin to an inquisitorial 

body. On its own initiative, it can investigate a broad range of businesses without any indication of a predicate offense having occurred.82

This onerous the process inevitably leads to more false-positives as FTC staff becomes invested in fishing expeditions and force such consent decrees regardless of 

the actual harms on consumers.83 Other systemic costs of this process include increased discovery burdens on (even blameless) potential defendants, inefficiently 

large compliance expenditures throughout the economy, under experimentation and 

innovation by firms, doctrinally questionable consent orders, and a relative scarcity 

of judicial review of Commission enforcement decisions. Ultimately, this phenomena 

distorts the FTC’s consumer protection mission because the agency can self-select 

cases that are likely to settle and further its policy goals, rather than choosing cases 

on the basis of stopping the most nefarious actors and truly protecting consumers. 

As even former FTC Commissioner Joshua Wright noted, such self-serving personal 

and agency goals may push agencies to pursue cases ‘‘with the best prospect for settlement, cases that will consume few investigative resources, settle quickly, and are 

more likely to result in a consent decree that provides a continuing role for the 

agency.’’ 84 Thus, more than any other aspect of the FTC Act or the FTC’s operations, it is here that reinvigorated congressional oversight is needed. 

The attached white paper explores this topic in great depth. Specifically, we recommend: 

1. Reporting on how the agency uses CIDs 85

2. Making CIDs confidential by default and allowing companies to move to quash 

them confidentially.86 Today, fighting an FTC subpoena means the FTC can 

make the fight public, which may have serious consequences for a company’s 

brand and stock price. 

3. Requiring a greater role for Commissioners and economists in supervising the 

discovery process.87

Ultimately, any examination of the FTC’s processes should start with arguably 

the most sacred principle in the American judicial system: innocent until proven 

guilty. As the Supreme Court made clear in 1895, ‘‘[t]he principle that there is a 

presumption of innocence in favor of the accused is the undoubted law, axiomatic 

and elementary, and its enforcement lies at the foundation of the administration of 

our criminal law.’’ 88 While it is inarguably true that these cases are very clearly 

not criminal, it is also true that these companies and their employees face the 

threat of losing their ‘‘life, liberty, and property’’ as a result of these actions, as evidenced by LabMD. Despite the Administrative Law Judge finding that ‘‘the evidence 

fails to show any computer hack for purpose of committing identity fraud,’’ the employees of LabMD were nonetheless left without employment simply due to ‘‘speculation’’ by the FTC—a word that appeared seventeen times in the ALJ’s decision.89

Given the sensitive nature of both the type of information involved in these cases, 

including financial and health information, as well as consumers’ sensitivity to reports that their data may be in jeopardy, it is of the utmost importance that Congress ensure that innocent businesses’ reputations aren’t irreparably damaged simply due to ‘‘speculation.’’ To be clear: this is not to say that parties who are guilty 

of implementing nefarious practices should be protected from the court of public 

opinion. Indeed, as former Commissioner Wright alluded to, implementing processes 

that would, at the very least, require the FTC to plead its claims with specificity— 

and, ideally, subsequently prove it on the basis of data-driven standards—prior to 

dragging a companies’ name through the mud would actually ensure the FTC was 

38 

90 Coffin v. United States, 156 U.S. 432, 455 (1895). 91See, e.g., Kraft, Inc. v. F.T.C., 970 F.2d 311, 326 (7th Cir. 1992) (‘‘The F.T.C. has discretion 

to issue multi-product orders, so called ‘fencing-in’ orders, that extend beyond violations of the 

Act to prevent violators from engaging in similar deceptive practices in the future.’’) (citing 

F.T.C. v. Colgate-Palmolive Co., 380 U.S. 374, 395 (1965)). 92See White Paper, supra note 51, at 73–75. 93 J. Howard Beales III & Timothy J. Muris, Striking the Proper Balance: Redress Under Section 13(b) of the FTC Act, 79 ANTITRUST L. J. 1, 6–7 (2013). 94Dissenting Statement of Commissioner Joshua D. Wright, In the Matter of Apple, Inc., FTC 

File No. 1123108, at 3 (Jan. 15, 2014), available at https://goo.gl/0RCC9E. 

using its limited resources to only go after the worst actors, rather than merely 

those most likely to settle. 

Requiring the FTC to first make a showing beyond ‘‘speculation’’ of harm it alleges before invoking its immensely broad investigatory power, would at least provide businesses and its employees with some level of protection before being labeled 

as having unsecure data practices and being forced to face the repercussions that 

inevitably come with such a label. In doing so, Congress would ensure one of the 

oldest maxims of law in democratic civilizations continues. As Roman Emperor Julian eloquently quipped in response to his fiercest adversary’s statement that ‘‘Oh, 

illustrious Caesar! if it is sufficient to deny, what hereafter will become of the 

guilty?’’: ‘‘If it suffices to accuse, what will become of the innocent?’’ 90

G. Fencing-In Relief 

The FTC has broad powers under Section 13(b) to include in consent decrees extraordinarily broad behavioral requirements that ‘‘fence in’’ the company in the future.91 The courts have been exceedingly deferential to the FTC in applying these 

requirements, though at least one circuit court has rebuked the FTC’s broad approach, as explained in the attached white paper.92 Rather than attempting to limit 

how the FTC uses its 13(b) powers, Congress should focus on when Section 13(b) 

applies. As Howard Beales, former director of the Bureau of Consumer Protection, 

has argued, regarding deception: 

the Commission’s use of Section 13(b) remedies should be reevaluated in light 

of the law’s original purpose: [O]ne class of cases clearly improper for awarding 

redress under Section 13(b): traditional substantiation cases, which typically involve established businesses selling products with substantial value beyond the 

claims at issue and disputes over scientific details with well-regarded experts 

on both sides of the issue. In such cases, the defendant would not have known 

ex ante that its conduct was ‘‘dishonest or fraudulent.’’ Limiting the availability 

of consumer redress under Section 13(b) to cases consistent with the Section 19 

standard strikes the balance Congress thought necessary and ensures that the 

FTC’s actions benefit those that it is their mission to protect: the general public.93

The same logic goes for the kind of unfairness cases the FTC is bringing against 

high-tech companies, as Josh Wright noted in his dissent in the Apple product design case: 

The economic consequences of the allegedly unfair act or practice in this case— 

a product design decision that benefits some consumers and harms others—also 

differ significantly from those in the Commission’s previous unfairness cases. 

The Commission commonly brings unfairness cases alleging failure to obtain express informed consent. These cases invariably involve conduct where the defendant has intentionally obscured the fact that consumers would be billed. 

Many of these cases involve unauthorized billing or cramming—the outright 

fraudulent use of payment information. Other cases involve conduct just shy of 

complete fraud—the consumer may have agreed to one transaction but the defendant charges the consumer for additional, improperly disclosed items. Under 

this scenario, the allegedly unfair act or practice injures consumers and does 

not provide economic value to consumers or competition. In such cases, the requirement to provide ad-equate disclosure itself does not cause significant 

harmful effects and can be satisfied at low cost. However, the particular facts 

of this case differ in several respects from the above scenario.94

The key point, as Wright argued, is that the Commission is increasingly using unfairness not to punish obviously bad actors or to proscribe conduct that merits per 

se illegality because it is inherently bad, but rather, conduct that presents difficult 

tradeoffs: How long should consumers remained logged in to an apps store to balance the convenience of the vast majority of users with the possibility that some 

users with children may find that their children make unauthorized purchases on 

39 

95 Id. at 40–43. See, e.g., Letter from Joel Winston, Associate Director of Fed. Trade Comm’n 

to Michael E. Burke, Esq., Counsel to Dollar Tree Stores, Inc. (June 5, 2001) available at http:// 

www.ftc.gov/sites/default/files/documents/closing_letters/dollar-tree-stores-inc./070605doltree 

.pdf. 96See, e.g., Letter from Maneesha Mithal, Associate Director of Fed. Trade Comm’n to Lisa 

J. Sotto, Counsel to Michael’s Stores, Inc. (June 5, 2001) available at http://www.ftc.gov/sites/ 

default/files/documents/closing_letters/michaels-storesinc./120706michaelsstorescltr.pdf. 97The Clarifying Legality and Enforcement Action Reasoning Act, H.R. 5109, 114th Cong. 

(2016) [hereinafter CLEAR Act] available at https://www.congress.gov/bill/114th-congress/ 

house-bill/5109/text. 98 16 C.F.R. 3.72(b). 

the device immediately after the parent has logged in? How much, and what kind 

of, data security is ‘‘reasonable?’’ And so on. These reflect business decisions that 

are inevitable in the modern economy. The Commission might well be justified in 

declaring that a company has struck the wrong balance, but it should not treat 

them exactly as it would obvious fraudsters, who set out to defraud consumers. 

In order to deter the Commission from taking advantage of this frequent judicial 

deference by imposing such disconnected ‘‘fencing-in’’ remedies in non-fraud cases— 

which, of course, is compounded by the fact that most cases are never reviewed by 

courts at all—Congress should consider imposing some sort of minimal requirement 

that provisions in proposed orders and consent decrees be (i) reasonably related to 

challenged behavior, and (ii) no more onerous than necessary to correct or prevent 

the challenged violation. 

H. Closing Letters 

While consent decrees might help companies understand what the FTC will deem 

illegal on a case-by-case basis, in unique fact patterns, closing letters could do the 

inverse, telling companies what the FTC will deem not to be illegal, which is potentially far more useful in helping companies plan their conduct. In the past, the FTC 

issued at least a few closing letters with a meaningful degree of analysis of the practices at issue under the doctrinal framework of Section 5(n).95 But in recent years, 

the FTC has markedly changes its approach, issuing fewer letters and writing those 

it did issue at a level of abstraction that offers little real guidance and even less 

analysis.96

Rep. Brett Guthrie’s (R–KY) proposed CLEAR Act (H.R. 5109) would require the 

FTC to report annually to Congress on the status of its investigations, including the 

legal analysis supporting the FTC’s decision to close some investigations without action. This requirement would not require the Commission to identify its targets, 

thus preserving the anonymity of the firms in question.97 Most importantly, the bill 

requires: 

(1) IN GENERAL.—The Commission shall, on an annual basis, submit a report 

to Congress on investigations with respect to unfair or deceptive acts or practices in or affecting commerce (within the meaning of subsection (a)(1)), detailing— 

(A) the number of such investigations the Commission has commenced; 

(B) the number of such investigations the Commission has closed with no official agency action; 

(C) the disposition of such investigations, if such investigations have concluded 

and resulted in official agency action; and 

(D) for each such investigation that was closed with no official agency action, 

a description sufficient to indicate the legal and economic analysis supporting the Commission’s decision not to continue such investigation, and 

the industry sectors of the entities subject to each such investigation. 

This bill, with our proposed addition noted, would go a long way to improving the 

value of the FTC’s guidance. Indeed, such annual reporting could form annual addenda to guidance that the FTC issues in the guidance it provides on informational 

injury modeled on the Green Guides. Although the Green Guides themselves do not 

involve such reporting, it would make sense in this context, where the FTC is regularly confronted with far more novel fact patterns each year. 

I. Re-opening Past Settlements 

The FTC may, under its current rules, re-open past settlements at any time—subject only to the Commission’s assertion about what the ‘‘public interest’’ requires 

and after giving companies an opportunity to ‘‘show cause’’ why their settlements 

should not be modified.98 By contrast, courts require far more for re-opening their 

40 

99 15 U.S.C.A. § 45 (West 2017). 100See generally Justin (Gus) Hurwitz, Data Security and the FTC’s Uncommon Law, 101 

Iowa L. Rev. 955, 964 (2016) (discussing in great lengths the FTC’s ‘‘common law’’ approach) 

[hereinafter Hurwitz, Uncommon Law]. 101 Id. 102See Id.; see also Statement of Basis and Purpose of Trade Regulation Rule 408, Unfair or 

Deceptive Advertising and Labeling of Cigarettes in Relation to the Health Hazards of Smoking, 

29 Fed. Reg. 8324, 8355 (July 2, 1964) (setting the three-factor contours of the ‘‘unfairness’’ 

prong for the first time through application of Section 5 to cigarette advertisements). 103See Gramm-Leach-Bliley Act, 15 U.S.C. § 6801 et seq. (2012) (‘‘It is the policy of the Congress that each financial institution has an affirmative and continuing obligation to . . . protect 

the security and confidentiality of . . . customers’ nonpublic personal information.’’). 104The Child Online Privacy Protection Act of 1998, 15 U.S.C. § 6501, et seq (1994 & Supp. 

IV 1998) (making it unlawful under § 6502(a)(1) ‘‘for an operator of a website or online service 

directed to children . . . to collect personal information form a child in a manner that violates 

the regulations prescribed under subsection (b) of this section.’’); see also Melanie L. Hersh, Is 

Coppa A Cop Out? The Child Online Privacy Protection Act As Proof That Parents, Not Government, Should Be Protecting Children’s Interests on the Internet, 28 Fordham Urb. L.J. 1831, 

1878 (2001) (detailing how the FTC uses COPPA to regulate data security for children). 105See, e.g., FTC Final Rule, 16 C.F.R. §§ 313.10–313.12 (2000); Individual Reference Servs. 

Grp., Inc. v. F.T.C., 145 F. Supp. 2d 6, 20 (D.D.C. 2001), aff’d sub nom. Trans Union LLC v. 

F.T.C., 295 F.3d 42 (D.C. Cir. 2002) (holding that the FTC’s final rule, promulgated under the 

GLBA ‘‘did not contravene plain meaning of Act and were permissible construction of that legislation’’ and ‘‘agencies’ action in promulgating final rules was not arbitrary and capricious’’). 106See H.R. REP. NO. 63–1142, at 19 (1914) (Conf. Rep.) (observing if Congress ‘‘were to adopt 

the method of definition, it would undertake an endless task’’). 107 Joshua D. Wright, Commissioner, Federal Trade Comm’n, Section 5 Recast: Defining the 

Federal Trade Commission’s Unfair Methods of Competition Authority at the Executive Committee Meeting of the New York State Bar Association’s Antitrust Section, 2 (June 19, 2013), 

available at https://www.ftc.gov/sites/default/files/documents/public_statements/section-5-recast-defining-federal-trade-commissions-unfair-methods-competition-authority/130619section5re 

cast.pdf. 108 Id. 

orders. The FTC has, in fact, proposed to re-open four settlements entered into in 

2013 under the Green Guides. Congress should write a meaningful standard by 

which the FTC should have to justify re-opening past settlements. If the Commission continues on its current course, it will be able to use its settlements to bypass 

the procedural safeguards of notice-and-comment rulemaking. 

III. Reasonable Siblings: Background on Section 5 and Negligence 

The FTC’s enforcement authority is derived from Section 5 of the Federal Trade 

Commission Act (FTC Act), which declares unlawful ‘‘[u]nfair methods of competition in or affecting commerce’’ and ‘‘unfair or deceptive acts or practices in or affecting commerce.’’ 99 Under the broad terms of Section 5, the FTC challenges ‘‘unfair 

methods of competition’’ through their antitrust division and ‘‘unfair or deceptive 

practices’’ through their consumer protection division.100 In pursuing its consumer 

protection mission there are different standards for ‘‘unfair’’ and ‘‘deceptive’’ practices, with its unfairness authority being ‘‘the broadest portion of the Commission’s 

statutory authority.’’ 101 Indeed, this ‘‘unfairness’’ authority was initially unrestrained by any statutory definition,102 and remained so until Congress added Section 5(n) in 1994. In addition to Section 5 authority, however, the FTC has also asserted violations of other statutes in its data security enforcement, most notably the 

Gramm-Leach-Bliley Act (‘‘GLBA’’),103 Children’s Online Privacy Protection Act 

(‘‘COPPA’’),104 as well as regulations promulgated under those statutes.105

Congress intentionally framed the FTC’s authority under Section 5 in the general 

terms ‘‘unfair’’ and ‘‘deceptive’’ to ensure that the agency could protect consumers 

and competition throughout all trade and under changing circumstances.106 To be 

sure, this broad authority has not been lost on the FTC, who readily acknowledges 

that ‘‘Congress intentionally framed the statute in general terms,’’ which the agency 

interprets to mean ‘‘[t]he task of identifying unfair methods of competition’’ as being 

‘‘assigned to the Commission.’’ 107 Despite the addition of Section 5(n) to the Act in 

1994 to require cost-benefit analysis, this lack of clear statutory guidance as to what 

constitutes ‘‘unfair’’ proved to be problematic, with at least one Commissioner recently recognizing that ‘‘nearly one hundred years after the agency’s creation, the 

Commission has still not articulated what constitutes . . . unfair . . . leaving many 

wondering whether the Commission’s Section 5 authority actually has any meaningful limits.’’ 108 Commissioner Wright was referring to a lack of clarity around the 

meaning of unfairness in competition cases, but his point holds more generally. 

Given the broad nature of Section 5, few industries are beyond the FTC’s reach 

and the FTC has met the broad statutory language with an equally broad exercise 

41 

109See Cho & Caplan, Cybersecurity Lessons; Stuart L. Pardau & Blake Edwards, The FTC, 

the Unfairness Doctrine, and Privacy by Design: New Legal Frontiers in Cybersecurity 12 J. 

Bus. & Tech. L. 227, 232 (2017) (discussing the FTC’s enforcement of ‘‘everything from funeral 

homes, vending machine companies, telemarketing and mail marketing schemes, credit reporting, and the healthcare industry.’’) [hereinafter Pardau & Edwards, New Legal Frontiers]. 110See Fed. Trade Comm’n, 2016 Privacy & Data Security Update (Jan. 2017), https:// 

www.ftc.gov/reports/privacy-data-security-update-2016 (providing overview of various enforcement actions). 111See id. (For example, the consent decree agreed to in the FTC’s enforcement action against 

Ashley Madison required the defendants to implement a comprehensive data-security program, 

including third-party assessments). 112See generally PONEMON, DATA BREACH; see also Data breaches cost U.S. businesses an 

average of $7 million—here’s the breakdown, Business Insider (April 27, 2017), http:// 

www.businessinsider.com/sc/data-breaches-cost-us-businesses-7-million-2017-4 (providing that the average cost of a data security breach is $7 million, with 76 percent of customers saying 

they would move away from companies with a high record of data breaches). 113See VANSONBOURNE, DATA BREACHES AND CUSTOMER LOYALTY REPORT (2015), http:// 

www.vanson-bourne.com/client-research/18091501JD. 114 Naveen Menon, There can be no digital economy without security, World Economic Forum 

(May 8, 2017), https://www.weforum.org/agenda/2017/05/there-can-be-no-digital-economy-with 

out-security/. 115See, e.g., Equifax Plummets After Huge Data Breach, Kroger Sinks on Profit drop, American 

Outdoor Brand Falls, Yahoo Finance, Sept. 8, 2017, https://finance.yahoo.com/news/equifaxplummets-huge-data-breach-kroger-sinks-profit-drop-american-outdoor-brands-falls-144654294 

.html. 116 Id. 117 Id. 

of its authority to enforce Section 5.109 The FTC has brought data security and privacy actions against advertising companies, financial institutions, health care companies, and, perhaps most significantly, companies engaged in providing data security products and services.110 Further, not only are companies responsible for safeguarding their own data, but the FTC has also alleged that companies are responsible for any data security failings of their third-party clients and vendors, too.111

Companies who are the victims of such cyber-attacks are victims themselves. 

They suffer immense financial losses, stemming largely from reputational damage 

as customers are fearful of remaining loyal to companies who can’t protect their personal and financial information.112 According to one study, 76 percent of customers 

surveyed said they ‘‘would move away from companies with a high record of data 

breaches,’’ with 90 percent responding that ‘‘there are apps and websites that pose 

risks to the protection and security of their personal information.’’ 113 Unquestionably, data security is the cornerstone of the digital economy and digitization of the 

physical economy. As Naveen Menon, President of Cisco Systems for Southeast Asia, 

put it ‘‘[s]ecurity is what protects businesses, allowing them to innovate, build new 

products and services.’’ 114

The recent Equifax breach illustrates just how strongly reputational forces encourage companies to invest in data security. As of the time this testimony was 

being written, Equifax’s post-hack stock had plummeted 30 percent.115 Given the 

enormous stakes for companies’ brands, it is not difficult to understand why—with 

no clear guidance from Congress or the FTC—companies have opted to settle and 

enter into consent decrees rather than risk further reputational damage and customer loss through embarrassing and costly litigation.116 Out of approximately 60 

data security enforcement actions, only two defendants dared face an FTC armed 

with near absolute discretion as to the interpretation of ‘‘reasonable’’ data security 

practices. This hesitation to challenge the FTC in order to gain clarity from the 

courts about what actually constitutes unreasonable practices—in addition to the 

more obvious reason of escaping liability—was only reinforced by the LabMD case, 

where the company’s decision to litigate against the FTC rather than enter into a 

consent decree led to its demise.117

Data security poses a unique challenge: unlike other unfairness cases, the company at issue is both the victim (of data breaches) and the culprit (for allegedly having inadequate data security). In such circumstances, the FTC should apply unfairness as more of a negligence standard than strict liability. Consider both a company 

that has been hacked and a business owner whose business has burned down. In 

both situations, it is very likely that employees and customers lost items they consider to be precious—perhaps even irreplaceable. Additionally, it is equally likely 

that neither wanted this unfortunate event to occur. Finally, in both situations, 

prosecutors would investigate the accident to determine the cause and assess the 

damage and costs. However, under the FTC’s current approach to Section 5 enforcement, how each business owner would be judged for liability purposes would vary 

greatly despite these similarities. 

42 

118See Restatement (Second) of Torts § 284 (1965). 119See Geoffrey A. Manne & Kristian Stout, When ‘‘Reasonable’’ Isn’t: The FTC’s StandardLess Data Security Standard, Journal of Law, Economics and Policy, Forthcoming (Aug. 31, 

2017), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3041533. 120Transcript of Proceedings at 91, 94–95, LabMD, Inc. v. Fed. Trade Comm’n, No. 1:14–CV– 

810–WSD, 2014 WL 1908716 (N.D. Ga. May 7, 2014).)). 121Fed. Trade Comm’n, BJ’s Wholesale Club Settles FTC Charges (June 16, 2005), available 

at https://www.ftc.gov/news-events/press-releases/2005/06/bjs-wholesale-club-settles-ftccharges. 

Under the common law of torts, absent some criminal intent (e.g., insurance 

fraud) the businessman whose office burned down would only be held liable if he 

acted negligent in some way. At common law, negligence involves either an act that 

a reasonable person would know creates an unreasonable risk of harm to others.118

Should a prosecutor or third party bring a lawsuit against the business owner, they 

would be required to put forth expert testimony and a detailed analysis showing exactly how and why the owner’s negligence caused the fire. 

Conversely, despite all of the FTC’s rhetoric about ‘‘reasonableness’’—which, as 

one might ‘‘reasonably’’ expect, should theoretically resemble a negligence-like 

framework—the FTC’s approach to assessing whether a data security practice is unfair under Section 5 actually more closely resembles a rule of strict liability.119 Indeed, rather than conduct any analysis showing that (1) the company owed a duty 

to consumers and (2) how that the company’s breach of that duty was the cause of 

the breach—either directly or proximately—which injured the consumer, instead, as 

one judge noted, the FTC ‘‘kind of take them as they come and decide whether 

somebody’s practices were or were not within what’s permissible from your eyes. 

. . .’’ 120

There is no level of prudence that can avert every foreseeable harm. A crucial underpinning of calculating liability in civil suits is that some accidents are unforeseeable, some damages fall out of the chain of causation, and mitigation does not always equal complete prevention. Thus our civil jurisprudence acknowledges that no 

amount of care can prevent all accidents (fires, car crashes, etc.), or at least the 

standard of care required to achieve an accident rate near zero would be wildly disproportionate, paternalistic, and unrealistic to real-world applications (e.g., setting 

the speed limit at 5 mph). 

The chaos theory also applies to the unpredictability of data breaches. Thus, if 

the FTC wants to regulate data security using a ‘‘common law’’ approach, then it 

must be willing to accept that certain breaches are inevitable and liability should 

only arise where the company was truly negligent. This is not simply a policy argument; it is the weighing of costs and benefits that Section 5(n) requires—at least 

in theory. Companies do not want to be hacked any more than homeowners want 

their houses to burn down. The FTC should begin its analysis of data security cases 

with that incentive in mind, and ask whether the company has acted as a ‘‘reasonably prudent person’’ would. 

This, then, presents the key question: what constitutes ‘‘reasonably prudent’’ data 

security and privacy practices for purposes of avoiding liability under Section 5? To 

help inform Congress—and, in turn, the FTC—on how to go about answering this 

question, the remainder of this testimony will focus on determining three key elements of this question: (1) the types of injuries that should merit the FTC’s attention, (2) the analytical framework, built upon empirical research and investigations, 

which should determine what constitutes ‘‘reasonable,’’ and (3) the pleading requirements to determine the specificity with which the FTC must state its claim in the 

first instance. 

IV. Informational Injuries In Practice: Data Security & Privacy 

Enforcement to Date 

In 2005, the FTC brought its first data security case premised solely on unfairness—against a company (BJ’s Warehouse) not for violating the promises it had 

made to consumers, but for the underlying adequacy of its data security practices.121 Whether this was a proper use of Section 5 is not the important question— 

although it is essential to note that BJ’s Warehouse was the consent decree that 

launched the FTC’s use of unfairness for data security.a thousand’’ more (or closer 

to ‘‘hundreds’’ in the context of privacy and data security). Even if one stipulates 

that the FTC could have, and likely would have, prevailed on the merits, had the 

case gone to trial, the important question is this: how might the Commission have 

changed its approach to data security? That question becomes even more salient if 

one tries to project back, asking what the Commission should have done then if it 

had known what we know today: that twelve years later, we would still not have 

43 

122See Fed. Trade Comm’n v. D-Link Sys., Inc., No. 3:17–CV–00039–JD, 2017 WL 4150873, 

at *1 (N.D. Cal. Sept. 19, 2017); Fed. Trade Comm’n v. Wyndham Worldwide Corp., 799 F.3d 

236, 253 (3d Cir. 2015); LabMD, Inc. v. F.T.C., No. 1:14–CV–00810–WSD, 2014 WL 1908716, 

at *1 (N.D. Ga. May 12, 2014), aff’d, 776 F.3d 1275 (11th Cir. 2015); F.T.C. v. Amazon.com, Inc., 

71 F. Supp. 3d 1158 (W.D. Wash. 2014). 123Fed. Trade Comm’n, Privacy Online: Fair Information Practices in the Electronic Market 

Place—A Report to Congress (2000) [hereinafter Privacy Report]. 124Wyndham, 799 F.3d at 256. 125 Id. at 256 n.21. 126 Id. at 256–57. 

a single tech-related unfairness case resolved on the merits (and only four that had 

made it to Federal court).122

The Commission had, of course, asked Congress for comprehensive privacy legislation in 2000.123 Besides asking again, what else could the Commission have done? 

It could have begun a rulemaking under the Magnusson-Moss Act of 1975, subject 

to the procedural safeguards imposed by Congress in 1980 (after the FTC’s abuse 

of its rulemaking powers in the intervening five years). But, as many have noted, 

it would be difficult to craft prescriptive rules for data security or privacy in any 

rulemaking, and the process would have taken several years. 

There was a third way: the FTC could have sought public comment on the issues 

of data security and privacy, issued a guidance document, then repeated the process 

every few years to update the agency’s guidance to reflect current risks, technologies, and trade-offs. In short, the Commission could have followed the model established by its Green Guides. 

V. The Green Guides as Model for Empirically Driven Guidance 

As the FTC proceeds with Chairman Ohlhausen’s plans for a workshop on ‘‘informational injuries,’’ it should consider its own experience with the Green Guides as 

a model. The parallel is not exact: the Guides focus entirely on deception, and primarily on consumer expectations, while the FTC’s proposed ‘‘informational injuries’’ 

would involve both deception and unfairness. However, the Guides do still delve into 

substantiation of environmental marking claims, and, thus, the underlying merits 

of what companies were promising their customers. FTC guidance on the meaning 

of ‘‘informational injuries’’ in the context of data security and privacy would necessarily cover wider ground, ultimately attempting to understand harms as well as 

‘‘reasonable’’ industry practices under both deception and unfairness prongs. Still, 

the Guides emphasis on empirical substantiation would serve the FTC well in attempting to provide a clearer analytical basis for why a practice or action is deemed 

to have caused ‘‘informational injury’’ in certain cases, rather than merely stating 

what practices the FTC has determined likely to cause such harm. 

Though court guidance in this context may seem rarer than the birth of a giant 

panda, the Third Circuit nonetheless provided some insight into the value of previous FTC guidance—namely the FTC’s 2007 guidebook titled ‘‘Protecting Personal 

Information: A Guide for Business,’’—in understanding harms and ‘‘reasonable’’ 

practices that constitute violations of Section 5.124 Discussing this guidebook, which 

‘‘describes a ‘checklist[]’ of practices that form a ‘sound data security plan,’ ’’ the 

court notably found that, because ‘‘[t]he guidebook does not state that any particular 

practice is required by [Section 5],’’ it, therefore, ‘‘could not, on its own, provide ‘ascertainable’ certainty’ of the FTC’s interpretation of what specific cybersecurity 

practices fail [Section 5].’’ 125 Despite this recognition, the court still noted that the 

guidebook did ‘‘counsel against many of the specific practices’’ alleged in that specific case, and thus, provided sufficient guidance in that very narrow holding to inform the defendant of ‘‘what’’ conduct was not considered reasonable.126 Specifically, 

the court noted that the guidebook recommended: 

[T]hat companies ‘‘consider encrypting sensitive information that is stored on [a] 

computer network . . . [, c]heck . . . software vendors’ websites regularly for 

alerts about new vulnerabilities, and implement policies for installing vendorapproved patches.’’ It recommends using ‘‘a firewall to protect [a] computer from 

hacker attacks while it is connected to the Internet,’’ deciding ‘‘whether [to] install a ‘border’ firewall where [a] network connects to the Internet,’’ and setting 

access controls that ‘‘determine who gets through the firewall and what they 

will be allowed to see . . . to allow only trusted employees with a legitimate 

business need to access the network.’’ It recommends ‘‘requiring that employees 

use ‘strong’ passwords’’ and cautions that ‘‘[h]ackers will first try words like 

. . . the software’s default password[ ] and other easy-to-guess choices.’’ And 

it recommends implementing a ‘‘breach response plan,’’ id. at 16, which includes 

44 

127 Id. (internal citations omitted). 128See VANSONBOURNE, DATA BREACHES AND CUSTOMER LOYALTY REPORT (2015), http:// 

www.vanson-bourne.com/client-research/18091501JD. 

‘‘[i]nvestigat[ing] security incidents immediately and tak[ing] steps to close off 

existing vulnerabilities or threats to personal information.’’ 127

Most notably, nowhere in the court’s discussion did it identify a single instance 

of the FTC explaining why a certain practice is necessary or reasonable; instead the 

FTC had merely asserted that companies should just accept the FTC’s suggestions, 

without any consideration or analysis as to whether the immense costs that might 

be associated with implementing many of these practices are in the consumers’ best 

interest. This is far from the weighing of costs and benefits that Section 5(n) requires. By comparison, the Green Guides, while focused on deception, reflect a deep 

empiricism about substantiation of environmental marketing claims, informed by a 

notice and comment process and distilled into clear guidance accompanied by detailed analysis. 

While multi-national corporations such as Wyndham might (arguably) possess the 

resources to blindly implement any and all suggestions the FTC makes, and to follow the FTC’s pronouncements in each consent decree, the economic principle of 

scarcity will inevitably require smaller businesses with vastly fewer resources to 

make difficult decisions as to which practices they should utilize to provide the 

greatest security possible with its limited resources. For example, using the list 

above, would a company with limited resources be acting ‘‘reasonable’’ if it implemented a ‘‘breach response plan,’’ but failed to check every software vendors’ website 

regularly for alerts? Further, would a company be engaging in ‘‘deceptive’’ practices 

if it failed to notify customers that, due to limited resources, it could only implement 

half of the FTC’s recommended practices? The answer to these questions matter and 

will undoubtedly have significant consequences on how competitive small businesses 

remain in this country. As mentioned earlier, one study suggests that 76 percent 

of customers ‘‘would move away from companies with a high record of data 

breaches,’’ with 90 percent responding that ‘‘there are apps and websites that pose 

risks to the protection and security of their personal information.’’ 128 This shows 

that consumers are understandably concerned about how well a company protects 

their data. If a company is essentially required to choose between admitting that 

it lacks the resources to implement advanced security practices on par with large, 

established businesses, or risk an FTC action for ‘‘deception,’’ how can any startup 

or small business expect to compete and grow in these polarizing circumstances? 

Under the FTC’s current enforcement standards, this all shows how easily small 

businesses may find themselves in a catch-22. On the one hand, if the business 

wishes to pretend it has the resources to implement the same data security standards as multi-national corporations in order to attract and maintain customers 

weary of their data being hacked, the business will be acting ‘‘deceptively’’ in the 

eyes of the FTC, and will be open to the costly litigation, reputational damage, and 

massive fines that come with it. On the other hand, if the small business wishes 

to be open and readily admit that, due to resource constraints, its data security 

practices are anemic when compared to multi-national corporations, it will be open 

to the loss of customers and businesses invariably linked to such claims. As this illustrates, how can any startup or small business expect to compete without the FTC 

providing guidance as to best practices based on empirical research—including 

economies of scale? 

Thus, to ensure the ability of businesses to compete and make sound decisions as 

to the allocation of their finite resources, it is imperative that the FTC not only endeavor to provide guidance as to what practices are sound, but also explain why 

such practices are necessary, as well as ‘‘how much’’ is necessary, especially in relation to a business’s size and available resources. 

A. The Green Guides (1992–2012) 

First published in 1992, the Guides represented the Commission’s attempt to better understand a novel issue before jumping in to case-by-case enforcement. By 

1991, it was becoming increasingly common for companies to tout the environmental 

benefits of their products. In some ways, these claims were no different from traditional marketing claims: the FTC’s job was to make sure consumers ‘‘got the benefit 

of the bargain.’’ But in other ways, it was less clear exactly what that ‘‘benefit’’ 

was—such as regarding recycling content, recyclability, compostability, biodegradability, refillability, sourcing of products, etc. Rather than asserting how much of 

each of these consumers should get, the Commission sought to ground its understanding of these concepts in empirical data about what consumers actually exVerDate Nov 24 2008 07:37 Mar 18, 2019 Jkt 000000 PO 00000 Frm 00048 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\35459.TXT JACKIE
45 

129Fed Trade Comm’n, Statement of Basis and Purpose (2012 Update), at 24–25, https:// 

www.ftc.gov/sites/default/files/ 

attachments/press-releases/ftc-issues-revised-green-guides/green-guidesstatement.pdf [hereinafter ‘‘Statement of Basis and Purpose’’]. 130Fed. Trade Comm’n, FTC Policy Statement on Deception (Oct. 14, 1983), at 1, https:// 

www.ftc.gov/system/files/documents/public_statements/410531/831014deceptionstmt.pdf. 131See Statement of Basis and Purpose, at 25. 132 16 C.F.R. 260 (2012). 133See generally note 129. 134Press Release, Fed. Trade Comm’n, Stick with Security: FTC to Provide Additional Insights 

on Reasonable Data Security Practices (July 21, 2017), https://www.ftc.gov/news-events/pressreleases/2017/07/stick-security-ftc-provide-additional-insights-reasonable-data. 135Fed. Trade Comm’n, Protecting Consumer Privacy in an Era of Rapid Change: Recommendations for Businesses and Policymakers (March 2012), at 73, https://www.ftc.gov/sites/ 

default/files/documents/re-ports/federal-trade-commission-report-protecting-consumer-privacyContinued 

pected. As the Commission summarized its approach in the Statement of Basis and 

Purpose for the 2012 update: 

The Commission issued the Guides to help marketers avoid making deceptive 

claims under Section 5 of the FTC Act. Under Section 5, a claim is deceptive 

if it likely misleads reasonable consumers. Because the Guides are based on 

how consumers reasonably interpret claims, consumer perception data provides 

the best evidence upon which to formulate guidance. As EPA observed, however, 

perceptions can change over time. The Guides, as administrative interpretations 

of Section 5, are inherently flexible and can accommodate evolving consumer 

perceptions. Thus, if a marketer can substantiate that consumers purchasing its 

product interpret a claim differently than what the Guides provide, its claims 

comply with the law.129

Of course, as the Deception Policy Statement notes, ‘‘If the representation or practice affects or is directed primarily to a particular group, the Commission examines 

reasonableness from the perspective of that group.’’ 130 Thus, the Commission immediately added the following: 

the Green Guides are based on marketing to a general audience. However, 

when a marketer targets a particular segment of consumers, such as those who 

are particularly knowledgeable about the environment, the Commission will examine how reasonable members of that group interpret the advertisement. The 

Commission adds language in Section 260.1(d) of the Guides to emphasize this 

point. Marketers, nevertheless, should be aware that more sophisticated consumers may not view claims differently than less sophisticated consumers. In 

fact, the Commission’s study yielded comparable results for both groups.131

This bears emphasis because many speak of privacy-sensitive consumers as a separate market segment, and argue that we should apply deception in privacy cases 

based upon their expectations. But here, unlike in privacy, the Commission actually 

undertook empirical research—which turned not to support an idea that probably 

seemed intuitively obvious: that more environmentally knowledgeable or ‘‘conscious’’ 

consumers had different interpretation of environmental marketing claims. 

The Commission issued the first Green Guides in August 1992, thirteen months 

after two days of public hearings, including a 90-day public comment period in between. The Commission followed this process in issuing revised Green Guides in 

1996, 1998, and 2012. So detailed was the Commission’s analysis, across so many 

different fact patterns, that, while the 2012 Guides ran a mere 12 pages in the Federal Register,132 the Statement of Basis and Purpose for them ran a staggering 314 

pages.133 In each update, the FTC explored how the previous version of the Guides 

addresses each, the FTC’s proposal, comments received on the proposal and justification for the final rule. In short, the FTC was doing something a lot like rulemaking. Except, of course, the Guides are not themselves legally binding. 

The FTC has never done anything even resembling this type of comprehensive 

guide for data security or privacy. Indeed, just this year, the FTC touted ‘‘a series 

of blog posts’’ as a grand accomplishment in the FTC’s ‘‘ongoing efforts to help businesses ensure they are taking reasonable steps to protect and secure consumer 

data.’’ 134 The FTC has regularly trumpeted its 2012 Privacy Report, but that document does something very different. Most notably, the Report calls on industry actors to self-police in the most general of terms, making statements like ‘‘to the extent that strong privacy codes are developed, the Commission will view adherence 

to such codes favorably in connection with its law enforcement work.’’ 135 Unlike the 

46 

era-rapid-change-recommendations/120326privacyreport.pdf. [hereinafter ‘‘2012 Privacy Report’’]. 136 Id. at 72. 137See Statement of Basis and Purpose, at 26–27. 138Fed. Trade Comm’n, Enforcement Policy Statement Regarding VOC-Free Claims for Architectural Coatings (Mar. 6, 2013), https://www.ftc.gov/sites/default/files/documents/cases/ 

2013/03/130306ppgpolicystatement.pdf. 

focus on substance and comprehensiveness of the Green Guides, the 2012 Privacy 

Report speaks in generalities, dictating ‘‘areas where the FTC will be active,’’ such 

as in monitoring Do Not Track implementation or promoting enforceable self-regulatory codes.136 The lack of a Statement of Basis and Purpose akin to that issued 

in updating the Green Guides (the 2012 Statement totaled a whopping 314 pages) 

introduces unpredictability into the enforcement process, and chills industry action 

on data security and privacy. 

In all, the Green Guides offer a clear, workable model for how the FTC could provide empirically grounded guidance on data security and privacy—even without any 

action by Congress. The key steps in issuing such guidance would be: 

1. Study current industry practices across a wide range of businesses; 

2. Gather data on consumer expectations, rather than making assumptions about 

consumer preferences; 

3. Engage the Bureau of Economics and the FTC’s growing team of in-house technologists in analysis of the costs and benefits of practice; and 

4. Issue (at least) biennial or triennial guidance to reflect the changing nature, 

degree, and applicability of data security and privacy regulations. 

Short of rulemaking, this rulemaking-like approach offers the most clarity, comprehensibility, and predictability for both FTC enforcement staff and industry actors. 

B. What the Commission Said in 2012 about Modifying the Guides 

There is an obvious tension between conducting thorough empirical assessments 

to inform updating Commission guidance and how often that guidance can be updated: the more regular the update, the more difficult it will be to for the Commission to maintain methodological rigor in justifying that update. The 2012 Statement 

of Basis and Purpose noted requests that the Commission review and update the 

Guides every two or three years, but concluded: 

Given the comprehensive scope of the review process, the Commission cannot 

commit to conducting a full-scale review of the Guides more frequently than 

every ten years. The Commission, however, need not wait ten years to review 

particular sections of the Guides if it has reason to believe changes are appropriate. For example, the Commission can accelerate the scheduled review to address significant changes in the marketplace, such as a substantial change in 

consumer perception or emerging environmental claims. When that happens, interested parties may contact the Commission or file petitions to modify the 

Guides pursuant to the Commission’s general procedures.137

This strikes a sensible balance. Unfortunately, this is not at all how the Commission has handled modification of the 2012 Green Guides. Within a year, the FTC 

would modify the Green guides substantially with no such process for empirical substantiation to justify the new change. And this year, not five years after the 

issuance of the Guides, it modified the Guides yet again. 

VI. Eroding the Green Guides and their Empirical Approach 

While the Green Guides offer a model for empirically grounded consumer protection, the Commission has gradually moved away from that approach since issuing 

its last update to the Green Guides in 2012—following an approach that more closely resembles its approach to data security and privacy. 

A. Modification of the Green Guides by Policy Statement (2013) 

In 2013, FTC issued an enforcement policy statement clarifying how it would 

apply the Green Guides,138 updated just the year after taking notice-and-comment, 

to architectural coatings such as paint. The Commission appended this Policy Statement onto its settlement with PPG Architectural Finishes, Inc. (‘‘PPG’’) and The 

Sherwin-Williams Company (‘‘Sherwin-Williams’’) to settle alleged violations of Section 5 for marketing paints as being ‘‘Free’’ of Volatile Organic Compounds 

47 

139Press Release, Fed. Trade Comm’n, FTC Approves Final Orders Settling Charges Against 

The Sherwin-Williams Co. and PPG Architectural Finishes, Inc.; Issues Enforcement Policy 

Statement on ‘‘Zero VOC’’ Paint Claims (Mar. 6, 2013), https://www.ftc.gov/news-events/pressreleases/2013/03/ftc-approves-final-orderssettling-charges-against-sherwin. 140 16 C.F.R. § 260.9(c) (2012). 141Fed. Trade Comm’n, Enforcement Policy Statement Regarding VOC-Free Claims for Architectural Coatings, at 2, https://www.ftc.gov/sites/default/files/documents/public_statements/ 

voc-free-claims-architectural-coatings/130306ppgpolicystatement.pdf. 142See Statement of Basis and Purpose, at 138 n. 469. 143 1980 Unfairness Policy Statement. 

(VOCs).139 Specifically, the Policy Statement focused on application of the 2012 

Green Guides’ trace-amount test, which provided: 

Depending on the context, a free-of or does-not-contain claim is appropriate even 

for a product, package, or service that contains or uses a trace amount of a substance if: (1) the level of the specified substance is no more than that which would 

be found as an acknowledged trace contaminant or background level; (2) the substance’s presence does not cause material harm that consumers typically associate 

with that substance; and (3) the substance has not been added intentionally to the 

product.140

The Policy Statement made two clarifications specific to architectural coatings: 

First, the ‘‘material harm’’ prong specifically includes harm to the environment 

and human health. This refinement acknowledges that consumers find both the 

environmental and health effects of VOCs material in evaluating VOC-free 

claims for architectural coatings. 

Second, the orders define ‘‘trace level’’ as the background level of VOCs in the 

ambient air, as opposed to the level at which the VOCs in the paint would be 

considered ‘‘an acknowledged trace contaminant.’’ The harm consumers associate with VOCs in coatings is caused by emissions following application. Thus 

measuring the impact on background levels of VOCs in the ambient air aligns 

with consumer expectations about VOC-free claims for coatings.141

In both respects, the Policy Statement amended the Green Guides—while purporting merely to mirror the Guides. Most notably, the Guides had always been 

grounded in claims about environmental harms. For example, the Statement of 

Basis and Purpose for the 2012 Update had said: 

In this context [the ‘‘free of’’ section of the Guides’’], the Commission reminds 

marketers that although the Guides provide information on making truthful environmental claims, marketers should be cognizant that consumers may seek 

out free-of claims for non-environmental reasons. For example, as multiple commenters stated, chemically sensitive consumers may be particularly likely to 

seek out products with free-of claims, and risk the most grievous injury from 

deceptive claims.142

But now the FTC’s enforcement framework would, for the first time, focus on 

‘‘human health’’ as well. In principle, this is perfectly appropriate: after all, ‘‘Unjustified consumer injury is the primary focus of the FTC Act,’’ as the Unfairness 

Policy Statement reminds us.143 But note that the Commission was not bringing an 

unfairness claim—which would have required satisfying the cost-benefit analysis of 

Section 5(n). Instead, the Commission was bringing a pure deception claim, as with 

any Green Guides claim. But unlike deception cases brought under the Green 

Guides, the Commission provided none of the kind of empirical evidence about how 

consumers understood green marketing claims that had informed the Green Guides. 

The Commission did not seek public comment on this proposed enforcement policy 

statement, nor did it supply any such evidence of its own. 

In short, the 2013 Policy Statement represented not merely a de facto amendment 

of the Green Guides, undermining the precedential value of the Guides and of all 

other FTC guidance documents, but a break with the empirical approach by which 

the FTC had developed the Guides since 1992. This alone should call into question 

the FTC’s willingness, in recent years, to ground consumer protection work in empirical analysis. But worse was yet to come. 

B. Modification of the Green Guides by Re-Opening Consent Decree (2017) 

This July, Ohlhausen, now Acting Chairwoman, effectively proposed amending the 

FTC’s Green Guides—first issued in 1992 and updated in 1996, 1998 and 2012— 

via proposed consent orders issued to four paint companies accused of deceptively 

promoting emission-free or zero volatile organic compounds in violation of Section 

48 

144Press Release, Fed. Trade Comm’n, Paint Companies Settle FTC Charges That They Misled Consumers; Claimed Products Are Emission- and VOC-free and Safe for Babies and other 

Sensitive Populations, (July 11, 2017), available at https://www.ftc.gov/news-events/press 

-releases/2017/07/paint-companies-settle-ftc-charges-they-misled-consumers-claimed. 145 Id. at ¶ 13. 146Fed. Trade Comm’n, In the Matter of PPG Architectural Finishes, Inc., Agreement Containing Consent Order (Oct. 25, 2012), at 4, https://www.ftc.gov/sites/default/files/documents/ 

cases/2012/10/121025ppgagree.pdf; see also Fed. Trade Comm’n, In the Matter of Sherwin-Williams Company, Agreement Containing Consent Order (Oct. 25, 2012), at 4, https:// 

www.ftc.gov/sites/default/files/documents/cases/2012/10/121025sherwinwilliamsagree.pdf. 147 Id. at 3. 

5 of the FTC Act.144 In the corresponding press release, the Commission said it 

plans to ‘‘propose harmonizing changes to two earlier consent orders issued in the 

similar PPG Architectural Finishes, Inc. (Docket No. C–4385) and the Sherwin Williams Company (Docket No. C–4386) matters,’’ and plans to ‘‘issue orders to show 

cause why those matters should not be modified pursuant to Section 3.72(b) of the 

Commission Rules of Practice, 16 C.F.R. 3.72(b),’’ if the consent orders are finalized.145

This repeated, and compounded, the two sins committed by the FTC in 2013: (1) 

undermining the value of Commission guidance (here, both the 2012 Guides and the 

2013 Enforcement Policy Statement) by reminding all affected parties that guidance 

provided one day can be changed or revoked the next and (2) failing to provide empirical substantiation for its new approach. To these sins, the Commission added 

two more: (3) revoking guidance that had been treated as authoritative, and relied 

upon, by regulated parties for the previous four years through a consent decree and 

(4) re-opening the two consent decrees to which the 2013 Enforcement policy was 

attached to ‘‘harmonize’’ them with the FTC’s new approach. Revoking guidance 

treated as authoritative raises fundamental constitutional concerns about ‘‘fair notice.’’ Re-opening consent decrees raises even more serious concerns about the FTC’s 

process. 

These concerns are reflected in recently proposed FTC settlements. In the 2013 

PPG and Sherwin-Williams consent orders, the Commission specified the scope of 

its jurisdiction in Article II of the orders, stating: 

IT IS FURTHER ORDERED that respondent, directly or through any corporation, subsidiary, division, trade name, or other device, in connection with the 

manufacturing, labeling, advertising, promotion, offering for sale, sale, or distribution of any covered product in or affecting commerce, shall not make any 

representation, in any manner, expressly or by implication, regarding: 

A. The VOC level of such product; or 

B. Any other environmental benefit or attribute of such product, 

unless the representation is true, not misleading, and, at the time it is made, 

respondent possesses and relies upon competent and reliable scientific evidence 

that substantiates the representation.146

In the same orders, the Commission defined ‘‘trace’’ levels of VOCs as including 

a ‘‘human health’’ component, stating: 

7. ‘‘Trace’’ level of VOCs shall mean: 

A. VOCs have not been intentionally added to the product; 

B. The presence of VOCs at that level does not cause material harm that consumers typically associate with VOCs, including but not limited to, harm to the 

environment or human health; and 

C. The presence of VOCs at that level does not result in concentrations higher 

than would be found at background levels in the ambient air.147

of language that specified health as a VOC-related hazard created no immediate 

substantive changes, it laid the groundwork for a broadening of what constitutes a 

legitimate claim under the definition of VOC. Specifically, this would mean that the 

FTC would only have to take one additional step to claim a VOC-related violation 

if a company did not meet some broad, amorphous standard of ‘‘human health’’ conceived by the FTC. In fact, the 2017 Benjamin & Moore Co., Inc., ICP Construction 

Inc., YOLO Colorhouse LLC, and Imperial Paints, LLC consent orders took this additional step in an updated Article II, stating: 

IT IS FURTHER ORDERED that Respondent . . . must not make any representation, expressly or by implication . . . regarding: 

A. The emission of the covered product; 

49 

148See generally Statement of Basis and Purpose. 149Fed. Trade Comm’n, Policy Statement on Monetary Equitable Remedies in Competition 

Cases, 68 Fed. Reg. 45,820 (Aug. 4, 2003). 150Press Release, Fed. Trade Comm’n, FTC Issues Policy Statement on Use of Monetary Remedies in Competition Cases (July 31, 2003), available at http://www.ftc.gov/opa/2003/07/ 

disgorgement.shtm. 151See Statement of Commissioner Maureen K. Ohlhausen Dissenting from the Commission’s 

Decision to Withdraw its Policy Statement on Monetary Equitable Remedies in Competition 

Cases, at 2 (July 31, 2012), https://www.ftc.gov/public-statements/2012/07/statement-commissioner-maureen-k-ohlhausen-dissenting-commissions-decision. 152 Id. at 2. 

B. The VOC level of the covered product; 

C. The odor of the covered product; 

D. Any other health benefit or attribute of, or risk associated with exposure to, 

the covered product, including those related to VOC, emission, or chemical composition; or 

E. Any other environmental benefit or attribute of the covered product, including those related to VOC, emission, or chemical composition, unless the representation is non-misleading, including that, at the time such representation 

is made, Respondent possesses and relies upon competent and reliable scientific 

evidence that is sufficient in quality and quantity based on standards generally 

accepted in the relevant scientific fields, when considered in light of the entire 

body of relevant and reliable scientific evidence, to substantiate that the representation is true. 

Given the nature and type of these products, it is possible that health-related hazards should have been included in these particular consent orders. This would imply 

that it is the specific context of these cases that serves as a justification for the inclusion of the health-related language. However, the harmonization of these new orders with the 2013 PPG and Sherwin-Williams orders would create new, broader obligations on those two companies. More generally, this would imply that the basis 

of the FTC’s authority emanates not from the context in which the claim is brought, 

but instead from the very nature of VOCs, i.e., as newly-deemed health hazards. 

As a general principle, this means that, under its deception authority, the FTC 

could create ex post facto justifications for expanding its enforcement powers arbitrarily and with no forward guidance. For example, although the voluminous 2012 

Green Guides Statement of Basis and Purpose made no mention of health risks,148

the Commission found a way to add it on to previous consent agreements in a unilateral, non-deliberative way. This places industry actors at the mercy of the FTC, 

which can alter previous consent orders based on present or future interpretations 

of ‘‘deception.’’ 

C. Remember Concerns over Revocation of the Disgorgement Policy? 

It is ironic that it should be this particular FTC that would modify a Policy Statement, which was treated as authoritative by regulated parties for four years and 

which was itself a surreptitious modification of a Guide issued through public notice 

and comment (and resulting in a 314-page Statement of Basis and Purpose), 

through such summary means—given that Acting Chairman Ohlhausen had previously urged greater deliberation and public input in withdrawing a policy statement. 

In July 2012, the FTC summarily revoked its 2003 Policy Statement on Monetary 

Equitable Remedies in Competition Cases (commonly called the ‘‘Disgorgement Policy Statement’’) 149 on a 2–1 vote.150 Commissioner Ohlhausen, the sole Republican 

on the Commission at the time, objected: ‘‘we are moving from clear guidance on 

disgorgement to virtually no guidance on this important policy issue.’’ 151 She also 

objected to the cursory, non-deliberative nature of the underlying process: 

I am troubled by the seeming lack of deliberation that has accompanied the 

withdrawal of the Policy Statement. Notably, the Commission sought public 

comment on a draft of the Policy Statement before it was adopted. That public 

comment process was not pursued in connection with the withdrawal of the 

statement. I believe there should have been more internal deliberation and likely public input before the Commission withdrew a policy statement that appears 

to have served this agency well over the past nine years.152

What then-Commissioner Ohlhausen said then about revocation of a policy statement remains true now about substantial modification of a policy statement (which 

is effectively a partial withdrawal of previous guidance): both internal debate and 

50 

153Transcript of Proceedings at 91, 94–95, LabMD, Inc. v. Fed. Trade Comm’n, No. 1:14–CV– 

810–WSD, 2014 WL 1908716 (N.D. Ga. May 7, 2014)) (emphasis added). 154 Julie Brill, Comm’r, Fed. Trade Comm’n, ‘‘Privacy, Consumer Protection, and Competition,’’ 

Address at the 12th Annual Loyola Antitrust Colloquium (Apr. 27, 2012), http://www.ftc.gov/ 

sites/default/files/documents/public_statements/privacy-consumer-protection-and-competition/ 

120427loyolasymposium.pdf (stating the FTC consent decrees have ‘‘created a ‘common law of 

consent decrees,’ producing a set of data protection rules for businesses to follow’’). 155 Atl. Ref. Co. v. F.T.C., 381 U.S. 357, 377 (1965). 156 Elmo Co. v. F.T.C., 389 F.2d 550, 552 (D.C. Cir. 1967), cert. denied, 392 U.S. 905 (1968). 157See, e.g., Agreement Containing Consent Order at 3(C), In re Oracle, No. 132 3115 (F.T.C. 

Dec. 21, 2015), https://www.ftc.gov/system/files/documents/cases/151221oracleorder.pdf. 158Fed. R. Civ. P. 60 (stating that ‘‘the court may relieve a party or its legal representative 

from a final judgment, order, or proceeding’’ for certain reasons, including ‘‘mistake,’’ ‘‘newly discovered evidence,’’ ‘‘fraud,’’ and ‘‘any other reason that justifies relief.’’). 159Fed. R. Civ. P. 60(b). 160Fed. R. Civ. P. 60(c). 161Fed. Trade Comm’n, LifeLock to Pay $100 Million to Consumers to Settle FTC Charges it 

Violated 2010 Order (Dec. 17, 2015), available at https://www.ftc.gov/news-events/press-releases/2015/12/lifelock-pay-100-million-consumers-settle-ftc-charges-it-violated. 

public input are essential. Burying the request for public comment in a press release 

about new settlements hardly counts as an adequate basis for reconsidering the 

2013 Policy Statement—let alone modifying the 2012 Green Guides. 

D. What Re-Opening FTC Settlements Could Mean for Tech Companies 

The Commission could have, at any time over the last twenty years, undertaken 

the kind of empirical analysis that led to the Green Guides, and published guidance 

about interpretation of Section 5, but never did so. Instead, the Commission issued 

only a series of reports making broad, general recommendations. In fact, in one of 

the only two data security cases not to end in a consent decree, a Federal district 

judge blasted the FTC’s decision not provide any data security standards: 

No wonder you can’t get this resolved, because if [a 20-year consent order is] the 

opening salvo, even I would be outraged, or at least I wouldn’t be very receptive 

to it if that’s the opening bid. . . . You have been completely unreasonable about 

this. And even today you are not willing to accept any responsibility. . . . I think 

that you will admit that there are no security standards from the FTC. You kind 

of take them as they come and decide whether somebody’s practices were or were 

not within what’s permissible from your eyes. . . . [H]ow does any company in the 

United States operate when. . .[it] says, well, tell me exactly what we are supposed 

to do, and you say, well, all we can say is you are not supposed to do what you 

did. . . . [Y]ou ought to give them some guidance as to what you do and do not expect, what is or is not required. You are a regulatory agency. I suspect you can do 

that.153

In recent years, the Commission has proudly trumpeted its ‘‘common law of consent decrees’’ as providing guidance to regulated entities.154 Now, everyone must 

understand that those consent decrees may be modified at any time, particularly 

those consent decrees that are ordered by the Commission (as opposed to a Federal 

court). As the Supreme Court made clear, ‘‘[t]he Commission has statutory power 

to reopen and modify its orders at all times.’’ 155 In order to reopen and modify an 

order, the Commission faces an incredibly low bar, having to merely show that it 

has ‘‘reasonable grounds to believe that public interest at the present time would 

be served by reopening.’’ 156 Meanwhile, the FTC’s consent decrees often stipulate 

that the defendant ‘‘waives . . . all rights to seek judicial review or otherwise challenge or contest the validity of the order entered pursuant to this agreement.’’ 157

But in cases where the FTC needs a court to issue a consent decree (e.g., to obtain 

an injunction or restitution), if the FTC wishes to modify the decree, it must at least 

meet the requirements imposed by Federal Rule of Civil Procedure 60:158 the FTC 

must meet a heightened pleading standard through a showing of, for example, 

‘‘fraud,’’ ‘‘mistake,’’ or ‘‘newly discovered evidence’’ necessitating such a modification.159 Furthermore, the FTC does not have the freedom to modify court ordered 

consent decrees ‘‘at any time,’’ as with settlements, but must file a motion ‘‘within 

a reasonable time’’—the same standard that applies to all litigants in Federal 

court.160

Why should there be such radically different standards? It is true that violating 

court-ordered consent decrees can result in criminal liability penalties, while violating Commission-ordered consent decrees means only civil penalties—but those 

penalties may be significant. For example, in 2015, the FTC imposed a $100 million 

fine against Lifelock for violating a 2010 consent decree by failing to provide ‘‘reasonable’’ data security 161—over eight times the amount of the company’s 2010 set- tlement and two thirds of the company’s entire revenue that quarter ($156.2 milVerDate Nov 24 2008 07:37 Mar 18, 2019 Jkt 000000 PO 00000 Frm 00054 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\35459.TXT JACKIE
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162LifeLock, Inc., LifeLock Announces 2015 Fourth Quarter Results (Feb. 10, 2016), available 

at https://www.lifelock.com/pr/2016/02/10/lifelock-announces-2015-fourth-quarter-results-2/ 

163 United States v. Swift & Co., 286 U.S. 106, 119 (1932). 164 Id. 165Local No. 93, Int’l Asso. of Firefighters, etc. v. Cleveland, 478 U.S. 501, 522 (1986) (quoting 

United States v. Armour & Co., 402 U.S. 673, 681–682 (1971)). 166See, e.g, Pew Research Center, Beyond Distrust: How Americans View Their Government 

(2015) (‘‘Only 19 percent of Americans today say they can trust the government in Washington 

to do what is right ‘‘just about always’’ (3 percent) or ‘‘most of the time’’ (16 percent).’’). 167See, e.g., Nat’l Petroleum Refiners Ass’n v. F.T.C., 482 F.2d 672, 675–76 (D.C. Cir. 1973), 

cert. denied, 415 U.S. 951 (1974) (recognizing that ‘‘courts have stressed the advantages of efficiency and expedition which inhere in reliance on rulemaking instead of adjudication alone,’’ including in providing businesses with greater certainty as to what business practices are not permissible). 

lion).162 In general, arbitrarily-imposed, post-hoc civil liability carries the risk of 

causing significant economic loss, reputational harm, and even business closure. For 

example, the Commission could re-open all its past data security and privacy cases 

to modify the meaning of the term ‘‘covered information.’’ To the extent that companies are found to be in non-compliance with the new standard, they would be liable 

for prosecution to the full extent of the FTC’s powers. Besides compromising the 

ability of existing industry actors to comply, invest, and grow, this would have the 

effect of deterring new actors from entering a data-based industry for fear of uncertainty and retroactive prosecution. 

Congress should reassess the standard by which the FTC may reopen and modify 

its own orders. In doing so, it should begin with the question articulated long ago 

by the Supreme Court: ‘‘whether any thing has happened that will justify . . . 

changing a decree.’’ 163 In answering this question, the Court made clear that 

‘‘[n]othing less than a clear showing of grievous wrong evoked by new and unforeseen conditions should lead us to change what was decreed . . . with the consent 

of all concerned.’’ 164 The reason for the Court’s hesitation to modify consent decrees 

should be obvious: despite retaining the force of a court order, consent decrees are, 

at their core, stipulated terms mutually agreed to by the parties to the litigation, 

similar to traditional settlements of civil litigation. Thus, by choosing to settle and 

enter into consent decrees, ‘‘[t]he parties waive their right to litigate the issues involved in the case and thus save themselves the time, expense, and inevitable risk 

of litigation.’’ 165

In Federal court, Rule 60 forces parties to show that circumstances have indeed 

changed enough to justify modification of a court order. However, having to only 

show that it believes the ‘‘public interest’’ would be served, the FTC essentially is 

not required to make any showing of necessity that would counterbalance the value 

of preserving the terms of the settlement. Given the enormous weight the FTC itself 

has placed upon its ‘‘common law of consent decrees,’’ as a substitute both for judicial decisions and clearer guidance from the agency, Congress should find it alarming that the FTC is now undermining the value of that pseudo-common law. 

Ultimately, allowing the FTC to modify such agreements without showing any 

real cause not only negates the value of such agreements to each company (in efficiently resolving the enforcement action and allowing the company to move on), but 

more systemically and perhaps more importantly, it diminishes the public’s trust in 

the government to be true to its word. Procedure matters. When agencies fail to utilize fair procedures in developing laws, the public’s faith in both the laws and underlying institutions is diminished. This, in turn, undermines their effectiveness and 

further erodes the public’s trust in the legal institutions upon which our democracy 

rests.166 Thus, even in instances where the policy behind the rule may be sound, 

a failure by the implementing agency to follow basic due process will undermine the 

public’s faith and deprive businesses of the certainty they need to thrive.167

VII. Better Empirical Research & Investigations 

Why doesn’t the FTC do more empirical research—the kind that went into the 

Green Guides? What should the process around, and following, its forthcoming 

workshop on ‘‘informational injuries’’ look like? 

52 

168FED. TRADE COMM’N, PRIVACY AND DATA SECURITY UPDATE: 2013 (June 2012), 

available at https://www.ftc.gov/policy/reports/policy-reports/commission-and-staff-reports?title 

=data+security&items_per_page=20. 169FED. TRADE COMM’N, PRIVACY AND DATA SECURITY UPDATE: 2016 (Jan 2017), available at 

https://www.ftc.gov/reports/privacy-data-security-update-2016. 170 Id. at 2. 171 Id. 172 Id. 173Statement of Basis and Purpose, at 8. 

A. What the FTC Does Now 

Since 2013, the FTC has published each January an annual report titled the ‘‘Privacy & Data Security Update.’’ 168 The 2016 Report 169 boasts the FTC’s ‘‘unparalleled experience in consumer privacy enforcement’’ 170 and the wide spectrum of offline, online, and mobile privacy practices that the Commission has addressed with 

enforcement actions: 

[The FTC] has brought enforcement actions against well-known companies, 

such as Google, Facebook, Twitter, and Microsoft, as well as lesser-known companies. The FTC’s consumer privacy enforcement orders do not just protect 

American consumers; rather, they protect consumers worldwide from unfair or 

deceptive practices by businesses within the FTC’s jurisdiction.171

Given the far-reaching scope of the FTC’s jurisdiction on Section 5 enforcement 

and the wide range of companies that have settled ‘‘informational injury’’ cases, one 

might expect the these annual ‘‘Updates’’ to do more than merely summarize the 

previous year’s activities, and instead provide empirical research into the privacy 

and data threats facing consumers. By failing to do so, the Commission not only 

leaves businesses in the dark as to what constitutes ‘‘reasonable’’ practices in the 

Government’s eyes, but fails to inform them of the best practices available to ensure 

that Americans’ data and privacy is adequately protected. 

For example, if the Commission is to proudly report that consumer protection was 

achieved from settling charges with a mobile ad network on the grounds that ‘‘[the 

company] deceived consumers by falsely leading them to believe they could reduce 

the extent to which the company tracked them online and on their mobile 

phones,’’ 172 that Commission’s work should not have ended there as a single bulletpoint of the Commission’s many highlights. As an enforcement agency with vast interpretive powers on deceptive practices, and an investigative body with considerable analytical resources, the Commission has a further duty to clearly explain the 

empirical rationale that substantiates the settlement: Just how do consumers understand privacy in the use of advertising cookies? How might companies use Do Not 

Track signals, given those consumer expectations, to provide an effective opt-out 

mechanism? How should the standard differ based on the sizes of companies and 

the services they provide? What ‘‘informational injuries’’ occur when consumers unknowingly receiving tailored advertisements through the use of unique device identifiers? It is one thing to say that the Commission should not have to answer all these 

questions in its pleadings, or even in order to prevail in a deception case. It is quite 

another to say that the Commission should not be expected to perform any research 

even after the fact, especially on matters that recur across a larger arc of enforcement actions. 

Unforeseen vulnerabilities are the inevitable side-effect of rapid technological advancements; in the area of data privacy and security, new consumer risks will arise 

continually, raising questions that should merit careful quantitative and qualitative 

analyses. However, in its ‘‘Privacy & Data Security Update,’’ the FTC essentially asserts an answer without ‘‘showing its work.’’ 

This is in stark comparison to the FTC’s approach on the Green Guides, where 

‘‘the Commission sought comment on a number of general issues, including the continuing need for, and economic impact of, the Guides, as well as the Guides’ effect 

on environmental claims’’:173

[B]ecause the Guides are based on consumer understanding of environmental 

claims, consumer perception research provides the best evidence upon which to 

formulate guidance. The Commission therefore conducted its own study in July 

and August of 2009. The study presented 3,777 participants with questions calculated to determine how they understood certain environmental claims. The 

first portion of the study examined general environmental benefit claims 

(‘‘green’’ and ‘‘eco-friendly’’), as well as ‘‘sustainable,’’ ‘‘made with renewable materials,’’ ‘‘made with renewable energy,’’ and ‘‘made with recycled materials’’ 

claims. To examine whether consumers’ understanding of these claims differed 

depending on the product being advertised, the study tested the claims as they 

53 

174 Id. at 9–10. 175See Statement of Basis and Purpose, at 27. 176See generally Statement of Basis and Purpose. 177See generally 2012 Privacy Report. 178 Clearwater Compliance LLC, The Clearwater Definition of an Information Asset, https:// 

clearwatercompliance.com/wp-content/uploads/2015/11/Clearwater-Definition-of-InformationAssets-with-Exam-ples_V8.pdf. 179 12 U.S.C. § 5331(c)(1). 180Paperwork Reduction Act of 1980, Pub. L. No. 96–511, 94 Stat. 2812 (codified as amended 

at 44 U.S.C. §§ 3501–3520 (2012)). 

appeared on three different products: wrapping paper, a laundry basket, and 

kitchen flooring. The second portion of the study tested carbon offset and carbon 

neutral claims.174

Here is an excellent example of the FTC’s use of consumer perception data to 

study the effect of environmental labels, with variables on consumer behavioral segments and changes on perception over time, to substantiate deception claims. Even 

with the empirical research grounded in a large sample size, the Commission continued to reanalyze ‘‘claims appearing in marketing on a case-by-case basis because 

[the Commission] lacked information about how consumers interpret these 

claims.’’ 175 The ‘‘Green Guides: Statement of Basis and Purpose’’ 176 is a 314 page 

document that comprehensively reviews the Commission’s economic and consumer 

perception studies and weighs different empirical methodologies on the appropriate 

model of risk assessment. It meaningfully fleshes out the Green Guides’ core guidance on the ‘‘(1) general principles that apply to all environmental marketing 

claims; (2) how consumers are likely to interpret particular claims and how marketers can substantiate these claims; and (3) how marketers can qualify their claims 

to avoid deceiving consumers,’’ with self-awareness of the economic impact of regulations and a robust metric on consumer expectations to materialize the Commission’s 

enforcement policies. 

It is deeply troubling that this level of thoroughness evades the Commission’s privacy enforcement, where the toolbox of economics remains unopened in managing 

the information flows of commercial data in boundless technology sectors pervading 

everyday life. The FTC’s history of consent decrees provides nothing more than anecdotal evidence that some guiding principle is present, within the vague conceptual 

frameworks of ‘‘privacy by design,’’ ‘‘data minimization’’, or ‘‘notice and choice.’’ 177

Data privacy and security regulations do not exist in a silo, abstracted and harbored 

from real-life economic consequences for the consumers, firms, and stakeholders— 

whose interests intersect at the axis of the costs and benefits of implementing privacy systems, the need for working data in nascent industries, and the market’s 

right to make informed decisions. Consumer protection through privacy regulation 

is undoubtedly a matter of economic significance parallel to antitrust policies or the 

label marketing in the Green Guides. Personally identifiable information (‘‘PII’’) is 

a valuable corporate asset like any other,178 with competitive market forces affecting how it is processed, shared, and retained. Modern consumers are cognizant of 

the tradeoffs they make at the convenience of integrated technology services, and 

the downstream uses of their data. Accordingly, not every technical deviation from 

a company’s privacy policy is an affront to consumer welfare that causes ‘‘unavoidable harms not outweighed by the benefits to consumers or competition.’’ 179 The 

FTC has too long failed to articulate the privacy risks it intends to rectify, nor to 

quantify the ‘‘material’’ consumer harm through behavioral economics or any empirical metric substantiated beyond its usual ipso facto assertion of deception. 

B. The Paperwork Reduction Act 

A noteworthy legislation that defined the FTC’s administrative authority after 

Congress imposed additional safeguards upon the FTC’s Magnuson-Moss rulemaking powers in 1980 is the Paperwork Reduction Act of 1980 (‘‘PRA’’).180 These 

two 1980 enactments must be understood together as embodying Carter-era attempts to reduce the burdens of government. Specifically, Congress intended the 

PRA to serve as an administrative check on the Federal agency’s information collection policy, with the goal of reducing paperwork burdens for individuals, businesses, 

and nonprofits by requiring the FTC to seek clearance from the Office of Management and Budget (‘‘OMB’’) on compulsory process orders surveying ten or more 

members of the public. 

The ‘‘collection of information’’ that falls under the constraints of the PRA is defined as: 

the obtaining, causing to be obtained, soliciting, or requiring the disclosure to 

third parties or the public, of facts or opinions by or for an agency, regardless 

54 

181 44 U.S.C. § 3502(3). 182Fed. Trade Comm’n, A Brief Overview of the Federal Trade Commission’s Investigative and 

Law Enforcement Authority (July 2008), available at https://www.ftc.gov/about-ftc/what-wedo/enforcement-authority. 183See e.g., FTC To Study Credit Card Industry Data Security Auditing Commission Issues 

Orders to Nine Companies That Conduct Payment Card Industry Screening (March 2016) 

https://www.ftc.gov/news-events/press-releases/2016/03/ftc-study-credit-card-industry-data-security-auditing; FTC To Study Mobile Device Industry’s Security Update Practices (May 2016) 

https://www.ftc.gov/news-events/press-releases/2016/05/ftc-study-mobile-device-industrys-security-update-practices. 184Layne-Farrar, Anne, What Can the FTC’s § 6(B) PAE Study Teach Us? A Practical Review 

of the Study’s Methodology (March 1, 2016). Available at SSRN: https://ssrn.com/abstract 

=2722057. or http://dx.doi.org/10.2139/ssrn.2722057. 185 5 C.F.R. § 1320.3(c). 186 United States Office of Personnel Management, Paperwork Reduction Act (PRA) Guide 

Version 2.0 (April 2011), available at https://www.opm.gov/about-us/open-government/digitalgovernment-strategy/fitara/paperwork-reduction-act-guide.pdf. 187 Id. See also Sam Batkins, Evaluating the Paperwork Reduction Act: Are Burdens Being 

Reduced? AAF, https://www.americanactionforum.org/testimony/evaluating-paperwork-reduction-act-burdens-reduced/. 

of form or format, calling for either—answers to identical questions posed to, 

or identical reporting or recordkeeping requirements imposed on, ten or more 

persons, other than agencies, instrumentalities, or employees of the United 

States.181

Some have claimed that the PRA has hampered the FTC’s ability to collect data 

from companies and thus to perform better analysis of industry practices, informational injuries, and the like. The FTC’s power to gather information without ‘‘a specific law enforcement purpose’’ derives from Section 6(b) of the FTC Act, which the 

FTC has summarized in relevant part as follows: 

Section 6(b) empowers the Commission to require the filing of ‘‘annual or special 

reports or answers in writing to specific questions’’ for the purpose of obtaining 

information about ‘‘the organization, business, conduct, practices, management, 

and relation to other corporations, partnerships, and individuals’’ of the entities 

to whom the inquiry is addressed. 182

Such reports would certainly be helpful for providing better substantiated guidance regarding data privacy and security practices. It is worth carefully considering 

what the PRA requires and how it might affect the FTC’s collection of data. There 

is indeed some circumstantial evidence to suggest that the FTC may be structuring 

its 6(b) inquiries to avoid the PRA, by limiting the number of firms from which the 

FTC requests data to fewer than ten 183—the threshold for triggering the PRA’s requirements. 

A case study on the FTC’s survey of Patent Assertion Entities (‘‘PAEs’’) 184 illustrates two potential ways the PRA might affect the FTC’s collection of empirical 

data and thus the quality of its analysis and guidance in data security and privacy 

cases. First, by its own terms, the PRA applies even to voluntary data-collection of 

the sort that could allow the FTC compile ‘‘line of business’’ studies that consider 

wider practices beyond a single case: 

[T]he obtaining, causing to be obtained, soliciting, or requiring the disclosure to 

an agency, third parties or the public of information by or for an agency . . . 

whether such collection of information is mandatory, voluntary, or required to 

obtain or retain a benefit.185

The burden-minimization goal of the PRA is evaluated by the OMB based on 

broad, unpredictable criteria, such as whether the ‘‘the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility.’’ 186 The PRA has been 

enforced by the OMB with tunnel vision on reducing the burden of paperwork and 

compliance, measured quite simply on the metric of man hours spent processing the 

paperwork.187 However, the more important question lies on balancing the potential 

burden of information collection with the value of added research and empirical data 

on FTC policymaking. The balance was correctly struck on the Green Guides, where 

the PRA analysis was satisfied upon a consideration of the benefits of consumer surveys which outweighed the minimal burdens to the respondents: 

55 

188Fed. Trade Comm’n, Agency Information Collection Activities; Submission for OMB Review; Comment Request (May 2009), Federal Register/VOL. 74, NO. 90, available at https:// 

www.ftc.gov/sites/default/files/documents/federal_register_notices/green-marketing-consumerperception-study-agency-information-collection-activities-submission-omb/090512greenmarket 

ing.pdf. 189 Id at 22398. 190 Id. 191See What Can the FTC’s § 6(B) PAE Study Teach Us? A Practical Review of the Study’s 

Methodology (March 1, 2016); ‘‘Supporting Statement for a Paperwork Reduction Act: Part B’’ 

available at http://www.reginfo.gov/public/do/DownloadDocument?objectID=47563401. 192 Id. 193See generally Paperwork Reduction Act (PRA) Guide Version 2.0. 

Overall burden for the pretest and questionnaire would thus be 2,511 hours. 

The cost per respondent should be negligible. Participation is voluntary and will 

not require start-up, capital, or labor expenditures by respondents.188

Moreover, the FTC integrated various suggestions on the study methodology and 

data collection methods submitted in a public comment by the General Electric 

Company (‘‘GE’’), to ensure that the Commission surveyed ‘‘a proper universe of consumers’’ upon which to ‘‘obtain accurate projections of national sentiment.’’ 189

With respect to GE’s concern about identifying the ‘‘proper universe of consumers,’’ FTC staff has included in the questionnaire a brief section of questions 

that address participants’ level of interest in environmental issues. For example, one question asks: ‘‘In the past six months, have you chosen to purchase 

one product rather than another because the product is better for the environment?’’ Through analyses of answers to such questions, staff can compare the 

study responses of participants who have a high degree of interest in environmental issues and who take these issues into account when making purchasing 

decisions with responses of participants who are not as concerned with environmental issues. 

GE also asserts that the FTC should ensure a ‘‘proper sample size.’’ The FTC 

staff determined the sample size of 3,700 consumers based on several considerations, including the funds available for the study, the cost of different sample 

size configurations, the number of environmental claims to be examined, and 

a power analysis. In this study, 150 participants will see each of the various 

environmental marketing claims to be compared. Staff believes that this will be 

adequate to allow comparisons across treatment cells.190

By contrast, the FTC study on PAEs, which also received PRA clearance, compiled 

‘‘nonpublic data on licensing agreements, patent acquisition practices, and related 

costs and revenues’’ 191 to illuminate how PAEs operate in patent enforcement activity outside the confines of litigation records. But even when the OMB cleared the 

PAE study, the FTC chose a limited sample size of ‘‘25 PAEs, 9 wireless chipset 

manufacturers that hold patents, and 6 non-practicing wireless chipset patent holders.’’ 192 This restrictive sample size significantly limited the applicability of the 

Commission’s conclusions. More broadly, it suggests a shift towards a general reluctance to design and implement systemic research even when the required administrative blessing is obtained under the PRA. 

The PRA Guide of 2011 outlines information collection policies and procedures, albeit with only a superficial explanation of statistical methodologies, and zero mention of survey design and quantitative research methods.193 It is a cause for concern 

that the OMB’s task of cutting down on the amount of paperwork is framed so parochially, for the short term goal of reducing participation hours, without perhaps considering cases where the quality and usability of the research itself depends on obtaining a larger sample. The mandate to limit the sample size of survey respondents 

ironically defeats the ‘‘practical utility’’ of the research, which is one of the main cornerstones of the PRA. 

On the other hand, the PRA does not apply to all voluntary collection—only when 

the FTC sends ‘‘identical’’ questions to ten or more companies (whether their answer 

is voluntary or compulsory). The PRA would not apply to the FTC requesting public 

comment, such as it has done through the Green Guides process. This point is critical: while targeting specific companies with the same questions might well prove 

useful in informing the FTC’s understanding of informational injuries, the FTC’s 

failure to collect more such data thus far, to analyze it, and to publish it in useful 

guidance can in no way be blamed on the requirements of the PRA. Nor can it excuse the FTC staff for relying on an expert witness in the LabMD case whose recommendations about ‘‘reasonable’’ data security referred exclusively to the practices 

56 

194Gus Hurwitz, The FTC’s Data Security Error: Treating Small Businesses Like the Fortune 

1000 (Feb. 20, 2017), available at https://www.forbes.com/sites/washingtonbytes/2017/02/20/ 

the-ftcs-data-security-error-treating-small-businesses-like-the-fortune-1000/#58d2b735a825. 195 United States Office of Personnel Management, Paperwork Reduction Act (PRA), Version 

2.0, OPM at 6 (April 2011), available at https://www.opm.gov/about-us/open-government/digital-government-strategy/fitara/paperwork-reduction-act-guide.pdf. 196 Id. 197 15 U.S.C. 45(b). 

of Fortune 500 companies, without referencing any small businesses comparable in 

size and technical sophistication to LabMD.194

Indeed, the PRA Guide exempts from the definition of ‘‘information,’’ and thus 

eliminates the need for clearance on, the collection of ‘‘facts or opinions submitted 

in response to general solicitations of comments from the general public’’ 195 and ‘‘examinations designed to test the aptitude, abilities, or knowledge of the person tested 

for a collection.’’ 196 The PRA poses no impediment to the FTC taking a proactive 

approach on conducting empirical research on data privacy by calling for consumer 

survey participants, holding public workshops, or from analyzing public data such 

as companies’ privacy policies as a means to test privacy risk perception and consumer expectations. The Green Guides illustrate just how much data collection the 

FTC can do to substantiate its policymaking with empirical and economic research, 

based on real consumer studies. 

VIII. Pleading, Settlement and Merits Standards under Section 5 

In general, the FTC Act currently sets a very low bar for bringing complaints: 

‘‘reason to believe that [a violation may have occurred]’’ and that ‘‘it shall appear 

to the Commission that [an enforcement action] would be to the interest of the public.’’ 197 In practice, this has be-come the standard for settlements, since the Act does 

not provide such a standard, and the FTC commonly issues both together. This 

raises three questions: 

1. What should the standard be for issuing complaints? 

2. Closely related, what should the standard be for courts weighing a defendant’s 

motions to dismiss? 

3. What should the standard be for settling cases? 

Raising all three bars would do much to improve the quality of the agency’s ‘‘common law’’ in several respects: 

1. It would provide greater rigor for FTC staff throughout the course of the investigation; 

2. Companies would be less likely to settle, and more likely to litigate, if they had 

a better chance of prevailing at the motion to dismiss stage; and 

3. Complaints that settle before trial (after the FTC has survived a motion to dismiss) would, or complaints that the FTC has withdrawn (after the FTC has 

lost a motion to dismiss) would provide more guidance standing on their own 

as the final, principle record of each case. 

We take the questions raised above in reverse order, beginning with the standard 

by which a court will assess a motion to dismiss and concluding with the standard 

by which Commissioners will decide whether to issue a complaint (and thus, in 

nearly every case, also a settlement): 

A. Pleading & Complaint Standards 

Fortunately, the courts are already moving towards requiring the FTC to do a better job of writing its pleadings (complaints) or face dismissal of its complaints—at 

least with respect to deception. Congress should take note of the current case law 

on this issue and consider codifying a heightened pleading requirement for any use 

of Section 5. 

Heightened pleading standards can be fatal to normal plaintiffs, who need to survive a motion to dismiss in order to obtain the discovery they need to actually prevail on the merits. But the FTC has uniquely broad investigative powers. It is difficult to see why they would ever need court-ordered discovery—in other words, why 

would it be a problem for the Commission to have to do more to ground their complaints in the requirements of Section 5, as made clear in the FTC’s Deception and 

Unfairness policy statements, and Section 5(n). Today, the FTC wants the best of 

both worlds: vast pre-trial discovery power and the low bar for pleadings claimed 

by normal plaintiffs who lack that power. 

57 

198See White Paper, supra note 51, at 18–21 (unfairness) and 28 (deception). 199See Brief of Amicus Curiae TechFreedom, International Center for Law and Economics, & 

Consumer Protection Scholars in Support of Defendants, FTC. v. Wyndham Worldwide Corp., 

10 F. Supp. 3d 602 (D.N.J. 2014) (No. 13–1887), 2013 WL 3739729, available at https://goo.gl/ 

JGUE9e. 200Fed. R. Civ. P. 9(b). 201 Vess v. Ciba-Geigy Corp., USA, 317 F.3d 1097, 1106 (9th Cir. 2003). 202 In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1418 (3d Cir. 1997). 203See, e.g., FTC v. Lights of Am., Inc., 760 F. Supp. 2d 848 (C.D. Cal. 2010); FTC v. Ivy Capital, Inc., 2011 WL 2118626 (D. Nev. May 25, 2011); FTC v. ELH Consulting, LLC, No. CV 12– 

02246–PHX–FJM, 2013 WL 4759267, at *1 (D. Ariz. Sept. 4, 2013) (same); see also FTC v. Swish 

Marketing, No. C–09-03814–RS, 2010 WL 653486, at *2–4 (N.D. Cal. Feb. 22, 2010) (finding ‘‘a 

real prospect’’ that Rule 9(b) applies but not deciding the issue). 204See Complaint for Permanent Injunction and Other Equitable Relief, Fed. Trade Comm’n 

v. D-Link Sys., Inc., No. 3:17–CV–00039–JD, 2017 (N.D. Cal. Sept. 19, 2017), https:// 

www.ftc.gov/system/files/documents/cases/d-link_complaint_for_permanent_injunction_and_ other_equitable_relief_unredacted_version_seal_lifted_-_3-20-17.pdf. 205See Order Re Motion to Dismiss, Fed. Trade Comm’n v. D-Link Sys., No. 3:17–CV–00039– 

JD, 2017 (N.D. Cal. Sept. 19, 2017), at 2–3, https://consumermediallc.files.wordpress.com/ 

2017/09/dlinkdismissal.pdf. 206 Id. at 2–3 (discussing Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1103–04 (9th Cir. 

2003)). 207 Id. at 4. 208 Id. at 4–5. 

At a minimum, the FTC should be required to plead its Section 5 claims with 

specificity. Ide-ally, this standard would closely mirror a ‘‘preponderance of the evidence,’’ as explained in the attached white paper.198

1. Deception Cases 

TechFreedom has long argued that the FTC’s deception complaints should have 

to satisfy the heightened pleading standards of Fed. R. Civ. Pro. 9(b).199 Under that 

rule, ‘‘[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake.’’ 200 In other words, such claims must be 

accompanied by the ‘‘who, what, when, where, and how’’ of the conduct charged.201

Rule 9(b) gives defendants ‘‘notice of the claims against them, provide[ ] an increased measure of protection for their reputations, and reduce[ ] the number of 

frivolous suits brought solely to extract settlements.’’ 202

Several district courts have concluded that 9(b) applies to FTC deception allegations.203 Most recently, the Northern District of California dismissed two of the 

FTC’s five deception counts in its data security complaint against D-Link204 for failure to satisfy the heightened pleading standard of Rule 9(b).205 The district court 

noted that the Ninth Circuit has yet to address the question, but nonetheless found 

controlling the appeals court’s decision holding that California’s Unfair Competition 

Law—the state’s ‘‘Baby FTC Act,’’ which, ‘‘like Section 5 outlaws deceptive practices 

without requiring fraud as an essential element’’—is subject to Rule 9(b).206

The D-Link court’s analysis of each of the FTC’s five deception counts illustrates 

that, while a heightened pleading standard would require more work from Commission staff to establish their cases, this burden would be relatively small and would 

in no way hamstring the Commission from bringing legitimate cases. The court 

upheld the principal deception count (Count II: ‘‘that DLS has misrepresented the 

data security and protections its devices provide’’) and two others, dismissing only 

two peripheral claims. If anything, merely applying Section 9(b) to the Commission’s 

complaints would likely not be enough, on its own, to provide adequate discipline 

to the Commission’s use of its investigation and enforcement powers—but it would 

certainly be a start. 

The district court’s discussion of Count II illustrates what specificity in pleading 

deception claims would look like. The FTC’s allegations identified ‘‘specific statements DLS made at specific times between December 2013 and September 2015,’’ 

and that the allegations ‘‘also specify why the statements are deceptive.’’ 207 The 

court goes on to say that ‘‘Count II identifies the time period during which DLS 

made the statements and provides specific reasons why the statements were false— 

for example, that the routers and IP cameras could be hacked through hard-coded 

user credentials or command injection flaws,’’ and that ‘‘this is all Rule 9(b) demands.’’ 208

2. Unfairness Cases 

The D-Link court noted that ‘‘[w]hether the FTC must also plead its unfairness 

claim under Rule 9(b) is more debatable,’’ finding ‘‘little flavor of fraud in the[ ] 

elements [of unfairness under Section 5(n)].’’ But, the court continued: 

58 

209Fed. Trade Comm’n v. D-Link Sys., at *2 (N.D. Cal. Sept. 19, 2017). 210S. Rep. No. 96–184, at 18 (1980), available at http://digitalcollections.library.cmu.edu/awweb/awarchive?type=file&item=417102. 

the FTC has expressly stated that the unfairness claim against DLS is not tied 

to an alleged misrepresentation. See Section III, below. At the same time, however, the FTC has said that for all of its claims ‘‘the core facts overlap, absolutely,’’ and there is no doubt that the overall theme of the complaint is that 

DLS misled consumers about the data security its products provide. The FTC 

also acknowledges that DLS’s misrepresentations are relevant to the unfairness 

claim because consumers could not have reasonably avoided injury in light of 

them. 

Consequently, there is a distinct possibility that Rule 9(b) might apply to the 

unfairness claim. But the question presently is not ripe for resolution. As discussed below, the unfairness claim is dismissed under Rule 8. Whether it will 

need to satisfy Rule 9(b) will depend on how the unfairness claim is stated, if 

the FTC chooses to amend.209

Whatever the courts actually conclude about the applicability of Rule 9(b) to unfairness claims, we see no reason why the Commission should not be subject to the 

same heightened pleading requirements under unfairness. 

B. Preponderance of the Evidence Standard 

Applying Section 9(b) to all Section 5 pleadings would help greatly. But the more 

fundamental problem in unfairness cases is the low bar set by Section 5(b) for bringing a complaint—and the lack of any standard for settling it. We believe the answer 

is to require the Commission staff to demonstrate that it would prevail by a preponderance of the evidence. It may, at first, seem strange to apply this standard—the 

general standard for resolving civil litigation—at the early stages of litigation, but 

it must be remembered that this is not normal litigation. As noted above, the FTC 

has unique pre-trial discovery powers, and so is very likely to have accumulated all 

the evidence it will need at trial before the complaint is ever issued. Second, in 

nearly every ‘‘informational injury’’ case, the Commission’s decision over whether to 

issue a complaint is the final decision over the case—because the cause will simply 

settle at that point. Congress should consider applying this standard either to the 

issuance of unfairness complaints, or to the issuance of settlements. If the standard 

is applied only to the issuance of settlements, Congress should consider some other 

heightened standard for bringing unfairness complaints, above that required by Section 9(b). In any event, the purpose of any standard imposed at this stage would 

not be to change how litigation would work—which would still be resolved under 

separate standards for motions to dismiss, motions for summary judgment and final 

resolution of litigation on the merits—but rather to spur Commissioners to demand 

more analytical work of the staff. Some such change is likely the only way to create 

sustainable analytical discipline inside the Commission. 

IX. Conclusion 

There is little reason to expect that the FTC will not continue to more and more 

closely resemble the Federal Technology Commission with each passing year: the 

Commission will continue to grapple with new issues. This is just as Congress intended. But if the agency is to be trusted with such broad power, Congress should 

expect—and indeed take steps to ensure—that the FTC does more to justify how it 

wields that power. As Sens. Barry Goldwater (R–AZ) & Harrison Schmitt (D–AZ) 

said in 1980: 

Considering that rules of the Commission may apply to any act or practice ‘‘affecting commerce’’, and that the only statutory restraint is that it be unfair, the 

apparent power of the Commission with respect to commercial law is virtually 

as broad as the Congress itself. In fact, the Federal Trade Commission may be 

the second most powerful legislature in the country. . . . All 50 State legislatures and State Supreme Courts can agree that a particular act is fair and lawful, but the five-man appointed FTC can overrule them all. The Congress has 

little control over the far-flung activities of this agency short of passing entirely 

new legislation.210

This testimony, and the attached documents, lay out some of the ideas that Congress should consider in assessing how to reform the FTC’s processes and standards. 

But these questions are sufficiently complex, and have been simmering for long 

enough, that the Committee would benefit from finding ways to maximize the input 

of outside experts. 

59 

211The Energy and Commerce Committee, #COMMSUPDATE (last visited Sept. 25, 11:00 

AM), https://energycommerce.house.gov/commactupdate/. 212 Comments of TechFreedom & International Center for Law and Economics, In the Matter 

of Big Data and Consumer Privacy in the Internet Economy, Docket No. 140514424–4424–01, 

at 4 (Aug. 5, 2014), available at http://www.laweconcenter.org/images/articles/tf-icle_ntia _big_data_comments.pdf 

One model for that would be the House Energy & Commerce Committee’s ongoing 

#CommActUpdate effort.211 The Committee has issued six white papers, each time 

taking public comment and refining its proposals. Given the complex interrelationships among the pieces of FTC reform, this would be a more constructive approach 

than having a flurry of separate bills, as Energy & Commerce did with FTC reform. 

The Committee could also consider establishing a blue-ribbon Commission modeled on the Antitrust Modernization Commission—as TechFreedom and the International Center for Law & Economics proposed in 2014: 

A Privacy Law Modernization Commission could do what Commerce on its own 

cannot, and what the FTC could probably do but has refused to do: carefully 

study where new legislation is needed and how best to write it. It can also do 

what no Executive or independent agency can: establish a consensus among a 

diverse array of experts that can be presented to Congress as, not merely yet 

another in a series of failed proposals, but one that has a unique degree of analytical rigor behind it and bipartisan endorsement. If any significant reform is 

ever going to be enacted by Congress, it is most likely to come as the result 

of such a commission’s recommendations.212

We stand ready to assist the Committee in whatever approach it takes. 

Senator MORAN. Mr. Szo ́ka, thank you very much. Let me begin 

with a question about privacy and data security. 

The FTC is one of several agencies that play a role in addressing 

privacy and data security practices. Would you describe to me what 

the authorities of the FTC are in this arena? And should the Congress take any steps to increase or decrease that authority and its 

relationship with other agencies related to the topic of data security and breach? I’m happy to have anyone respond. 

Ms. Rich. 

Ms. RICH. I was there most recently. So the FTC has—— 

Senator MORAN. That means, you, Mr. Szo ́ka, must come last. 

[Laughter.] 

Ms. RICH. The FTC has played the leading role in privacy and 

data security for quite a few years. It’s what I started working on 

in the late 1990s, and that was mid to late 1990s, the FTC has 

been the lead agency. That said, there are others—and the FTC 

has several laws it uses. It uses the FTC Act, Unfair and Deceptive 

Practices, and then it has a few sectoral laws that bear on this, the 

Gramm-Leach-Bliley Act, the Fair Credit Reporting Act. There are 

gaps in those, and the FTC sometimes is frustrated and can’t address privacy and data security because the practices don’t happen 

to fall within those sectoral laws. 

The FCC and the CFPB have both played some role in privacy 

and data security because they are active in consumer protection, 

but it really has not been nearly as substantial, and the agencies 

coordinate closely when anything like that arises, and they are all 

subject to MOUs that they follow. And, of course, the Department 

of Justice investigates the hackers, and so—and perhaps U.S. Attorneys Offices may—individual U.S. Attorneys Offices may do 

that. And, again, the FTC is in close contact when that occurs and 

coordinates very closely. 

60 

Senator MORAN. Ms. Rich, you say there are gaps. Does some 

other agency then fill in, or the gaps are unintended and need legislative attention? 

Ms. RICH. The gaps need legislative attention. They aren’t filled 

in by anybody else. If the data security isn’t covered by the FTC 

Act, which covers unfair and deceptive practice across most of the 

marketplace, others can’t fill that in. For example, there is a huge 

gap in that the FTC lacks jurisdiction over common carriers, entirely over common carrier activity. And the FCC’s jurisdiction over 

common carrier activity does not cover everything that carriers do, 

so there are gaps there. And there are many other gaps that I can 

assist the Committee in if you need it. 

Senator MORAN. Should Congress—I know, Ms. Parnes, you have 

comments, and I welcome them—should the Congress then repeal 

or modify the common carrier exclusion? 

Ms. RICH. The Consumers Union would very much support the 

repeal of the common carrier exemption, which really hampers the 

FTC’s ability to fully protect consumers in that area, and we also 

support enactment of a comprehensive data security law that 

would apply across the marketplace, it wouldn’t just be data 

breach, it would apply to common carriers, it should apply to nonprofits, and it should also have strong civil penalty authority, 

which the FTC, for the most part, lacks right now. 

Senator MORAN. Others? Ms. Parnes? 

Ms. PARNES. Thank you. Thank you, Mr. Chairman. So I think 

that one of the things that I would like to add is that it is true 

that the Commission enforces a number of sectoral laws and that 

Section 5 of the FTC Act is incredibly broad and does give the Commission the authority to reach virtually all other sectors of the 

economy, and, as Jessica notes, other than common carriers, which 

is a very, very big gap. 

I think that the Commission has for many years supported repeal of that exemption, and it is a recommendation that’s included 

in the task force report as well. I think it would go a long way toward addressing potential inconsistencies in enforcement, which is 

also a very big problem when you’re looking at kind of a level playing field. 

Senator MORAN. Thank you. Anyone else? 

[No response.] 

Senator MORAN. I’ll turn then to Senator Blumenthal. 

Senator BLUMENTHAL. Thanks, Mr. Chairman. 

I have just received, as a matter of fact, while the Chairman was 

asking his questions, a response to a letter that I wrote to Equifax 

asking a number of detailed questions regarding the data breach. 

And the response from Paul Zurawski, Senior Vice President of External Affairs, which I will ask be made a part of the record—— 

Senator MORAN. Without objection. 

[The information referred to follows:] 

61 

EQUIFAX

Atlanta, GA, September 25, 2017 

Hon. RICHARD BLUMENTHAL, 

United States Senate, 

Washington, DC. 

Dear Senator Blumenthal: 

I am in receipt of your letter to Mr. Smith dated September 11, 2017 in regard 

to Equifax’s announcement of a cyber security incident. Thank you for your letter 

and please let me respond on behalf of Equifax. 

We deeply regret this incident and apologize to every affected consumer. Protecting the security of information in our possession is a responsibility we take very 

seriously, and we are committed to making this right. We are all working diligently 

to support consumers and make the necessary changes to minimize the risk that 

something like this happens again. 

With respect to our Congressional leaders, we are working cooperatively with a 

number of Congressional committees. We will continue these efforts in the coming 

weeks as we respond to questions and requests regarding the security incident and 

as we prepare for the upcoming Congressional hearings. 

Thank you again for your letter and for sharing your questions and concerns. 

Sincerely, 

PAUL ZURAWSKI, 

Senior Vice President, External Affairs. 

Senator BLUMENTHAL.—essentially says they’re not going to respond to my questions. They’re, quote, ‘‘working diligently to support consumers and make the necessary changes to minimize the 

risk that something like this happens again. We are working cooperatively with a number of congressional committees. We will continue these efforts in coming weeks as we respond to questions and 

requests,’’ et cetera, et cetera. 

So essentially they’re saying they’ll respond to committees. I 

would respectfully suggest that our Committee, I know that you 

don’t have jurisdiction or authority to make this decision, but I 

hope that this Committee will have a hearing and that we will 

have those officials of Equifax come before us to be where you are 

sitting to answer these questions. And I’m disappointed that they 

haven’t provided responses to my questions. 

And I gather, Ms. Rich, that you agree that Section 5 is insufficient right now to protect privacy and ensure data security and 

that Congress ought to act to fill the gaps. 

Ms. RICH. Absolutely. Section 5 may cover the breach that occurred, but then there are no penalties or proper deterrents under 

Section 5. It would just be an order after the fact, as we’ve noted. 

The Fair Credit Reporting Act, which could govern this breach, 

has penalties, but it’s by no means certain that this breach may 

fall within the Fair Credit Reporting Act. So the FTC has to do this 

careful analysis and balancing act to see whether one of these laws 

would apply when there seems to be enormous agreement across 

Congress and elsewhere that data security is a value every company should follow. 

Senator BLUMENTHAL. Well, as about 143 million Americans are 

struggling and scrambling and deeply worrying about identify theft 

and criminality against them, I hope to fill that gap with legislation, I’m going to be introducing it this week, that would ensure 

that the FTC can investigate any data breach and exercise oversight and deter these kinds of breaches through negligent or careless practices by imposing strong and stringent penalties. I’ll be inVerDate Nov 24 2008 07:37 Mar 18, 2019 Jkt 000000 PO 00000 Frm 00065 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\35459.TXT JACKIE
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troducing that legislation this week, and I hope that it will have 

bipartisan support. 

Is there anyone here who feels that such legislation should not 

be adopted? 

Yes, sir, Mr. Szo ́ka. 

Mr. SZO ́ KA. Well, I would note, first of all, that if we want to 

make consumers whole, penalties don’t do that; restitution is what 

does that. And the FTC has broad powers today to obtain restitution. That’s the conversation that Lydia was just alluding to. 

Senator BLUMENTHAL. Well, restitution is fine, and I agree that 

restitution should be made to anybody who is harmed, but restitution is usually inadequate, and, most importantly, it does not deter 

because it is insufficient to send that message that they need to do 

better. That’s why we have penalties. And I think Equifax, you 

know, potentially could be criminally liable here. Criminal liability 

offers no restitution, it never does, but it sends a message and it 

deters that kind of misconduct in the future. 

Mr. SZO ́ KA. So, Senator, I agree that there should be a remedy 

here, and I would just note again that losing 30 percent of your 

market capitalization is a far larger penalty than the government 

is ever going to be able to impose against a company like that. 

So we should just note that there are many forces at work here. 

As you know, criminal law also plays a role. My concern in general 

with giving the FTC broad civil penalty authority for first-time violations boils down to this: The FTC deals with a wide range of conduct, and in many cases involving technology, it’s not inherently 

nefarious conduct; we’re not talking nefariously intended actors 

here. And then the problem is if you bring down the potential of 

civil liability on all of those parties, you—— 

Senator BLUMENTHAL. I just want to make the point to you, first 

of all, market value goes and it comes. It’s not a finite penalty. But, 

second, maybe more important, market value decreases are a penalty not for the management that violated consumer trust, it falls 

on the shareholders. Now, you can argue that penalties do the 

same, but if those penalties can be assessed against individual 

managers, even if they’re only civil penalties, they would send a 

strong message. 

Mr. SZO ́ KA. Well, I would be even more concerned—I mean, it 

sounds great in theory to start talking about applying civil penalties against individuals, but if you apply that across the wide 

range of American businesses in a question of—now, we’re not talking about someone intentionally defrauding a customer, we’re talking about whether they’ve struck the right balance on how much 

data security they provide. That’s a gray question. It may be in a 

particular case, it might be that a company really has had very lax 

data security, and they should be punished. But when you start 

talking about a general civil penalty authority, especially applied 

against individuals, it’s actually very easy to see the sort of effect 

that could have, especially on small businesses and startups in the 

tech space. 

Senator BLUMENTHAL. I’m going to yield because a number of my 

colleagues are waiting to ask questions, but perhaps we’ll have a 

second round. And I appreciate your comments. 

63 

Senator MORAN. I just would inform the Committee that the full 

Committee is contemplating hearings mid-October on the topic that 

we’re discussing and what Senator Blumenthal was suggesting. 

The Senator from Oklahoma, Senator Inhofe. 

STATEMENT OF HON. JIM INHOFE, 

U.S. SENATOR FROM OKLAHOMA 

Senator INHOFE. Thank you, Mr. Chairman. I was not here during the opening statements of Mr. MacLeod and Ms. Parnes, so I’ll 

direct my questions—if you’ve already answered them, I want to 

hear it again. 

So, Ms. Parnes, the Acting Director, Maureen Ohlhausen I guess 

it is, has prioritized connecting enforcement actions directly to concrete consumer injury. That’s a novel idea. In your testimony, you 

note that the FTC has sought significant civil penalties, even when 

violations are unintentional and injury to the consumers is minimal or non-existing. In fact, it seems that the FTC sometimes seeks 

some action without regard to the underlying facts in litigation. 

Do you believe that the consumer protection would be better 

served if the FTC aligned the penalties directly with the misconduct or harm? And I know your answer would be yes there. But 

then how do you do it? 

Ms. PARNES. So I do agree with that, Senator. I think the FTC 

has the ability to obtain monetary relief in a number of situations; 

one is civil penalties. And the FTC Act very specifically says that 

a penalty needs to be related to injury, the degree of culpability, 

and the nature of the violation. But the Commission also has the 

authority to obtain equitable relief when it files actions in Federal 

court or settles with companies, and those settlements are entered 

into by a court. So in that context, the Commission can obtain restitution or can disgorge ill-gotten gains. 

And so when the Report talks about monetary relief, it really is 

talking about all three prongs: civil penalties, disgorgement, restitution. And there’s concern that the Commission has been seeking 

money generally and not tying it very specifically to the legal authority to obtain that monetary judgment and not really focusing 

on the extent of injury and the culpability of the defendants. 

We’re not suggesting—the Report doesn’t suggest that money relief should be higher, that it should be lower, just that it should 

be considered within a more rigorous analytical framework. 

Senator INHOFE. Yes. You’re saying, though, that it doesn’t really 

require a change in the existing law or—— 

Ms. PARNES. I don’t think in this—— 

Senator INHOFE. Because it sounds to me like there’s a change 

in the philosophy of those who are serving or in the case of the 

Obama administration, who had more tendencies toward more that 

type of regulation, that the language there that set this up is broad 

enough that it can be interpreted by the members. But my question 

would be, to preclude this from happening again, wouldn’t it better—isn’t there something that can be done legislatively that would 

be imperative? You might give some thought to that, and for the 

record, since my time will expire if I keep talking. 

Mr. MacLeod, the enforcement actions by the FTC make headlines, but when the FTC is empowered with all of its other tools, 

64 

the tools at their disposal, to achieve its mission of preventing unfair competition in commerce, some of those tools include policy advocacy, business and consumer education, guiding research efforts, 

and convening experts to think through difficult issues. 

Now, would the increased use of these tools in lieu of enforcement action to help protect consumers and ensure that small businesses and entrepreneurs are empowered to work with the FTC? 

Mr. MACLEOD. Senator, I think the answer to that question is an 

emphatic yes. The—— 

Senator INHOFE. Are a lot of these not used, a lot of these tools 

that are out there? 

Mr. MACLEOD. They are not used as often as I think they could 

be and should be. The Commission over the years has been a very 

powerful force for advising and spreading knowledge about the benefits of sensible law enforcement and about the cost of law enforcement gone awry. And one of the important things the Commission 

has been able to accomplish over the years has been to achieve a 

consensus among policymakers, law enforcers, enforcement agencies, as to an appropriate consumer-friendly approach to consumer 

protection. This is an economic issue, it’s a legal issue, and it’s 

something which I think the Commission could do in much more 

vigorous fashion than it has recently. 

Senator INHOFE. Yes, I think so, too. And, well, my time is expired, but I’ll have a question for the record on privacy that I’ll 

submit at the appropriate time. 

Senator MORAN. Thank you, Senator. 

The Senator from West Virginia. 

STATEMENT OF HON. SHELLEY MOORE CAPITO, 

U.S. SENATOR FROM WEST VIRGINIA 

Senator CAPITO. Thank you. Thank you, Mr. Chairman. 

And thank you all for your opening remarks and for being with 

us here today. 

I’m going to go back to the Equifax situation, realizing that almost half of my entire State of West Virginia was impacted by 

that. And then there has been a recent story about the SEC having 

a data breach. And I know this question has been asked sort of 

around, but I’m going to ask it again. 

Ms. Parnes, with your experience at the FTC, you know, prevention is where we want to go. And also investigation of these data 

breaches. What other recommendations would you have to try to 

avoid these kinds of situations? 

Ms. PARNES. It’s a tough question. And I actually think that one 

thing that the Commission has started doing is to provide much 

more guidance to industry. They’ve begun to do this. I think it’s a 

really important effort. I think companies need to understand what 

types of security measures are critical. But, you know, the truth is 

that no company wants to kind of throw its consumer data out into 

the public. 

Senator CAPITO. Right. 

Ms. PARNES. I mean, my sense is that companies that are subject 

to these major data breaches, they are attempting to keep data 

safe, and it is a big, big challenge. Frankly, my sense is that 

65 

issuing additional rules about what companies should do or should 

not do would not really solve this problem. 

There are industry standards that are set. There are NIST 

standards and there are ISO standards that companies follow in 

terms of setting up their comprehensive data security programs, 

and those procedures, they’re process-based, and they change on a 

regular basis. And it would be impossible, I think, to set a regulation that says this is what is the right data security. Five years 

ago, maybe we thought that complex passwords were good data security. Maybe 2 years ago, what we considered was two-factor authentication. 

Senator CAPITO. Right. 

Ms. PARNES. You know, maybe in a couple of years we’ll be using 

facial recognition or some kind of biometrics to identify people. A 

rule would freeze the security measures in place. 

Senator CAPITO. Right. So the technology needs to go—— 

Ms. PARNES. Absolutely. 

Senator CAPITO.—and innovation. I’ll get back to you in just a 

minute because I have one other question I wanted to ask Mr. 

MacLeod. 

I don’t even know if this is a proper question for this hearing, 

but because you mentioned advertising, it made me think about 

this. We all get these phone calls into our phones from these numbers that look like they’re your next-door neighbor, you know, it 

says it’s from Charleston, West Virginia, where I live, and if you 

make the mistake of picking it up, it’s a voice trying to sell me relief on my student loan. Well, I don’t know if you can tell by looking at me, but I haven’t had a student loan for many, many years. 

So my question is, does the regulatory framework to try to control those kinds of things come from the FTC? The FCC? CFPB? 

And if it’s all of the above, what kind of regulatory coordination are 

we seeing here? Because you can see a scenario where, ‘‘Well, it’s 

not really my bailiwick, it’s more theirs.’’ 

Do you see this as a conflict? And how do we get around those 

kinds of things? 

Mr. MACLEOD. This I don’t see as a conflict, this I see as a major 

challenge that law enforcement has faced for as long as I have observed it. And it’s a little bit like bank robberies and car thefts, we 

are always going to see these things. The Federal Trade Commission has done some very valuable work and has brought some very 

big cases against robocallers and other fraudsters using the telephone—— 

Senator CAPITO. Right. 

Mr. MACLEOD.but there has also been some pretty impressive 

law enforcement coming out of the Department of Justice and local 

criminal authorities. These folks should go to jail. The Federal 

Trade Commission can’t do that, but some of this is just outright 

fraud that is no different from robbing a bank except it’s taking it 

from consumers. 

Senator CAPITO. To this Committee’s credit, we have looked at 

this issue of phantom calls or where they’re using phantom numbers, I can’t remember the exact title of it, but we have tried to 

look into that to try to cut that off as an avenue for fraudulent 

66 

marketing and I would say misuse of privacy, too, if you’re getting 

into somebody’s cell phone to get that. 

Ms. RICH. I—— 

Senator CAPITO. Yes, Ms.—— 

Ms. RICH. Robocalls and unwanted telemarketing calls are an 

area where the FTC and the FCC have worked really closely together. And, in fact, my organization has been somewhat critical of 

the current FCC. But one thing that the FCC is doing is more to 

allow the phone companies to block these types of calls, and they’ve 

got a bunch of rulemaking underway to push forward in that area, 

and we’re very supportive of that. And this is an area where the 

two agencies have worked very harmoniously together to push on 

different angles. 

Senator CAPITO. Thank you. 

Thank you, Mr. Chairman. 

Senator MORAN. Senator Young. 

STATEMENT OF HON. TODD YOUNG, 

U.S. SENATOR FROM INDIANA 

Senator YOUNG. Thank you, Mr. Chairman. Thanks so much for 

holding this timely hearing on the FTC reform proposals intended 

to improve innovation and consumer protection. 

The FTC is important to the safety of all American lives, especially Hoosiers, when it comes to keeping data secure and safe. And 

we have recently, of course, been reminded of the extraordinary 

risk of personal information being compromised by the massive 

data breach at Equifax. 

In my home state, that breach affected 3.8 million Hoosiers. 

Now, that sounds like a big number, and that’s because it is. That 

breach has compromised the personal information of nearly 60 percent of the people I represent. 

What’s unique about this breach is the nature of the information 

that Equifax and all credit reporting agencies have on the American people and the fact that most Hoosiers have absolutely no idea 

what they have. It’s a case of 143 million Americans, many unknowingly, having their sensitive personal information maintained 

by a credit reporting company compromised to an unprecedented 

level. 

Now, given the nature of the breach, the criminals who stole this 

information could easily apply for fraudulent loans and open bank 

accounts and credit cards and engage in other nefarious activities. 

Not only that, but with just part of the information stolen, scam 

artists are now armed with new information to more credibly target senior citizens and other vulnerable people, which, frankly, is 

all of us today, in our communities. Part of the problem is that the 

FTC has failed to provide clear guidance on data security to American businesses. Their approach is to receive a feedback loop from 

the courts—inadequate to signal to the business community what 

they must do to keep Hoosier information safe. 

But it’s not all the FTC’s fault. Congress itself has fallen short 

in providing a bipartisan solution to this problem. And so I’m calling, Mr. Chairman, on this Committee to hold a hearing on the 

Equifax data breach, and I have a sense that that’s going to be 

forthcoming fairly soon. You may have already discussed that—— 

67 

Senator MORAN. We expect the full Committee to have a hearing 

on this topic mid-October. 

Senator YOUNG. That’s really encouraging, so thank you. 

Mr. Szo ́ka, you mentioned in your testimony you’d like to see the 

FTC implement process reforms that make certain consumers’ data 

and privacy are afforded the greatest protection possible. Candidly, 

Hoosiers I spoke with after the Equifax data breach don’t feel like 

that’s the case right now, understandably. 

You also referenced the FTC’s very different approach to the 

Green Guides and how this might be a better model when approaching data and privacy. 

What steps can the FTC take today to begin addressing this 

issue in a tangible way? And how can the Green Guides provide a 

better model for addressing these issues? 

Mr. SZO ́ KA. Well, thank you. Thank you for asking, Senator. The 

conversation about agency process reform is often framed as a conversation about whether an agency should do more or less. I just 

want to disabuse everyone of that notion. I actually think that 

process reform is important precisely because it would encourage 

the agency not just to be more active, but to do a better job of explaining what good data security looks like. 

So the reason that I think it’s important that we get some litigation here and that we undertake process reforms to make sure that 

happens is that the courts will actually force the agency to do a 

better job of explaining itself. So that is one track. And the goal 

is clear guidance to companies so they know what they need to do 

to provide good data security. 

What we’re talking about here is negligence. So some companies 

are, of course, negligent, just as people across the economy are. We 

need clear guidance to them to encourage them not to do that. And 

I think we start there before even getting to the conversation about 

penalties. 

And then, Senator, I think you’re asking the right question. 

What is notable here to me is that the FTC has been dealing with 

data security now for 15, 16, 17 years, depending on how you 

count, and it has never done what it has done in the context of the 

Green Guides. 

The Green Guides represented, to my mind, the best, most rigorous, most thoughtful attempt by the agency to study a new area 

of, in that case, it was how companies were making claims about 

the environmental benefits of their products, whether they were recyclable and so on, and to gather data and study, what do consumers understand? What do they expect? And what should companies do? Right? If the FTC were to have done that 16 years ago, 

I think we’d be in a very different place today. I think companies 

would have much clearer guidance and the data security would be 

better. 

It’s not too late for them to start. And that’s what Commissioner 

Ohlhausen’s workshop offers now. 

Senator YOUNG. Are there additional statutory authorities, say, 

the FTC would need to ensure that these sort of breaches don’t 

occur in the first place, to your mind? 

Mr. SZO ́ KA. Well, they don’t need any changes at all to do something like the Green Guides, I want to make that very clear. So 

68 

there are two separate conversations here: one is what Congress 

should do, and the other is what the agency itself should do with 

the tools it has today. But, yes, I think there are some statutory 

changes. 

I do agree that there is a problem surrounding the common carrier exception. I think the Committee needs to study that, and I’ve 

explained that in my testimony. There are a range of options. Ending the exception altogether is one end of the spectrum of options. 

At the other end, we absolutely need to make sure that the Commission is at least able to go after the data security and privacy 

practices of companies that provide both a common carrier service 

and a non-common carrier service. That non-common carrier service, like broadband is about to become again, needs to be within the 

FTC’s jurisdiction. So I would certainly support that kind of 

change. 

Senator YOUNG. Ms. Rich, I see I’m over time here, so—— 

Ms. RICH. I just want to make one point, which is there is extensive guidance on data security that has been created over the 

years, and somebody here could probably pull it up on their phone 

and see all the guidance that the FTC has put out on data security. 

So I just wanted to correct that one point. 

Mr. SZO ́ KA. If I may just quote briefly from the Third Circuit’s 

decision in Wyndham in 2015. ‘‘At oral argument, we asked how 

private parties in 2008 would have known to consult the guidance 

that the Commission had issued or its consent decrees. The FTC’s 

only answer was, ‘If you’re a careful general counsel, you do pay 

attention to what the FTC is doing and you do look at these 

things.’ We also asked whether the FTC has informed the public 

that it needs to look at complaints and consent decrees, and the 

Commission could offer no examples.’’ 

I mean, if the Commission is pointing to its settlements, it’s putting out guidance, that is not the same thing as the Green Guides, 

which, for example, involve 314 pages in the last update where the 

Commission explained why it was recommending certain things, 

and went into detail. That would be quality guidance that would 

encourage the high level of data security that Americans should 

enjoy. 

Senator YOUNG. Thank you all. 

Senator MORAN. Senator Hassan. 

STATEMENT OF HON. MAGGIE HASSAN, 

U.S. SENATOR FROM NEW HAMPSHIRE 

Senator HASSAN. Thank you, Chairman Moran and Ranking 

Member Blumenthal. 

And thank you all to the witnesses for being here today. 

Ms. Rich, you state in your testimony that some of the recommendations from the American Bar Association’s report—and 

this is a quote ‘‘would limit the FTC’s effectiveness in protecting 

consumers.’’ Could you explain for the Committee which of the 

ABA’s recommendations would do so and how? 

Ms. RICH. I’ll mention two. The ABA report suggests that both 

administrative and Federal court orders should be as short as 5 

years. The longer orders are very important for deterrence, especially where many of the orders actually have no money. So the disVerDate Nov 24 2008 07:37 Mar 18, 2019 Jkt 000000 PO 00000 Frm 00072 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\35459.TXT JACKIE
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cussion today about how the money is disproportionate to the injury just bear no relation to what really happens, which is often 

the FTC can’t get money back to consumers. 

So most cases address fraud or straightforward deception warranting long orders to make sure they don’t do it again. The FTC 

has been able to cite instances where companies violated their 

order after 15 years, at least 10 instances of that. And it’s just very 

important for deterrence. So that’s one. 

The second is the argument that we’ve heard that monetary relief is too high. As I mentioned, most of the time, it’s really too low. 

Consumers don’t get their money back. The company has already 

spent the money. They claim inability to pay. It’s very frustrating 

bringing a case and not being able to return money to consumers. 

If it’s not a hardcore fraud case, but if a company deceived consumers, it’s fine to say, ‘‘Well, it wasn’t intentional,’’ but who 

should have that money? Should it be the company that deceived 

the consumers, or should consumers get their money back? The 

FTC should give the money back to consumers who were deceived. 

And far from there being no systematic way to calculate the money, 

there are rules governing how you calculate civil penalties. If consumers lost money, and the FTC is returning it, they calculate how 

much money consumers lost, and try to get that back to consumers. 

So those are the two issues. 

Senator HASSAN. Thank you. I want to go back to the issue of 

overlapping or sometimes siloed jurisdictions. Earlier this year, 

Congress utilized an arcane tool known as the Congressional Review Act to undo critical privacy protections for consumers by the 

Federal Communications Commission. 

The FCC and the FTC play complementary roles in protecting 

consumer privacy. The FCC protects consumers when they use 

their broadband connection. The FTC protects consumers using 

websites and social media and so on. People in my home State of 

New Hampshire and most Americans I talk to really don’t want 

their private and personal data used or sold without their consent 

just to line the pockets of Internet service providers. 

So, Ms. Rich, how important is it that the Federal Trade Commission work with the Federal Communications Commission to 

protect consumers’ privacy in our data-driven society? And how can 

these agencies collaborate to protect consumers from bad actors? 

Ms. RICH. It was very unfortunate that the broadband privacy 

rule was rolled back. That was a very important rule to protect 

consumers in an area where the ISPs have extraordinary access to 

consumer information. Many consumers do not have choice in who 

their ISP is. And consumers really do care about this issue, as we 

saw after the rule was rolled back. 

The FTC and the FCC have long worked together in a complementary way. They have different authority. For example, the 

FTC can get redress. The FCC gets penalties. They have different 

jurisdiction over different entities, as you note. So they’ve done 

joint work on cramming, on robocalls, on privacy, and that’s been 

very important. Unfortunately, right now, with the rollback of the 

privacy rule, consumers have very weak protections over their ISP 

privacy, and right now, because of the Federal order and various 

70 

other things, the FTC completely lacks jurisdiction over carriers at 

all. 

So consumers are the losers. Consumers have virtually no protections in this vital telecom space for their data. And it’s something 

that needs to be repaired by repealing the common carrier exemption. 

Senator HASSAN. Thank you very much. 

And thank you, Mr. Chairman. 

Senator MORAN. Thank you, Senator. 

Senator Klobuchar. 

STATEMENT OF HON. AMY KLOBUCHAR, 

U.S. SENATOR FROM MINNESOTA 

Senator KLOBUCHAR. Thank you very much, Ms. Rich—this hearing. 

And thank you to the Chairman and Ranking Member. 

This hearing is focused on the FTC’s consumer protection mission, and I am the Ranking Member on the Antitrust Subcommittee in Judiciary. And I appreciate Consumer Union’s work 

in this area. Particularly, you’ve been supportive of the paper delay 

bill that I have with Senator Grassley to stop the practice of pharmaceuticals paying off generics to keep their products off the market, which means no competition for consumers, costing the CBO 

score $2.9 billion to the government in 10 years. 

And I also appreciate the statement and letter from the Consumers Union on my two recent antitrust bills that I introduced. 

And Senator Blumenthal was helpful with that. 

Ms. Rich, can you explain why strengthening merger enforcement is important to Consumers Union? 

Ms. RICH. Yes. And thank you for your leadership. We were delighted to see that you were moving forward on these important 

issues. 

So antitrust enforcement is extremely important for the free 

market to work, giving consumer choices, keeping prices down. 

There is a growing concern among many that the market is too 

concentrated right now. That harms consumers, it harms businesses, it harms small businesses, startups, suppliers, workers, and 

the overall economy. 

We, at Consumers Union, have expressed concern that enforcers 

have too high a burden to show that mergers will cause immediate 

harm, while disregarding the kind of cumulative harm that mergers and the trend toward bigger is causing. So we do think it’s a 

very important issue. It’s time to look closely at this area. And we 

thank you for your leadership on it. 

Senator KLOBUCHAR. OK. Senator Hassan asked you a bit about 

the FTC and the FCC and the issue of data, and I think we know 

how hard these cases can be and how complex they are. And I always believe that our government, if we want to even the playing 

field against fraudsters, have to have as much sophistication in the 

law and the tools that we use as the people that are committing 

the crimes. So does the FTC have the resource it needs, resources 

that it needs, to adequately protect consumers? 

Ms. RICH. It has a lot of expertise in that it has its own tech 

shop. It has a chief privacy and technology officer. And it has been 

71 

bringing these cases in the data security area, which has been the 

subject of discussion for a long time, and it has been bringing fraud 

and deception cases. 

But there are some areas—and the ABA agreed with some of 

this—where the FTC really needs stronger tools. It needs jurisdiction over common carriers very badly right now for consumers’ benefit. I think consumers deserve general data security legislation, 

which we’ve all been talking about with tough penalties to plug the 

holes, and, frankly, privacy legislation, which is for maybe another 

hearing, and stronger rulemaking authority. It’s very important 

that when laws are passed, it gets ABA rulemaking and not something more difficult or something that doesn’t allow the FTC to 

change a rule with time to make sure it keeps pace. It needs 

stronger remedies for consumers, including strong penalties in 

many instances. And more resources. I’m done. 

[Laughter.] 

Senator KLOBUCHAR. No, very good. Thank you. 

Mr. MacLeod, changing the subject a little bit here. On July 

17th, the FTC announced reforms to its civil investigation demands 

process to add more clarity, streamlining it. While CIDs are an important part of the investigative process if not tailored appropriately, which I think is why you did this, they did this, they can 

create unnecessary burdens that can be especially difficult for 

small businesses. What effect will these reforms have on how businesses comply with civil investigative demands? 

Mr. MACLEOD. We are very encouraged at this announcement 

that came from the FTC. This included some of the recommendations that we had in our report. So we are looking forward very 

much to see how these announcements will play out in the orders. 

It is hard to exaggerate the effect of a broad CID on a company. 

It can take months. It can divert the top leadership. And if it is 

not reasonably necessary to get the Commission the evidence that 

it needs, then it ought to be diverted. 

Another point that we recommended that has not yet been addressed by the Commission, but which is, we think, very important, 

is that it is very difficult for a company to contest the scope of a 

CID because when one moves to petition or quash a CID, that’s 

when an otherwise non-public investigation becomes public. You 

may never have violated the law, but all of a sudden you are litigating in public over a Commission investigative demand, and that 

is a very difficult thing for a company to do. 

Mr. SZO ́ KA. Senator, if I could just note, LabMD, the small cancer 

testing lab that has been in litigation with the FTC, they started 

to go out of business the day they decided to fight back against the 

CID because it was that public revelation that caused them to lose 

the insurance that made their business possible. 

So the stakes here really are very high. When I talk about the 

reputational consequences, you know, we could talk about maybe 

Equifax could survive losing 30 percent of its market cap, but a 

small business, you know, once that fight goes public or once even 

a small corporation has to notify its shareholders that they’re now 

subject to investigation, it’s over. 

So we need to keep in mind that we can give—keep the FTC with 

those broad powers, but if the FTC is able to use those powers to 

72 

coerce settlement, that’s what changes this from a true common 

law process into what we have today. 

Senator KLOBUCHAR. Thanks. I have questions that I’ll ask on 

the record about the senior fraud bill I have with Senator Collins. 

Maybe I’ll give them to all of you so I can be fair and equal and 

everything else. 

So thank you very much, everyone. 

Senator MORAN. Senator Markey. 

STATEMENT OF HON. EDWARD MARKEY, 

U.S. SENATOR FROM MASSACHUSETTS 

Senator MARKEY. Thank you, Mr. Chairman, very much. 

The arguments that we are hearing today to limit, limit, the Federal Trade Commission’s authority are yet another reason why the 

Federal Communications Commission must stop its harmful proposal to rescind net neutrality protections. If the Federal Communications Commission reclassifies broadband as an information 

service, the Federal Trade Commission would regain jurisdiction 

over broadband and net neutrality. 

So here is the broadband giant’s industry formula: Give the Federal Trade Commission authority over broadband, and then gut the 

Federal Trade Commission’s authority to protect competition and 

innovation. That’s their ideal scenario. You can put that on a 3-by– 

5 card as a business plan for the broadband giants. 

Now, the big broadband industry and their allies say the Federal 

Trade Commission provides a light-touch regulatory framework. So 

what do they mean when they say a ‘‘light touch’’? Well, what they 

mean is hands off, hands off the broadband companies’ ability to 

choose the online winners and losers because they know the Federal Trade Commission currently does not have the authority to establish net neutrality protections. 

The Federal Trade Commission only enforces policies companies 

create for themselves, and brings enforcement action if, and only 

if, a company violates those policies. But if a broadband giant has 

a policy that says you have no net neutrality protections, well, 

there’s nothing to enforce because it’s not unfair and deceptive to 

say you have no protections, you’re on your own. 

So the Federal Trade Commission is then left with no ability to 

be able to protect people from having their rights, as consumers, 

being compromised. And if that’s not a sufficient guarantee for the 

broadband giants, Congress is now considering proposals to actually undermine the Federal Trade Commission’s limited enforcement authority. 

So, Ms. Rich, shouldn’t the Federal Communications Commission 

really protect the free and open Internet? Isn’t that where the jurisdiction should be, given the limited ability, which the Federal 

Trade Commission has legally? 

Ms. RICH. Absolutely. In this case, I would note that the carriers, 

or particularly AT&T, have simultaneously been arguing that the 

FTC should have jurisdiction over this issue, but fighting the FTC 

in court, which is what led to the FTC losing jurisdiction over carriers. So I do think it’s just a matter of not having net neutrality 

addressed at all. 

73 

This is an area where it makes sense to have clear rules of the 

road across the entire industry. The rule, the net neutrality rule, 

put out was very clear. There are gaps, serious gaps, in what the 

FTC can do on net neutrality, so absolutely. 

Senator MARKEY. OK. So let me ask you this, Ms. Rich. OK. So 

can the Federal Trade Commission, like the Federal Communications Commission, through affirmative rulemaking authority, ensure that broadband providers do not block, prioritize, or slow 

down online contact? Can the Federal Trade Commission do that? 

Ms. RICH. The FTC does not have general rulemaking authority 

to do that. 

Senator MARKEY. It has no ability. So on privacy, can the Federal 

Trade Commission, like the Federal Communications Commission, 

through affirmative rulemaking authority, require the broadband 

giants to receive user consent before selling browsing history? 

Ms. RICH. The same answer, no. 

Senator MARKEY. No, they don’t have that authority. So let’s 

then move over to—because so far the Republicans have brought 

out a repeal of the FCC rule to protect privacy of Americans that 

broadband companies had to provide them, they’ve already repealed that. Now we move on to this next front, and crocodile tears 

being shed about Equifax, ‘‘Oh, how can this happen in America?’’ 

You know, one of my staffers right behind me was just telling me 

that his information was compromised on Equifax, which might be 

the reason I’m asking this next question. 

[Laughter.] 

Senator MARKEY. Earlier this month, Equifax was subject to a 

cyber attack that compromised the personally identifiable information of 143 million consumers. This massive data breach has exemplified the total lack of consumer recourse when their sensitive information, names, Social Security Numbers, birthdates, addresses, 

is stolen. 

Ms. Rich, should data brokers be required to develop comprehensive privacy and data security programs, and to provide reasonable 

notice to end the case of breachers? 

Ms. RICH. As a general matter, absolutely, yes. 

Senator MARKEY. OK. And that’s why I have introduced with 

Senator Blumenthal the Data Broker Accountability and Transparency Act, to give consumers meaningful control over their sensitive information. So instead of debating whether to take authority 

away from the Federal Trade Commission, we should instead be 

discussing how we will give more authority to the Federal Trade 

Commission to better protect consumers in our increasingly digital 

world where people’s most sensitive information is bought and sold 

on the black market. 

We’re having the wrong conversation in this room. The public is 

wild that 143 million people’s, you know, credit can be compromised, and rather than saying, ‘‘We’re going to come in here and 

ensure that the rules and regulations are in place, that it never 

happens again,’’ instead, you know, we are just pretending that we 

don’t have the ability to be able to respond to that. And it’s just 

a part of a pattern that we saw with the repeal of the Federal 

Communications Commission’s authority to protect the privacy of 

broadband consumers. So all that information just becomes a prodVerDate Nov 24 2008 07:37 Mar 18, 2019 Jkt 000000 PO 00000 Frm 00077 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\35459.TXT JACKIE
74 

uct to be sold by the broadband companies for their own profit. It’s 

just plain wrong and I think it’s fundamentally un-American. It’s 

just plain and simple wrong that people can’t have protections of 

their most private, sensitive information. 

Thank you, Mr. Chairman. 

Senator MORAN. Thank you, Senator. 

Senator Cortez Masto. 

STATEMENT OF HON. CATHERINE CORTEZ MASTO, 

U.S. SENATOR FROM NEVADA 

Senator CORTEZ MASTO. Thank you, Mr. Chair, and Ranking 

Member Blumenthal. 

So I appreciate this conversation because I served as the Attorney General for Nevada for 8 years, and one of my best partners 

was the FTC. And I don’t support some of the recommendations 

that were made, and I want to talk about that. 

And maybe, Mr. MacLeod, if you could enlighten me because you 

started with one of the cases that you actually defended, and it was 

a pesticide company. And the reason why I’m curious, because I 

know, I know, as the State of Nevada, we are involved in some actions against pesticide companies because they misused or mislabeled their pesticides, which could cause serious illness to humans and be toxic to wildlife. 

And the reason why we have consent decrees, the reason why we 

enter into these agreements, is to change that conduct, to protect 

the consumer forever, not for 10 years, not for 20 years, it’s forever. 

You want to change that conduct, you want to make sure they’re 

not going to engage it in the future for monetary gain. 

And so I’m curious your thoughts on that. Are you looking at— 

are you saying that that long-term oversight and that change of 

conduct is burdensome to these companies or—if you don’t mind 

giving me your thoughts. 

Mr. MACLEOD. The FTC orders typically go well beyond telling 

a company not to violate the law. They impose numerous affirmative requirements that over time can end up having very little relevance to the world in which a company is operating. 

The point that we made in our report, which I think is very important to emphasize, is that we are not suggesting that every 

order be a limited order. There are some con artists out there who 

could well deserve what they sometimes get from the FTC, and 

that’s a lifetime ban from participating in an industry. 

On the other hand, when there are orders that require a company—Toys ‘‘R’’ Us is a perfect example of a company that petitioned the FTC, probably spent tens of thousands of dollars, 16 

years after it had entered an order, to try to get relief from some 

of the fencing-in provisions that just restricted Toys ‘‘R’’ Us and 

made it a less effective competitor to Amazon, to Target, and to 

some of the other retailers. And the FTC ultimately said, Yes, we 

see no reason for all these extra provisions in the order anymore. 

Our point is that 16 years after an order has been entered, you 

probably don’t need to require a company to petition the FTC or 

petition a court to be treated like everybody else in its industry. 

Senator CORTEZ MASTO. Thank you. 

Ms. Rich, do you have any comments to that? 

75 

Ms. RICH. One important issue is that some of these affirmative 

requirements in the order that Bill is talking about expire well before 20 years; they are 5 years, they are much shorter. So the rest 

of the order is largely, in many of these cases, an obey-the-law 

order. And I don’t know the particulars of the cases that Bill is 

mentioning. I assume they were Bill’s clients. So you know, you 

have a particular perspective, but I would love to hear the perspective of those that brought the action against the companies. 

Senator CORTEZ MASTO. And I appreciate that because as I read 

through the report, knowing from my perspective, as somebody 

from the attorney general’s office for 8 years that was focused on 

consumer protection and worked closely with the FTC, there is 

give-and-take. I know I was in meetings with the corporations before the consent decrees were entered into. 

The last thing we wanted to do was bring litigation, so we were 

trying to change the conduct to address any monetary component, 

to hold them accountable, and deter their conduct in the future, but 

they were in the meetings with us. We were in roundtables talking 

about how we address this. And then when we entered into an 

agreement, it was brought before a judge. And if anybody disagreed 

with it, then the judge would help us make that determination. 

So it’s not like there isn’t negotiation, it’s not like there isn’t 

some give-and-take at the end of the day. So to say that we should 

be eroding the FTC’s enforcement and tools to the benefit of corporations that somehow they are not in the room at the beginning 

when we’re talking about this, I don’t understand. 

Now, with that said, I also get—sometimes you’re on the other 

side of a negotiation with somebody from the FTC, a staffer, who 

may not be reasonable or who may not be willing to sit and talk 

with you, and I think those are times where then you’re going to 

reach above their heads or try to figure out how you address that. 

I get that. I get that. And I’ve seen that happen in government, but 

at the same time, that doesn’t mean we erode the tools for law enforcement to do the jobs that they need. 

So, Ms. Parnes, and then, Ms. Rich, please, I’d love to hear from 

you. 

Ms. PARNES. Thank you, Senator. Just, you know, kind of some 

context on this. I mentioned that I was at the FTC for 27 years, 

and in the mid nineties, I was the Deputy Director of the Bureau 

of Consumer Protection, and at that time, administrative orders, 

like Federal court orders, were perpetual in nature, and we all 

thought that’s the way they should be. You know, this is how it’s 

always been, and this is how it always should be. 

And a new Chairman came in, Robert Pitofsky, and he said, you 

know, ‘‘I think we should revisit this, I think perpetual administrative orders need to be reevaluated.’’ And there was that reevaluation. And ultimately the Commission decided to limit the administrative orders to 20 years with a lot of, you know, kind of bells and 

whistles around if a company violates the order during that timeframe. 

I think the point is that in 1995, when this happened, a 20-year 

order, it was a significant change, but it seemed as if it gave companies the opportunity to kind of get it right. And then if there was 

going to be movement at the company, if there were changes in the 

76 

way the business was operating, just life didn’t move as quickly 

back in the mid nineties. And our sense is that because things 

move so much more quickly now, that it makes—certainly makes 

sense to re-evaluate the length of these orders and to consider a 

shorter order, and we did put a shorter timeframe in our recommendations. 

I don’t think that anybody who was involved in drafting this report looks at this as in some way trying to weaken the Commission 

or its use of its enforcement authority. 

Senator CORTEZ MASTO. Thank you. And I know my time is up, 

but I’d like to hear from Ms. Rich if that’s—with the Chairman’s 

indulgence. 

Ms. RICH. I just want to bring the focus back on consumers because there has been a lot of talk on the burdens on businesses, 

but keep in mind that in the vast majority of orders here, we’re 

talking about situations where consumers were either ripped off or 

harmed in other serious ways, and these orders are designed to return money to consumers and make sure these companies don’t do 

it again. 

In addition, the processes at the FTC are fairly extensive in 

terms of how many bites of the apple you get to appeal through the 

chain and make your arguments to different people. And so that’s 

an opportunity that people don’t have at all Federal agencies, and 

companies really do make use of that to try to change what they 

may disagree with the staff. And there also is an opportunity for 

order modification over time. 

Senator CORTEZ MASTO. Thank you. I appreciate the comments. 

Thank you very much for the conversation today. 

Senator MORAN. We’re about to conclude our hearing. Let me 

turn to Senator Blumenthal and see if he has any closing comments. 

Senator BLUMENTHAL. I appreciate all of your testimony here 

today, and I look forward to hearing your comments on the legislation that we’re going to propose. I think all of you, I hope all of you, 

would agree that restitution is often appropriate even where there 

is no precise or provable harm to consumers as when a Social Security Number is stolen, it’s out there, its value depends on its security and its confidentiality. And so Equifax, in my view, should be 

held accountable and made liable for the loss of privacy as to those 

Social Security Numbers, even for consumers who may not be able 

to prove a precise loss due to identity theft. I hope you would all 

agree. 

Thank you. That concludes my questioning. 

Senator MORAN. Thank you, Senator Blumenthal. 

I had hoped to ask some questions at least about mergers, but 

I’ll submit it for the record. Let me take just a moment to tell you 

I was significantly impressed by the quality of the panel. Thank 

you all very much for testifying. You’re all very articulate, very intelligent, and seemingly have experiences that are of great value 

to us as we figure out the right public policy related to the FTC. 

77 

With that, the hearing record will remain open for two weeks. 

During this time, Senators are asked to submit any questions for 

the record. Upon receipt, we’d ask the witnesses to respond as 

quickly as possible. With that, this concludes our hearing. And I 

again thank the witnesses. We are adjourned. 

[Whereupon, at 4:02 p.m., the hearing was adjourned.] 

(79) 

*Professor, George Mason University School of Law and Director, Global Antitrust Institute. 

I thank James Cooper and Beth Delaney for comments and Khouryanna DiPrima for research 

assistance. 

A P P E N D I X 

THE FTC AND PRIVACY REGULATION: THE MISSING ROLE OF ECONOMICS

GEORGE MASON UNIVERSITY LAW AND ECONOMICS CENTER

BRIEFING ON NOMI, SPOKEO, AND PRIVACY HARMS—NOVEMBER 12, 2015 

Joshua D. Wright*

Introduction 

Good morning, I am pleased to be here today for the Law and Economics Center’s 

Briefing on Nomi, Spokeo, and Privacy Harms. I want to thank the Law and Economics Center for the invitation to speak with you today, and especially my colleague James Cooper. I’m very excited about his work here at the Law and Economics Center on privacy and economics. And it is nice to finally be able to give a speech 

where I do not have to begin with a disclaimer about how the things I am about 

to say are not the views of the Commissioner or any of its Commissioners. 

Privacy is an ever-evolving and remarkably important regulatory landscape and 

it has been, unfortunately in my view, even more remarkably resistant to the influence of economics. As an antitrust economist, law professor, and practitioner, I see 

close parallels between privacy regulation and competition law and policy. The problem is that the closest parallels are to antitrust in the 1960s—before the influence 

of economics had made that body of law coherent as a consumer welfare prescription. That resistance to economics is harming consumers. We can do better. The 

FTC has the tools to do better right now. 

I’m going to focus my remarks on how the FTC can and should integrate economics in assessing privacy regulation. I will also focus more specifically upon the FTC’s 

settlement with Nomi. In particular, as I argued in my dissent in that case why 

a consumer-welfare focused and economic approach to privacy regulation requires 

that promises in privacy policies be proven rather than presumed material to consumers. Presuming materiality when actual evidence of consumer behavior suggests 

otherwise is even more misguided. 

Economic Analysis of Privacy At The FTC 

A primary goal of my tenure at the FTC was to encourage a deeper integration 

of economics and cost-benefit analysis into the consumer protection framework at 

the Commission. The hesitancy to fully incorporate economic tools into consumer 

protection analysis is discouraging, but not completely surprising given the Commission’s portfolio of consumer protection work. It is important to understand where the 

reluctance and resistance comes from in order to know how to fix it. 

The issue is not whether economics will influence privacy regulation, but when. 

So let me start with what is intended to be a provocative proposition: economic analysis of privacy will exert a significant influence on the development of law and regulation in this area within this decade. In the 1960s and 70s, antitrust lawyers and 

agencies too were reluctant to allow economic analysis to seep into their body of law. 

But as was the case with antitrust, it will simply be impossible for privacy—which 

is inherently economic regulation—to remain impervious to the insights from economics, such as how firms compete with respect to privacy protections, the effect 

of privacy rgulation on consumer welfare and competition, and consumer preferences for privacy. 

So let’s begin with why the FTC has rejected an economic view of privacy thus 

far. The vast majority of work that the Bureau of Consumer Protection performs 

simply does not require significant economic analysis. In most consumer protection 

cases, the business practices at issue create substantial risk of consumer harm but 

80 

little or nothing in the way of consumer benefits. A team of Ph.D. economists, or 

even one, is usually unnecessary in a simple fraud case. The FTC’s consumer protection arm has ‘‘grown up’’ around its deception authority. The consumer protection 

enforcement culture at the FTC remains at its core one that contemplates its role 

as smiting out business practices that always harm consumers. That approach is 

substantively correct, intellectually coherent, and efficient when applied to business 

conduct like fraud that always harms consumers. 

Applying economic theory in the consumer protection realm at all is a fairly recent development. Only in 1980, when the Commission adopted the Policy Statement on Unfairness, did it begin considering the benefits of various business practices on consumers. Under this revised standard, and as subsequently codified by 

Congress in 1994 in Section 5(n) of the FTC Act, the agency may pursue enforcement action on the basis of ‘‘unfairness,’’ in cases where an act or practice ‘‘causes 

or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or competition.’’ In reformulating its unfairness standard, the Commission 

recognized that in utilizing its authority to deem an act or practice as ‘‘unfair’’ it 

must undertake a much more rigorous analysis than is necessary when it uses its 

deception authority. However, even deception authority is not immune to the need 

for analysis. It too has a proxy for analysis of whether an unavoidable injury occurred—the ‘‘materiality’’ requirement codified in the Commission’s 1983 Policy 

Statement on Deception, which I will discuss in a moment. 

There are technological and economic forces that point toward an inevitable conflict between the old, fraud-based consumer protection culture at the FTC and the 

realities of the digital economy. For example, as we become fully immersed in the 

digital age, and as the Commission considers policy issues relating to topics such 

as the ‘‘Internet of Things,’’ this conflict becomes apparent. On one hand, there are 

innumerable gains to consumers from new and enhanced products and services resulting from the Internet of Things, all of which depend critically upon the free flow 

and exchange of data. While on the other hand, there are privacy and data security 

concerns that may arise because of that free flow and exchange of data. 

An economic approach to privacy regulation is guided by the tradeoff between the 

consumer welfare benefits of these new and enhanced products and services against 

the potential harm to consumers, both of which arise from the same free flow and 

exchange of data. Unfortunately, government regulators have instead been slow, 

and at times outright reluctant, to embrace the flow of data. What I saw during my 

time at the FTC is what appears to be a generalized apprehension about the collection and use of data—whether or not the data is actually personally identifiable or 

sensitive—along with a corresponding, and arguably crippling, fear about the possible misuse of such data. 

This generalized fear of data takes many forms. And it has many costs. Any sensible approach to regulating the collection and use of data will take into account the 

risk of abuses that will harm consumers. But those risks must be weighed with as 

much precision as possible, as is the case with potential consumer benefits, in order 

to guide sensible policy for data collection and use. The appropriate calibration, of 

course, turns on our best estimates of how policy changes will actually impact consumers on the margin, not whether we can identify plausible yet speculative narratives about how particular business practices might result in consumer harm. 

The failure to engage in a thorough and appropriate cost-benefit analysis that incorporates recent economic insights can lead to serious policy errors. And, unfortunately, the failure has maintained all too common in the FTC’s consumer protection 

work involving the digital economy generally, and privacy regulation specifically. If 

the benefits of these welfare-enhancing business practices are not weighed correctly 

against the harms they present to consumers, we run the risk of squelching innovation and depriving consumers of these benefits. There is still serious resistance to 

adequately accounting for the full economic costs and benefits of various business 

decisions and practices. 

The tendency appears to be to discount benefits, as is the case in the Internet 

of Things Report. As I noted in my dissent, the Report only ‘‘pay[s] lip service to 

the obvious fact that the various best practices and proposals . . . might have both 

costs and benefits,’’ and places far too much emphasis on speculative and anecdotal 

risks without adequately assessing whether the benefits of these new technologies 

outweigh the concerns. Indeed, the Report seems to go out of its way to avoid discussing key components of how the Internet of Things is already improving society— 

for example, not adequately considering how consumer-facing Internet of Things devices fuel the development of smart cities, smart grids, and other socially beneficially technologies. 

81 

Other times, the Commission simply asserts that consumer benefits do not exist, 

as the Commission chose to do in justifying its settlement with Apple. In Apple, the 

Commission found unlawful Apple’s decision to allow the entry of a password upon 

a first transaction to trigger a 15-minute window during which users could make 

additional purchases without reentering the password. The Commission’s clear disregard for rigorous cost-benefit analysis in Apple is also apparent in various recent 

Workshop Reports produced by the FTC—for example, the Data Broker Report or 

the Internet of Things Report—that disseminate best practices and legislative recommendations without conducting such an analysis. In other contexts, the FTC relies upon slogans like ‘‘data minimization’’ and ‘‘security by design’’ to guide policy 

decisions—but those slogans and catchphrases simply don’t bear any meaningful analytical content and their pursuit at any cost will simply mean higher prices and 

less useful products for consumers. 

This is simply not good enough; there is too much at stake for consumers as the 

Digital Revolution begins to transform their homes, vehicles, and other aspects of 

daily life, not to mention the potential for addressing societal problems on a broader 

scale. What is needed to guide consumer-welfare enhancing privacy regulation is an 

economic and evidence-based approach sensitive to key tradeoffs between the value 

to consumers and society of the free flow and exchange of data and the creation of 

new products and services on the one hand, against the value lost by consumers 

from any associated reduction in privacy. 

I’ve been fairly critical of the FTC to this point. But it is important to note that 

I do not view the problem with privacy regulation at the FTC to be a lack of talent 

or leadership. The FTC has a collection of highly talented consumer protection lawyers and the best collection of economists in any government agency. The issue is 

that the FTC is at a crossroads when it comes to consumer protection in the digital 

economy generally. An ever-increasing proportion of the business practices the FTC 

is asked to engage with on a daily basis are no longer the types of practice that 

can simply be dismissed as fraud and enforced without the fear that aggressive enforcement might chill virtuous competition. 

While the FTC must always remain vigilant in identifying and prosecuting fraud, 

it is critical that it develop a sensible and more nuanced approach to business practices that might produce benefits for consumers. When it comes to privacy regulation, the fraud-based culture of the FTC’s consumer protection mission cannot be 

robotically and mechanically employed where that framework no longer makes 

sense. Adapting the culture within any institution to recognize these changes and 

develop the human capital and skills to deal with them is always a tricky problem; 

and perhaps at its trickiest when that institution is a government agency. It will 

be no surprise that an economist who was formerly an intern within the Bureau 

of Economics believes that the key to changing the culture within the agency is to 

empower the economists. And I will close with a few suggestions along those lines. 

But for now, I’d like to turn to Nomi, which is an important case with significant 

implications for privacy regulation, but is also in my view a misguided attempt to 

retrofit the fraud-based FTC consumer protection culture to an area of privacy regulation that requires economic analysis. 

FTC v. Nomi Technologies 

Nomi was a startup company that provided analytics services to retailers based 

upon data collected from mobile device tracking technology to brick-and-mortar retailers through its ‘‘Listen’’ service. Nomi uses sensors placed in its clients’ retail 

locations or its clients’ existing WiFi access points to detect the media access control 

(MAC) address broadcast by a consumer’s mobile device when it searches for WiFi 

networks. Nomi passed MAC addresses through a cryptographic hash function before collection and created a persistent unique identifier for the mobile device. Nomi 

did not ‘‘unhash’’ this identifier to retrieve the MAC addresses and Nomi did not 

store the MAC addresses of the mobile devices. 

The FTC’s case against Nomi rested on a single line within its privacy policy that 

stated ‘‘Nomi pledges to . . . Always allow consumers to opt out of Nomi’s service 

on its website as well as at any retailer using Nomi’s technology.’’ Nomi did allow 

consumers to opt out of its service on the website, but the FTC argued that because 

some retailers did not have the ability to allow consumers to opt-out of tracking 

within the store, this statement was deceptive. 

Importantly, yet completely ignored by the FTC majority, Nomi did not track individual consumers—instead, Nomi’s technology recorded whether individuals are 

unique or repeat visitors, but it did not identify them. The information collected was 

used only to provide analytics to Nomi’s clients. The data provided by Nomi’s Listen 

service can generated potentially valuable insights that allowed retailers to measure 

how different retail promotions, product offerings, displays, and services impact conVerDate Nov 24 2008 07:37 Mar 18, 2019 Jkt 000000 PO 00000 Frm 00085 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\35459.TXT JACKIE
82 

sumers. In short, these insights help retailers optimize consumers’ shopping experiences, inform staffing coverage for their stores, and improve store layouts, all without knowing the identity of those visiting the store. 

Let’s talk about the law. Section 5(b) of the FTC Act requires us, before issuing 

any complaint, to establish ‘‘reason to believe that [a violation has occurred]’’ and 

that an enforcement action would ‘‘be to the interest of the public.’’ In my dissent, 

I argued that the Commission did not meet the relatively low ‘‘reason to believe’’ 

bar because its complaint did not meet the basic requirements of the Commission’s 

1983 Deception Policy Statement. This failure has significant economic consequences because it runs the risk of deterring industry participants from adopting 

business practices that benefit consumers. 

The fundamental failure of the Commission’s complaint is that the evidence simply does not support the allegation that Nomi’s representation about an opportunity 

to opt out of the Listen service at the retail level—in light of the immediate and 

easily accessible opt out available on the webpage itself—was material to consumers. This failure alone is fatal. A representation simply cannot be deceptive 

under the long-standing FTC Policy Statement on Deception in the absence of materiality. 

The Policy Statement on Deception makes this requirement clear, observing that 

the ‘‘basic question is whether the act or practice is likely to affect the consumer’s 

conduct or decision with regard to a product or service.’’ It is important to understand the economic function of the materiality requirement. Once again, the FTC’s 

own Policy Statement on Deception does our work for us when it describes materiality as an evidentiary proxy for consumer injury: ‘‘[i]njury exists if consumers 

would have chosen differently but for the deception. If different choices are likely, 

the claim is material, and injury is likely as well.’’ 

Now why would the FTC choose to enforce only those misrepresentations that are 

material—that is, misrepresentations that cause consumers to make choices that reduce their welfare? The answer is that this essential link between materiality and 

consumer injury ensures the Commission’s deception authority is employed to deter 

only conduct that is likely to harm consumers and does not chill business practices 

that makes consumers better off. This link also unifies the Commission’s two 

foundational consumer protection authorities—deception and unfairness—by tethering them to consumer injury. 

Historically, the FTC has applied its deception authority in the context of advertising. In the advertising setting, the Commission enjoys a legal presumption of materiality. The underlying logic of that presumption is that advertising communications reflect the judgment and investment of the advertiser that the communication 

will indeed affect consumer behavior. But that logic simply doesn’t fit in the context 

of privacy policies. Unlike advertising, privacy policies are not designed by marketers to influence consumer behavior, rather they are often drafted by attorneys and 

included on websites to comply with state laws or industry self-regulatory regimes. 

The logic of the materiality presumption built for advertising simply does not fit 

when evaluating representations in privacy policies. 

The practical reality is that, while privacy policies do serve valuable functions, 

most consumers do not read privacy polices and when they do, they do not understand them. Researchers have shown that it is virtually impossible for consumers 

to read and understand all the privacy policies typically encountered, given the time 

commitment required. It is not surprising that according to a recent Pew Research 

Center survey, half of Americans believe that when a company posts a private policy, it ensures that the company keeps confidential all the information it collects on 

users. The point is not that privacy policies should be presumed immaterial; it is 

that privacy policies are so fundamentally different than mass advertising communications from a consumer perspective that it makes sense for the Commission to 

bear the burden of proof of demonstrating materiality. 

Nomi illustrates why the materiality requirement is so important. The FTC Act 

does not legally obligate Nomi to produce a privacy policy or to publish one at all. 

It did. And the FTC’s case against Nomi rested on a single line within its privacy 

policy that stated ‘‘Nomi pledges to . . . Always allow consumers to opt out of 

Nomi’s service on its website as well as at any retailer using Nomi’s technology.’’ 

The FTC argued that because some retailers did not have the ability to allow consumers to opt-out of tracking within the store, this statement was deceptive. However, Nomi did provide consumers the ability to opt-out of being tracked through 

it’s website. The fundamental failure of the Commission’s complaint is that the evidence simply does not support the allegation that Nomi’s representation about an 

opportunity to opt out of the Listen service at the retail level—in light of the immediate and easily accessible opt out available on the webpage itself—was material to 

consumers. In other words, the Commission did not show any evidence, empirical 

83 

or otherwise, the consumers would not ‘‘have chosen differently’’ but-for the allegedly deceptive representation. 

In fact, the evidence strongly implies that specific representation was not material 

and therefore not deceptive. Nomi’s ‘‘tracking’’ of users was widely publicized in a 

story that appeared on the front page of The New York Times, a publication with 

a daily reach of nearly 1.9 million readers. Most likely due to this publicity, Nomi’s 

opt-out rate (3.8 percent) was significantly higher than the opt-out rate for other 

online activities. This high rate, relative to website visitors, likely reflects the ease 

of a mechanism that was immediately and quickly available to consumers at the 

time they may have been reading the privacy policy. This behavior indicates that 

consumers that were interested in opting out of the tracking service took their first 

opportunity to do so. To presume the materiality of a representation in a privacy 

policy concerning the availability of an additional and more onerous in-store opt-out 

mechanism requires one to accept the proposition that the privacy-sensitive consumer would be more likely to bypass the easier and immediate route (the online 

opt out) in favor of waiting until she had the opportunity to opt out in a physical 

location. 

Untethered from the materiality requirement, the FTC’s consumer protection efforts in privacy regulation are no longer about consumer harm—or promoting consumer welfare—they are about micromanaging privacy policies and placing broad 

sectors of the digital economy under the thumb of a single agency. And in Nomi in 

particular, the approach is about micromanaging privacy policies for firms that do 

not need to have one in the first place. Firms in Nomi’s position or those reading 

the complaint and consent carefully have an increased incentive to take down voluntary privacy policies or not generate one. This will leave consumers and privacy 

watchdogs with even less information than they are already receiving about website 

activity—exacerbating the very problem the FTC was attempting to solve. This unintended consequence is one that is easily foreseeable; and one that is obvious to 

most economists. But the Commission’s analysis simply ignores these tradeoffs. 

By enforcing the FTC Act against trivial misstatements in privacy policies that 

nobody reads, the Commission has been able to put an increasingly large number 

of firms in the digital economy under 20-year orders. Putting businesses under order 

for 20 years, including intrusive monitoring and reporting requirements, seems especially questionable in the digital economy in which a firm’s half-life is closer to 

two years than 10. What’s more, the FTC can obtain substantial monetary penalties 

for violations of orders and certain statutes—Spokeo will pay $800,000 for violations 

of the Federal Credit Reporting Act. 

Not only does this approach threaten to chill innovation in the digital economy, 

they will deter firms from engaging in voluntary practices that promote consumer 

choice and transparency—the very principles that lie at the heart of the Commission’s consumer protection mission. If the benefits of these welfare-enhancing business practices are not weighed correctly against the harms they present to consumers, we run the risk of squelching innovation and depriving consumers of these 

benefits. Indeed, innovation in new privacy-enhancing tools and technologies might 

be at risk—if a company might face legal action for incorrectly yet harmlessly describe an opt-out feature they did not need to provide in the first place, then why 

bother? So long as economic analysis is a marginal player in privacy regulation at 

the FTC, this unfortunate equilibrium will remain. 

Let me conclude with a few remarks on how to set the FTC on a course toward 

embracing the intersection of economics and privacy rather than resisting it. 

Recommendations 

Recommendation #1: The Bureau of Economics must serve the Commission, not the 

Bureau of Consumer Protection, when those two conflict. 

This is quite simple but bears repeating. The question of how to best organize 

economists within regulatory agencies is one that has attracted a significant amount 

of attention from legal scholars, economists, practicing lawyers, and regulators. One 

possible conception of the relationship between the Bureau of Consumer Protection 

and the Bureau of Economics is that the latter should be a litigation and research 

support team for the former. And to be sure, the economists within the agency have 

an important function in conducting economic analyses to facilitate investigations 

and enforcement. But sometimes the objectives of the FTC and the Bureau of Consumer Protection should be in conflict from an economic perspective. Sometimes, 

from an economic perspective, the direction the FTC is going in terms of consumer 

protection enforcement does not make economic sense. 

When such a conflict exists, it is important that the institutional design structure 

of the agency makes room for the economists—indeed, encourages the economists— 

to have a voice in terms of policy and case selection. A structure that subordinates 

84 

economists to lawyers runs the risk of not only encouraging economically misguided 

privacy policy, but also a reduction in alternative information flow to the Commissioners, poorer staff skill retention, and inefficient use of economists with specialized skills or knowledge. 

BE must not become a mere input supplier to the Bureau of Consumer Protection. 

While the economists—like the smaller group within any bureaucracy—must pick 

their battles wisely and economize on their own scarce reputational capital within 

the agency, the Commission as a whole must recognize that the optimal level of 

economist and lawyer conflict over the direction of privacy regulation is not zero. 

Recommendation #2: The FTC Should Be an Intellectual Leader in the Movement to 

Create Economically Coherent Privacy Regulation 

The FTC is at its best when it combines its unique combination of institutional 

features. Perhaps the most unique is that the FTC’s statutory mandate includes a 

research and reporting function that distinguishes it from many agencies. The Commission has a long and well-regarded history of conducting its own research and 

using its authority to produce public reports that examine novel, emerging or otherwise important issues. Privacy should be no exception. The case for strengthening 

the incentives within the agency for FTC economists to produce their own research, 

and to be active and engaged scholars in the field of privacy economics, is quite 

clear. But I do want to be elaborate a bit about what we mean when discussing the 

type of report that the FTC should be producing. 

The Commission will often seek information using its Section 6(b) authority to 

compel private parties to submit information for review. Commission staff reports 

often are the result of extensive research, rigorous investigation into certain industry sectors, practices or products, and economic analysis. Reports taking advantage 

of the Commission’s unique ability to collect and analyze data and to conduct economic analyses to form the basis of its recommendations predictably have had significant impact on public policy debates. 

Reports that do not meet that standard of research and analytical rigor should 

not make legislative recommendations at minimum and, frankly, ought not be published at all in many cases. The track record of rigorous reports and research show 

that the issue here is not capability but discretion. The FTC Bureau of Economics 

has housed some of the most influential consumer protection economists in history 

and can claim many of the most influential papers as its own. Reports that do not 

meet this standard detract from the agency’s limited reputational capital and its 

ability to perform its missions. 

The FTC has the legal authority, the human capital, and the economic talent to 

be a leader in the economic approach to privacy. It should do so. An obvious candidate is to set forth a comprehensive and rigorous research agenda for understanding the economics of privacy policies. 

Recommendation #3: The FTC Should Require the Bureau of Economics to Make 

Public Its Views in All Consents 

I continue to believe that the FTC should consider interpreting or amending FTC 

Rule of Practice 2.34 to mandate that BE publish, in matters involving consent decrees, and as part of the already required ‘‘explanation of the provisions of the order 

and the relief to be obtained, ‘‘a separate explanation of the economic analysis of 

the Commission’s action. This is especially important in the area of privacy regulation where most of the Commission’s work takes place in consents. 

The public-facing documents associated with this rule are critical for communicating the role that economic analysis plays in Commission decision-making in 

cases. In many cases, public facing document surrounding consents in privacy cases 

either do not describe well or at all the economic analysis conducted by staff or upon 

which BE recommended the consent. In cases where there is no economic analysis 

to explain, the Commission should make the information public as well. 

The additional explanation I have in mind would be a BE document, not requiring 

approval of the Commission. Aside from a high-level and general description of the 

economic analyses relied upon in recommending or rejecting the proposed consent 

order, the BE explanation could also provide the more general economic rationale 

for its recommendation. Requiring BE to make public its economic rationale for supporting or rejecting a consent decree voted out by the Commission could offer a 

number of benefits at little cost. First, it would offer BE an avenue to communicate 

its findings to the public. Second, it reinforces the independent nature of the recommendation that BE offers. Third, it breaks the agency monolopy the FTC consumer protection lawyers currently enjoy in terms of framing a particular matter 

to the public. The internal leverage BE gains by the ability to publish such a document may increase conflict between bureaus on the margin in close cases, but it will 

85 

1 Complaint, Apple, Inc., FTC File No. 1123108, at para. 28–30 (Jan. 15, 2014) [hereinafter 

Apple Complaint]. 2 As indicated in the complaint, initially the fifteen-minute window was triggered when an app 

was downloaded. Id. at para. 16. Apple changed the interface in March 2011 and subsequently 

the fifteen-minute window was triggered upon the first in-app purchase. Id. at para. 17. See also 

infra note 13. 3 Apple Complaint, supra note 1, at para. 4, 20, 28. 4Statement of Chairwoman Ramirez and Commissioner Brill at 1. 

5 15 U.S.C. § 45(a). 

6 15 U.S.C. § 45(n). 

7FTC Policy Statement on Unfairness, appended to Int’l Harvester Co., 104 F.T.C. 949, 1070 

(1984), available at http://www.ftc.gov/ftc-policy-statement-on-unfairness [hereinafter Unfairness Statement]. 

also provide BE a greater role in the consent process and a mechanism to discipline 

privacy consents that are not supported by sound economics. 

Thank you very much for your time today. I am happy to take any questions that 

you have for me. 

DISSENTING STATEMENT OF COMMISSIONER JOSHUA D. WRIGHT

IN THE MATTER OF APPLE, INC. 

FTC FILE NO. 1123108 

JANUARY 15, 2014 

Today, through the issuance of an administrative complaint, the Commission alleges that Apple, Inc. (‘‘Apple’’) has engaged in ‘‘unfair acts or practices’’ by billing 

parents and other iTunes account holders for the activities of children who were engaging with software applications (‘‘apps’’) likely to be used by children that had 

been downloaded onto Apple mobile devices.1 In particular, the Commission takes 

issue with a product feature of Apple’s platform that opens a fifteen-minute period 

during which a user does not need to re-enter a billing password after completing 

a first transaction with the password.2 Because Apple does not expressly inform account holders that the entry of a password upon the first transaction triggers the 

fifteen-minute window during which users can make additional purchases without 

once again entering the password, the Commission has charged that Apple bills parents and other iTunes account holders for the activities of children without obtaining express informed consent.3

Today’s action has been characterized as nothing more than a reaffirmance of the 

concept that ‘‘companies may not charge consumers for purchases that are unauthorized.’’ 4 I respectfully disagree. This is a case involving a miniscule percentage 

of consumers—the parents of children who made purchases ostensibly without their 

authorization or knowledge. There is no disagreement that the overwhelming majority of consumers use the very same mechanism to make purchases and that those 

charges are properly authorized. The injury in this case is limited to an extremely 

small—and arguably, diminishing—subset of consumers. The Commission, under 

the rubric of ‘‘unfair acts and practices,’’ substitutes its own judgment for a private 

firm’s decisions 

as to how to design its product to satisfy as many users as possible, and requires 

a company to revamp an otherwise indisputably legitimate business practice. Given 

the apparent benefits to some consumers and to competition from Apple’s allegedly 

unfair practices, I believe the Commission should have conducted a much more robust analysis to determine whether the injury to this small group of consumers justifies the finding of unfairness and the imposition of a remedy. 

Section 5 of the FTC Act prohibits, in part, ‘‘unfair . . . acts or practices in or 

affecting commerce.’’ 5 As set forth in Section 5(n), in order for an act or practice 

to be deemed unfair, it must ‘‘cause[ ] or [be] likely to cause substantial injury to 

consumers which is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or competition.’’ 6

The test the Commission uses to evaluate whether an unfair act or practice is unfair used to be different. Previously the Commission considered: whether the practice injured consumers; whether it violated established public policy; and whether 

it was unethical or unscrupulous.7 Only after an aggressive enforcement initiative 

that culminated in a temporary rulemaking suspension and Congressional threats 

of stripping the Commission of its unfairness authority altogether, was the current 

86 

8 ABA SECTION OF ANTITRUST LAW, CONSUMER PROTECTION LAW DEVELOPMENTS, 57–59 

(2009); J. Howard Beales, III, Director, Bureau of Consumer Protection, Fed. Trade Comm’n, 

The FTC’s Use of Unfairness Authority: Its Rise, Fall, and Resurrection at 9 (May 2003), available at http://www.ftc.gov/public-statements/2003/05/ftcs-use-unfairness-authority-its-rise-falland-resurrection [hereinafter Beales’ Unfairness Speech]. 9 Unfairness Statement, supra note 7, at 1073. 10See, e.g., Complaint at 6, FTC v. Jesta Digital, LLC, Civ. No. 1:13-cv-01272 (D.D.C. Aug. 

20, 2013) (alleging that ‘‘Jesta charged consumers who did not click on the subscribe button and 

charged consumers for products they did not order.’’); Complaint, FTC v. Wise Media, LLC, Civ. 

No. 1:13–CV–1234 (N.D. Ga. Apr. 16, 2013) (alleging that defendants charge consumers for purported services without consumers ever knowingly signing up for such services). 11 Complaint at 15–16, FTC v. JAB Ventures, LLC, Civ No. CV08–04648 (RZx) (C.D. Cal. 

July 8, 2008) (alleging unauthorized billing when defendants charged consumers who had cancelled their enrollment or who had not been adequately informed about negative option features); FTC v. Crescent Publ’g Group, Inc., 129 F. Supp. 2d 311 (S.D.N.Y. 2001) (pornography 

website failing to disclose the point at which a ‘‘free tour’’ ended and a monthly membership 

would begin). 12 By distinguishing the facts of this case from other unfairness cases brought by the Commission alleging the failure to obtain express informed consent, I do not imply that intent is a required element of the analysis. However, I think drawing the distinction informs the discussion. 

Furthermore, I am unaware that the Commission has ever exercised its unfairness authority 

where it has alleged only that the defendant inadvertently charged consumers. 13See Chris Foresman, Apple facing class-action lawsuit over kids’ in-app purchases, 

arstechnica, Apr. 15, 2011, http://arstechnica.com/apple/2011/04/apple-facing-class-actionlawsuit-over-kids-in-app-purchases/ (‘‘After entering a password to purchase an app from the 

iteration of the unfairness test reached.8 Importantly, this articulation, as set forth 

in the FTC Policy Statement on Unfairness (‘‘Unfairness Statement’’), not only requires that the alleged injury be substantial, it also includes the critical requirements that such injury ‘‘must not be outweighed by any countervailing benefits to 

consumers or competition that the practice produces’’ and ‘‘it must be an injury that 

consumers themselves could not reasonably have avoided.’’ 9

As set forth in more detail below, I do not believe the Commission has met its 

burden to satisfy all three requirements in the unfairness analysis. In particular, 

although Apple’s allegedly unfair act or practice has harmed some consumers, I do 

not believe the Commission has demonstrated the injury is substantial. More importantly, any injury to consumers flowing from Apple’s choice of disclosure and billing 

practices is outweighed considerably by the benefits to competition and to consumers that flow from the same practice. Accordingly, I respectfully dissent from the 

issuance of this administrative complaint and consent order. 

Introduction 

This case requires the Commission to analyze consumer injury under the unfairness theory in a novel context: an allegation of a failure to disclose a product feature 

to consumers that results in some injury to one group of consumers but that generates benefits for another group. 

The circumstances surrounding Apple’s decision to forgo disclosing during the 

transaction the fifteen-minute window to its users—and according to the Commission’s complaint, thereby failing to obtain express informed consent—are distinguishable 

from any other prior Commission case alleging unfairness. The economic consequences of the allegedly unfair act or practice in this case—a product design decision that benefits some consumers and harms others—also differ significantly from 

those in the Commission’s previous unfairness cases. 

The Commission commonly brings unfairness cases alleging failure to obtain express informed consent. These cases invariably involve conduct where the defendant 

has intentionally obscured the fact that consumers would be billed. Many of these 

cases involve unauthorized billing or cramming—the outright fraudulent use of payment information.10 Other cases involve conduct just shy of complete fraud—the 

consumer may have agreed to one transaction but the defendant charges the consumer for additional, improperly disclosed items.11 Under this scenario, the allegedly unfair act or practice injures consumers and does not provide economic value 

to consumers or competition. In such cases, the requirement to provide adequate 

disclosure itself does not cause significant harmful effects and can be satisfied at 

low cost. 

However, the particular facts of this case differ in several respects from the above 

scenario. First, there is no evidence Apple intended to harm consumers by not disclosing the fifteen-minute window.12 For example, when Apple began receiving complaints about children making unauthorized in-app purchases on their parents’ 

iTunes accounts, the company took steps to address the problem.13 In addition, 

87 

App Store, the password now has to be reentered in order to make any initial in-app purchases.’’). 14 Nigel Hollis, The Secret to Apple’s Marketing Genius (Hint: It’s Not Marketing), The Atlantic, July 11, 2011, http://www.theatlantic.com/business/archive/2011/07/the-secret-to-applesmarketing-genius-hint-its-not-marketing/241724/ (in discussing Apple’s functionality, ‘‘[u]sing 

an Apple product feels so natural, so intuitive, so transparent, that sometimes, even people paid 

to know what makes products great completely miss the cause of their addiction to Apple products. It’s the natural, intuitive transparency of the technology. The superlative product experience comes from an unusual combination of human and technical understanding, and it creates 

the foundation of all the other positive aspects of the brand.’’); Peter Eckert, Dollars And Sense: 

The Business Case For Investing In UI Design, Fast Company, Mar. 15, 2012, http:// 

www.fastcodesign.com/1669283/dollars-and-sense-the-business-case-for-investing-in-ui-design 

(‘‘As we have seen with Apple’s success, creating products that offer as much simplicity as 

functionality drives market share and premium pricing.’’). See also Neil Hughes, Apple’s re- search & development costs ballooned 32 percent in 2013 to $4.5B, Apple Insider, Oct. 30, 2013, 

http://appleinsider.com/articles/13/10/30/apples-research-development-costs-ballooned-32-in2013-to-45b; Cliff Kuang, The Six Pillars of Steve Jobs’ Design Philosophy, Fast Company, 

Nov. 7, 2011, http://www.fastcodesign.com/1665375/the-6-pillars-of-steve-jobss-design-philosophy. 15 Int’l Harvester Co., 104 F.T.C. 949, 1070 (1984); Beales’ Unfairness Speech, supra note 8, 

§ III. 16 Beales’ Unfairness Speech, supra note 8, § III. 17 Int’l Harvester, 104 F.T.C. at 1070. 18 Int’l Harvester, 104 F.T.C. at 1064. 19 Unfairness Statement, supra note 7, at n.12. 

Apple has an established relationship with its customers and its business model depends upon customer satisfaction and repeat business. 

Second, rather than an unscrupulous or questionable practice, the nature of Apple’s disclosures on its platform is an important attribute of Apple’s platform that 

affects the demand for and consumer benefits derived from Apple devices and services. Disclosures made on the screen while consumers interact with mobile devices 

are a fundamental part of the user experience for products like mobile computing 

devices. It is well known that Apple invests considerable resources in its product 

design and functionality.14 In streamlining disclosures on its platform and in its 

choice to integrate the fifteen-minute window into Apple users’ experience on the 

platform, Apple has apparently determined that most consumers do not want to experience excessive disclosures or to be inconvenienced by having to enter their passwords every time they make a purchase. 

The Commission has long recognized that in utilizing its authority to deem an act 

or practice as ‘‘unfair’’ it must undertake a much more rigorous analysis than is necessary under a deception theory.15 As a former Bureau Director has noted, ‘‘the primary difference between full-blown unfairness analysis and deception analysis is 

that deception does not ask about offsetting benefits. Instead, it presumes that false 

or misleading statements either have no benefits, or that the injury they cause consumers can be avoided by the company at very low cost.’’ 16 It is also well established that one of the primary benefits of performing a cost-benefit analysis is to 

ensure that government action does more good than harm.17 The discussion below 

explains why I believe the Commission’s action today fails to satisfy the elements 

of the unfairness framework and thereby conclude that placing Apple under a twenty-year order in a marketplace in which consumer preferences and technology are 

rapidly changing is very likely to do more harm to consumers than it is to protect 

them. 

I. The Evidence Does Not Support a Finding of Substantial Injury as 

Required by the Unfairness Analysis 

Apple’s choice to include the fifteen-minute window in its platform design, and its 

decision on how to disclose this window, resulted in harm to a small fraction of consumers. Any consumer harm is limited to parents who incurred in-app charges that 

would have been avoided had Apple instead designed its platform to provide specific 

disclosures about the fifteen-minute window for apps with in-app purchasing capability that are likely to be used by children. That harm to some consumers results 

from a design choice for a platform used by millions of users with disparate preferences is not surprising. The failure to provide perfect information to consumers 

will always result in ‘‘some’’ injury to consumers. The relevant inquiry is whether 

the injury to the subset of consumers is ‘‘substantial’’ as contemplated by the Commission’s unfairness analysis. 

Consumer injury may be established by demonstrating the allegedly unfair act or 

practice causes ‘‘a very severe harm to a small number’’ 18 of people or ‘‘a small 

harm to a large number of people.’’ 19 While it is possible to demonstrate substantial 

88 

20 Beales’ Unfairness Speech, supra note 8, § III (‘‘relative to the benefits, the injury may still 

be substantial’’ and ‘‘[t]o qualify as substantial, an injury must be real, and it must be large 

compared to any offsetting benefits.’’). 21 Apple Complaint, supra note 1, at para. 24. 22Press Release, Apple, Inc., Apple’s App Store Marks Historic 50 Billionth Download 

(May 16, 2013), available at http://www.apple.com/pr/library/2013/05/16Apples-App-StoreMarks-Historic-50-Billionth-Download.html. 23 Apple Complaint, supra note 1, at para. 25–26. 24 Beales’ Unfairness Speech, supra note 8, § III. 

injury occurred as a result of an act or practice causing a small harm to a large 

number of consumers, substantiality is analyzed relative to the magnitude of any 

offsetting benefits.20 This is particularly critical when the allegedly unfair practice 

is not a fraudulent activity such as unauthorized billing or cramming, where there 

are no offsetting benefits. 

By reasonable measures of the potential harms and benefits available to the Commission, the injury is relatively small and not necessarily substantial in this case. 

The complaint alleges Apple has received ‘‘at least tens of thousands of complaints 

related to unauthorized in-app charges by children’’ 21 while playing games acquired 

on Apple’s platform, which supports all music, books, and applications purchased for 

use with Apple mobile devices (e.g., iPhone, iPad, iPod, hereinafter ‘‘iDevices’’). Although ‘‘tens of thousands’’ sounds like a large number, the unfairness inquiry requires this number be evaluated in an appropriate context. Apple announced its 50 

billionth app download in May 2013.22 Even 200,000 complaints in 50 billion 

downloads would represent only four complaints in a million, which is quite a small 

fraction. 

In addition, the complaint presents a few examples in which children made unauthorized in-app purchases that were relatively large, some greater than $500, and 

one bill as high as $2,600.23 There is undoubtedly consumer harm in these instances, assuming the purchases are correctly attributed to the alleged failure to 

disclose, but again, in order to qualify as substantial, the harm ‘‘must be large compared to any offsetting benefits.’’ 24

The relevant economic context required to understand substantiality of injury in 

this case includes the proportions of populations potentially harmed and benefitted 

by the failure to disclose product features in this case. A measure of harm that gives 

weight to both the number of consumers harmed and the size of the individual 

harms is the ratio of the value of unauthorized purchases to the total sales affected 

by the practice. We can construct such a measure as follows. The $32.5 million in 

consumer refunds required by the consent decree presumably relates in some way 

to the harm arising from Apple’s disclosure practices. Recognizing that monetary 

amounts emerging from consent decrees are a product of compromise and an assessment of litigation risk, suppose that the value of unauthorized purchases is ten 

times higher than the negotiated settlement amount. This assumption gives a conservatively high estimate of $325 million in unauthorized purchases since the inception of the App Store. 

The total sales affected by Apple’s disclosure practices likely include not only the 

sale of apps and in-app purchases, but also the sale of iDevices. This is likely because the benefits from using apps and making in-app purchases are components 

of the stream of benefits generated by iDevices, and a customer’s decision to purchase an iDevice will depend upon the stream of benefits derived from the device. 

Indeed, the degree of integration across all components of Apple’s platform is remarkably high, suggesting that Apple’s disclosure practices may affect all Apple’s 

sales. For completeness, Charts 1 and 2 below measure the estimated harm as a 

fraction of all three variants of Apple’s sales—App Store sales, iDevice sales, and 

total sales. These data are available from Apple’s Annual Reports and press releases. 

Chart 1 shows that the estimated value of the harm is a miniscule fraction of both 

Apple total sales (about six one-hundredths of one percent) and iDevice sales (about 

eight one-hundredths of one percent) over the five-year period from the inception of 

the App Store to September 2013. This measure of harm, a conservatively high estimate, is also a relatively small fraction of App Store sales (about 4.6 percent). 

89 

Sources: Apple, Inc., Annual Reports for 2009–2013 (Form 10–K); Marin Perez, Apple App Store A $1.2 Billion Business In 2009, InformationWeek, June 11, 2008, available at http:// www.informationweek.com/mobile/mobile-devices/apple-app-store-a-$12-billion-business-in2009/d/d-id/1068794; Apple Complaint, supra note 1 (for the $32.5 million settlement amount). 

Chart 2 illustrates the same relationship with respect to Apple sales growth over 

the last 13 years. 

Sources: Same as Chart 1, plus Apple, Inc., Annual Reports for 2002–2008 (Form 10–K). Calculations assume the App Store sales and estimated unauthorized purchases grew at a constant 

percentage growth rate from 2009 through 2013. 

Taking into account the full economic context of Apple’s choice of disclosures relating to the fifteen-minute window undermines the conclusion that any consumer injury is substantial. 


926JOSH1.eps 926JOSH2.eps
90 

25 Unfairness Statement, supra note 7, at 1074. 26 Unfairness Statement, supra note 7, at n.19. 27 Indeed, there are many financial, banking, and retail apps and websites that allow consumers to conduct a series of transactions after entering a password only once. These services 

usually only require re-entry of a password after a certain amount of time has elapsed, or the 

session expires because of inactivity on the user’s part. It is doubtful that the Commission would 

bring an unfairness case because these services do not disclose this window. 28See Foresman, supra note 13. 29Furthermore, Apple sends an e-mail receipt to the iTunes account holder after a purchase 

has been made in the either the iTunes or App Store. See e.g., http://www.apple.com/privacy/ . 30To the extent that users read the Apple Terms and Conditions when they opened their 

iTunes accounts, consumer injury would also have been avoided. The Terms and Conditions explain the fifteen-minute window and other aspects of how Apple’s platform works, including the 

App Store. It appears that Apple has included these explanations since at least June 2011. See 

http://www.apple.com/legal/internet-services/itunes/us/terms.html#SALE (Apple’s current 

Terms and Conditions) and http://www.proandcontracts.com/wp-content/uploads/2011/06/ 

2011.06.09-iTunes-Terms-and-Conditions-June-2011-Update-with-Highlighting.pdf (cached copy 

of what appears to be its Terms and Conditions as of June 2011). 

II. At Least Some of the Injury Could Be Reasonably Avoided by Consumers 

The Unfairness Statement provides that the ‘‘injury must be one which consumers 

could not reasonably have avoided.’’ 25 In explaining that requirement the Commission noted, ‘‘[i]n some senses any injury can be avoided—for example, by hiring 

independent experts to test all products in advance, or by private legal actions for 

damages—but these courses may be too expensive to be practicable for individual 

consumers to pursue.’’ 26 The complaint does not allege that the undisclosed fifteenminute window is an unfair practice as to any consumer other than parents of children playing games likely to be played by children that have in-app purchasing capability.27 In the instant case, it is very likely that most parents were able to reasonably avoid the potential for injury, and this avoidance required nothing as drastic as hiring an independent expert, but rather common sense and a modicum of 

diligence. 

The harm to consumers contemplated in the complaint involves app functionality 

that changed over time. In the earliest timeframe, the harm occurred when a parent 

typed in their Apple password to download an app with in-app purchase capability, 

handed the Apple device to their child, and then unbeknownst to the parent, the 

child was able to make in-app purchases by pressing the ‘‘buy’’ button during the 

fifteen-minute window in which the password was cached. This was apparently an 

oversight on Apple’s part. When it came to the company’s attention, Apple implemented a password prompt for the first in-app purchase after download.28

During the later timeframe, after being handed the Apple device, a child again 

would press the ‘‘buy’’ button to make an in-app purchase. At this point, the child 

would have needed to turn the device back over to the parent for entry of the password. Alternatively, some children may have known their parent’s password and entered it themselves. In either case, the fifteen-minute window was opened and additional in-app purchases could be made without further password prompts. 

Under the first scenario, account holders received no password prompt for the 

first in-app purchase and thus the injury experienced by some consumers arguably 

may not have been reasonably avoidable. Because the opening of the fifteen-minute 

window in this context does not appear to be a product design feature, but rather 

an unintended oversight, I will focus my attention upon the harm experienced by 

consumers in the latter scenario and discuss their ability to reasonably avoid it. 

Irrespective of the existence of the fifteen-minute window, a user can only make 

an in-app purchase by pressing a ‘‘buy’’ button while engaging with the app. In 

other words, the user must decide to make an in-app purchase. To execute the first 

in-app purchase, the user must enter a password. The fifteen-minute window eliminates the second step of verification—entering a password—only after the user has 

made the first in-app purchase by clicking the ‘‘buy’’ button and entering the password. 

By entering their password into the Apple device—an action that is performed in 

response to a request for permission—parents were effectively put on notice that 

they were authorizing a transaction.29 Although the complaint alleges that the fifteen-minute window was not expressly disclosed to parents, regular users of Apple’s 

platform become familiar with the opportunity to make purchases without entering 

a password every time.30 Even if some parents were not familiar with the fifteenminute window, the requirement to re-enter their password to authorize a transVerDate Nov 24 2008 07:37 Mar 18, 2019 Jkt 000000 PO 00000 Frm 00094 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\35459.TXT JACKIE
91 

31The Terms and Conditions also explain how to use the parental control settings to control 

how the App Store works. See http://support.apple.com/kb/HT1904 and http://support 

.apple.com/kb/HT4213. These parental control settings allow users to disable in-app purchasing 

capability as well as establish settings that require a password each time a purchase is made, 

thereby eliminating the fifteen-minute window. 32 Unfairness Statement, supra note 7, at 1073–74. 33 Compare the disclosure contemplated here with disclosure in the mortgage context, for example. Here, the disclosure itself—or the guidance offered while the user is interacting with the 

product—is an intrinsic part of the product’s value. Indeed, Apple’s business model is built on 

offering an integrated platform with a clean design that customers find intuitive and easy to 

use. The way the platform is presented, including disclosures or guidance offered during use, 

is a critically important component of value. In the mortgage context, the disclosures signed at 

closing are not a significant component of the value of the mortgage. 

action arguably triggered some obligation for them to investigate further, rather 

than just to hand the device back to the child without further inquiry.31

III. Any Consumer Injury Caused by Apple’s Platform is Outweighed by 

Countervailing Benefits to Consumers and Competition 

Assuming for the moment there is at least some harm that consumers cannot reasonably avoid, the question turns to whether the harms are substantial relative to 

any benefits to competition or consumers attributable to the conduct. In performing 

this balancing, the Commission must also take ‘‘account of the various costs that 

a remedy would entail. These include not only the costs to the parties directly before 

the agency, but also the burdens on society in general in the form of increased paperwork, increased regulatory burdens on the flow of information, reduced incentives to innovation and capital formation, and similar matters.’’ 32 I now turn to that 

question. 

A. Apple’s Platform as a Benefit to Consumers and Competition 

Unfairness analysis requires an evaluation and comparison of the benefits and 

costs of Apple’s decision not to increase or enhance its disclosure of how Apple’s 

platform works, including the fifteen-minute window. The fifteen-minute window is 

a feature of Apple’s platform that applies to purchases of songs, books, apps, and 

in-app purchases. This feature has long been a part of the iTunes Store for 

downloading music, and regular users of iTunes apparently value it. In the context 

here, disclosure is perhaps better thought of as a product attribute—guidance—that 

Apple provides to the customer through on-screen and other explanations of how to 

use Apple’s platform.33

In deciding what guidance to provide and how to provide it, firms face two important issues. First, since it is generally not possible to customize guidance for every 

individual customer, the optimal guidance inevitably balances the needs of different 

customers. In drawing this balance, the potential for harm from misinterpretation 

is likely important in deciding which customer on the sophistication spectrum might 

represent the least common denominator for directing the guidance. For any given 

degree of guidance, some customers will get it immediately, while others will have 

to work harder. If the potential for harm is very large, e.g., harm from a drug overdose, then both the firm and consumers want obvious, strong disclosures about dosage, and perhaps other steps like childproof caps. If the potential for harm is small, 

then strong guidance (or caps that are hard to open in the drug context) may make 

it more costly for consumers to use the product. Platform designers clearly face such 

tradeoffs in their decision-making regarding guidance and disclosures. Apple clearly 

faces the same tradeoff with respect to its decisions concerning the fifteen-minute 

window. This tradeoff is relevant for evaluating the benefit-cost test at the core of 

unfairness analysis. 

Second, because it is difficult to anticipate the full set of issues that might benefit 

from guidance of various types, the firm must decide how much time to spend researching, discovering, and potentially fixing possible issues ex ante versus finding 

and fixing issues as they arise. With complex technology products such as computing platforms, firms generally find and address numerous problems as experience is gained with the product. Virtually all software evolves this way, for example. 

This tradeoff—between time spent perfecting a platform up front versus solving 

problems as they arise—is also relevant for evaluating unfairness. 

Apple presumably weighs the costs and benefits to Apple of different ways to provide guidance. In doing so, Apple must consider: (i) the benefit to Apple of greater 

sales of mobile devices, music, books, apps, and in-app components to customers 

who benefit from the additional guidance and make more purchases; (ii) the cost to 

Apple of fewer sales of mobile devices, music, books, apps, and in-app components 

by customers who find that more real-time guidance hampers their experience; and 

(iii) the cost to Apple of developing and implementing more guidance. In weighing 

92 

34 In 2012, sales of the iPhone, iPad, and iPod accounted for over 76 percent of Apple’s $157 

billion in sales. See Apple, Inc., Annual Report (Form 10–K), at 73 (Oct. 31, 2012), available 

at http://files.shareholder.com/downloads/AAPL/2661211346x0xS1193125-12-444068/320193/ 

filing.pdf. 35The $11.95 figure represents the seasonally adjust average earnings per half hour across 

all employees on private nonfarm payrolls, as reported by the Bureau of Labor and Statistics 

in May 2013. See http://www.bls.gov/news.release/empsit.t19.htm for the most recent report. 

The assumption is that customers asked for returns were reimbursed for the charges as Apple 

attests, and that obtaining a reimbursement takes half an hour. 36Let Y be the harm to non-cancelling customers from additional guidance sufficient to prevent cancellations. This harm will just equal the benefit of avoiding cancellations if (% Cancelling) x (Refund Time Cost)—(% Not Cancelling) x Y = 0. Assuming (% Cancelling) is .0008, (Refund Time Cost) is $11.95, and (% Not Cancelling) is .9992, solving for Y gives Y = $.009. In 

other words, if the harm to non-cancelling customers from additional guidance is more than 

roughly one cent for each transaction, then then the costs of the additional guidance will outweigh the benefits. 37 Commissioner Ohlhausen suggests that our unfairness analysis compares inappropriately 

the injury caused by Apple’s lack of clear disclosure with the benefits of Apple’s disclosure policy 

to the entire ecosystem. She argues that this approach ‘‘skew[s] the balancing test for unfairness 

and improperly compare[s] injury ‘oranges’ from an individual practice with overall ‘Apple’ ecosystem benefits.’’ Statement of Commissioner Ohlhausen at 3. For the reasons discussed, this 

analysis misses the point. 

(i) and (ii), Apple is particularly concerned about the effects on the sales of mobile 

devices that use Apple’s platform, as they constitute the bulk of Apple’s business, 

as indicated in Charts 1 and 2.34

The relevant universe for assessing unfairness of Apple’s guidance provision, including disclosures relating to the fifteen-minute window, is the set of users to 

whom the guidance is directed. This includes all users of Apple’s platform who 

might make online purchases through the platform. 

The ratio of estimated unauthorized purchases in this case to all purchases made 

by users of Apple’s platform is miniscule, as Charts 1 and 2 illustrate. This fact, 

by itself, does not establish that the benefits of Apple’s decision to forgo additional 

guidance of the type required by the consent order outweigh its costs. However, the 

remarkably low ratio does provide perspective on the following question: How much 

would the average non-cancelling customer need to be harmed by a requirement of 

additional guidance in order to outweigh the benefit of preventing harm to other 

consumers? Suppose the fraction of customers that would benefit from additional 

guidance is approximated by the ratio of estimated unauthorized purchases to total 

sales of iDevices. The analysis in Charts 1 and 2 indicates that estimated unauthorized purchases have been about 0.08 percent of iDevice-related sales since the App 

Store was launched. Suppose that customers that make unauthorized purchases 

cancel them and seek a refund. Suppose also that the time cost involved in seeking 

a refund return is $11.95.35 Then, if the average harm to non-cancelling customers 

from additional guidance sufficient to prevent cancellations is more than about a 

penny per transaction, the additional guidance will be counter-productive.36

To be clear, the sales of iDevices are not an estimate of consumer benefits but 

rather they approximate the total universe of economic activity implicated by the 

Commission’s consent order. Similarly, estimated unauthorized purchases merely 

approximate the total universe of consumers potentially harmed by Apple’s practices. The harm from Apple’s disclosure policy is limited to users that actually make 

unauthorized purchases. However, the potential benefits from Apple’s disclosure 

choices are available to the entire set of iDevice users because these are the consumers capable of purchasing apps and making in-app purchases. The disparity in 

the relative magnitudes of these universes of potential harms and benefits suggests, 

at a minimum, that further analysis is required before the Commission can conclude 

that it has satisfied its burden of demonstrating that any consumer injury arising 

from Apple’s allegedly unfair acts or practices exceeds the countervailing benefits 

to consumers and competition.37

Nonetheless, the Commission effectively rejects an analysis of tradeoffs between 

the benefits of additional guidance and potential harm to some consumers or to competition from mandating guidance by assuming that ‘‘the burden, if any, to users 

who have never had unauthorized charges for in-app purchases, or to Apple, from 

the provision of this additional information is de minimis’’ and that any mandated 

disclosure would not ‘‘detract in any material way from a streamlined and seamless 

user experience.’’ I respectfully disagree. These assumptions adopt too cramped a 

view of consumer benefits under the Unfairness Statement and, without more rigorous analysis to justify their application, are insufficient to establish the Commission’s burden. 

93 

38Disclosure in this context is analogous to a quality decision that may affect different customers differently. A. Michael Spence, Monopoly, Quality and Regulation, 6 BELL J. OF ECON. 417–29 (1975); Eytan Sheshinski, Price, Quality and Quantity Regulation in Monopoly Situations, 43 ECONOMICA 127–37 (1976). The analysis of this issue is also explained in JEAN TIROLE, THE THEORY OF INDUSTRIAL ORGANIZATION § 2.2.1 (MIT Press 1988). 39Spence, supra note 38. 40This argument does not, as Chairwoman Ramirez and Commissioner Brill suggest, ‘‘presuppose that a sufficient number of Apple customers will respond to the lack of adequate information by leaving Apple for other companies.’’ Statement of Chairwoman Ramirez and Commissioner Brill at 5–6. Nor does the economic logic require any belief about the magnitude of 

switching costs. Rather, the analysis relies only upon the standard economic assumption that 

Apple chooses disclosure to maximize shareholder value, weighing how customers react to different disclosure policies. If Apple behaves this way, the average benefit of more disclosure to 

unaffected customers is less than the benefit to affected customers, and affected customers are 

more likely to be on the margin than unaffected customers, then economic theory implies that 

Apple is likely to have more than enough incentive to disclose. 41 Unfairness Statement, supra note 7, at 1073–74. 

B. The Costs and Benefits to Consumers and Competition of Apple’s Product Design 

and Disclosure Choices 

To justify a finding of unfairness, the Commission must demonstrate the allegedly 

unlawful conduct results in net consumer injury. This requirement, in turn, logically 

implies the Commission must demonstrate Apple’s chosen levels of guidance are less 

than optimal because consumers would benefit from additional disclosure. There is 

a considerable economic literature on this subject that sheds light upon the conditions under which one might reasonably expect private disclosure levels to result in 

net consumer harm.38

To support the complaint and consent order the Commission issues today requires 

evidence sufficient to support a reason to believe that Apple will undersupply guidance about its platform relative to the socially optimal level. Economic theory teaches that such a showing would require evidence that ‘‘marginal’’ customers—the marginal consumer is the customer that is just indifferent between making the purchase 

or not at the current price—would benefit less from the consent order than the 

‘‘inframarginal’’ customers who are willing to pay significantly more for the product 

than the current price and therefore would purchase the product irrespective of a 

small adjustment in an attribute. Nobel Laureate Michael Spence points out in his 

seminal work on the subject that this analysis generally requires information on the 

valuations of inframarginal consumers.39 Here, marginal consumers are those who 

would not have made in-app purchases if Apple would have disclosed the fifteenminute window. Inframarginal consumers are those Apple customers who would not 

change their purchasing behavior in response to a change in Apple’s disclosures. 

Staff has not conducted a survey or any other analysis that might ascertain the 

effects of the consent order upon consumers. The Commission should not support 

a case that alleges that Apple has underprovided disclosure without establishing 

this through rigorous analysis demonstrating—whether qualitatively or quantitatively—that the costs to consumers from Apple’s disclosure decisions have outweighed benefits to consumers and the competitive process. The absence of this sort 

of rigorous analysis is made more troublesome in the context of a platform with 

countless product attributes and where significant consumer benefits are intuitively 

obvious and borne out by data available to the Commission. We cannot say with certainty whether the average consumer would benefit more or less than the marginal 

consumer from additional disclosure without empirical evidence. This evidence 

might come from a study of how customers react to different disclosures. However, 

given the likelihood that the average benefit of more disclosure to unaffected customers is less than the benefit to affected customers who are likely to be customers 

closer to the margin, I am inclined to believe that Apple has more than enough incentive to disclose.40

C. Other Considerations When Examining the Costs and Benefits of Platforms and 

other Multi-Attribute Products 

Unfairness analysis also requires the Commission to consider the impact of contemplated remedies or changes in the incentives to innovate new product features 

upon consumers and competition.41 I close by discussing some additional dimensions 

of an economic analysis of the costs and benefits of product disclosures in the context of complicated products and platforms with many attributes, like Apple’s platform, where such disclosures are a critical component of the user experience and 

have considerable impact upon the value consumers derive from the product. 

For complicated products—for example, a web-based platform for purchasing and 

interacting with potentially millions of items using a mobile device—there are many 

things that can negatively impact user experience. The number of potential issues 

94 

42The Commission must take ‘‘account of the various costs that a remedy would entail’’ including ‘‘reduced incentives to innovation and capital formation, and similar matters.’’ Unfairness Statement, supra note 7, at 1073–74. 43Unfairness Statement, supra note 7, at 1073–74. 44See Foresman, supra note 13. 

for products that involve hardware, software, and a human interface is large. This 

is the nature of technology. When designing a complex product, it is prohibitively 

costly to try to anticipate all the things that might go wrong. Indeed, it is very likely impossible. Even when potential problems are found, it is sometimes hard to 

come up with solutions that that one can be confident will fix the problem. Sometimes proposed solutions make it worse. In deciding how to allocate its scarce resources, the creator of a complex product weighs the tradeoffs between (i) researching and testing to identify and determine whether to fix potential problems in advance, versus (ii) waiting to see what problems arise after the product hits the marketplace and issuing desirable fixes on an ongoing basis. We observe the latter strategy in action for virtually all software. 

The relevant analysis of benefits and costs for allegedly unfair omissions requires 

weighing of the benefits and costs of discovering and fixing the issue that arose in 

advance versus the benefits and costs of finding the problem and fixing it ex post. 

These considerations fit comfortably within the unfairness framework laid out by 

the Commission.42 The Commission also takes account of the various costs that a 

remedy would entail. These include not only the costs to the parties directly before 

the agency, but also the burdens on society in general in the form of increased regulatory burdens on the flow of information, reduced incentives to innovate and invest 

capital, and other social costs.43

Here, Apple did not anticipate the problems customers would have with children 

making in-app purchases that parents did not expect. When the problem arose in 

late 2010, press reports indicate that Apple developed a strategy for addressing the 

problem in a way that it believed made sense, and it also refunded customers that 

reported unintended purchases.44 This is precisely the efficient strategy described 

above when complex products like Apple’s platform develop problems that are difficult to anticipate and fix in advance. Establishing that it is ‘‘unfair’’ unless a firm 

anticipates and fixes such problems in advance—precisely what the Commission’s 

complaint and consent order establishes today—is likely to impose significant costs 

in the context of complicated products with countless product attributes. These costs 

will be passed on to consumers and threaten consumer harm that is likely to dwarf 

the magnitude of consumer injury contemplated by the complaint. 

This investigation began largely because of complaints that arose when in-app 

purchases were first introduced into the marketplace and Apple had not had enough 

experience with the platform to recognize how parents and children would use the 

App Store. In late 2010, complaints began to emerge. In March 2011, Apple first 

altered its platform to address complaints about unauthorized in-app purchases. It 

is not unreasonable to surmise that as Apple has modified its policies based on experience, and customers have learned more about how to use the platform, unauthorized in-app purchases by children have most likely steadily declined. 

The Commission has no foundation upon which to base a reasonable belief that 

consumers would be made better off if Apple modified its disclosures to confirm to 

the parameters of the consent order. Given the absence of such evidence, enforcement action here is neither warranted nor in consumers’ best interest. 

PREPARED STATEMENT OF SCOTT SMITH, PRESIDENT, 

PRECIOUS METALS ASSOCIATION OF NORTH AMERICA

Chairman Moran and Members of the Subcommittee, 

My name is Scott Smith and I am the CEO of Pyromet, which is a privately 

owned precious metals manufacturer and refiner of silver, gold, and platinum group 

metals. Since 1969, Pyromet is a reputable name in precious metals and precious 

metals management. I also serve as President of the of the Precious Metals Association of North America (PMANA) and am submitting this written testimony on behalf of our members. Our association’s members are made up of refiners, manufacturers, traders, and distributors of products that are essentially comprised of precious metals such as gold, silver, platinum, and palladium. All of our members have 

a vested interest in the great work being done at the Federal Trade Commission, 

but we believe steps can be taken to improving fairness and innovation, all the 

while continuing to protect consumer welfare. 

95 

For most products, unless they are automobiles or items made from textile or 

wool, there is no law requiring manufacturers and marketers to make a ‘‘Made in 

USA’’ claim. But if a business chooses to make the claim, the FTC’s ‘‘Made in USA’’ 

standard applies. ‘‘Made in USA’’ means that ‘‘all or virtually all’’ the product has 

been made in America. That is, all significant parts, processing, and labor that go 

into the product must be of U.S. origin. Products should not contain any—or should 

contain only negligible—foreign content. 

Manufacturers of products made with recycled materials can’t claim products 

were ‘‘Made in USA’’ unless they can show that the materials originated domestically, according to the Federal Trade Commission. This makes ‘‘Made in USA’’ 

claims tricky for recycled materials. Gold that is used to make jewelry is likely to 

have been recycled many times, which makes it impossible to determine the location 

from which it was originally mined. As much as 90 percent of gold jewelry contains 

recycled material, and some of it may have been mined centuries ago. This is due 

to the fact that gold can be recycled indefinitely without degrading the quality, and 

the metal’s high intrinsic value means little if it is not eventually recycled. Given 

the long and complex history of this gold, the FTC’s requirement to substantiate 

that material was originally mined in the U.S. is not possible for most of the gold 

jewelry that is crafted here by American hands. 

The innovative process of recycling scrap precious metals—particularly gold—begins with the collection of used jewelry, coins, electronic and industrial components, 

investment bars and manufacturing by-products. Most recycled gold originates from 

pre-owned jewelry, with smaller amounts deriving from other sources. The material 

is melted, then undergoes the same chemical refining process as would newly mined 

gold to produce a bar that is at least 99.5 percent gold for use by jewelry manufacturers. 

Since 1997 when the ‘‘all or virtually all’’ standard was adopted, globalization and 

innovation has increased the accessibility and use of precious metal scrap. Thus, 

precious metal scrap is constantly recycled and the minerals extracted for production purposes. As precious metal scrap continues to be recycled and refined for use 

by American workers, it becomes increasingly difficult to determine the location 

from which the raw materials were mined. 

In addition to the ‘‘all or virtually all’’ standard being outdated, it appears to conflict with current policies and practices used by other agencies regarding scrap, particularly those followed by the Commerce department and the United States Trade 

Representative as defined by U.S. Customs in 19 C.F.R. Section 102.1. Additionally, 

the U.S. Customs standard, otherwise known as ‘‘substantial transformation,’’ takes 

into consideration the value of American labor in recycling, refining, and preparing 

precious metal scrap for future uses. 

The value of American labor—especially in a globalized economy—is crucial for 

promoting our products both domestically and worldwide. According to an industry 

survey approved by the FTC, 62 percent of consumers said it didn’t matter if some 

of the materials originated elsewhere for something to be labeled ‘‘Made in USA,’’ 

as long as the product was created by U.S. labor in the United States. Clearly, consumers are aware of the benefits of trade—including the recovery of valuable materials by U.S. labor for domestic manufacturing. 

Also, when it comes to trade, it is important to maintain consistency policies. It 

is important to note that the FTC is the only government agency to use the ‘‘all or 

virtually all’’ standard to determine origination. That being said, the same FTC-approved consumer survey found that 92 percent of Americans agreed that only one 

standard for ‘‘Made in USA’’ should be applied to all government agencies. This is 

an indication that American consumers very well understand the importance of government efficiency in a globalized economy. 

Policy Proposal 

Moving forward, as the United States enters into and renegotiates trade agreements, we believe that the FTC should reexamine its ‘‘Made in USA’’ standard and 

its effect on industries that take in, recycle, and refine valuable materials to be used 

in production by U.S. labor. When considering valuable materials whose unknown 

origins date back centuries ago, the ‘‘Made in USA’’ standard should give deference 

to U.S. labor and the significant contributions such labor has made to the U.S. economy as a result of skilled American craftsmanship. 

Thank you and I look forward to working with the subcommittee and the FTC 

to ensure a ‘‘Made in USA’’ standard that improves fairness among industries, considers the innovative processes utilized by American industries to prepare recycled 

materials for use by U.S. labor, and upholding the highest common-sense standards 

for protecting consumer welfare. If you have any questions, I am happy to meet with 

you and/or your staff to discuss this issue in greater detail. Thank you for the time 

96 

i Berin Szo ́ka is President of TechFreedom (techfreedom.org), a non-profit, tax-exempt think 

tank based in Washington D.C. He can be reached at bszoka@techfreedom.org or @BerinSzoka. iiGeoffrey Manne is Executive Director of the International Center for Law & Economics 

(laweconcenter.org), a non-profit think tank based in Portland, Oregon. He can be reached at 

gmanne@laweconcenter.org or @GeoffManne. 

and I hope the subcommittee will look closely at this issue and the impacts it has 

on U.S. labor and the economy. 

THE FEDERAL TRADE COMMISSION: 

RESTORING CONGRESSIONAL OVERSIGHT OF THE SECOND NATIONAL LEGISLATURE

An Analysis of Proposed Legislation 

Berin Szo ́kai & Geoffrey A. Manneii—May 2016 

REPORT 2.0 OF THE FTC: TECHNOLOGY & REFORM PROJECT

The ‘‘FTC: Technology & Reform Project’’ was convened by the International Center for Law & Economics and TechFreedom in 2013. It is not affiliated in any way 

with the FTC. 

Executive Summary 

Congressional reauthorization of the FTC is long overdue. It has been twenty-two 

years since Congress last gave the FTC a significant course-correction and even that 

one, codifying the heart of the FTC’s 1980 Unfairness Policy Statement, has not had 

the effect Congress expected. Indeed, neither that policy statement nor the 1983 Deception Policy Statement, nor the 2015 Unfair Methods of Competition Enforcement 

Policy Statement, will, on their own, ensure that the FTC strikes the right balance 

between over- and under-enforcement of its uniquely broad mandate under Section 

5 of the FTC Act. 

These statements are not without value, and we support codifying the other key 

provisions of the Unfairness Policy Statement that were not codified in 1980, as well 

as codifying the Deception Policy Statement. In particular, we urge Congress or the 

FTC to clarify the meaning of ‘‘materiality,’’ the key element of Deception, which 

the Commission has effectively nullified. 

But a shoring up of substantive standards does not address the core problem: ultimately, that the FTC’s processes have enabled it to operate with essentially 

unbounded discretion in developing the doctrine by which its three high level standards are applied in real-world cases. 

Chiefly, the FTC has been able to circumvent judicial review through what it calls 

its ‘‘common law of consent decrees,’’ and to effectively circumvent the rulemaking 

safeguards imposed by Congress in 1980 through a variety of forms of ‘‘soft law’’: 

guidance and recommendations that have, if indirectly and through amorphous 

forms of pressure, essentially regulatory effect. 

At the same time, and contributing to the problem, the FTC has made insufficient 

use of its Bureau of Economics, which ought to be the agency’s crown jewel: a dedicated, internal think tank of talented economists who can help steer the FTC’s enforcement and policymaking functions. While BE has been well integrated into the 

Commission’s antitrust decisionmaking, it has long resisted applying the lessons of 

law and economics to its consumer protection work. 

The FTC is, in short, in need of a recalibration. In this paper we evaluate nine 

of the seventeen FTC reform bills proposed by members of the Commerce, Manufacturing and Trade Subcommittee, and suggest a number of our own, additional reforms for the agency. 

Many of what we see as the most needed reforms go to the lack of economic analysis. Thus we offer detailed suggestions for how to operationalize a greater commitment to economic rigor in the agency’s decision-making at all stages. Specifically, 

we propose expanding the proposed requirement for economic analysis of recommendations for ‘‘legislation or regulatory action’’ to include best practices (such 

as the FTC commonly recommends in reports), complaints and consent decrees. We 

also propose (and support bills proposing) other mechanisms aimed at injecting 

more rigor into the Commission’s decisionmaking, particularly by limiting its use of 

various sources of informal or overly discretionary sources of authority. 

The most underappreciated aspect of the FTC’s processes is investigation, for it 

is here that the FTC wields incredible power to coerce companies into settling lawsuits rather than litigating them. Requiring that the staff satisfy a ‘‘preponderance 

of the evidence’’ standard for issuing consumer protection complaints would help, on 

97 

the margin, to embolden some defendants not to settle. Other proposed limits on the 

aggressive use of remedies and on the allowable scope of the Commission’s consent 

orders would help to accomplish the same thing. Changing this dynamic even slightly could produce a significant shift in the agency’s model, by injecting more judicial 

review into the FTC’s evolution of its doctrine. 

Commissioners themselves could play a greater role in constraining the FTC’s discretion, as well, keeping the FTC focused on advancing consumer welfare in everything it does. Together with the Bureau of Economics, these two internal sources 

of constraint could partly substitute for the relative lack of external constraint from 

the courts. 

We are not wholly critical of the FTC. Indeed, we are broadly supportive of its 

mission. And we support several measures to expand the FTC’s jurisdiction to cover 

telecom common carriers and to make it easier for the FTC to prosecute non-profits 

that engage in for-profit activities. We enthusiastically support expansion of the 

FTC’s Bureau of Economics. And we recommend expansion of the Commission’s 

competition advocacy work into a full-fledged Bureau, so that the Commission can 

advocate at all levels of government—federal, state and local—on behalf of consumers and against legislation and regulations that would hamper the innovation 

and experimentation that fuel our rapidly evolving economy. 

But most of all, Congress should not take the FTC’s current processes for granted. 

Ultimately, the FTC reports to Congress and it is Congress’s responsibility to regularly and carefully scrutinize how the agency operates. The agency’s vague standards, sweeping jurisdiction, and its demonstrated ability to circumvent both judicial 

review and statutory safeguards on policy making make regular reassessment of the 

Commission through biennial reauthorization crucial to its ability to serve the consumers it is tasked with protecting. 

TABLE OF CONTENTS

Executive Summary 

Introduction 

The FTC’s History: Past is Prologue 

The Inevitable Tendency Towards the Discretionary Model 

The Doctrinal Pyramid 

Our Proposed Reforms 

FTC Act Statutory Standards 

Unfairness 

The Statement on Unfairness Reinforcement & Emphasis (SURE) Act 

Deception & Materiality 

No Bill Proposed 

Unfair Methods of Competition 

No Bill Proposed 

Enforcement & Guidance 

Investigations and Reporting on Investigations 

The Clarifying Legality & Enforcement Action Reasoning (CLEAR) Act 

Economic Analysis of Investigations, Complaints, and Consent Decrees 

No Bill Proposed 

Economic Analysis in Reports & ‘‘Recommendations’’ 

The Revealing Economic Conclusions for Suggestions (RECS) Act 

Other Sources of Enforcement Authority (Guidelines, etc.) 

The Solidifying Habitual & Institutional Explanations of Liability & Defenses (SHIELD) Act 

Remedies 

Appropriate Tailoring of Remedies 

No Bill Proposed 

Consent Decree Duration & Scope 

The Technological Innovation through Modernizing Enforcement (TIME) 

Act 

Other Process Issues 

Open Investigations 

The Start Taking Action on Lingering Liabilities (STALL) Act 

Commissioner Meetings 

The Freeing Responsible & Effective Exchanges (FREE) Act 

Part III Litigation 

Standard for Settling Cases 

No Bill Proposed 

Competition Advocacy 

98 

1S. Rep. No. 96–184, at 18 (1980), available at http://digitalcollections.library.cmu.edu/ 

awweb/awarchive?type=file&item=417102. 2Timothy J. Muris, Judicial Constraints, in THE FEDERAL TRADE COMMISSION SINCE 1970: 

ECONOMIC REGULATION AND BUREAUCRATIC BEHAVIOR, 35, 49 (Kenneth W. Clarkson & Timothy 

J. Muris, eds., 1981). 3 CHRIS JAY HOOFNAGLE, FEDERAL TRADE COMMISSION PRIVACY LAW & POLICY 102 (2016). 4 Berin Szo ́ka & Geoffrey Manne, The Second Century of the Federal Trade Commission, 

TECHDIRT (Sept. 26, 2013), available at https://www.techdirt.com/blog/innovation/articles/ 

20130926/16542624670/second-century-federal-trade-commission.shtml; see also Consumer Protection & Competition Regulation in a High-Tech World: Discussing the Future of the Federal 

Trade Commission, Report 1.0 of the FTC: Technology & Reform Project, 3 (Dec. 2013), available 

at http://docs.techfreedom.org/FTC_Tech_Reform_Report.pdf. 5Kai Ryssdal, The FTC is Dealing with More High Tech Issues, MARKETPLACE (Mar. 7, 2016), 

available at http://www.marketplace.org/2016/03/07/tech/ftc-dealing-more-high-tech-issues. 6Part I: The Institutional Setting, in THE FEDERAL TRADE COMMISSION SINCE 1970, supra note 

2 at 11. 7 Id. at 11–12. 8Timothy J. Muris, Judicial Constraints, in id. 35, 43. 

Expanding FTC Jurisdiction 

FTC Jurisdiction over Common Carriers 

The Protecting Consumers in Commerce Act of 2016 

FTC Jurisdiction over Tax-Exempt Organizations & Nonprofits 

The Tax Exempt Organizations Act 

Rulemaking 

Economic Analysis in All FTC Rulemakings 

No Bill Proposed 

Issue-Specific Rulemakings 

Several Bills Proposed 

Conclusion 

Considering that rules of the Commission may apply to any act or practice 

‘‘affecting commerce’’, and that the only statutory restraint is that it be unfair, the apparent power of the Commission with respect to commercial law 

is virtually as broad as the Congress itself. In fact, the Federal Trade Commission may be the second most powerful legislature in the country.. . . All 

50 State legislatures and State Supreme Courts can agree that a particular 

act is fair and lawful, but the five-man appointed FTC can overrule them 

all. The Congress has little control over the far-flung activities of this agency 

short of passing entirely new legislation.1—Sens. Barry Goldwater & Harrison Schmitt, 1980 

Within very broad limits, the agency determines what shall be legal. Indeed, 

the agency has been ‘‘lawless’’ in the sense that it has traditionally been beyond judicial control.2—Former FTC Chairman Tim Muris, 1981 

The FTC’s investigatory power is very broad and is akin to an inquisitorial 

body. On its own initiative, it can investigate a broad range of businesses 

without any indication of a predicate offense having occurred.3—Prof. Chris 

Hoofnagle, 2016 

Introduction 

Only by the skin of its teeth did the Federal Trade Commission survive its cataclysmic confrontation with Congress in 1980. Today, the Federal Trade Commission 

remains the closest thing to a second national legislature in America. Its jurisdiction 

covers nearly every company in America. It powers over unfair and deceptive acts 

and practices (UDAP) and unfair methods of competition (UMC) remain so inherently vague that the Commission retains unparalleled discretion to make policy decisions that are essentially legislative. The Commission increasingly wields these 

powers over high tech issues affecting not just the high tech sector, but, increasingly, every company in America. It has become the de facto Federal Technology 

Commission—a moniker we coined,4 but which Chairwoman Edith Ramirez has embraced.5

For all this power, either by design or by neglect, the FTC is also ‘‘a largely unconstrained agency.’’ 6 ‘‘Although appearing effective, most means of controlling 

Commission actions are virtually useless, owing to lack of political support and information, lack of interest on the part of those ostensibly monitoring the FTC, or 

FTC maneuvering.’’ 7 At the same time, ‘‘[t]he courts place almost no restraint upon 

what commercial practices the FTC can proscribe.. . .’’ 8

The vast majority of what the FTC does is uncontroversial—routine antitrust, 

fraud and advertising cases. Yet, as the FTC has dealt with cutting-edge legal 

99 

9Letter from the FTC to the House Consumer Subcommittee, appended to In re Int’l Harvester 

Co., 104 F.T.C. 949, 1073 (1984) [‘‘Unfairness Policy Statement’’ or ‘‘UPS’’], available at http:// 

www.ftc.gov/ftc-policy-statement-on-unfairness. 10Letter from the FTC to the Committee on Energy & Commerce, appended to Cliffdale Assocs., 

Inc., 103 F.T.C. 110, 174 (1984) [‘‘Deception Policy Statement’’ or ‘‘DPS’’], available at http:// 

www.ftc.gov/ftc-policy-statement-on-deception. 11Federal Trade Commission Reauthorization Act of 1996, Pub. L. 104–216, 110 Stat. 3019 

(Oct. 1, 1996), available at http://uscode.house.gov/statutes/pl/104/216.pdf. 12Federal Trade Commission Act Amendments of 1994, Pub. L. 103–312, 108 Stat. 1691 (Aug. 

26, 1994) available at http://uscode.house.gov/statutes/pl/103/312.pdf. 13See infra at 39. 14Statement of Timothy J. Muris, Hearing on Financial Services and Products: The Role of 

the Fed. Trade Commission in Protecting Customers, before the Subcomm. on Consumer Protection, Product Safety, and Insurance of the S. Comm. on Commerce, Science, and Transportation, 

111th Cong. 2 (2010), 28, available at http://lawprofessors.typepad.com/files/muris_senate_ testimony_ftc_role_protecting_consumers_3-17-101.pdf. 15See infra at 21. 

issues, like privacy, data security and product design, it has raised deep concerns 

not merely about the specific cases brought by the FTC, but also that the agency 

is drifting away from the careful balance it struck in its 1980 Unfairness Policy 

Statement (UPS) 9 and its 1983 Deception Policy Statement (DPS).10

We applaud the Commerce, Manufacturing & Trade Subcommittee for taking up 

the issue of FTC reform, and for the seventeen bills submitted by members of both 

parties. Even if no legislation passes this Congress, active engagement by Congress 

in the operation of the Commission was crucial in the past to ensuring that the FTC 

does not stray from its mission of serving consumers. But active congressional oversight has been wanting for far too long. 

Not since 1996 has Congress reauthorized the FTC,11 and not since 1994 has Congress actually substantially modified the FTC’s standards or processes.12

The most significant thing Congress has done regarding the FTC since 1980 was 

the 1994 codification of the Unfairness Policy Statement’s three-part balancing test 

in Section 5(n). But even that has proven relatively ineffective: The Commission 

pays lip service to this test, but there has been essentially none of analytical development promised by the Commission in the 1980 UPS: 

The present understanding of the unfairness standard is the result of an evolutionary process. The statute was deliberately framed in general terms since 

Congress recognized the impossibility of drafting a complete list of unfair trade 

practices that would not quickly become outdated or leave loopholes for easy 

evasion. The task of identifying unfair trade practices was therefore assigned 

to the Commission, subject to judicial review, in the expectation that the underlying criteria would evolve and develop over time. 

The Commission no doubt believes that it has carefully weighed (1) substantial 

consumer injury with (2) countervailing benefit to consumers or to competition, and 

carefully assessed whether (3) consumers could ‘‘reasonably have avoided’’ the injury, as Congress required by enacting Section 5(n). But whatever weighing the 

Commission has done in its internal decision-making is far from apparent from the 

outside, and it has not been done by the courts in any meaningful way.13 As former 

Chairman Tim Muris notes, ‘‘the Commission’s authority remains extremely 

broad.’’ 14

The situation is little on better on Deception—at least, on the cutting edge of Deception cases, involving privacy policies, online help pages, and enforcement of other 

promises that differ fundamentally from traditional marketing claims. Just as the 

Commission has rendered the three-part Unfairness test essentially meaningless, it 

has essentially nullified the ‘‘materiality’’ requirement that it volunteered in the 

1983 Deception Policy Statement. The Statement began by presuming, reasonably, 

that express marketing claims are always material, but the Commission has extended that presumption (and other narrow presumptions of materiality in the DPS) 

to cover essentially all deception cases.15

Congress cannot fix these problems simply by telling the FTC to dust off its two 

bedrock policy statements and take them more seriously (as it essentially did in 

1994 regarding Unfairness). Instead, Congress must fundamentally reassess the 

process that has allowed the FTC to avoid judicial scrutiny of how it wields its discretion. 

The last time Congress significantly reassessed the FTC’s processes was in May 

1980, when it created procedural safeguards and evidentiary requirements for FTC 

rulemaking. These reforms were much needed, and remain fundamentally necessary 

(although we do, below, encourage the FTC to attempt a Section 5 rulemaking for 

the first time in decades in order to provide a real-world experience of how such 

100 

16See infra at 99. 17 ‘‘Together, these enforcement efforts have established what some scholars call ‘the common 

law of privacy’ in the United States.’’ Julie Brill, Commissioner, Fed. Trade Comm’n, Remarks 

to the Mentor Group Forum for EU-US Legal-Economic Affairs Brussels, April 16, 2013, 3 (Apr. 

16, 2013), available at https://www.ftc.gov/sites/default/files/documents/public_statements/remarks-mentor-group-forum-eu-us-legal-economic-affairs-brussels-belgium/130416mentorgroup 

.pdf (citing Christopher Wolf, Targeted Enforcement and Shared Lawmaking Authority As Catalysts for Data Protection in the United States (2010), available at http://www.justice.gov.il/NR/ 

rdonlyres/8D438C53-82C8-4F25–99F8-E3039D40E4E4/26451/Consumer_WOLF 

DataProtectionandPrivacyCommissioners.pdf (FTC consent decrees have ‘‘created a ‘common law 

of consent decrees,’ producing a set of data protection rules for businesses to follow.’’)). FTC 

Chairman Edith Ramirez said roughly the same thing in a 2014 speech: 

I have expressed concern about recent proposals to formulate guidance to try to codify our 

unfair methods principles for the first time in the Commission’s 100 year history. While I don’t 

object to guidance in theory, I am less interested in prescribing our future enforcement actions 

than in describing our broad enforcement principles revealed in our recent precedent. 

Quoted in Geoffrey Manne, FTC Commissioner Joshua Wright gets his competition enforcement guidelines, TRUTH ON THE MARKET (Aug. 13, 2015), available at https://truthon 

themarket.com/2015/08/13/ftc-commissioner-joshua-wright-gets-his-competiton-enforcementguidelines/ (speech video available at http://masonlec.org/media-center/299). 18 Util. Air Regulatory Grp. v. EPA, 134 S. Ct. 2427, 2446 (2014). 

rulemakings work and whether Congress might make changes at the margins to facilitate reliance on that tool).16

But these 1980 reforms failed to envision that the Commission would, eventually, 

find ways of exercising the vast discretion inherent in Unfairness and Deception 

through what it now proudly calls its ‘‘common law of consent decrees’’ 17—companyspecific, but cookie-cutter consent decrees that have little to do with the facts of 

each case (and always run for twenty years). These consent decrees are bolstered 

by the regular issuance of recommended best practices in reports and guides that 

function as quasi-regulations, imposed on entire industries not by rulemaking but 

by the administrative equivalent of a leering glare. Together, these new tactics have 

allowed the FTC to effectively circumvent not only the process reforms of May 1980 

but also the substantive constraints volunteered by the FTC later that year in the 

Unfairness Policy Statement and, three years later, in the Deception Policy Statement. 

Such process reforms are the focus of this paper. The seventeen bills currently before the Subcommittee would begin to address these problems—but only begin. In 

this paper we evaluate nine of the proposed bills in turn, offer specific recommendations, and also offer a slate of our own additional suggestions for reform. 

Our most important point, though, is not any one of our proposed reforms, but 

this: The default assumption should not be that the FTC continues operating indefinitely without course corrections from Congress. 

Justice Scalia put this point best in his 2014 decision, striking down the EPA’s 

attempt to ‘‘rewrite clear statutory terms to suit its own sense of how the statute 

should operate,’’ when he said: ‘‘We are not willing to stand on the dock and wave 

goodbye as EPA embarks on this multiyear voyage of discovery.’’ 18 The point is 

more, not less, important when a statute like Section 5 has been ‘‘deliberately 

framed in general terms since Congress recognized the impossibility of drafting a 

complete list of unfair trade practices that would not quickly become outdated or 

leave loopholes for easy evasion’’: trusting the FTC to follow an ‘‘evolutionary process’’ requires regular, searching reassessments by Congress. This need is especially 

acute given that the ‘‘underlying criteria’’ have not ‘‘evolve[d] and develop[ed] over 

time’’ through the ‘‘judicial review’’ expected by both Congress and the FTC in 

1980—at least, not in any analytically meaningful way. 

Reauthorization should happen at regular two-year intervals and it should never 

be a pro forma rubber-stamping of the FTC’s processes. Each reauthorization should 

begin from the assumption that the FTC is a uniquely important and valuable agency—one that can do enormous good for consumers, but also one whose uniquely 

broad scope and broad discretion require constant supervision and regular course 

corrections. Regular tweaks to the FTC’s processes should be expected and welcomed, not resisted. 

The worst thing defenders of the FTC could do would be allowing the FTC to drift 

along towards the kind of confrontation with Congress that nearly destroyed the 

FTC in 1980. 

The FTC’s History: Past is Prologue 

It is no exaggeration to say that the 1980 compromise over unfairness saved the 

FTC from going the way of the Civil Aeronautics Board, which Congress began 

phasing out in 1978 under the leadership of Alfred Kahn, President Carter’s 

101 

19 Jimmy Carter, Federal Trade Commission Improvements Act of 1980 Statement on Signing 

H.R. 2313 into Law (May 28, 1980), available at http://www.presidency.ucsb.edu/ws/?pid= 

44790. 20 J. Howard Beales III, Advertising to Kids and the FTC: A Regulatory Retrospective that Advises the Present, 8 n.32 (2004), available at https://www.ftc.gov/sites/default/files/documents/ 

public_statements/advertising-kids-and-ftc-regulatory-retrospective-advises-present/040802adsto 

kids.pdf. 21 J. Howard Beales III & Timothy J. Muris, Striking the Proper Balance: Redress Under Section 13(B) of the FTC Act, 79 ANTITRUST L. J. 1, 1 (2013), available at http://papers.ssrn.com/ 

sol3/papers.cfm?abstract_id=2764456. 22 Editorial, WASH. POST (Mar. 1, 1978), reprinted in MICHAEL PERTSCHUK, REVOLT AGAINST

REGULATION, 69–70 (1982); see also Beales, supra note 20, at 8 n.37 (‘‘Former FTC Chairman 

Pertschuk characterizes the Post editorial as a turning point in the Federal Trade Commission’s 

fortunes.’’). 23Federal Trade Commission Act Improvements Act of 1980, Pub. L. 96–252, 94 Stat. 374 

(May 28, 1980), available at http://uscode.house.gov/statutes/pl/96/252.pdf. 24Fed. Trade Comm’n, Statement of Enforcement Principles Regarding ‘‘Unfair Methods of 

Competition’’ Under Section 5 of the FTC Act (Aug. 13, 2015) [‘‘UMC Policy Statement’’], available at https://www.ftc.gov/system/files/documents/public_statements/735201/150813section 

5enforcement.pdf. 25The 1996 FTC reauthorization was purely pro forma. 

deregulator-in-chief. President Carter signed the 1980 FTC Improvements Act even 

though he objected to some of its provisions because, as he noted, ‘‘the very existence of this agency is at stake.’’ 19 Those reforms to the FTC’s rulemaking process, 

enacted in May 1980, were only part of what saved the FTC from oblivion. 

Driven largely by outrage over the FTC’s attempt to regulate children’s advertising, Congress had allowed the FTC’s funding to lapse, briefly shuttering the FTC. 

As Howard Beales, then (in 2004) director of the FTC’s Bureau of Consumer Protection, noted, ‘‘shutting down a single agency because of disputes over policy decisions 

is almost unprecedented.’’ 20 In the mid-to-late 1970s, the FTC had interpreted ‘‘unfairness’’ expansively in an attempt to regulate everything from funeral home practices to labor practices and pollution. Beales and former FTC Chairman, Tim Muris, 

summarize the problem thusly: 

Using its unfairness authority under Section 5, but unbounded by meaningful 

standards, in the 1970s the Commission embarked on a vast enterprise to transform 

entire industries. Over a 15-month period, the Commission issued a rule a month, 

usually without a clear theory of why there was a law violation, with only a tenuous 

connection between the perceived problem and the recommended remedy, and with, 

at best, a shaky empirical foundation.21

When the FTC attempted to ban the advertising of sugared cereals to children, 

the Washington Post dubbed the FTC the ‘‘National Nanny.’’ 22 This led directly to 

the 1980 FTC Improvements Act—the one Sens. Goldwater and Schmitt endorsed 

in the quotation that opens this paper. 

In early 1980, by a vote of 272–127, Congress curtailed the FTC’s Section 5 rulemaking powers under the 1975 Magnuson-Moss Act, imposing additional evidentiary 

and procedural safeguards.23 But the FTC refused to narrow its doctrinal interpretation of unfairness until Congress briefly shuttered the FTC in the first modern 

government shutdown. In December, 1980, the FTC issued its Unfairness Policy 

Statement, promising to weigh (a) substantial injury against (b) countervailing benefit and (c) to focus only on practices consumers could not reasonably avoid. Last 

year, the FTC finally adopted a Policy Statement on Unfair Methods of Competition 

that parallels the two UDAP statements.24

In 1994, in Section 5(n), Congress codified the core requirements of the UPS, and 

further narrowed the FTC’s ability to rely on its assertions of what constituted public policy. This was the last time Congress substantially modified the FTC Act— 

meaning that the Commission has operated since then without course-correction 

from Congress.25 This is itself troubling, given that independent agencies are supposed to operate as creatures of Congress, not regulatory knights errant. But it is 

even more problematic given the extent of the FTC’s renewed efforts to escape the 

bounds of even its minimal discretionary constraints. 

The Inevitable Tendency Towards the Discretionary Model 

To paraphrase Winston Churchill on democracy, the FTC offers the ‘‘worst form 

of consumer protection and competition regulation—except for all the others.’’ Democracy, without constant vigilance and reform, will inevitably morph into the unaccountable exercise of power—what the Founders meant by the word ‘‘corruption’’ 

(literally, ‘‘decayed’’). When Benjamin Franklin was asked, upon exiting the ConVerDate Nov 24 2008 07:37 Mar 18, 2019 Jkt 000000 PO 00000 Frm 00105 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\35459.TXT JACKIE
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26 Benjamin Franklin, quoted in Respectfully Quoted: A Dictionary of Quotations, 

BARTLEBY.COM (last visited May 22, 2016), http://www.bartleby.com/73/1593.html 27 UPS, supra note 9. 28 UPS, supra note 9. 29Statement of Basis and Purpose, Unfair or Deceptive Advertising and Labeling of Cigarettes 

in Relation to the Health Hazards of Smoking, 29 Fed. Reg. 8324, 8355 (1964). 30Of course, we also recognize that other societal forces were at work, such as the Naderite 

consumer protection movement of the 1970s, and the growing privacy protection movement of 

the 1990s and 2000s. But the analogy still offers some value. 31Stephen Calkins, FTC Unfairness: An Essay, 46 WAYNE L. REV. 1935, 1962 (2000). 

stitutional Convention of 1787, ‘‘Well, Doctor, what have we got—a Republic or a 

Monarchy?,’’ he famously remarked ‘‘A Republic, if you can keep it.’’ 26

The same can be said for the FTC: an ‘‘evolutionary process . . . subject to judicial review,’’ 27 if we can keep it. Any agency given so broad a charge as to prohibit 

‘‘unfair methods of competition . . . and unfair or deceptive acts or practices . . .’’ 

will inevitably tend towards the exercise of maximum discretion. 

This critique is of a dynamic inherent in the FTC itself, not of particular Chairmen, Commissioners, Bureau Directors or other staffers. The players change regularly, each leaving their mark on the agency, but the agency has institutional tendencies of its own, inherent in the nature of the agency. 

The Commission itself most clearly identified the core of the FTC’s institutional 

nature in the Unfairness Policy Statement, in a passage so critical it bears quoting 

in full: 

The present understanding of the unfairness standard is the result of an evolutionary process. The statute was deliberately framed in general terms since Congress recognized the impossibility of drafting a complete list of unfair trade 

practices that would not quickly become outdated or leave loopholes for easy 

evasion. The task of identifying unfair trade practices was therefore assigned 

to the Commission, subject to judicial review, in the expectation that the underlying criteria would evolve and develop over time. As the Supreme Court observed as early as 1931, the ban on unfairness ‘‘belongs to that class of phrases 

which do not admit of precise definition, but the meaning and application of 

which must be arrived at by what this court elsewhere has called ‘the gradual 

process of judicial inclusion and exclusion.’ ’’ 28

In other words, Congress delegated vast discretion to the Commission from the 

very start because of the difficulties inherent in prescriptive regulation of competition and consumer protection. The Commission generally exercised that discretion 

primarily through case-by-case adjudication, but began issuing rules on its own authority in 1964,29 setting it on the road that culminated in the cataclysm of 1980. 

Indeed, given the essential nature of bureaucracies, it was probably only a matter 

of time before the FTC reached this point. It is no accident that it took just three 

years from 1975, when Congress affirmed the FTC’s claims to ‘‘organic’’ rulemaking 

power (implicit in Section 5), until the FTC was being ridiculed as the ‘‘National 

Nanny.’’ In short, the 1975 Magnuson-Moss Act created a monster, magnifying the 

effects of the FTC’s inherent Section 5 discretion with the ability to conduct statutorily sanctioned rulemakings. If it had not been then-Chairman Michael Pertschuk 

who pushed the FTC too far, it probably would have, eventually, been some other 

chairman. The power was simply too great for any government agency to resist 

using without some feedback mechanism in the system telling it to stop. 

In that sense, we believe the rise of the Internet played a role analogous to the 

1975 Mag-nuson-Moss Act, spurring the FTC to greater activity where it had previously been more restrained.30

After 1980, the FTC ceased conducting new Section 5 rulemakings. Between 1980 

and 2000, the FTC brought just sixteen unfairness cases, all of which fell into narrow categories of clearly ‘‘bad’’ conduct: ‘‘(1) theft and the facilitation thereof (clearly 

the leading category); (2) breaking or causing the breaking of other laws; (3) using 

insufficient care; (4) interfering with the exercise of consumer rights; and (5) advertising that promotes unsafe practices.’’ 31 Just how easy these cases were conveys 

in turn just how cautious the Commission was in using its unfairness powers—not 

only because it was chastened by the experience of 1980 but also because of 

Congress’s reaffirmation of the limits on unfairness in its 1994 codification of Section 5(n). In a 2000 speech, Commissioner Leary summarized the Commission’s restrained, ‘‘gap-filling’’ approach to unfairness enforcement over the preceding two 

decades: 

The overall impression left by this body of law is hardly that policy has been 

created from whole cloth. Rather, the Commission has sought through its unVerDate Nov 24 2008 07:37 Mar 18, 2019 Jkt 000000 PO 00000 Frm 00106 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\35459.TXT JACKIE
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32Thomas B. Leary, Former Commissioner of the Fed. Trade Comm’n, Unfairness and the 

Internet, II (Apr. 13, 2000), available at http://www.ftc.gov/public-statements/2000/04/unfairness-and-internet. 33 Id. at II–C (‘‘The unfairness count in Touch Tone also raised interesting questions about 

whether an invasion of privacy by itself meets the statutory requirement that unfairness cause 

‘‘substantial injury.’’ Unlike most unfairness prosecutions, there was no concrete monetary harm 

or obvious and immediate safety or health risks. The defendants’ revenue came, not from defrauding consumers, but from the purchasers of the information who received exactly what they 

had requested.’’). 34 Id., at III–IV. 35See, e.g., FTC v. Rennert, Complaint, FTC File No. 992 3245, http://www.ftc.gov/os/2000/ 

07/iogcomp.htm (2000); In re Eli Lilly, Complaint, File No. 012 3214, http://www.ftc.gov/os/ 

2002/05/elilillycmp.htm (2002). 36 Complaint, In the Matter of BJ’s Wholesale Club, Inc., a corporation, Fed. Trade Comm’n 

Docket No. C-4148, available at http://www.ftc.gov/enforcement/cases-proceedings/042-3160/ 

bjs-wholesale-club-inc-matter. 37Leary, Unfairness and the Internet, supra note 32, n.50. 

fairness authority to challenge commercial conduct that under any definition 

would be considered wrong but which escaped or evaded prosecution by other 

means.32

Yet even then Commissioner Leary noted his concerns about the burgeoning unfairness enforcement innovation in two of the Commission’s then-recent cases: 

Touch Tone (1999)33 and ReverseAuction (2000). Tellingly, his concern was over the 

Commission’s failure to properly assess the substantiality of the amorphous privacy 

injuries alleged in those cases. Still, he concluded on a note of optimism: 

The extent of the disagreement should not be exaggerated, however. The majority [in Reverse Auction] did not suggest that all privacy infractions are sufficiently serious to be unfair and the minority did not suggest that none of them 

are. The boundaries of unfairness, as applied to Internet privacy violations, remain an open question. 

The Commission has so far used its unfairness authority in relatively few cases 

that involve the Internet. These cases, however, suggest that future application 

of unfairness will be entirely consistent with recent history. Internet technology 

is new, but we have addressed new technology before. I believe that the Commission will do what it can to prevent the Internet from becoming a lawless 

frontier, but it will also continue to avoid excesses of paternalism. 

The lessons of the past continue to be relevant because the basic patterns of 

dishonest behavior continue to be the same. Human beings evolve much more 

slowly than their artifacts.34

The Commission began bringing cases in 2000 alleging that companies employed 

unreasonable data security practices. While these early cases alleged that the practices were ‘‘unfair and deceptive,’’ they were, in fact, pure deception cases.35 In 

2005, the FTC filed its first pure unfairness data security action, against BJ’s Warehouse. Unlike past defendants, BJ’s had, apparently, made no promise regarding 

data security upon which the FTC could have hung a deception action.36 Since 2009, 

we believe the Commission has become considerably more aggressive in its prosecution of unfairness cases, not just about data security, but about privacy and other 

high tech issues like product design. 

Yet it would be hard to pinpoint a single moment when the FTC’s approach 

changed, or to draw a clear line between Republican data security cases and Democratic ones. And this is precisely a function of the first of the two crucial attributes 

of the modern FTC with which we are concerned: Legal doctrine continues to evolve 

even in the absence of judicial decisions, its evolution just becomes less transparent 

and more amorphous. As Commissioner Leary remarked in a footnote that now 

seems prescient: 

Because this case was settled, I cannot be sure that the other Commissioners 

agreed with this rationale.37

Indeed, this is the crucial difference between the FTC’s pseudo common law and 

real common law. There is an observable directedness to the evolution of the real 

common law, which rests on a sort of ongoing conversation among the courts and 

the economic actors that appear before them. The FTC’s ersatz common law, however, has little of this directedness or openness, and the conversations that do occur 

are more like whispered teˆte-a`-teˆtes in the corner that someone else occasionally 

overhears. 

104 

38We derive the term ‘‘evolutionary’’ from the Unfairness Policy Statement itself, supra note 

9: 

The present understanding of the unfairness standard is the result of an evolutionary process. 

The statute was deliberately framed in general terms since Congress recognized the impossibility of drafting a complete list of unfair trade practices that would not quickly become outdated or leave loopholes for easy evasion. The task of identifying unfair trade practices was 

therefore assigned to the Commission, subject to judicial review, in the expectation that the underlying criteria would evolve and develop over time. 39 Abrams v. United States, 250 U.S. 616, 630 (1919) (Holmes, J. dissenting). 

But the second point is actually the more important, although the two are related: 

In this institutional structure, how often individual Commissioners dissent and how 

much rigor they demand matters far, far less than the structure of the agency itself. 

There is only so much an individual can do to divert the path of an already-steaming ship. 

This leads back to the point made above: that we should expect regulatory agencies, over time, to expand their discretion as much as the constraints upon the agency allow. In this, regulatory agencies resemble gases, which, when unconstrained, 

do not occupy a fixed volume (defined by a clear statutory scheme, as in the Rulemaking Model) but rather expand to fill whatever space they occupy. What ultimately determines the size, volume and shape of a gas is its container. So, too, with 

regulatory agencies: what ultimately determines an agency’s scale, scope, and agenda are the external constraints that operate upon it. 

The FTC has evolved the way it has because, most fundamentally, Section 5 offers 

little in the way of prescriptive, statutory constraints, and because the FTC’s processes have enabled it to operate case-by-case with relatively little meaningful, ongoing oversight from the courts. 

We distinguish this from two other models of regulation: (1) the Rulemaking 

Model, in which the agency’s discretion is constrained chiefly by the language of its 

organic statute, procedural rulemaking requirements and the courts; and (2) the Evolutionary Model, in which the agency applies a vague standard case by case, but 

is constrained in doing so by its ongoing interaction with the courts.38 By contrast, 

we call the FTC’s current approach the Discretionary Model, in which the agency 

also applies a vague standard case-by-case, but in which it operates without meaningful judicial oversight, such that doctrine evolves at the Commission’s discretion 

and with little of the transparency provided by published judicial opinions. (Dialogue between majority and minority Commissioners seldom approaches the analysis of judicial opinions.) 

We believe there is an inherent tendency of agencies that begin with an Evolutionary Model—which is very much the design of the FTC—to slide towards the Discretionary Model, simply because all agencies tend to maximize their own discretion, 

and because the freedom afforded by the lack of statutory constraints on substance 

or the agency’s case-by-case process enable these agencies to further evade judicial 

constraints. The only way to check this process, without, of course, simply circumscribing its discretion by substantive statute (i.e., amending section 5(a)(2)), is regular assessment and course-correction by Congress—not with the aim of its own 

micromanagement of the agency, but rather with the aim of invigorating the ability 

of the courts to exert their essential role in steering doctrine. 

This is not to be taken as an admission of defeat or a condemnation of the Commission. There is no reason to think that the FTC was in every way ideally constituted from the start (or in 1980 or in 1994), that its model could perform exactly 

as intended and perfectly in the public interest no matter what changed around it. 

Rather, limited, thoughtful oversight by Congress is simply in the nature of the 

beast. As Justice Holmes said (of the importance of free speech): 

That, at any rate, is the theory of our Constitution. It is an experiment, as all 

life is an experiment. Every year, if not every day, we have to wager our salvation upon some prophecy based upon imperfect knowledge.39

That, in a nutshell, is why regular reauthorization is critical for agencies like the 

FTC. As President Carter said, ‘‘[w]e need vigorous congressional oversight of regulatory agencies.’’ This is more true for the FTC—with its vast discretion, immense 

investigative power, and all-encompassing scope—than any other agency. As we 

wrote in the precursor to this report: 

Thus, while the Congress of 1914 intended to create an agency better suited 

than itself to establish a flexible but predictable and consistent body of law governing commercial conduct, the modern trend of administrative law has relaxed 

the requirement that an agency’s output be predictable or consistent. 

105 

40 Consumer Protection & Competition Regulation in a High-Tech World, supra, note 4. 

The FTC has embraced this flexibility as few other agencies have. Particularly 

in its efforts to keep pace with changing technology, the FTC has embraced its 

role as an administrative agency, and frequently sought to untether itself from 

ordinary principles of jurisprudence (let alone judicial review).40

The Doctrinal Pyramid 

One of the chief reasons the FTC has come to operate the way it does is that the 

vocabulary around its operations is deeply confused, particularly around the word 

‘‘guidance’’ and the term ‘‘common law.’’ In an (admittedly first-cut) effort to introduce some concreteness, we view the various levels of ‘‘guidance’’ as steps in a Doctrinal Pyramid that looks something like the following, from highest to lowest degrees of authority: 

1. The Statute: Section 5 (and other, issue-specific statutes) 

2. Litigated Cases: Only these are technically binding on courts, thus they rank 

near the top of the pyramid, even though they are synthesized in, or cited by, 

the guidance summarized below. There are precious few of these on Unfairness or the key emerging issues of Deception 

3. Litigated Preliminary Injunctions: Less meaningful than full adjudications of 

Section 5, these are, unfortunately, largely the only judicial opinions on Section 5. 

4. High-Level Policy Statements: Unfairness, Deception, Unfair Methods of Competition 

5. Lower-Level Policy Statements: The now-rescinded Disgorgement Policy 

Statement, the (not-yet existent) Materiality Statement we propose, etc. 

6. Guidelines: Akin to the several DOJ/FTC Antitrust Guidelines, synthesizing 

past approaches to enforcement into discernible principles to guide future enforcement and compliance 

7. Consent Decrees: Not binding upon the Commission and hinging (indirectly) 

upon the very low bar of whether the Commission has ‘‘reason to believe’’ a 

violation occurred, these provide little guidance as to how the FTC really understands Section 5 

8. Closing Letters: Issued by the staff, these letters at times provide some limited guidance as to what the staff believe is not illegal 

9. Reports & Recommendations: In their current form, the FTC’s reports do little 

more than offer the majority’s views of what companies should do to comply 

with Section 5, but carefully avoid any real legal analysis 

10. Industry Guides: Issue-specific discussions issued by staff (e.g., photo copier 

data security) 

11. Public Pronouncements: Blog posts, press releases, congressional testimony, 

FAQs, etc. 

In essence, under today’s Discretionary Model, the FTC puts great weight on the 

base of the pyramid, while doing little to develop the top. Under the Evolutionary 

Model, the full Commission would develop doctrine primarily through litigation, and 

do everything it possibly could to provide guidance at higher levels of the pyramid, 

such as by debating, refining and voting upon new Policy Statements on each of the 

component elements of Unfairness and Deception and Guidelines akin to the Horizontal Merger Guidelines. Instead, the FTC staff issues Guides and other forms of 

casual guidance. Yet not all ‘‘guidance’’ is of equal value. Indeed, much of the ‘‘guidance’’ issued by the FTC serves not to constrain its discretion, but rather to expand 

it by increasing the agency’s ability to coerce private parties into settlements— 

which begins the cycle anew. 

Our Proposed Reforms 

Seventeen bills have been introduced in the House Energy & Commerce Committee’s Subcommittee on Commerce, Manufacturing and Trade aimed at reforming the 

agency for the modern, technological age and improving FTC process and subjectmatter scope in order to better protect consumers. Most of these will, we hope, be 

consolidated into a single FTC Reauthorization Act of 2016, passed in both chambers, and signed by the President. 

With the hope of aiding this process, we describe and assess nine of these proposed bills, focusing in particular on whether and how well each proposal addresses 

106 

the fundamental issues that define the problems of today’s FTC. In broad strokes, 

the proposed bills address the following areas: 

• Substantive standards 

• Enforcement and guidance 

• Remedies 

• Other process issues 

• Jurisdictional issues 

• Other issues 

Our analysis addresses the bills within the context of these broad categories, and 

adds our own suggestions (and one additional category: Competition Advocacy) for 

both minor amendments and additional legislation in each category. 

Despite our concerns, we remain broadly supportive of the FTC’s mission and we 

generally support expanding the agency’s jurisdiction, to the extent that doing so 

effectively addresses substantial, identifiable consumer harms or reduces the scope 

of authority for sector-specific agencies. Although the process reforms proposed in 

these bills are, we believe, relatively minor, targeted adjustments, taken together 

they would do much to make the FTC more effective in its core mission of maximizing consumer welfare. But these proposed reforms are only a beginning. 

Even if all of these reforms were enacted immediately, they would not fundamentally, or even substantially, change the core functioning of the FTC—and the core 

problem at the FTC today: its largely unconstrained discretion. 

The FTC loudly proclaims the advantages of its ex post approach of relying on 

case-by-case enforcement of UDAP and UMC standards rather than rigid ex ante 

rulemaking, especially over cutting-edge issues of consumer protection. And there is 

much to commend this sort of approach relative to the prescriptive regulatory paradigm that characterizes many other agencies—again, the Evolutionary Model. But 

under the FTC’s Discretionary Model, the Commission uses its ‘‘common law of consent decrees’’ (more than a hundred high-tech cases settled without adjudication, 

and with essentially zero litigated cases to guide these settlements) and a mix of 

other forms of soft law (increasingly prescriptive reports based on workshops tailored to produce predetermined outcomes, and various other public pronouncements), to ‘‘regulate’’—or, more accurately, to try to steer—the evolution of technology. 

The required balancing of tradeoffs inherent in unfairness and deception have little meaning if the courts do not review, follow or enforce them; if the Bureau of Economics has little role in the evaluation of these inherently economic considerations 

embodied in the enforcement decision-making of the Bureau of Consumer Protection 

or in its workshops; and if other Commissioners are able only to quibble on the margins about the decisions made by the FTC Chairman. Simply codifying these standards, as Congress codified the heart of the Unfairness Policy Statement in Section 

45(n) back in 1994, and as the proposed CLEAR Act would finish doing, will not 

solve the problem: The FTC has routinely circumvented the rigorous analysis demanded by these standards, and the same processes would enable it to continue 

doing so. 

To address these concerns, we also propose here a number of further process reforms that we believe would begin to correct these problems and ensure that the 

Commission’s process really does serve the consumers the agency was tasked with 

protecting. 

Our aim is not to hamstring the Commission, but to ensure that it wields its 

mighty powers with greater analytical rigor—something that should inure significantly to the benefit of consumers. Ideally, the impetus for such rigor would be provided by the courts, through careful weighing of the FTC’s implementation of substantive standards in at least a small-but-significant percentage of cases. Those decisions would, in turn, shape the FTC’s exercise of its discretion in the vast majority 

of cases that will—and should, in such an environment—inevitably settle out of 

court. The Bureau of Economics and the other Commissioners would also have far 

larger roles in ensuring that the FTC takes its standards seriously. But reaching 

these outcomes requires adjustment to the Commission’s processes, not merely further codification of the standards the agency already purports to follow. 

We believe that our reforms should attract wide bipartisan support, if properly 

understood, and that they would put the FTC on sound footing for its second century—one that will increasingly see the FTC assert itself as the Federal Technology 

Commission. 

107 

41The Statement on Unfairness Reinforcement and Emphasis Act, H.R. 5115,114th Cong. 

(2016) [hereinafter SURE Act] available at https://www.congress.gov/bill/114th-congress/ 

house-bill/5115/text. 42 15 U.S.C. § 45(n). 43The Unfairness Policy Statement had said: 

Sometimes public policy will independently support a Commission action. This occurs when 

the policy is so clear that it will entirely determine the question of consumer injury, so there 

is little need for separate analysis by the Commission. . . . 

To the extent that the Commission relies heavily on public policy to support a finding of unfairness, the policy should be clear and well-established. In other words, the policy should be 

declared or embodied in formal sources such as statutes, judicial decisions, or the Constitution 

as interpreted by the courts, rather than being ascertained from the general sense of the national values. The policy should likewise be one that is widely shared, and not the isolated decision of a single state or a single court. If these two tests are not met the policy cannot be considered as an ‘‘established’’ public policy for purposes of the S&H criterion. The Commission would 

then act only on the basis of convincing independent evidence that the practice was distorting 

the operation of the market and thereby causing unjustified consumer injury. 

UPS, supra note 9. 44SURE Act, supra note 41. 45 Id. 46 Id. 

FTC Act Statutory Standards 

Unfairness 

THE STATEMENT ON UNFAIRNESS REINFORCEMENT & EMPHASIS (SURE) ACT

Rep. Markwayne Mullin’s (R–OK) bill (H.R. 5115) 41 further codifies promises the 

FTC made in its 1980 Unfairness Policy Statement—thus picking up where Congress left off in 1994, the last time Congress reauthorized the FTC in Section 5(n): 

The Commission shall have no authority . . . to declare unlawful an act or 

practice on the grounds that such act or practice is unfair unless the act or 

practice [i] causes or is likely to cause substantial injury to consumers [ii] which 

is not reasonably avoidable by consumers themselves and [iii] not outweighed 

by countervailing benefits to consumers or to competition. In determining 

whether an act or practice is unfair, the Commission may consider established 

public policies as evidence to be considered with all other evidence. Such public 

policy considerations may not serve as a primary basis for such determination.42

This effectively codified the core of the Unfairness Policy Statement, while barring 

the FTC from relying on public policy determinations alone.43 The bill would add 

several additional clauses to Section 5(n), drawn from the Unfairness Policy Statement. Most importantly: 

1. It would exclude ‘‘trivial or merely speculative’’ harm from the definition of 

‘‘substantial’’ injury.44

2. It would enhance the Act’s ‘‘countervailing benefits’’ language to require consideration of the ‘‘net effects’’ of conduct, including dynamic, indirect consequences 

(like effects on innovation).45

3. It would prohibit the Commission from ‘‘second-guess[ing] the wisdom of particular consumer decisions,’’ and encourage it to ensure ‘‘the free exercise of 

consumer decisionmaking.’’ 46

These provisions in particular (along with the others included in the bill, to be 

sure) would codify core aspects of the economic trade-off embodied in the UPS. They 

would enhance the Commission’s administrative efficiency and direct its resources 

where consumers are most benefited. They would ensure that the FTC’s weighing 

of costs and benefits is as comprehensive as possible, avoiding the systematic focus 

on concrete, short-term costs to the exclusion of larger, longer-term benefits. And 

they would help to preserve the inherent benefits of consumer choice, and avoid the 

intrinsic costs of agency paternalism. 

Codification of these provisions would benefit consumers. And because 

H.R. 5115’s language hews almost verbatim to the Unfairness Policy Statement, it 

should be uncontroversial. Effectively, it simply makes binding those parts of the 

UPS that Congress did not codify back in 1994. 

Value of the Bill: Codifying the Unfairness Policy Statement Would Reaffirm its 

Value, Encouraging Dissents and Litigation 

Codifying a policy statement, even if verbatim and only in part, does essentially 

four things: 

108 

47 Note that not everyone agrees that Chevron deference is weaker than Auer deference. See 

Sasha Volokh, Auer and Chevron, THE VOLOKH CONSPIRACY (Mar. 22, 2013), available at http:// 

volokh.com/2013/03/22/auer-and-chevron/. 48See, e.g., Dissenting Statement of Commissioner Joshua D. Wright, In the Matter of Apple, 

Inc., FTC File No. 1123108 (Jan. 15, 2014), available at https://www.ftc.gov/sites/default/files/ 

documents/cases/140115applestatementwright_0.pdf. See also Berin Szo ́ka, Josh Wright’s Unfinished Legacy: Reforming FTC Consumer Protection Enforcement, TRUTH ON THE MARKET (Aug. 

26, 2015), https://truthonthemarket.com/2015/08/26/josh-wrights-unfinished-legacy/. 49 UPS, supra note 9. 

1. Legally, it makes the policy binding upon the Commission, since Policy Statements, technically, are not. On the margin this should deter the FTC from 

bringing more-tenuous cases that may not benefit consumers but that it might 

otherwise have brought. 

2. Practically, it confers greater weight on the codified text in the Commission’s 

deliberations, empowering dissenting Commissioners to point to the fact that 

Congress has chosen to codify certain language and requiring the majority to 

respond. 

3. Legally, it somewhat reduces the deference the courts will give the FTC when 

it applies the statute (under Chevron) relative to the stronger deference given 

to agencies applying their own policy statements (under Auer).47

4. Perhaps most importantly, it gives defendants a stronger leg to stand on in 

court, thus increasing, on the margin, the number that will actually litigate 

rather than settle. That, in turn, benefits everyone by increasing the stock of 

judicial analysis of doctrine. 

In all four respects, the FTC would greatly benefit from the H.R. 5115’s further 

codification of the Unfairness Policy Statement. As a string of dissenting statements 

by former Commissioner Wright make lays bare, the FTC is not consistently taking 

the Unfairness Policy Statement seriously.48 At most, it pays lip service even to the 

three core elements of unfairness set forth in Section 5(n)—and even less regard to 

those aspects of the UPS not codified in Section 5(n).49

Indeed, it is difficult to imagine any principled objection to codifying a document 

that the FTC already claims to observe carefully. And if the agency plans to bring 

unfairness cases that are not covered by the four corners of the Unfairness Policy 

Statement (yet somehow within Section 5(n)), that should be a matter of grave concern to Congress. 

Recommendation: Require a Preponderance of the Evidence Standard for Unfairness 

Complaints 

As valuable as codification of the substantive standards of the Unfairness Policy 

Statement would be, mere codification, or even tweaking, is unlikely to change much 

about the FTC’s apparent evasion of its obligation to adhere to those standards. 

Rather, unless the process of enforcement by which the FTC has evaded the limits 

of the Statement is adjusted, the Commission will remain free to avoid the rigor it 

contemplates. 

Indeed, it is far from clear that even the 1994 codification of the heart the Unfairness Policy Statement has been effective in actually changing the FTC’s approach 

to enforcement. It is certainly possible that, but for Section 5(n), the Commission 

would have taken an even more aggressive approach to unfairness, and done even 

less to analyze its component elements in enforcement actions. 

The process reforms we propose below are intended either (a) to increase the likelihood that the FTC will actually litigate unfairness cases, thus gaining judicial development of the doctrine, (b) that the Commissioners themselves will better develop 

doctrine through debate, or (c) that FTC staff, particularly through the involvement 

of the Bureau of Economics, will do so. Some combination of these (and, doubtless, 

other) reforms is essential to giving effect to Section 5(n) in its current form, to say 

nothing of expanding 5(n). 

But the reform that would make the biggest difference within 5(n) itself would 

be to amend the existing Section 5(n) as follows: 

The Commission may not issue a complaint under this section unless the Commission demonstrates by a preponderance of objective evidence that an act or 

practice causes or is likely to cause substantial injury to consumers which is 

not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition. 

The preponderance of the evidence standard is certainly a higher standard than 

the FTC currently faces for bringing complaints, but only because that standard is 

109 

50 15 U.S.C. § 45(b). 51See infra at 31. 52See, e.g., Berin Szo ́ka, Indictments Do Not a Common Law Make: A Critical Look at the 

FTC’s Consumer Protection ‘‘Case Law,’’ (2014 TPRC Conference Paper, Jul. 15, 2014), available 

at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2418572; Geoffrey A. Manne & Ben 

Sperry, FTC Process and the Misguided Notion of an FTC ‘‘Common Law’’ of Data Security, 

available at http://masonlec.org/site/rte_uploads/files/manne%20%26%20sperry%20-%20ftc% 

20common%20law%20conference%20paper.pdf. 53Daniel J. Solove & Woodrow Hartzog, The FTC and the New Common Law of Privacy, 114 

COLUM. L. REV. 583, 607 (2014). 54 Address by FTC Chairwoman Edith Ramirez, at 6, at the Competition Law Center at 

George Washington University School of Law (Aug. 13, 2015), available at https://www.ftc.gov/ 

system/files/documents/public_statements/735411/150813section5speech.pdf (‘‘As I have emphasized, I favor a common law approach to the development of Section 5 doctrine.’’). The previous chairwoman held the same view. See Commissioner Julie Brill, Privacy, Consumer Protection, and Competition, speech given at 12th Annual Loyola Antitrust Colloquium (Apr. 27, 2012), 

available at http://www.ftc.gov/sites/default/files/documents/public_statements/privacy-consumer-protection-andcompetition/120427loyolasymposium.pdf (‘‘Yet our privacy cases are also 

more generally informative about data collection and use practices that are acceptable, and 

those that cross the line, under Section 5 of the Federal Trade Commission Act creating what 

some have referred to as a common law of privacy in this country.’’). 55Solove & Hartzog, supra note 53, at 608. 

so absurdly low under Section 5(b): ‘‘reason to believe that [a violation may have 

occurred]’’ and that ‘‘it shall appear to the Commission that [an enforcement action] 

would be to the interest of the public.’’ 50 The ‘‘preponderance of the evidence’’ standard is the same standard used in civil cases, simply requiring that civil plaintiffs 

provide evidence that that their argument is ‘‘more likely than not’’ to get judgement against defendants. This standard is substantially less stringent than the ‘‘beyond a reasonable doubt’’ standard used in criminal cases, or the ‘‘clear and convincing’’ standard used in habeas petitions, so it should be suitable for the FTC’s 

unfairness work. 

Why should the FTC have a higher burden (than it does today) at this intermediate stage in its enforcement process, when it brings a complaint? The FTC has 

significant pre-complaint powers of investigation at its disposal; it will have had 

considerable opportunity to perform discovery before bringing its complaint. Unlike 

private plaintiffs, who must first survive a Twombly/Iqbal motion to dismiss before 

they can compel discovery, typically at their own expense, the FTC can do so 

(through its civil investigative demand power)—and impose all of its costs on potential defendants—before ever alleging wrongdoing. 

As we discuss in more detail below,51 in order to justify the massive expense of 

this pre-complaint discovery process, it is not enough that it enables the Commission to engage in fishing expeditions to ‘‘uncover’’ possible violations of the law. 

Rather, if it is to be justified, and if its use by the Commission is to be kept consistent with its consumer-welfare mission, it must tend to lead to enforcement only 

when complaints can be justified by the weight of the evidence uncovered. A heightened burden is more likely to ensure this fealty to the consumer interest and to reduce the inefficient imposition of discovery costs on the wrong enforcement targets. 

It is also important to note that, although we disagree strongly with their 

claims,52 several FTC Commissioners and commentators have asserted that the set 

of consent orders entered into by the Commission with various enforcement targets 

constitute a de facto common law: ‘‘Technically, consent orders legally function as 

contracts rather than as binding precedent. Yet, in practice, the orders function 

much more broadly. . . .’’ 53 In making these claims, proponents, including the Commission’s current Chairwoman,54 assert that ‘‘the trajectory and development [of 

FTC enforcement] has followed a predictable set of patterns . . . [that amount to] 

the functional equivalent of common law.’’ 55

For these claims to be true or worthy, it would seem necessary, at a minimum, 

that the Commission’s consumer protection complaints, which are virtually always 

coupled with consent orders upon their release (because there is no statutory standard for settling FTC enforcement actions), be tied to substantive standards that go 

beyond the mere exercise of three commissioners’ discretion. And yet the FTC and 

the courts have consistently argued that the FTC Act’s ‘‘reason to believe’’ standard 

for issuance of complaints requires nothing more than this minimal exercise of discretion. As former Commissioner Tom Rosch put it, 

[t]he ‘‘reason to believe’’ standard, however, is not a summary judgment standard: it is a standard that simply asks whether there is a reason to believe that 

litigation may lead to a finding of liability. That is a low threshold. . . . [T]he 

110 

56 J. Thomas Rosch, Commissioner, Fed. Trade Comm’n, Remarks at the American Bar Association Annual Meeting, 3–4 (Aug. 5, 2010), available at https://www.ftc.gov/sites/default/files/ 

documents/public_statements/so-i-serve-both-prosecutor-and-judge-whats-big-deal/ 

100805abaspeech.pdf. 57 Berin Szo ́ka, Indictments Do Not a Common Law Make: A Critical Look at the FTC’s Consumer Protection ‘‘Case Law’’ 7–8, available at http://masonlec.org/site/rte_uploads/files/ 

Szoka%20for%20GMU%20FTC%20Workshop%20%20May%202014.pdf. 58See infra at 31. 59See FTC v. Standard Oil Co. of Cal., 449 U.S. 232 (1980). 60Muris, supra note 8, at 49. 61See infra at 31. 

‘‘reason to believe’’ standard is amorphous and can have an ‘‘I know it when I 

see it’’ feel.’’ 56

This creates a real problem for the claims that the Commission’s consent orders 

have any kind of precedential power: 

In theory, the questions of whether to bring an enforcement action and whether 

a violation occurred are distinct; but in practice, when enforcement actions end 

in settlements (and when the two are often filed simultaneously), the two questions collapse into one. The FTC Act does not impose any additional requirement on the FTC to negotiate a settlement. . . . Thus, at best, the FTC’s decisions are roughly analogous not to court decisions on the merits, but to court 

decisions on motions to dismiss. . . . Or, perhaps even more precisely, the 

FTC’s decisions are analogous to reviews of warrants in criminal cases, as Commissioner Rosch has argued. It would be a strange criminal common law, indeed, that confused ultimate standards of guilt with the far lower standard of 

whether the police could properly open an investigation, yet this is essentially 

what the FTC’s ‘‘common law’’ of settlements does.57

The incentives, discussed in more detail below,58 that impel nearly every FTC 

consumer protection enforcement target to settle with the agency ensure that the 

only practical inflection point at which the entire enforcement process is subject to 

any kind of ‘‘review,’’ is when the Commissioners vote to authorize the issuance of 

a formal complaint and, simultaneously, approve an already-negotiated settlement. 

That such a determination may be based solely on the effectively unreviewable 59

discretion of the Commission that the complaint—not the consent order—meets the 

current, low threshold is troubling. 

As former FTC Chairman Tim Muris observed, ‘‘Within very broad limits, the 

agency determines what shall be legal. Indeed, the agency has been ‘lawless’ in the 

sense that it has traditionally been beyond judicial control.’’ 60 If meaningful judicial 

review is ever to be brought to bear on the final agency decisions embodied in consent orders, it is crucial that the complaints that give rise to those settlements be 

subject to a more meaningful standard that imposes some evidentiary and logical 

burden on the Commission beyond the mere exercise of its discretion. While a preponderance of the evidence standard would hardly impose an insurmountable burden on the agency, it would at least impose a standard that is more than purely 

discretionary, and thus reviewable by courts and subject to recognizable standards 

upon which such review could proceed. Most importantly, enacting such a standard 

should, on the margin, embolden defendants to resist settling cases, thus producing 

more judicial decisions, which could in turn constrain the FTC’s discretion. 

None of our proposed reforms to the FTC’s investigation process 61 would in any 

way undermine the FTC’s ability to gather information prior to issuing a complaint. 

The FTC would still be able to contact parties and investigate them through its 6(b) 

powers and use civil investigative demands if necessary to compel disclosure. But 

it is necessary to heighten the FTC’s standard for finally bringing a complaint since 

it can do significant investigation beforehand. It is not unreasonable to think they 

should have enough evidence to determine a violation of the law by a preponderance 

of the evidence by the point of complaint, especially since this is where most enforcement actions end in settlement. 

Deception & Materiality 

No Bill Proposed 

The FTC’s 1983 Deception Policy Statement forms one of the two pillars of its consumer protection work. As with Unfairness, the purpose of the Deception power is 

to protect consumers from injury. But unlike Unfairness, Deception does not require 

the FTC to prove injury. Instead, the FTC need prove only materiality—as an evidentiary proxy for injury: 

111 

62DPS supra note 10. 63 Id. at 6 (emphasis added). 64Of course, even in the marketing context this presumption is one of administrative economy, 

not descriptive reality. While there is surely a correlation between statements intended to 

change consumer behavior and actual changes in consumer behavior, a causal assumption is not 

warranted. See generally Geoffrey A. Manne & E. Marcellus Williamson, Hot Docs vs. Cold Economics: The Use and Misuse of Business Documents in Antitrust Enforcement and Adjudication, 

47 ARIZ, L. REV. 609 (2005). 65 Id. at 5. 66 Cent. Hudson Gas & Elec. Corp. v. Pub. Serv. Comm’n of NY, 447 U.S. 557 (1980). 67 Id. at 567–68. 

[T]he representation, omission, or practice must be a ‘‘material’’ one. The basic 

question is whether the act or practice is likely to affect the consumer’s conduct 

or decision with regard to a product or service. If so, the practice is material, 

and consumer injury is likely, because consumers are likely to have chosen differently but for the deception. In many instances, materiality, and hence injury, 

can be presumed from the nature of the practice. In other instances, evidence of 

materiality may be necessary. Thus, the Commission will find deception if there 

is a representation, omission or practice that is likely to mislead the consumer 

acting reasonably in the circumstances, to the consumer‘s detriment. . . .62

A finding of materiality is also a finding that injury is likely to exist because 

of the representation, omission, sales practice, or marketing technique. Injury 

to consumers can take many forms. Injury exists if consumers would have chosen differently but for the deception. If different choices are likely, the claim is 

material, and injury is likely as well. Thus, injury and materiality are different 

names for the same concept.63

Materiality is the point of the Deception Policy Statement. It is a shortcut by 

which the FTC can protect consumers from injury (i.e., not getting the benefit of 

the bargain promised them) without having to establish injury (that failing to get 

this benefit actually harms them). A finding of materiality allows the FTC to presume injury because, in the traditional marketing context, a deceptive claim that 

is ‘‘material’’ enough to alter consumer behavior (which is the point of marketing, 

after all) may reasonably be presumed to do so in ways that a truthful claim 

wouldn’t (or else why bother making the misleading claim?). 

Unfortunately, the FTC has effectively broken the logic of the materiality ‘‘shortcut’’ by extending a second set of presumptions: most notably, that all express statements are material. This presumption may make sense in the context of traditional 

marketing claims, but it breaks down with things like privacy policies and other 

non-marketing claims (like online help pages)—situations where deceptive statements certainly may alter consumer behavior, but in which such an effect can’t be 

presumed (because the company making the claim is not doing so in order to convince consumers to purchase the product).64

The FTC has justified this presumption-on-top-of-a-presumption by pointing to 

this passage of the DPS (shown with the critical footnotes): 

The Commission considers certain categories of information presumptively material.47 First, the Commission presumes that express claims are material.48 As 

the Supreme Court stated recently [in Central Hudson Gas & Electric Co. v. 

PSC], ‘‘[i]n the absence of factors that would distort the decision to advertise, 

we may assume that the willingness of a business to promote its products reflects a belief that consumers are interested in the advertising.’’ 

47The Commission will always consider relevant and competent evidence offered to rebut presumptions of materiality. 

48 Because this presumption is absent for some implied claims, the Commission 

will take special caution to ensure materiality exists in such cases.65

In effect, the first two sentences have come to swallow the rest of the paragraph, 

including the logic of the Supreme Court’s decision in Central Hudson, the single 

most important case of all time regarding the regulation of commercial speech.66 In 

particular, the FTC ignores the ‘‘absence of factors that would distort the decision 

to advertise.’’ 67

When the Deception Policy Statement talked about ‘‘express claims,’’ it was obviously contemplating marketing claims, where the presumption of materiality makes 

sense: if a company buys an ad, anything it says in the ad is intended to convince 

the viewer to buy the product. The intention to advertise the product is simply the 

flipside of materiality—a way of inferring what reasonable buyers would think from 

112 

68See Geoffrey A. Manne, R. Ben Sperry & Berin Szo ́ka, In the Matter of Nomi Technologies, 

Inc.: The Dark Side of the FTC’s Latest Feel-Good Case (ICLE Antitrust & Consumer Protection 

Research Program White Paper 2015-1), available at http://laweconcenter.org/images/articles/ 

icle-nomi_white_paper.pdf. 69DPS supra note 10, at 4 n.31 (quoting Fed. Trade Comm’n v. Sterling Drug, 317 F.2d 669, 

674 (2d Cir. 1963)). 

what profit-maximizing sellers obviously intended. But this logic breaks down once 

we move beyond advertising claims. 

We have written at length about this problem in the context of the FTC’s 2015 

settlement with Nomi, the maker of a technology that allowed stores to track users’ 

movement on their premises, as well as a shopper’s repeat visits, in order to deliver 

a better in-store shopping experience, placement of products, etc.68

The FTC’s complaint focused on a claim made in the privacy policy on Nomi’s 

website that consumers could opt out on the website or at ‘‘any retailer using Nomi’s 

technology.’’ Nomi failed to provide an in-store mechanism for allowing consumers 

to opt out of the tracking program, but it did provide one on the website—right 

where the allegedly deceptive claim was made. That Nomi did not, in fact, offer an 

in-store opt-out mechanism in violation of its express promise to do so is clear. 

Whether, taken in context, that failure was material, however, is not clear. 

For the FTC majority, even though the website portion of the promise was fulfilled, Nomi’s failure to comply with the in-store portion amounted to an actionable 

deception. But the majority dodged the key question: whether the evidence that 

Nomi accurately promised a website opt-out, and that consumers could (and did) 

opt-out using the website, rebuts the presumption that the inaccurate, in-store optout portion of the statement was material, and sufficient to render the statement 

as a whole deceptive. 

In other words, the majority assumed that Nomi’s express claim, in the context 

of a privacy policy rather than a marketing statement, affected consumers’ behavior. 

But given the very different purposes of a privacy policy and a marketing statement 

(and the immediate availability of the website opt-out in the very place that the 

claim was made), that presumption seems inappropriate. The majority did not discuss the reasonableness of the presumption given the different contexts, which 

should have been the primary issue. Instead it simply relied on a literal reading 

of the DPS, neglecting to consider whether its underlying logic merited a different 

approach. 

The Commission failed to demonstrate that, as a whole, Nomi’s failure to provide 

in-store opt out was deceptive, in clear contravention of the Deception Policy Statement’s requirement that all statements be evaluated in context: 

[T]he Commission will evaluate the entire advertisement, transaction, or course 

of dealing in determining how reasonable consumers are likely to respond. 

Thus, in advertising the Commission will examine ‘‘the entire mosaic, rather 

than each tile separately.’’ 69

Moreover, despite the promise in the DPS that the Commission would ‘‘always 

consider relevant and competent evidence offered to rebut presumptions of materiality,’’ the FTC failed to do so in Nomi. As Commissioner Wright noted in his dissent: 

[T]he Commission failed to discharge its commitment to duly consider relevant 

and competent evidence that squarely rebuts the presumption that Nomi’s failure to implement an additional, retail-level opt out was material to consumers. 

In other words, the Commission neglects to take into account evidence demonstrating consumers would not ‘‘have chosen differently’’ but for the allegedly 

deceptive representation. 

Nomi represented that consumers could opt out on its website as well as in the 

store where the Listen service was being utilized. Nomi did offer a fully functional and operational global opt out from the Listen service on its website. 

Thus, the only remaining potential issue is whether Nomi’s failure to offer the 

represented in-store opt out renders the statement in its privacy policy deceptive. The evidence strongly implies that specific representation was not material 

and therefore not deceptive. Nomi’s ‘‘tracking’’ of users was widely publicized in 

a story that appeared on the front page of The New York Times, a publication 

with a daily reach of nearly 1.9 million readers. Most likely due to this publicity, Nomi’s website received 3,840 unique visitors during the relevant timeframe and received 146 opt outs—an opt-out rate of 3.8 percent of site visitors. 

This opt-out rate is significantly higher than the opt-out rate for other online 

activities. This high rate, relative to website visitors, likely reflects the ease of 

113 

70Dissenting Statement of Commissioner Joshua D. Wright, In the Matter of Nomi Technologies, Inc., at 3–4 (Apr. 23, 2015) (emphasis added), available at https://www.ftc.gov/system/files/documents/public_statements/638371/150423nomiwrightstatement.pdf. 71Fanning v. Fed. Trade Comm’n, No. 15–1520, slip op. at 13 (May 9, 2016), available at 

https://www.ftc.gov/system/files/documents/cases/051816jerkopinion.pdf (citing Sunshine Art 

Studios, Inc. v. FTC, 481 F.2d 1171, 1173–74 (1st Cir. 1973) (finding FTC Act violation based 

on company’s practice of sending customers excess merchandise and using ‘‘a fictitious collection 

agency to coerce payment’’)). 72DPS supra note 10, at 5. 73 Id. at n.47. 

a mechanism that was immediately and quickly available to consumers at the 

time they may have been reading the privacy policy. 

The Commission’s reliance upon a presumption of materiality as to the additional representation of the availability of an in-store opt out is dubious in light 

of evidence of the opt-out rate for the webpage mechanism. Actual evidence of 

consumer behavior indicates that consumers that were interested in opting out 

of the Listen service took their first opportunity to do so. To presume the materiality of a representation in a privacy policy concerning the availability of an 

additional, in-store opt-out mechanism requires one to accept the proposition 

that the privacy-sensitive consumer would be more likely to bypass the easier 

and immediate route (the online opt out) in favor of waiting until she had the 

opportunity to opt out in a physical location. Here, we can easily dispense with 

shortcut presumptions meant to aid the analysis of consumer harm rather than 

substitute for it. The data allow us to know with an acceptable level of precision 

how many consumers—3.8 percent of them—reached the privacy policy, read it, 

and made the decision to opt out when presented with that immediate choice. 

The Commission’s complaint instead adopts an approach that places legal form 

over substance, is inconsistent with the available data, and defies common 

sense.70

The First Circuit’s recent opinion in Fanning v. FTC compounds the FTC’s error. 

First, it holds (we believe erroneously) that the DPS’s presumptions aren’t limited 

to the marketing milieu: 

There is no requirement that a misrepresentation be contained in an advertisement. The FTC Act prohibits ‘deceptive acts or practices,’ and we have upheld 

the Commission when it imposed liability based on misstatements not contained 

in advertisements.71

In addition, the Fanning decision would allow the FTC to go even a step further. 

Citing the language from the Deception Policy Statement that ‘‘claims pertaining to 

a central characteristic of the product about ‘which reasonable consumers would be 

concerned,’ ’’ are material, the First Circuit shifted the burden of proof to Fanning 

to prove that its promises were not material. 

Of course, the DPS strongly suggests that this ‘‘central characteristic’’ language 

is also applicable only in the marketing context—in the context, that is, of claims 

made about a product’s ‘‘central characteristics’’ in the service of selling that product—and that it is fact-dependent: 

Depending on the facts, information pertaining to the central characteristics of 

the product or service will be presumed material. Information has been found 

material where it concerns the purpose, safety, efficacy, or cost, of the product 

or service. Information is also likely to be material if it concerns durability, performance, warranties or quality.72

Much like Nomi, the effect of the First Circuit’s decision could be far-reaching. 

If the FTC may simply assert that claims relate to the central characteristic of a 

product, receive a presumption of materiality on that basis, and then shift the burden the defendant to adduce evidence to the contrary, it may never need to offer 

any evidence of its own on materiality. Combined this with the reluctance of the 

FTC to actually consider evidence rebutting the presumption (as illustrated in 

Nomi), we could see cases where the FTC presumes materiality on the basis of mere 

allegation and ignores all evidence to the contrary offered in rebuttal, despite its 

promise to ‘‘always consider relevant and competent evidence offered to rebut presumptions of materiality.73 This would lead to an outcome that the drafters of the 

Deception Policy Statement plainly did not intend: that effectively every erroneous 

or inaccurate word ever publicly disseminated by companies may be presumed to 

injure consumers and constitute an actionable violation of Section 5. 

In short, if the courts will defer to the FTC even as it reads the materiality requirement out of the Deception Policy Statement, this is not a vindication of the 

114 

74See CAL. BUS. & PROF. § 22575, available at http://www.leginfo.ca.gov/cgi-bin/displaycode 

?section=bpc&group=22001-23000&file=22575-22579. 75 Comments of TechFreedom & International Center for Law and Economics, In the Matter 

of Big Data and Consumer Privacy in the Internet Economy, Docket No. 140514424–4424–01, 

at 4 (Aug. 5, 2014), available at http://www.laweconcenter.org/images/articles/tf-icle_ntia 

_big_data_comments.pdf (‘‘A Privacy Law Modernization Commission could do what Commerce 

on its own cannot, and what the FTC could probably do but has refused to do: carefully study 

where new legislation is needed and how best to write it. It can also do what no Executive or 

independent agency can: establish a consensus among a diverse array of experts that can be 

FTC’s reading; it is merely a reminder of the vastness of the deference paid to agencies in interpreting ambiguous statutes. And it should be a reminder to Congress 

that only through legislation can Congress ultimately reassert itself—if only to keep 

the FTC on the path the agency itself laid out decades ago. 

Recommendation: Codify the 1983 Deception Policy Statement 

Congress should codify the Deception Policy Statement in a new Section 5(o), just 

as it codified the core part of the Unfairness Policy Statement in 1994, and just as 

the SURE Act would codify the rest of the UPS today. Fully codifying both statements (all three statements, including the UMC Enforcement Policy Statement) is 

a good idea if only because the FTC is somewhat more likely to take them seriously 

if they are statutory mandates. But, as we have emphasized, codification alone will 

not do much to change the institutional structures and processes that are at the 

heart of the statements’ relative ineffectiveness in guiding the FTC’s discretion. 

In codifying the DPS, Congress should be mindful of the problems we discuss 

above. It should also modify the DPS’ operative language to mitigate the interpretative problems arising from its inevitable ambiguity. Without specifying precise language here, a few guidelines for drafting such language come readily to mind: 

1. Defer to the DPS drafters: they could never have meant for the exceptions (presumptions) to subsume the rule (the materiality requirement), and the codified 

language should endeavor to reflect this. 

2. Acknowledge that there are differences between marketing language and language used in other contexts, including, importantly, today’s ubiquitous privacy 

policies and website terms of use—settings that weren’t contemplated by the 

DPS drafters. 

3. Clarify what evidentiary burden is required to demonstrate materiality in contexts where it shouldn’t simply be inferred, and, after Fanning, clarify whether, and when, the burden should shift from the FTC to defendants. 

Recommendation: Clarify that Legally Required Statements Cannot Be Presumptively Material 

Particularly given the increasing importance of privacy policies in the FTC’s deception enforcement practice, it is also important to clarify whether legally mandated language should be presumed material. We believe that the DPS’ exception 

for ‘‘factors that would distort the decision to advertise’’ includes a legal mandate 

to say something, which unequivocally ‘‘distorts’’ the decision to proffer such language. Thus, in most cases, privacy policies—required by California law 74—ought 

not be treated as presumptively material. This would not preclude the FTC from 

proving that they are material, of course. It would simply require the Commission 

to establish their materiality in each particular case—which, again, was the point 

of the Deception Policy Statement in the first place. 

Recommendation: Delegate Reconsideration of Other Materiality Presumptions 

Unfortunately, it will be difficult for Congress to address the other aspects of the 

FTC’s interpretation of materiality by statute, because each is highly fact-specific. 

But, ultimately, ensuring that the FTC’s implementation of the Deception Policy 

Statement’s requirement of a rigorous assessment of trade-offs doesn’t require specification of outcomes; it requires some institutional rejiggering ensure that the Bureau of Consumer Protection is motivated to do so by some combination of the 

courts, the commissioners, and the Bureau of Economics. 

Instead of trying to address these issues directly, Congress could, for example, direct the FTC to produce a Policy Statement on Materiality in which the Commission 

attempts to clarify these issues on its own. Thus, for example, the Commission could 

describe factors for determining whether and when an online help center should be 

considered a form of marketing that merits the presumption. Or, as we have previously proposed, Congress could delegate this and other key doctrinal questions to 

a Modernization Commission focused on high-tech consumer protection issues like 

privacy and data security, parallel to the Antitrust Modernization Commission.75

115 

presented to Congress as, not merely yet another in a series of failed proposals, but one that 

has a unique degree of analytical rigor behind it and bipartisan endorsement. If any significant 

reform is ever going to be enacted by Congress, it is most likely to come as the result of such 

a commission’s recommendations.’’). 76See supra note 18. 77Fed. Trade Comm’n, Statement of Enforcement Principles Regarding ‘‘Unfair Methods of 

Competition’’ Under Section 5 of the FTC Act (Aug. 13, 2015), available at https://www.ftc.gov/ 

system/files/documents/public_statements/735201/150813section5enforcement.pdf. 78 It should be noted that the Statement represents a landmark victory for Commissioner 

Joshua Wright, who has been a tireless advocate for defining the scope of the Commission’s 

UMC authority since before his appointment to the FTC in 2013. See, e.g., Joshua D. Wright, 

Abandoning Antitrust’s Chicago Obsession: The Case for Evidence-Based Antitrust, 78 ANTITRUST

L. J. 241 (2012). 79For a succinct evaluation of these cases (including, e.g., Intel and N-Data), see Geoffrey A. 

Manne & Berin Szo ́ka, Section 5 of the FTC Act and monopolization cases: A brief primer, 

TRUTH ON THE MARKET (Nov. 26, 2012), https://truthonthemarket.com/2012/11/26/section-5-ofthe-ftc-act-and-monopolization-cases-a-brief-primer/. 80See, e.g., Statement of Chairman Leibowitz and Commissioner Rosch, In the Matter of Intel 

Corp., Docket No. 9341, 1, available at https://www.ftc.gov/system/files/documents/public_statements/568601/091216intelchairstatement.pdf (‘‘[I]t is more important than ever that the 

Commission actively consider whether it may be appropriate to exercise its full Congressional 

authority under Section 5.’’). 

Recommendation: Require Preponderance of the Evidence in Deception Cases 

Above, we explain that among our top three priorities for additional reforms—indeed, for reforms overall—is adding a ‘‘preponderance of the evidence’’ standard for 

unfairness cases by expanding upon Section 5(n).76 We urge Congress to include the 

same standard in a new Section 5(o) for non-fraud deception cases. Again, this 

standard should be easy for the FTC to satisfy. 

Unfair Methods of Competition 

No Bill Proposed 

The Commission’s unanimous adoption last year of a ‘‘Statement of Enforcement 

Principles Regarding ‘Unfair Methods of Competition’ ’’ was a watershed moment for 

the agency.77 The adoption of the Statement marked the first time in the Commission’s 100-year history that the FTC issued enforcement guidelines for cases brought 

under the Unfair Methods of Competition (‘‘UMC’’) provisions of Section 5 of the 

FTC Act.78

Enforcement principles for UMC actions were in desperate need of clarification at 

the time of the Statement’s adoption. Without any UMC standards, the FTC had 

been essentially completely free to leverage its costly adjudication process into settlements (or short-term victories), and to leave businesses in the dark as to what 

sorts of conduct might trigger enforcement. Through a series of unadjudicated settlements, UMC unfairness doctrine (such as it is) has remained largely within the 

province of FTC discretion and without judicial oversight. As a result, and either 

by design or by accident, UMC never developed a body of law encompassing welldefined goals or principles like antitrust’s consumer-welfare standard. Several important cases had seemingly sought to take advantage of the absence of meaningful 

judicial constraints on UMC enforcement actions to bring standard antitrust cases 

under the provision.79 And more than one recent Commissioner had explicitly 

extolled the virtue of the unfettered (and unprincipled) enforcement of antitrust 

cases the provision afforded the agency.80 The new Statement makes it official FTC 

policy to reject this harmful dynamic. 

The UMC Statement is deceptively simple in its framing: 

In deciding whether to challenge an act or practice as an unfair method of competition in violation of Section 5 on a standalone basis, the Commission adheres 

to the following principles: 

• the Commission will be guided by the public policy underlying the antitrust 

laws, namely, the promotion of consumer welfare; 

• the act or practice will be evaluated under a framework similar to the rule of 

reason, that is, an act or practice challenged by the Commission must cause, 

or be likely to cause, harm to competition or the competitive process, taking into 

account any associated cognizable efficiencies and business justifications; and 

• the Commission is less likely to challenge an act or practice as an unfair method of competition on a standalone basis if enforcement of the Sherman or ClayVerDate Nov 24 2008 07:37 Mar 18, 2019 Jkt 000000 PO 00000 Frm 00119 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\35459.TXT JACKIE
116 

81Statement of UMC Enforcement Principles, supra note 77. 82 Consumer Protection & Competition Regulation in a High-Tech World: Discussing the Future 

of the Federal Trade Commission, supra note 4, at 12. 83Stephanie W. Kanwit, 1 Federal Trade Commission § 13:1 at 13–1 (West 2003). 84Darren Bush, The Incentive and Ability of the Federal Trade Commission to Investigate Real 

Estate Markets: An Exercise in Political Economy, 20–21, available at http://www.anti 

trustinstitute.org/files/517c.pdf. 

ton Act is sufficient to address the competitive harm arising from the act or 

practice.81

Most importantly, the Statement espouses a preference for enforcement under the 

antitrust laws over UMC when both might apply, and brings the weight of consumer-welfare-oriented antitrust law and economics to bear on such cases. 

Recommendation: Codify the Statement of Enforcement Principles Regarding ‘‘Unfair 

Methods of Competition’’ Under a New Section 5(p) of the FTC Act 

As beneficial as the Statement is, it necessarily reflects compromise. In particular, 

the third prong is expressed merely as a preference for antitrust enforcement rather 

than an obligation. And, of course, such statements are not binding on the Commission, no matter how strongly worded they may be, and no matter how much ‘‘soft 

law’’ may be brought to bear on the Commissioners charged with following it. 

For these reasons, Congress should codify the most important aspects of the 

Statement—much as it did with the Unfairness Policy Statement’s consumer-injury 

unfairness test—by adding the following language in a new Section 5(p): 

The Commission shall not challenge an act or practice as an unfair method of 

competition on a standalone basis if the alleged competitive harm arising from 

the act or practice is subject to enforcement under the Sherman or Clayton Act. 

An act or practice challenged by the Commission as an unfair method of competition must cause, or be likely to cause, harm to competition or the competitive process, taking into account any associated cognizable efficiencies and business justifications. 

This language is taken directly from the UMC Statement, with the small tweak 

highlighted above requiring application of the antitrust laws instead of UMC in appropriate cases, rather than merely expressing a preference for doing so. 

Such language would harmonize enforcement of all anticompetitive practices 

under the antitrust laws’ consumer-welfare standard, while still permitting the few 

cases not amenable to Sherman or Clayton Act jurisdiction (e.g., invitations to 

collude) to be brought by the Commission. Importantly, language such as this, which 

would make enforcement under the antitrust laws obligatory where both UMC and 

antitrust could apply, would transform the Statement’s expression of agency preference into an enforceable statutory requirement. 

Enforcement & Guidance 

The FTC is commonly labeled a ‘‘law enforcement agency,’’ but in reality it is an 

administrative agency that regulates primarily through enforcement rather than 

rulemaking: 

As an administrative agency, the FTC’s primary form of regulation involves administrative application of a set of general principles—a ‘‘law enforcement’’ style 

function that, practically speaking, operates as administrative regulation.. . .82

This administrative enforcement model puts significant emphasis on the agency’s 

investigative power, and it is the investigatory aspect of its enforcement process 

that has become the agency’s most powerful—and least overseen—tool. As one commentator notes, ‘‘[t]he FTC possesses what are probably the broadest investigatory 

powers of any Federal regulatory agency.’’ 83

The Commission’s investigatory process is also the heart of the mechanism by 

which the agency largely bypasses judicial oversight: 

[Not even] the courts have . . . been a significant factor in deterring FTC investigation. Indeed, the bulk of court cases appear to affirm the agency’s authority 

to obtain information pursuant to the Federal Trade Commission Act. Thus, any 

constraints placed upon the FTC’s ability to obtain information must lie elsewhere.84

By overly compelling companies to settle enforcement actions when they are little 

more than investigations, the investigative process inevitably leads, on the margin, 

to less-well-targeted investigations, increased discovery burdens on (even blameless) 

potential defendants, inefficiently large compliance expenditures throughout the 

117 

85 HOOFNAGLE, FEDERAL TRADE COMMISSION PRIVACY LAW & POLICY, supra note 3, at 102. 86 Resolution No. 0123145, ‘‘Resolution Directing the Use of Compulsory Process in a Nonpublic Investigation of Telemarketers, Sellers, Suppliers, and Others’’ Technically the Telemarketing Resolution expired in April 2016. But it authorizes continuing investigation subject 

to already-issued CIDs as long as necessary. Although no further CIDs will be issued, the investigation continues. 87Federal Trade Commission, Operating Manual, 3.5.1.2 [hereinafter Operating Manual]. 88 Id. at 3.2.3.2. 

economy, under-experimentation and innovation by firms, doctrinally questionable 

consent orders, and a relative scarcity of judicial review of Commission enforcement 

decisions. 

More than any other aspect of the FTC Act or the FTC’s operations, it is here 

that reinvigorated congressional oversight is needed. Even Chris Hoofnagle, who has 

long advocated that the FTC be far more aggressive on privacy and data security, 

warns, in his new treatise on privacy regulation at the agency, that 

the FTC’s investigatory power is very broad and is akin to an inquisitorial body. 

On its own initiative, it can investigate a broad range of businesses without any 

indication of a predicate offense having occurred.85

In competition cases, the entire Commission must vote to authorize CIDs in each 

matter and also vote to close investigations once compulsory process is issued. But 

in the consumer protection context, the Commission issues standing orders—‘‘omnibus resolutions’’ (ORs)—authorizing extremely broad, industry-wide investigations 

that authorize the subsequent issuance of CIDs with the consent of only a single 

Commissioner. For instance, there is a standing Commission order authorizing staff 

to investigate telemarketing fraud cases.86 Thus, if staff wants to issue a CID to 

investigate a specific telemarketer or any of a wide range of companies that may 

be supporting telemarketers, it need seek approval for the CID from only a single 

Commissioner. These requests are frequent (to the best of our knowledge amounting 

to many dozens per week), and routinely granted. 

The staff’s ability to rely upon Omnibus Resolutions in this manner bypasses an 

important aspect of how the FTC’s enforcement approach is structured on paper. 

The FTC Operating Manual draws a clear line between initial phase investigations 

(initiated and run by the staff at their own discretion for up to 100 hours in consumer protection cases) and full investigations. The decision to upgrade an investigation can be made by the Bureau Director on delegated authority, but at least 

this creates some potential for involvement of other Commissioners. It also requires 

written analysis by the staff 87—something other Commissioners could ask to see. 

But most relevant to the immediate discussion is the Commission’s policy that 

Compulsory procedures are not ordinarily utilized in the initial phase of investigations; therefore, facts and data which cannot be obtained from existing 

sources must be developed through the use of voluntary procedures.88

Relying on ORs, however, the staff may make use of compulsory process even 

when it would not otherwise be appropriate to do so. 

At the same time, the Commission may (if it so chooses) bring its Section 5 cases 

(those relatively few that don’t settle) in its own administrative tribunal, whose decisions are appealed to the Commission itself. Only after the Commission’s review 

(or denial of review) may a party bring its case before an Article III court. Needless 

to say, this adds an extremely costly layer of administrative process to enforcement, 

as former Commissioner Wright explains: 

[T]he key to understanding the threat of Section 5 is the interaction between 

its lack of boundaries and the FTC’s administrative process advantages. . . . 

Consider the following empirical observation that demonstrates at the very 

least that the institutional framework that has evolved around the application 

of Section 5 cases in administrative adjudication is quite different than that 

faced by Article III judges in Federal court in the United States. The FTC has 

voted out a number of complaints in administrative adjudication that have been 

tried by administrative law judges (‘‘ALJs’’) in the past nearly twenty years. In 

each of those cases, after the administrative decision was appealed to the Commission, the Commission ruled in favor of FTC staff. In other words, in 100 percent of cases where the ALJ ruled in favor of the FTC, the Commission affirmed; 

and in 100 percent of the cases in which the ALJ ruled against the FTC, the 

Commission reversed. By way of contrast, when the antitrust decisions of Federal district court judges are appealed to the Federal courts of appeal, plaintiffs 

118 

89 Joshua Wright, Recalibrating Section 5: A Response to the CPI Symposium, CPI ANTITRUST

CHRONICLE (Nov. 2013 (2)), at 4 (emphasis added), available at https://www.ftc.gov/sites/default/files/documents/public_statements/recalibrating-section-5-response-cpi-symposium/1311 

section5.pdf. 90 Id. at 5 (emphasis added). 91 Amici Curiae Brief Of TechFreedom, International Center for Law and Economics & Consumer Protection Scholars, Fed. Trade Comm’n v. Wyndham Worldwide Corp., No. 2:13-cv-01887 

(3d Cir. 2013) at 13. 92 Request for Review of Denial of Petition to Limit Civil Investigative Demand, File No. 

0723006 (Jul. 2, 2008), available at https://www.ftc.gov/sites/default/files/documents/petido not come anywhere close to a 100 percent success rate. Indeed, the win rate 

is much closer to 50 percent.89

The net effect of these procedural circumstances is stark. Wright continues: 

The combination of institutional and procedural advantages with the vague nature of the Commission’s Section 5 authority gives the agency the ability, in 

some cases, to elicit a settlement even though the conduct in question very likely may not [violate any law or regulation]. This is because firms typically prefer 

to settle a Section 5 claim rather than going through lengthy and costly administrative litigation in which they are both shooting at a moving target and have 

the chips stacked against them. Significantly, such settlements also perpetuate 

the uncertainty that exists as a result of the ambiguity associated with the 

Commission’s [Section 5] authority by encouraging a process by which the contours of Section 5 are drawn without any meaningful adversarial proceeding or 

substantive analysis of the Commission’s authority.90

Further, the Commission currently enjoys a nearly insurmountable presumption 

that its omnibus resolutions are proper—a fact that places subjects of investigations 

at a severe disadvantage when trying to challenge the Commission’s often intrusive 

investigative process. 

Whether issued under an Omnibus Resolution or otherwise, the Commission’s 

CIDs allow the agency to impose enormous costs on potential defendants before even 

a single Commissioner—let alone the entire Commission or a court of law—determines that there is even a ‘‘reason to believe’’ that the party being investigated has 

violated any law. 

The direct costs of compliance with these extremely broad CIDs can be enormous. 

Unlike discovery requests in private litigation, reimbursement of costs associated 

with CID compliance is not available, even if a defendant prevails. Among other 

things, CID recipients will be required to incur the expense of performing electronic 

and offline searches for copious amounts of information (which may require the hiring of outside vendors), interviewing employees, the business costs of lost employee 

and management time, and attorneys’ fees. Moreover, there may be several CIDs 

issued to a single company. And, sometimes of greatest importance, in many cases 

publicly traded companies will be required to disclose receipt of a CID in its SEC 

filings. This can have significant immediate effects on a company’s share price and 

do lasting damage to its reputation among consumers. 

The experience of Wyndham Hotels is illustrative. The company became the first 

to challenge an FTC data security enforcement action following more than twelve 

years of FTC data security settlements. Even before it finally had recourse to an 

Article III court, Wyndham had already incurred enormous costs, as we noted in our 

amicus brief in support of Wyndham’s 2013 motion to dismiss: 

Burdensome as settlements can be, not settling can be even costlier. Wyndham, 

for example, has already received 47 document requests in this case and spent 

$5 million responding to these requests. The FTC’s compulsory investigative 

discovery process and administrative litigation both consume the most valuable 

resource of any firm: the time and attention of management and key personnel.91

And it is difficult for CID recipients to challenge a CID on the basis of cost. As 

the Commission notes in a ruling denying one such request: 

WAM [West Asset Management] has not satisfied its burden of demonstrating 

compliance with the CID would be unduly burdensome. . . . WAM has not 

cited, and the Commission is unaware of, any cases to support WAM‘s minimize-disruption standard. ‘‘Thus courts have refused to modify investigative 

subpoenas unless compliance threatens to unduly disrupt or seriously hinder 

normal operations of a business.’’ As in Texaco the breadth of the CID is a reflection of the comprehensiveness of the inquiry being undertaken and the magnitude of WAM‘s business operations.92

119 

tions-quash/west-asset-management-inc./080702westasset.pdf (citing Fed. Trade Comm’n v. Texaco, Inc., 555 F.2d 862, 882 (D.C. Cir. 1977)). 93 Invention Submission, 965 F.2d at 1090 (emphasis in original, internal citations omitted) 

(citing Fed. Trade Comm’n v. Carter, 636 F.2d 781, 787–88 (D.C. Cir. 1980), and Texaco, 555 

F.2d at 874 & n.26). 94 Re: LabMD, Inc.’s Petition to Limit or Quash the Civil Investigative Demand; and Michael 

J. Daugherty’s Petition to Limit or Quash the Civil Investigative Demand (Apr. 20, 2012), 5, 

available at https://www.ftc.gov/sites/default/files/documents/petitions-quash/labmd-inc./102 

-3099-lab-md-letter-ruling-04202012.pdf. 95Operating Manual § 3.5.1.1 (‘‘Dissenting staff recommendations regarding compulsory process, compliance, consent agreements, proposed trade regulation rules or proposed industrywide 

investigations should be submitted to the Commission by the originating offices, upon the request of the staff member.’’). 

High costs, as long as they don’t threaten a company’s viability, will be insufficient to quash or even minimize the scope of a CID. But even expenses that don’t 

threaten viability can be extremely large and extremely burdensome. And, of course, 

broader costs (e.g., on stock price and market reputation) are extremely difficult to 

measure and unaccounted for in the FTC’s assessment of a CID’s burden. 

It should be noted that, unlike complaints (before adjudication) and consent orders, CIDs are directly reviewed by courts at times. For better or worse, however, 

courts are prone to give the Commission an extreme degree of deference when reviewing CIDs. ‘‘The standard for judging relevancy in an investigatory proceeding 

is more relaxed than in an adjudicatory one . . . The requested material, therefore, 

need only be relevant to the investigation—the boundary of which may be defined 

quite generally.’’ 93 Thus, the Commission has ‘‘ ‘extreme breadth’ in conducting . . . 

investigations.’’ 94

But high direct costs aren’t even the most troubling part. The indirect, societal 

cost of overly broad CIDs is the increased propensity of companies to settle to avoid 

them. For reasons we also discuss elsewhere, an excessive tendency toward settlements imposes costs throughout the economy. Among other things: 

• It reduces the salutary influence of judicial review of agency enforcement actions; 

• It reduces the stock of judicial decisions from which companies, courts and the 

FTC would otherwise receive essential guidance regarding appropriate enforcement theories and the propriety of ambiguous conduct; 

• It induces companies that haven’t violated the statute to be saddled with remedies nonetheless, and thereby induces other, similarly-situated companies to 

incur inefficient costs to avoid the same fate; 

• It incentivizes the FTC to impose remedies via consent order that a court might 

not sustain; and 

• It may induce companies that would be found by a court not to have violated 

the statute to admit liability. 

These largely hidden, underappreciated effects are, collectively, enormously distorting. And they feedback into the process, reinforcing the institutional dynamics 

that lead to such outcomes in the first place. In short, the FTC’s discovery process 

greatly magnifies its already vast discretion to make substantive decisions about the 

evolution of Section 5 doctrine (or quasi-doctrine). 

At the same time, there is reason to believe that the rate of CID issuance, and 

the scope of CIDs issued, are (far) greater than optimal. 

In order to issue a CID pursuant to an OR, staff need not present the authorizing 

Commissioner with a theory of the case or anything approaching ‘‘probable cause’’ 

for the CID; rather, the OR effectively takes care of that (although without anything 

like the specificity required of, say, a subpoena), and staff need only assert that the 

CID is in furtherance of an OR. The other Commissioners do not have an opportunity to vote on the issuance of the CID and would not likely even know about the 

investigation. Even if dissenting staff members attempt to notify Commissioners,95

it may be difficult, at this early stage, for Commissioners to recognize the doctrinal 

or practical significance of the cases the staff is attempting to bring, and thus to 

provide any meaningful check upon the discretion of the staff to use the discovery 

process to coerce settlements. 

Thus, because of omnibus resolutions, a great number of investigations—encompassing a great number of costly CIDs—are not presented to the other Commissioners to determine whether the investigation is an appropriate use of the agency’s 

resources or whether the legal basis for the case is sound. In many cases, the other 

Commissioners may not even see the case until a settlement has been negotiated 

as a fait accompli. 

120 

96 United States v. Morton Salt Co., 338 U.S. 632, 642 (1950). 97 Resolution Directing Use of Compulsory Process in a Nonpublic Investigation of Telemarketers, Sellers, Suppliers, or Others, File No. 0123145 (Apr. 11, 2011), quoted in In the Matter of December 12, 2012 Civil Investigative Demand Issue to the Western Union Company, File 

No. 012 3145 (Mar. 4, 2013), available at https://www.ftc.gov/sites/default/files/documents/petitions-quash/unnamed-telemarketers-others/130404westernunionpetition.pdf (Citations omitted). 98 In the Matter of December 12, 2012 Civil Investigative Demand Issue to the Western Union 

Company at 8. (Citing cases). 99See, e.g., Deborah S. Birnbach, Do You Have to Disclose a Government Investigation?, HARVARD LAW SCHOOL FORUM ON CORPORATE GOVERNANCE AND FINANCIAL REGULATION (May 21, 

2016), https://corpgov.law.harvard.edu/2016/04/09/do-you-have-to-disclose-a-government-investigation/. 

The bar for issuing CIDs pursuant to an omnibus resolution is extremely low. 

Nominally the CID request must fall within the agency’s authority and be relevant 

to the investigation that authorizes it. But the FTC has enormous discretion in determining whether a specific compulsory demand is relevant to an investigation, and 

it need not have ‘‘a justifiable belief that wrongdoing has actually occurred.’’ 96

For example, the Commission’s telemarketing resolution authorized compulsory 

process 

[t]o determine whether unnamed telemarketers, sellers, or others assisting 

them have engaged in or are engaging in: (1) unfair or deceptive acts or practices in or affecting commerce in violation of Section 5 of the Federal Trade 

Commission Act; and/or (2) deceptive or abusive telemarketing acts or practices 

in violation of the Commission’s Telemarketing Sales Rule, including but not 

limited to the provision of substantial assistance or support—such as mailing 

lists, scripts, merchant accounts, and other information, products, or services— 

to telemarketers engaged in unlawful practices. The investigation is also to determine whether Commission action to obtain redress for injury to consumers 

or others would be in the public interest.97

Pursuant to this OR, the Commission issued a CID to Western Union. Western 

Union challenged the CID on the grounds that it was unrelated to the OR (among 

other things). The FTC, in denying the motion to quash, claimed that ‘‘[t]he resolution . . . includes investigations of telemarketers or sellers as well as entities such 

as Western Union who may be providing substantial assistance or support to telemarketers or sellers.’’ While the OR does mention ‘‘assistance or support,’’ it doesn’t 

specify any companies by name and doesn’t specify that payment processors provide 

the sort of support it contemplates. In fact, it is fairly clear from even the impressively broad characterization of these in the OR—‘‘mailing lists, scripts, merchant 

accounts, and other information, products, or services’’—that the ancillary processing of payment transactions by legitimate companies was not really contemplated. 

Nevertheless, the standard of review for the relevance of CIDs—in the rare instance that they are challenged at all—is extremely generous to the agency. As the 

Commission notes in its Western Union decision: 

In the context of an administrative CID, ‘‘relevance’’ is defined broadly and with 

deference to an administrative agency’s determination. An administrative agency is to be accorded ‘‘extreme breadth’’ in conducting an investigation. As the 

D.C. Circuit has stated, the standard for judging relevance in an administrative 

investigation is ‘‘more relaxed’’ than in an adjudicatory proceeding. As a result, 

the agency is entitled to the documents unless the CID recipient can show that 

the agency’s determination is ‘‘obviously wrong’’ or the documents are ‘‘plainly 

irrelevant’’ to the investigation’s purpose. We find that Western Union has not 

met this burden.98

Finally, administrative challenges to CIDs are public proceedings, which itself 

presents a substantial bar to their review. Companies subject to investigations by 

the FTC are, not surprisingly, reluctant to reveal the existence of such an investigation publicly. While the immense breadth and vagueness of the ORs authorizing 

compulsory process in an investigation, the ease with which CIDs are issued, and 

the lack of a ‘‘belief of wrongdoing’’ requirement certainly mean that no wrongdoing 

should be inferred from the existence of an investigation or a CID, unfortunately 

public perception may not track these nuances. In the case of some publicly traded 

companies, the mere issuance of a CID may require disclosure.99 But for other publicly traded companies and for all private companies such disclosure is not required. 

This means that, for these companies, there is an added deterrent to challenging 

121 

100 Again, Operating Manual Section 3.3.5.1.1 requires that ‘‘[d]issenting staff recommendations . . . be submitted to the Commission by the originating offices, upon the request of the 

staff member,’’ but does not include voluntary assistance letters in the list of covered subjects, 

only ‘‘compulsory process.’’ 101The Clarifying Legality and Enforcement Action Reasoning Act, H.R. 5109, 114th Cong. 

(2016) [hereinafter CLEAR Act] available at https://www.congress.gov/bill/114th-congress/ 

house-bill/5109/text. 102See. e.g., 1995 Annual Report at 49, https://www.ftc.gov/sites/default/files/documents/reports_annual/annual-report-1995/ar1995_0.pdf. 103Fed. Trade Comm’n, FTC Annual Reports, https://www.ftc.gov/policy/reports/policy-reports/ftc-annual-reports. 

a CID because doing so will cause it to be disclosed publicly when it otherwise 

would not be. 

The combination of an exceedingly deferential standard of review, the need to exhaust administrative process before the very agency that issued the OR and CID 

before gaining access to an independent Article III tribunal, the risk of reputational 

harms, and the massive compliance costs combine to ensure that very few CIDs are 

ever challenged. This only reinforces FTC staff’s incentives to issue CIDs, and to do 

so with an increasingly tenuous relationship to the Commission-approved resolution 

authorizing them. 

The absence of effective oversight on this process creates a further problem. FTC 

staff have the power to issue Voluntary Access Letters requesting the same documents as a CID without any Commissioner involvement—or even (at least on paper) 

the possibility that a dissenting staff member can notify a Commissioner of her objections.100 While these requests are nominally voluntary, the omnipresent threat 

of compelled discovery means that recipients virtually always comply with these requests, although they do often initiate a discussion between staff and recipients that 

may result in a narrowing of the requests’ scope. Voluntary Access Letters are subject to even less scrutiny than CIDs, and there is virtually no way for any of the 

FTC’s oversight bodies (Congress, the courts, the public, the executive branch, etc.) 

to monitor their use. 

Investigations and Reporting on Investigations 

The Clarifying Legality & Enforcement Action Reasoning (CLEAR) Act 

While identifying the problems with the Commission’s investigation and CID process is fairly straightforward, identifying solutions is not so straightforward. A critical first step, however, would be imposing greater transparency requirements on 

the Commission’s investigation practices. 

Rep. Brett Guthrie’s (R–KY) proposed CLEAR Act (H.R. 5109) 101 would require 

the FTC to report annually to Congress on the status of its investigations, including 

the legal analysis supporting the FTC’s decision to close some investigations without 

action. This requirement would not require the Commission to identify its targets, 

thus preserving the anonymity of the firms in question. 

Value of the Bill: Better Reporting of FTC Enforcement Trends 

The FTC used to provide somewhat clearer data on the number of enforcement 

actions it took every year, classifying each by product and ‘‘type of matter.’’ 102 The 

FTC’s recent ‘‘Annual Highlights’’ reports do not include even this level of data on 

its enforcement actions.103 But neither includes the basic data required by the 

CLEAR Act on the number of investigations commenced, closed, settled or litigated. 

Without hard data on this, it is difficult to assess how the FTC’s enforcement approach works, the relationship between the agency’s investigations and enforcement 

actions, and how these has changed over time. While the bill does not specifically 

mention consent decrees among the items that must be reported to Congress, it does 

require that the report include ‘‘the disposition of such investigations, if such investigations have concluded and resulted in official agency action,’’ which would include 

consent decrees. 

Recommendation: Add Discovery Tools to the Required Reporting 

The bill omits, however, one of the most important aspects of the FTC’s operations, which is very easily quantifiable: the FTC’s use of its various discovery tools. 

The FTC should, in addition, have to produce aggregate statistics on its use of discovery tools, excluding the specific identity of the target, but including, for example: 

• The source of the investigation (e.g., Omnibus Resolution, consumer complaint, 

etc.); 

• The volume of discovery requested; 

• The volume of discovery produced; 

122 

104Operating Manual § 3.2.4.1.1 (consumer protection) & § 3.2.4.1.2 (competition) 105Operating Manual § 3.2.2.1. 106Letter from Joel Winston, Associate Director of Fed. Trade Comm’n to Michael E. Burke, 

Esq., Counsel to Dollar Tree Stores, Inc. (June 5, 2001) available at http://www.ftc.gov/sites/ 

default/files/documents/closing_letters/dollar-tree-stores-inc./070605doltree.pdf. 107 Id. at 2. 

• The time elapsed between the initiation of the investigation and the request(s); 

• The time elapsed between the request(s) and production; 

• Estimated cost of compliance (as volunteered by the target); 

• The specific tool(s) used to authorize the investigation and production request(s) 

(e.g., Omnibus Resolution, CID, Voluntary Access Letter, etc.); 

• Who approved the investigation and production request(s) (e.g., a single Commissioner, the full Commission, the Bureau Director, the staff itself, etc.); 

• The approximate size (number of employees) and annual revenues of the target 

business (to measure effects on small businesses); and 

• The general nature of the issue(s) connected to the investigation and production 

request(s). 

This reporting could be largely automated from the FTC database used to log investigations, discovery requests and resulting production of documents. And, of 

course, the FTC should have such a flexible and usable database if it does not already. Once created, it should be relatively easy to make the data public, as it will 

require little more than obscuring the identity of the target, putting the size of the 

company in ranges, and ensuring that the metadata identifying the relevant issues 

is sufficiently high level (e.g., ‘‘data security’’ rather than ‘‘PED skimming’’). 

Value of the Bill: What is Not Prohibited Is a Crucial Form of Guidance 

Clarity as to what the law does not prohibit may be a more important hallmark 

of the Evolutionary Model (the true common law), than is specificity as to what the 

law does prohibit. 

The FTC used to issue closing letters regularly but stopped providing meaningful 

guidance at least since the start of this Administration. The FTC Operating Manual 

already requires staff to produce a memo justifying closure of any investigation that 

has gone beyond the initial stage, thus requiring the approval of the Bureau Directors to expand into a full investigation, that ‘‘summarize[s] the results of the investigation, discuss[es] the methodology used in the investigation, and explain[s] the 

rationale for the closing.’’ 104

In other words, the staff already, in theory, does the analysis that would be required by the bill (at least for cases that merit being continued beyond the 100 

hours allowed for initial phase consumer protection investigations);105 they simply 

do not share it. Thus, at most, the bill would require (i) greater rigor in the memoranda that staff already writes, (ii) that some version of memoranda be included in 

the annual report, edited to obscure the company’s identity, and (iii) that some analysis be written for initial phase cases that may be closed without any internal 

memoranda. And this last requirement should not be difficult for the staff to satisfy, 

since cases that did not merit full investigations ought to raise simpler legal issues. 

For example, in 2007, the FTC issued a no-action letter closing its investigation 

into Dollar Tree Stores that offers a fair amount of background on the issue: ‘‘PED 

skimming,’’ the tampering with of payment card PIN entry devices (PEDs) used at 

checkout that allowed hackers to steal customers’ card information and thus make 

fraudulent purchases.106 The FTC explained its decision to close the Dollar Tree 

Stores investigation at length, listing the factors considered by the FTC: 

the extent to which the risk at issue was reasonable foreseeable at the time of 

the compromise; the nature and magnitude of the risk relative to other risks; 

the benefits relative to the costs of protecting against the risk; Dollar Tree’s 

overall data security practices, the duration and scope of the compromise; the 

level of consumer injury; and Dollar Tree’s prompt response to the incident.107

The letter went on to note: 

We continue to emphasize that data security is an ongoing process, and that 

as risks, technologies, and circumstances change over time, companies must adjust their information security programs accordingly. The staff notes that, in recent months, the risk of PED skimming at retain locations has been increasingly identified by security experts and discussed in a variety of public and 

business contexts. We also understand that some businesses have now taken 

steps to improve physical security to deter PED skimming, such as locking or 

123 

108 Id. 109Letter from Maneesha Mithal, Associate Director of Fed. Trade Comm’n to Lisa J. Sotto, 

Counsel to Michael’s Stores, Inc. (June 5, 2001) available at http://www.ftc.gov/sites/default/ 

files/documents/closing_letters/michaels-stores-inc./120706michaelsstorescltr.pdf. 110 Elisabeth Leamy, Debit Card Fraud Investigation Involving Michaels Craft Stores PIN 

Pads Spreads to 20 U.S. States, ABC NEWS (May 13, 2011) available at http://abcnews.go.com/ 

Business/ConsumerNews/debit-card-fraud-michaels-crafts-customers-info-captured/story?id=135 

93607. 111 CLEAR Act, supra note 101. 

otherwise securing PERs in checkout lanes; installing security cameras or other 

monitoring devices; performing regular PED inspections to detect tampering, 

theft, or other misuse; and/or replacing older PEDs with newer tamper-resistant 

and tamper-evident models. We hope and expect that all businesses using PEDs 

in their stores will consider implementing these and/or other reasonable and appropriate safeguards to secure their systems.108

The FTC has issued only one closing letter in standard data security cases since 

its 2007 letter in Dollar Tree Stores—and, apparently, about the same issue. In 

2011, the FTC issued a letter closing its investigation of the Michaels art supply 

store chain.109 The letter offers essentially no information about the investigation 

or analysis of the issues involved—in marked contrast to the Dollar Tree Stores letter. But based on press reports from 2011, the issue appears to have been the same 

as in Dollar Tree Stores: ‘‘crooks [had] tampered with PIN pads in the Michaels 

checkout lanes, allowing them to capture customers‘ debit card and PIN numbers.’’ 110

Once again, the FTC has become increasingly unwilling to constrain its own discretion, even in the issuance of closing letters that do not bar the FTC from taking 

future enforcement actions. This underscores not only the value of the CLEAR Act, 

but also of the challenge in getting the FTC to take seriously the bill’s requirement 

that annual reports include, ‘‘for each such investigation that was closed with no 

official agency action, a description sufficient to indicate the legal analysis supporting the Commission’s decision not to continue such investigation, and the industry sectors of the entities subject to each such investiga-tion.’’ 111

Recommendation: Require the Bureau of Economics to Be Involved 

Wherever possible, Congress should specify that the Bureau of Economics be involved in the making of important decisions, and in the production of important 

guidance materials. Absent that instruction, the FTC, especially the Bureau of Consumer Protection, will likely resist fully involving the Bureau of Economics in its 

processes. The simplest way to make this change is as follows: 

For each such investigation that was closed with no official agency action, a description sufficient to indicate the legal and economic analysis supporting the 

Commission’s decision not to continue such investigation, and the industry sectors of the entities subject to each such investigation. 

Of course, there will be many cases where the economists have essentially nothing 

to say. The point is not that each case merits detailed economic analysis. Rather, 

the recommendation is intended to ensure that, at the very least, the opportunity 

to produce and disseminate a basic economic analysis by the BE is built into the 

enforcement process. 

Moreover, if an economic analysis is deemed appropriate, the determination of 

what constitutes an appropriate level of analysis should be made by the Bureau of 

Economics alone. For example, in the Dollar Tree Stores letter quoted above, it 

would have been helpful if the letter had provided some quantitative analysis as to 

the factors mentioned in the letter. To illustrate this point, one might ask the following questions about the factors identified in Dollar Tree Stores: 

• ‘‘the extent to which the risk at issue was reasonably foreseeable at the time 

of the compromise’’ and ‘‘the nature and magnitude of the risk relative to other 

risks’’—How widely known was the vulnerability generally at that time? How 

fast was awareness spreading among similarly situated companies? How likely 

was the vulnerability to occur? 

• ‘‘the benefits relative to the costs of protecting against the risk’’—Given the impossibility of completely eradicating risk, how much ex ante ‘‘protection’’ would 

have been sufficient? Given the ex ante uncertainty of any particular risk occurring, how much would it have cost to mitigate against all such risks, not just 

the one that actually materialized? 

124 

112See infra note 123. 

• ‘‘Dollar Tree’s overall data security practices’’—How much did the company 

spend? How else do its practices compare to its peers? How can good data security be quantified? 

• ‘‘the duration and scope of the compromise’’—How long? How many users? 

• ‘‘the level of consumer injury’’—Can this be quantified specifically to this case? 

Or can injury be extrapolated from reliably representative samples of similar injury? 

• ‘‘Dollar Tree’s prompt response to the incident’’—Just how prompt was it, in absolute terms? And relative to comparable industry practice? 

Given the general scope of the FTC’s investigations, it likely already collects the 

kind of data that could allow it to answer some, if not all, of these questions (and 

others as well). It may even have performed some of the requisite analysis. Why 

should the Commission’s economists not have a seat at the table in writing the closing analysis? This could be perhaps the greatest opportunity to begin bringing the 

analytical rigor of law and economics to consumer protection. 

Of course, the Commission may be (quite understandably) reluctant to include 

this data in company-specific closing letters—for the same reasons that investigations are supposed to remain confidential. But therein lies one of the chief virtues 

of the CLEAR Act: Instead of writing company-specific letters, the FTC could aggregate the information, obscure the identity of the company at issue in each specific 

case, and thus speak more freely about the details of its situation. Although the tension between the goals of providing analytical clarity and maintaining confidentiality for the subjects of investigation is obvious, it is not an insurmountable conflict, and thus no reason not to require more analysis and disclosure, in principle. 

Finally, it is worth noting that if BE is to be competent in its participation in 

these investigations and the associated reports, it will need a larger staff of economists. Thus, as we discuss below, Congress should devote additional resources to the 

Commission that are specifically earmarked for hiring additional BE staff.112

Recommendation: Attempt to Make the FTC Take the Analysis Requirement Seriously 

We recommend that Congress emphasize why such reporting is important with 

something like the following language, added either to Congressional findings or 

made clear in the leg-islative history around the bill: 

• Guidance from the Commission as to what is not illegal may be the most important form of guidance the Commission can offer; and 

• To be truly useful, such guidance should hew closely the FTC’s applicable Policy 

Statements. 

We further recommend that Congress carefully scrutinize the FTC’s annual reports issued under the CLEAR Act in oral discussions at hearings and in written 

questions for the record. Indeed, not doing so will indicate to the FTC that Congress 

is not really serious about demanding greater analytical rigor. 

Recommendation: Ensure that the Commission Organizes These Reports in a Useful 

Manner 

The legal analysis section of the bill is markedly different from the other three 

sections. The first two sections require simple counts of investigations commenced 

and closed with no action. The third section (‘‘disposition of such investigations, if 

such investigations have concluded and resulted in official agency action’’) can be 

satisfied with a brief sentence for each (or less). But the fourth section requires 

long-form analysis, which could run many pages for each case. 

At a minimum, the FTC should do more than it does today to make it easy to 

identify which closing letters are relevant. Today, the Commission’s web interface 

for closing letters is essentially useless. Letters are listed in reverse chronological 

order with no information provided other than the name, title and corporate affiliation of the person to whom the letter is addressed. There is no metadata to indicate 

what the letter is about (e.g., privacy, data security, advertising, product design) or 

what doctrinal issues (e.g., unfairness, deception, material omissions, substantiation) the letter confronts. Key word searches for, say, ‘‘privacy’’ or ‘‘data security’’ 

produce zero results. 

The CLEAR Act offers Congress a chance to demand better of the Commission. 

Congress should communicate what a useful discussion of closing decisions might 

look like—whether by including specific instructions in legislation, by addressing 

125 

113 UPS, supra note 9. 114FED. TRADE COMM’N & DEP’T OF JUSTICE, ANTITRUST GUIDELINES FOR COLLABORATIONS

AMONG COMPETITORS ii (Apr. 2000), available at https://www.ftc.gov/sites/default/files/documents/public_events/joint-venture-hearings-antitrust-guidelines-collaboration-among-competitors/ftcdojguidelines-2.pdf. 115See supra note 12. 

the issue in legislative history, or simply (and probably least effectively in the long 

term) by raising the issue regularly with the FTC at hearings. For instance, the text 

in the FTC’s reports to Congress could be made publicly available in an online database tagged with metadata to make it easier for users to search for and find relevant closing letters. 

Ideally, this database would be accessed through the same interface envisioned 

above for transparency into the FTC’s discovery process, and would include the 

same metadata and search tools. Thus, a user might be able to search for FTC enforcement actions and discovery inquiries regarding, say, data security practices in 

small businesses, in order to get a better sense of how the FTC operates in that 

area. 

Recommendation: Require the FTC to Synthesize Closing Decisions and Enforcement 

Decisions into Doctrinal Guidelines 

When the FTC submitted the Unfairness Policy Statement to Congress, it noted, 

in its cover letter: 

In response to your inquiry we have therefore undertaken a review of the decided cases and rules and have synthesized from them the most important principles of general applicability. Rather than merely reciting the law, we have attempted to provide the Committee with a concrete indication of the manner in 

which the Commission has enforced, and will continue to enforce, its unfairness 

mandate. In so doing we intend to address the concerns that have been raised 

about the meaning of consumer unfairness, and thereby attempt to provide a 

greater sense of certainty about what the Commission would regard as an unfair act or practice under Section 5.113

This synthesis is what the FTC needs to do now—and could get close to doing, 

in part, through better organized reporting on its closing decisions—only on a more 

specific level of the component elements of each of its Policy Statements. This is essentially what the various Antitrust Guidelines issued jointly by the DOJ and the 

FTC’s Bureau of Competition do. These are masterpieces of thematic organization. 

Consider, for example, from the 2000 Antitrust Guidelines for Collaborations Among 

Competitors, this sample of the table of contents: 

3.34 Factors Relevant to the Ability and Incentive of the Participants and the 

Collaboration to Compete 

3.34(a) Exclusivity 

3.34(b) Control over Assets 

3.34(c) Financial Interests in the Collaboration or in Other Participants 

3.34(d) Control of the Collaboration’s Competitively Significant Decision 

Making 

3.34(e) Likelihood of Anticompetitive Information Sharing 

3.34(f) Duration of the Collaboration 

3.35 Entry 

3.36 Identifying Procompetitive Benefits of the Collaboration 

3.36(a) Cognizable Efficiencies Must Be Verifiable and Potentially Pro-competitive 

3.36(b) Reasonable Necessity and Less Restrictive Alternatives 

3.37 Overall Competitive Effect 114

The guidelines are rich with examples that illustrate the way the agencies will 

apply their doctrine. As noted in the introduction, these guidelines are one level 

down the Doctrinal Pyramid: They explain how the kind of concepts articulated at 

the high conceptual level of, say, the FTC’s UDAP policy statements, can actually 

be applied to real world circumstances.115

One obvious challenge is that the antitrust guidelines synthesize litigated cases, 

of which the FTC has precious few on UDAP matters. This makes it difficult, if not 

impossible, for the FTC to do precisely the same thing on UDAP matters as the antiVerDate Nov 24 2008 07:37 Mar 18, 2019 Jkt 000000 PO 00000 Frm 00129 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\35459.TXT JACKIE
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116 16 C.F.R. § 2.10(d). 117 16 C.F.R. § 4.9(c)(1). 118 16 C.F.R. § 2.6; See also Federal Trade Commission, Operating Manual, Section 3.3.1 (To 

promote orderly investigative procedures and to protect individuals or business entities under 

investigation from premature adverse publicity, the Commission treats the fact that a particular 

proposed respondent is under investigation and the documents and information submitted to or 

developed by staff in connection with the investigation as confidential information that can be 

released only in the manner and to the extent authorized by law and by the Commission. In 

general, even if a proposed respondent in a nonpublic investigation makes a public disclosure 

that an investigation is being conducted, Commission personnel may not acknowledge the existence of the investigation, or discuss its purpose and scope or the nature of the suspected violation.) 

trust guidelines do. But that does not mean the FTC could not benefit from writing 

‘‘lessons learned’’ retrospectives on its past enforcement efforts and closing letters. 

Importantly, publication of these guidelines would not actually be a constraint 

upon the FTC’s discretion; it would merely require the Commission to better explain 

the rationale for what it has done in the past, connecting that arc across time. Like 

policy statements and consent decrees, guidelines are not technically binding upon 

the agency. Yet, in practice, they would steer the Commission in a far more rigorous 

way than its vague ‘‘common law of consent decrees [or of congressional testimony 

or blog posts].’’ It would allow the FTC to build doctrine in an analytically rigorous 

way as a second-best alternative to judicial decision-making—and, of course, as a 

supplement to judicial decisions, to the extent they happen. 

Recommendation: Ensure that Defendants Can Quash Subpoenas Confidentially 

Among the biggest deterrents to litigation today is companies’ reluctance to make 

public investigations aimed at them. But a company wishing to challenge the FTC’s 

overly broad investigative demands effectively must accede to public disclosure because the FTC has the discretion to make such fights public. 

Specifically, FTC enforcement rules currently allow parties seeking to quash a 

subpoena to ask for confidential treatment for their motions to quash, but the rules 

also appear to set public disclosure as the default: 

(d) Public disclosure. All petitions to limit or quash Commission compulsory 

process and all Commission orders in response to those petitions shall become 

part of the public records of the Commission, except for information granted 

confidential treatment under § 4.9(c) of this chapter.116

The referenced general rule on confidentiality gives the FTC’s General Counsel 

broad discretion in matters of confidentiality: 

(c) Confidentiality and in camera material. 

(1) Persons submitting material to the Commission described in this section 

may designate that material or portions of it confidential and request that it 

be withheld from the public record. All requests for confidential treatment shall 

be supported by a showing of justification in light of applicable statutes, rules, 

orders of the Commission or its administrative law judges, orders of the courts, 

or other relevant authority. The General Counsel or the General Counsel‘s designee will act upon such request with due regard for legal constraints and the 

public interest.117

Setting the default to public disclosure for such disputes is flatly inconsistent with 

the FTC’s general policy of keeping investigations nonpublic: 

While investigations are generally nonpublic, Commission staff may disclose the 

existence of an investigation to potential witnesses or other third parties to the 

extent necessary to advance the investigation.118

This is the right balance: Commission staff should sometimes be able to disclose 

aspects of an investigation. It should not be able to coerce a company into settling, 

or complying with additional discovery, in order to avoid bad press. Even if a company calculates that bad press is inevitable, if the FTC seems determined to extract 

a settlement, disclosing the investigation earlier can increase the direct expenses 

and reputational costs incurred by the company by stretching out the total length 

of the fight with the Commission for months or years longer. 

We propose that the default be switched, so that motions to quash are generally 

kept under seal except in exceptional circumstances. 

127 

119Statement of Commissioner Joshua D. Wright, On the FTC’s Bureau of Economics, Independence, and Agency Performance, at 1 (Aug. 6, 2015), available at https://www.ftc.gov/system/files/documents/public_statements/695241/150806bestmtwright.pdf. 120 Id. at 5. 121See infra at 54. 122Statement of Commissioner Joshua D. Wright, On the FTC’s Bureau of Economics, Independence, and Agency Performance, supra note 119, at 6. 

Economic Analysis of Investigations, Complaints, and Consent Decrees 

No Bill Proposed 

The Federal Trade Commission’s Bureau of Economics’ (BE) role as an 

independent and expert analyst is one of the most critical features of the 

FTC’s organizational structure in terms of enhancing its performance, expanding its substantive capabilities, and increasing the critical reputational 

capital the agency has available to promote its missions.119

Former FTC Commissioner Joshua Wright, 2015 

Commissioner Wright wrote as a veteran of both the Bureau of Economics and 

the Bureau of Competition. He was only the fourth economist to serve as FTC Commissioner (following Jim Miller, George Douglas and Dennis Yao) and the first JD/ 

PhD. His 2015 speech, ‘‘On the FTC’s Bureau of Economics, Independence, and 

Agency Performance,’’ marked the beginning of an effort to bolster the role of the 

Bureau of Economics in the FTC’s decision-making, especially in consumer protection matters. Wright warned, pointedly, that the FTC has ‘‘too many lawyers, too 

few economists,’’ calling this ‘‘a potential threat to independence and agency performance.’’ 120

Unfortunately, this was only a beginning: shortly after delivering this speech, 

Wright resigned from the Commission to return to teaching law and economics. For 

now, at least, the task of bolstering economic analysis at the Commission falls to 

Congress. 

The RECS Act’s proposal that BE be involved in any recommendation for new legislation or regulatory action is an important step towards this goal, but it is too narrow.121 It does not address the need to bolster the FTC’s role in the institutional 

structure of the agency, or its role in enforcement decisions. The following chart 

(from Wright’s speech) ably captures the first of these problems: 

NUMBER OF ATTORNEYS TO ECONOMISTS AT THE FTC FROM 2003 TO 2013122

Recommendation: Hire More Economists 

Wright recommends: 

Hiring more full-time economists is one obvious fix to the ratio problem. There 

are many benefits to expanding the economic capabilities of the agency. Many 

cases simply cannot be adequately staffed with one or two staff economists. 

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128 

123Statement of Commissioner Joshua D. Wright, On the FTC’s Bureau of Economics, Independence, and Agency Performance, supra note 119, at 11. 124 Id. at 11–12. 125 Id. at 11. 

Doubling the current size of BE would be a good start towards aligning the incentives of the Commission and BE staff with respect to case recommendations. 

While too quickly increasing the size of BE staff might dilute quality, a gradual 

increase in staffing coupled with a pay increase and a commitment to research 

time should help to keep quality levels at least constant.123

We wholeheartedly endorse former Commissioner Wright’s recommendation. 

Recommendation: Require BE to Comment Separately on Complaints and Consent 

Orders 

In the case of complaints and consent orders issued by the Commission, we recommend that Congress require the Commission to amend its Rules of Practice to 

require that the Bureau of Economics provide a separate economic assessment of the 

complaint or consent order in conjunction with each. This proposal is consistent with 

former Commissioner Wright’s similar recommendation: 

I suggest the FTC consider interpreting or amending FTC Rule of Practice 2.34 

to mandate that BE publish, in matters involving consent decrees, and as part 

of the already required ‘‘explanation of the provisions of the order and the relief 

to be obtained,’’ a separate explanation of the economic analysis of the Commission’s action. The documents associated with this rule are critical for communicating the role that economic analysis plays in Commission decision-making 

in cases. In many cases, public facing documents surrounding consents in competition cases simply do not describe well or at all the economic analysis conducted by staff or upon which BE recommended the consent.124

In order to perform its desired function, this ‘‘separate explanation’’ would be authored and issued by the Bureau of Economics, and not subject to approval by the 

Commission. The document would express BE’s independent assessment (approval 

or rejection) of the Commission’s proposed complaint or consent order, provide a 

high-level description of the specific economic analyses and evidence relied upon in 

its own recommendation or rejection of the proposed consent order, and offer a more 

general economic rationale for its recommendation. 

Requiring BE to make public its economic rationale for supporting or rejecting a 

complaint or consent decree voted out by the Commission would offer a number of 

benefits. In general, such an analysis would both inform the public and demand 

rigor of the Commission. As former Commissioner Wright noted, 

First, it offers BE a public avenue to communicate its findings to the public. 

Second, it reinforces the independent nature of the recommendation that BE offers. Third, it breaks the agency monopoly the FTC lawyers currently enjoy in 

terms of framing a particular matter to the public. The internal leverage BE 

gains by the ability to publish such a document . . . will also provide BE a 

greater role in the consent process and a mechanism to discipline consents that 

are not supported by sound economics . . ., minimizing the ‘‘compromise’’ recommendation that is most problematic in matters involving consent decrees.125

Wright explains this ‘‘compromise recommendation’’ problem in detail that bears 

extensive quotation and emphasis here: 

Both BC attorneys and BE staff are responsible for producing a recommendation memo. The asymmetry is at least partially a natural result of the different 

nature of the work that lawyers and economists do. But it is important to note 

that one consequence of this asymmetry, whatever its cause, is that it creates 

the potential to weaken BE’s independence. BE maintains a high level of integrity and independence over core economic tasks—e.g., economic modeling and 

framing, statistical analyses, and assessments of outside economic work—yet 

when it comes to the actual policy recommendation, I think it is fair to raise 

the question whether the Commission always receives unfiltered recommendations when BE dissents from the recommendation of BC or BCP staff. 

One example of this phenomenon is the so-called ‘‘compromise recommendation,’’ that is, a BE staff economist might recommend the FTC accept a consent 

decree rather than litigate or challenge a proposed merger when the underlying 

economic analysis reveals very little actual economic support for liability. In my 

experience, it is not uncommon for a BE staff analysis to convincingly demonstrate that competitive harm is possible but unlikely, but for BE staff to recVerDate Nov 24 2008 07:37 Mar 18, 2019 Jkt 000000 PO 00000 Frm 00132 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\35459.TXT JACKIE
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126 Id. at 7–8. 127Operating Manual § 3.3.5.1.1. 

ommend against litigation on those grounds, but in favor of a consent order. The 

problem with this compromise approach is, of course, that a recommendation to 

enter into a consent order must also require economic evidence sufficient to give 

the Commission reason to believe that competitive harm is likely. This type of 

‘‘compromise’’ recommendation in some ways reflects the reality of BE staff incentives. Engaging in a prolonged struggle over the issue of liability with BC 

and BC management is exceedingly difficult when the economist is simply 

outmanned. It also ties up already scarce BE resources on a matter that the 

parties are apparently ‘‘willing’’ to settle.126

The ability of BC or BCP staff to dilute the analysis of BE staffers in a combined 

compromise recommendation renders moot this provision of the operating manual: 

Dissenting staff recommendations regarding compulsory process, compliance, 

consent agreements, proposed trade regulation rules or proposed industrywide 

investigations should be submitted to the Commission by the originating offices, 

upon the request of the staff member.127

For this provision to have any effect, there must be a separate dissenting staff 

recommendation that can be seen by Commissioners—and, ideally, also made public. 

Recommendation: Require BE to Comment on Upgrading Investigations 

Similarly, we recommend enhancing BE’s role earlier in the investigation process: 

at the point where the Bureau Director decides whether to upgrade an initial (Phase 

I) investigation to a full investigation. This is a critical inflection point in the FTC’s 

investigative process for three reasons: 

1. In principle, the staff is not supposed to negotiate consent decrees during the 

initial investigation phase; 

2. In principle, the staff is not supposed to use compulsory discovery process during the initial investigation phase, meaning a target company’s cooperation 

until this point is at least theoretically voluntary; and 

3. Either the decision to open a formal investigation or the subsequent issuance 

of CIDs may trigger a public company’s duty to disclose the investigation in 

its quarterly securities filings. 

It is also likely the point at which the staff determines (or at least begins to seriously consider) whether or not the Commission is likely to approve a staff recommendation to issue a complaint against any of the specific targets of the investigation. 

For all these reasons, converting an initial investigation to a full investigation 

gives the staff enormous power to coerce a settlement. This decision deserves far 

more rigorous analysis than it currently seems to receive. 

When the BC or BCP staff proposes to their Bureau director that an initial investigation be expanded into a full investigation, the FTC Operating Manual requires 

a (confidential) memorandum justifying a decision, but does not formally require the 

Bureau of Economics, or require that the analysis performed by any FTC staff correspond to two of the three requirements of Section 5(n) or the materiality requirement of the Deception Policy Statement: 

3.5.1.4 Transmittal Memorandum 

The memorandum requesting approval for full investigation should clearly and 

succinctly explain the need for approval of the full investigation, including a discussion of relevant factors among the following: 

(1) A description of the practices and their impact on consumers and/or on the 

marketplace; 

(2) Marketing area and volume of business of the proposed respondent and the 

overall size of the market; 

(3) Extent of consumer injury inflicted by the practices to be investigated, the 

benefits to be achieved by the Commission action and/or the extent of competitive injury; 

(4) When applicable, an explanation of how the proposed investigation meets objectives and, where adopted, case selection criteria or the program to which 

it has been assigned; 

130 

128Operating Manual § 3.3.5.1.4 (emphasis added). 129The Revealing Economic Conclusions for Suggestions Act, H.R. 5136, 114th Cong. (2016) 

[hereinafter RECS Act] available at https://www.congress.gov/bill/114th-congress/house-bill/ 

5136/text. 

(5) When applicable, responses to the policy protocol questions (see OM Ch. 2);128

We recommend modifying this in two ways. First, while approving a complaint or 

a consent decree should absolutely require a separate recommendation from the Bureau of Economics, requiring such a recommendation merely to convert an initial 

investigation to a full investigation might well pose too great a burden on BE’s already over-taxed resources. But that is no reason why the FTC rules should not at 

least give BE the opportunity to write a separate memorandum if it so desires. Having this written recommendation shared with Commissioners would serve as an 

early warning system, alerting them to potentially problematic cases being investigated by BCP or BC staff before the staff has extracted a consent decree—something that regularly has effectively happened by the time the Commission votes on 

whether to authorize a complaint. Thus, giving BE the opportunity to be involved 

at this early stage may be critical to scrutinizing the FTC’s use of consent decrees. 

Second, there is no reason that the memorandum prepared by either BC or BCP 

staff should not correspond to the doctrinal requirements of the relevant authority. 

The Operating Manual falls well short of this by merely requiring some analysis of 

the ‘‘[e]xtent of consumer injury.’’ Why not countervailing benefit and reasonable 

avoidability, too, for Unfairness cases? And materiality in Deception cases? And the 

various other factors subsumed in the consumer welfare standard of the rule of reason, for Unfair Methods of Competition Cases? 

That this would be only an initial analysis that will remain confidential under 

the Commission’s rules is all the more reason it should not be a problem for the 

Staff to produce. 

Economic Analysis in Reports & ‘‘Recommendations’’ 

The Revealing Economic Conclusions for Suggestions (RECS) Act 

Rep. Mike Pompeo’s (R–KS) bill (H.R. 5136) 129 would require the FTC to include, 

in ‘‘any recommendations for legislative or regulatory action,’’ analysis from the Bureau of Economics including: 

[T]he rationale for the Commission’s determination that private markets or public institutions could not adequately address the issue, and that its recommended legislative or regulatory action is based on a reasoned determination 

that the benefits of the recommended action outweigh its costs. 

Valuable as this is, the bill should be expanded to encompass other Commission 

pronouncements that aren’t, strictly, ‘‘recommendations for legislative or regulatory 

action.’’ 

Value of the Bill: Bringing Rigor to FTC Reports, Testimony, etc. 

The lack of economic analysis in support of ‘‘recommendations for legislative or 

regulatory action’’ has grown more acute with time—not only in the FTC’s reports 

but also in its testimony to Congress. 

Section 6(b) of the FTC Act gives the Commission the authority ‘‘to conduct wideranging economic studies that do not have a specific law enforcement purpose’’ and 

to require the filing of ‘‘annual or special . . . reports or answers in writing to specific questions’’ for the purpose of obtaining information about ‘‘the organization, 

business, conduct, practices, management, and relation to other corporations, partnerships, and individuals’’ of any company over which the FTC has jurisdiction, except insurance companies. This section is a useful tool for better understanding 

business practices, particularly those undergoing rapid technological change. But it 

is only as valuable as the quality of the analyses these 6(b) reports contain. And 

typically they are fairly short on economic analysis, especially concerning consumer 

protection matters. 

The FTC has consistently failed to include any apparent, meaningful role for the 

Bureau of Economics in its consumer protection workshops or in the drafting of the 

subsequent reports. Nor has the FTC explored the adequacy of existing legal tools 

to address concerns raised by its reports. For example, the FTC’s 2014 workshop, 

‘‘Big Data: A Tool for Inclusion or Exclusion?,’’ included not a single PhD economist 

131 

130Fed. Trade Comm’n, Public Workshop: Big Data: A Tool for Inclusion or Exclusion? (Sep. 

15, 2014), available at https://www.ftc.gov/news-events/events-calendar/2014/09/big-data-toolinclusion-or-exclusion. 131FED. TRADE COMM’N, BIG DATA: A TOOL FOR INCLUSION OR EXCLUSION? UNDERSTANDING

THE ISSUES FTC REPORT (2016), available at https://www.ftc.gov/system/files/documents/reports/big-data-tool-inclusion-or-exclusion-understanding-issues/160106big-data-rpt.pdf 132 Id. at A–1 to A–2. 133Fed. Trade Comm’n, Conference: PrivacyCon (Jan. 14, 2016), available at https:// 

www.ftc.gov/news-events/events-calendar/2016/01/privacycon. 134Fed. Trade Comm’n, Transcript of the Remarks of Geoffrey A. Manne, 19 (Jan. 14, 2016), 

available at https://www.ftc.gov/system/files/documents/videos/privacycon-part-5/ftc_privacy 

con_-_transcript_segment_5.pdf#page=18. 135FED. TRADE COMM’N, PRIVACY ONLINE: FAIR INFORMATION PRACTICES IN THE ELECTRONIC

MARKETPLACE (2000), available at https://www.ftc.gov/sites/default/files/documents/reports/ 

privacy-online-fair-information-practices-electronic-marketplace-federal-trade-commission-report/ 

privacy2000text.pdf. 136FED. TRADE COMM’N, PROTECTING CONSUMER PRIVACY IN AN ERA OF RAPID CHANGE: 

RECOMMENDAIONS FOR BUSINESS AND POLICYMAKERS (2012), available at https://www.ftc.gov/ 

Continued 

or BE staffer.130 The resulting 2016 report includes essentially just two footnotes 

on economics.131 Commissioner Ohlhausen dissented, noting that 

Concerns about the effects of inaccurate data are certainly legitimate, but policymakers must evaluate such concerns in the larger context of the market and 

economic forces companies face. Businesses have strong incentives to seek accurate information about consumers, whatever the tool. Indeed, businesses use big 

data specifically to increase accuracy. Our competition expertise tells us that if 

one company draws incorrect conclusions and misses opportunities, competitors 

with better analysis will strive to fill the gap.. . . 

To understand the benefits and risks of tools like big data analytics, we must 

also consider the powerful forces of economics and free-market competition. If 

we give undue credence to hypothetical harms, we risk distracting ourselves 

from genuine harms and discouraging the development of the very tools that 

promise new benefits to low income, disadvantaged, and vulnerable individuals. 

Today’s report enriches the conversation about big data. My hope is that future 

participants in this conversation will test hypothetical harms with economic 

reasoning and empirical evidence.132

The Commission’s 2016 PrivacyCon conference did include several economists on 

a panel devoted to the ‘‘Economics of Privacy & Security.’’ 133 But, as one of the 

event’s discussants, Geoffrey Manne, noted: 

One of the things I would say is that it’s a little bit unfortunate we don’t have 

more economists and engineers talking to each other. As you might have gathered from the last panel, an economist will tell you that merely identifying a 

problem isn’t a sufficient basis for regulating to solve it, nor does the existence 

of a possible solution mean that that solution should be mandated. And you 

really need to identify real harms rather than just inferring them, as James 

Cooper pointed out earlier. And we need to give some thought to self-help and 

reputation and competition as solutions before we start to intervene. . . . 

So we’ve talked all day about privacy risks, biases in data, bad outcomes, problems, but we haven’t talked enough about beneficial uses that these things may 

enable. So deriving policy prescriptions from these sort of lopsided discussions 

is really perilous. 

Now, there’s an additional problem that we have in this forum as well, which 

is that the FTC has a tendency to find justification for enforcement decisions 

in things that are mentioned at workshops just like these. So that makes it doubly risky to be talking [ ] about these things without pointing out that there 

are important benefits here, and that the costs may not be as dramatic as it 

seems [just] because we’re presenting these papers describing them.134

As Manne notes, as a practical matter, these workshops and reports are often 

used by the Commission either to make legislative recommendations or to define 

FTC enforcement policy by recommending industry best practices (which the agency 

will effectively enforce). But, again, because they lack much in the way of economically rigorous analysis, these recommendations may not be as well-founded as they 

may be presumed to be. 

In its 2000 Report to Congress, for example, the FTC called for comprehensive 

baseline legislation on privacy and data security.135 Congress has not passed such 

legislation, but the FTC repeated the recommendation in its 2012 Privacy Report.136

132 

sites/default/files/documents/reports/federal-trade-commission-report-protecting-consumer-privacy-era-rapid-change-recommendations/120326privacyreport.pdf. 137PRIVACY ONLINE: FAIR INFORMATION PRACTICES IN THE ELECTRONIC MARKETPLACE, supra 

note 135. 138PROTECTING CONSUMER PRIVACY IN AN ERA OF RAPID CHANGE, supra note 136, at C–3. 139See e.g., J. Thomas Rosch, Litigating Merger Challenges: Lessons Learned (June 2, 2008), 

available at https://www.ftc.gov/sites/default/files/documents/public_statements/litigatingmerger-challenges-lessons-learned/080602litigatingmerger.pdf (‘‘any kind of economic analyses 

that require the use of mathematical formulae are of little persuasive value in the courtroom 

setting;’’ ‘‘when I see an economic formula my eyes start to glaze over.’’); See generally Joshua 

Wright, Commissioner Rosch v. Economics, Again, TRUTH ON THE MARKET (Oct. 7, 2008), available at https://truthonthemarket.com/2008/10/07/commissioner-rosch-v-economics-again/. 140PROTECTING CONSUMER PRIVACY IN AN ERA OF RAPID CHANGE, supra note 136, at C–4. 141 Id. at C–5. 142 Id. 

While that Report called for significantly stricter legislation, less tied to consumer 

harm, it did not include any economic analysis by the FTC’s Bureau of Economics. 

Indeed, by rejecting the harms-based model of the 2000 Report,137 the 2012 report 

essentially dismisses the relevance of economic analysis, either in the report itself 

or in case-by-case adjudication. 

In his dissent, Commissioner Rosch warned about the Report’s reliance on unfairness rather than deception, noting that ‘‘ ‘Unfairness’ is an elastic and elusive concept. What is ‘‘unfair’’ is in the eye of the beholder. . . .’’ 138 In effect, Rosch, despite 

his long-standing hostility to economic analysis,139 was really saying that the Commission had failed to justify its analysis of unfairness. Rosch objected to the Commission’s invocation of unfairness against harms that have not been clearly analyzed: 

That is not how the Commission itself has traditionally proceeded. To the contrary, the Commission represented in its 1980, and 1982 [sic], Statements to 

Congress that, absent deception, it will not generally enforce Section 5 against 

alleged intangible harm. In other contexts, the Commission has tried, through 

its advocacy, to convince others that our policy judgments are sensible and 

ought to be adopted.140

Rosch contrasted the Report’s reliance on unfairness with the Commission’s Unfair Methods of Competition doctrine, which he called ‘‘self-limiting’’ because it was 

tied to analysis of market power.141 Rosch lamented that, 

There does not appear to be any such limiting principle applicable to many of 

the recommendations of the Report. If implemented as written, many of the Report’s recommendations would instead apply to almost all firms and to most information collection practices. It would install ‘‘Big Brother’’ as the watchdog 

over these practices not only in the online world but in the offline world. That 

is not only paternalistic, but it goes well beyond what the Commission said in 

the early 1980s that it would do, and well beyond what Congress has permitted 

the Commission to do under Section 5(n). I would instead stand by what we 

have said and challenge information collection practices, including behavioral 

tracking, only when these practices are deceptive, ‘‘unfair’’ within the strictures 

of Section 5(n) and our commitments to Congress, or employed by a firm with 

market power and therefore challengeable on a stand-alone basis under Section 

5’s prohibition of unfair methods of competition.142

The proposed bill would help to correct these defects, and to ensure that FTC Reports, at least those containing legislative or rulemaking recommendations, are 

based on the rigorous analysis that should be expected of an expert investigative 

agency’s policymaking—especially one that has arguably the greatest pool of economic talent found anywhere in government in America. 

Recommendation: Require Analysis of Recommended Industry Best Practices 

In this regard the proposed bill would be enormously beneficial, but it could, and 

should, do significantly more. 

First and foremost, the term ‘‘recommendations for legislative or regulatory action’’ would not encompass the most significant FTC recommendations: those included in ‘‘industry best practices’’ publications and reports produced by the Commission. These documents purport to offer expert suggestions for businesses to follow in order to help them to protect consumer welfare and to better comply with 

the relevant laws and regulations. But the FTC increasingly treats these recommendations as soft law, not merely helpful guidance, in at least two senses: 

133 

143Statement of Timothy J. Muris, supra note 14, at 11–13. 144 BIG DATA: A TOOL FOR INCLUSION OR EXCLUSION, supra note 131; FED TRADE COMM’N, FACING FACTS: BEST PRACTICES FOR COMMON USES OF FACIAL RECOGNITION TECHNOLOGIES

(2012), available at https://www.ftc.gov/sites/default/files/documents/reports/facing-facts-bestpractices-common-uses-facial-recognition-technologies/121022facialtechrpt.pdf. 145FED. TRADE COMM’N, PEER-TO-PEER FILE-SHARING TECHNOLOGY: CONSUMER PROTECTION

AND COMPETITION ISSUES (2005), available at https://www.ftc.gov/sites/default/files/documents/reports/peer-peer-file-sharing-technology-consumer-protection-and-competition-issues/ 

050623p2prpt.pdf. 146Fed. Trade Comm’n v. Frostwire LLC, FTC File No. 112 3041, https://www.ftc.gov/enforcement/cases-proceedings/112–3041/frostwire-llc-angel-leon (2011). 147Prepared Statement of Berin Szo ́ka, President of TechFreedom: Hearing Before the H. Energy & Commerce Comm. 112th Cong. (2012), 23, available at https://techliberation.com/wpcontent/uploads/2012/11/Testimony_CMT_03.29.12_Szoka.pdf. 

1. The FTC uses these recommendations as the basis for writing its 20-year consent-decree requirements, including ones unrelated, or only loosely related, to 

the conduct at issue in an enforcement action; and 

2. The FTC uses these recommendations as the substantive basis for enforcement 

actions—for example, by pointing to a company’s failure to do something the 

FTC recommended as evidence of the unreasonableness of its practices. 

Former Chairman Tim Muris notes this about the ‘‘voluntary’’ guidelines issued 

by the FTC in 2009 in conjunction with three other Federal agencies, comparing 

them to the FTC’s efforts to ban advertising to children: 

The FTC has been down this road before. Prodded by consumer activists in the 

late 1970s, the Commission sought to stop advertising to children. . . 

One difference between the current proposal and the old rulemaking—called 

Kid Vid—is that this time the agencies are suggesting that the standards be 

adopted ‘‘voluntarily’’ by industry. Yet can standards suggested by a government claiming the power to regulate truly be ‘‘voluntary’’? Moreover, at the 

same workshop that the standards were announced, a representative of one of 

the same activist organizations that inspired the 1970s efforts speculated that 

a failure to comply with the new proposal would provoke calls for rules or legislation.143

Regulation by leering glare is still regulation. 

Informed by the trauma of its near-fatal confrontation with Congress at the end 

of the Carter administration, the FTC was long skittish about making recommendations for businesses in its reports, beyond high level calls for attention to issues like 

data security. That changed in 2009, however. The FTC has since issued a flurry 

of reports recommending best practices like ‘‘privacy by design’’ and ‘‘security by design,’’ first generally, and then across a variety of areas, from Big Data to facial recognition.144

The FTC’s recommendations to industry in its 2005 report on file-sharing were 

admirably circumspect: 

Industry should decrease risks to consumers through technological innovation 

and development, industry self-regulation (including risk disclosures), and consumer education.145

This is not to say that the FTC could not or should not have done more to address 

the very real problem of inadvertent online file-sharing. Indeed, one of the authors 

of this report has lauded the (Democratic-led) FTC for bringing its 2011 enforcement 

action against Frostwire146 for designing its peer-to-peer file-sharing software in a 

way that deceived users into unwittingly sharing files.147 Rather, it is simply to say 

that the FTC, in 2005, understood that a report was not a substitute for a rulemaking—i.e., not an appropriate place to make ‘‘recommendations’’ for the private 

sector that would have any force of law. 

By 2012 the FTC had lost any such scruples. Its Privacy Report, issued that year, 

is entitled ‘‘Recommendations for Businesses and Policymakers.’’ The title says it 

all: The FTC directed its sweeping recommendations for ‘‘privacy by design’’ to both 

the companies it regulates and the elected representatives the FTC supposedly 

serves: 

The final privacy framework is intended to articulate best practices for companies that collect and use consumer data. These best practices can be useful to 

companies as they develop and maintain processes and systems to 

operationalize privacy and data security practices within their businesses. The 

134 

148Protecting Consumer Privacy in an Era of Rapid Change, supra note 136, at iii. 149 Id. at vii. 150PEER-TO-PEER FILE-SHARING TECHNOLOGY, supra note 145, at 12. 151PROTECTING CONSUMER PRIVACY IN AN ERA OF RAPID CHANGE, supra note 136, at C–5. 152Dissenting Statement of Commissioner Joshua D. Wright, Issuance of The Internet of 

Things: Privacy and Security in a Connected World Staff Report (Jan. 27, 2015) (emphasis 

added), available at https://www.ftc.gov/system/files/documents/public_statements/620701/ 

150127iotjdwstmt.pdf. 

final privacy framework contained in this report is also intended to assist Congress as it considers privacy legislation.148

Of course, the FTC added: 

To the extent the framework goes beyond existing legal requirements, the 

framework is not intended to serve as a template for law enforcement actions 

or regulations under laws currently enforced by the FTC.149

Also noteworthy is the contrast between the two reports in their analytical rigor. 

The file sharing report noted: 

The workshop panelists and public comments did not provide a sufficient basis 

to conclude whether the degree of risk associated with P2P file-sharing programs is greater than, equal to, or less than the degree of risk when using other 

Internet technologies.150

The 2012 report shows no such modesty, as Commissioner Rosch lamented in his 

dissent (‘‘There does not appear to be any such limiting principle applicable to many 

of the recommendations of the Report.’’).151

In 2015, Commissioner Wright expressed dismay at this same problem in his dissent from the staff report on the Internet of Things Workshop: 

I dissent from the Commission’s decision to authorize the publication of staff’s 

report on its Internet of Things workshop (‘‘Workshop Report’’) because the 

Workshop Report includes a lengthy discussion of industry best practices and 

recommendations for broad-based privacy legislation without analytical support 

to establish the likelihood that those practices and recommendations, if adopted, 

would improve consumer welfare.. . . 

First . . ., merely holding a workshop—without more—should rarely be the sole 

or even the primary basis for setting forth specific best practices or legislative 

recommendations. . . . 

Second, the Commission and our staff must actually engage in a rigorous costbenefit analysis prior to disseminating best practices or legislative recommendations, given the real world consequences for the consumers we are obligated to 

protect. . . . 

The most significant drawback of the concepts of ‘‘security by design’’ and other 

privacy-related catchphrases is that they do not appear to contain any meaningful analytical content.. . .. An economic and evidence-based approach sensitive 

to [ ] tradeoffs is much more likely to result in consumer-welfare enhancing 

consumer protection regulation. To the extent concepts such as security by design or data minimization are endorsed at any cost—or without regard to 

whether the marginal cost of a particular decision exceeds its marginal benefits—then application of these principles will result in greater compliance costs 

without countervailing benefit. Such costs will be passed on to consumers in the 

form of higher prices or less useful products, as well as potentially deter competition and innovation among firms participating in the Internet of Things.152

The point illustrated by comparing these examples is the difficulty inherent in 

trying to require greater rigor from the FTC in recommendations to businesses 

when those recommendations can be either high level and commonsensical (as in 

2005) or sweeping and effectively regulatory (as in 2012 and 2015). Thus, we recommend the following simple amendment to the proposed bill: 

[The FTC] shall not submit any proposed industry best practices, industry guidance or recommendations for legislative or regulatory action without [analysis]. . . . 

This wording would not apply to the kind of ‘‘recommendation’’ that the FTC 

made occasionally before 2009, as exemplified by the 2005 report. In any event, the 

bill’s requirement is easily satisfied: essentially the FTC need only give the Bureau 

of Economics a role in drafting the report. Because this recommendation would not 

135 

153 15 U.S.C. § 46(f) 154Geoffrey A. Manne, Humility, Institutional Constraints and Economic Rigor: Limiting the 

FTC’s Discretion, ICLE White Paper 2014–1 (Feb. 28, 2014) at 4, available at http://docs 

.house.gov/meetings/IF/IF17/20140228/101812/HHRG-113-IF17-Wstate-ManneG-20140228- 

SD002.pdf. 

hamstring the FTC’s enforcement actions, nor tie the FTC up in court, it should not 

be controversial, even if applied to proposed industry best practices and guidance. 

Our proposed amendment would be simpler than attempting to broaden the definition of ‘‘regulatory action’’ beyond just rulemakings (which is how the FTC would 

likely limit its interpretation of the bill as drafted now) to include the kind of ‘‘regulatory action’’ that matters most: its use of reports to indicate how it will regulate 

through case by case enforcement, i.e., its ‘‘common law of consent decrees.’’ 

Recommendation: Clarify the Bill’s Language to Ensure It Applies to All FTC 

Reports 

Another important difference between the 2000 and 2012 privacy reports is that 

the 2000 report is labelled ‘‘A Report to Congress,’’ while the 2012 report is not and, 

indeed, barely mentions Congress. This reflects a little-noticed aspect of the way 

Section 6(f) is currently written, with subsection numbers added for clarity: 

(f) Publication of information; reports 

To [i] make public from time to time such portions of the information obtained 

by it hereunder as are in the public interest; and to [ii] make annual and special reports to the Congress and to submit therewith recommendations for additional legislation; and to [iii] provide for the publication of its reports and decisions in such form and manner as may be best adapted for public information 

and use.153

In other words, the Commission has shifted from relying upon 6(f)(ii) to 6(f)(i) and 

(iii). This distinction may seem unimportant, but it may cause the bill as drafted 

to be rendered meaningless, because the way it is worded could be read to apply 

only to 6(f)(ii). The bill would amend the existing proviso in Section 6(f) as follows: 

Provided [t]hat the Commission shall not submit any recommendations for legislative or regulatory action without an economic analysis by the Bureau of Economics. . . 

The use of the words ‘‘submit’’ and ‘‘recommendations’’ clearly tie this proviso to 

6(f)(ii). Thus, the FTC could claim that it need not include the analysis required by 

the bill unless it is specifically submitting recommendations to Congress, which it 

simply does not do anymore. 

Instead we propose the following slight tweak to the bill’s wording, to ensure that 

it would apply to the entirety of Section 6(f): 

Provided [t]hat the Commission shall not make any recommendations for legislative or regulatory action without an economic analysis by the Bureau of Economics. . . 

This would require the participation of the Bureau of Economics in all FTC reports (that make qualifying recommendations), whatever their form. It would also 

require BE’s participation in at least two other contexts where such recommendations are likely to be made: (i) Congressional testimony and (ii) the competition advocacy filings the Commission makes with state and local regulatory and legislative 

bodies, and with other Federal regulatory agencies. This is a feature, not a bug: participation by BE is not something to be minimized; it should be woven into the fabric of all of the FTC’s activities. As we have noted previously: 

The most important, most welfare-enhancing reform the FTC could undertake 

is to better incorporate sound economic- and evidence-based analysis in both its 

substantive decisions as well as in its process. While the FTC has a strong tradition of economics in its antitrust decision-making, its record in using economics in other areas is mixed.154

Because the bill does not in any way create a cause of action against the FTC 

for failing to comply with the requirement, it will not hamstring the FTC if the 

agency fails to take the bill’s requirements seriously. That, if anything, is a weakness of the bill, but it is largely inevitable. It will always be up to the discretion 

of the Commission itself (subject, of course, to congressional oversight) to decide how 

much ‘‘economic analysis’’ is ‘‘sufficient’’ under the bill. 

136 

155See Issuance of The Internet of Things: Privacy and Security in a Connected World Staff 

Report, supra note 152, at 4. 156See infra note 87. 

Recommendation: Require a Supermajority of Commissioners to Decide What 

Analysis is ‘‘Sufficient’’ 

As written, the bill might do little more than shame the Chairman into involving 

the Bureau of Economics somewhat more in the writing of reports and the workshops that lead to them—if only because the bill might embolden a single Commissioner to object to the FTC’s lack of analysis, as Commissioner Wright objected to 

the FTC’s Internet of Things report.155 This change in incentives for the Chairman 

and other commissioners, alone, may not significantly improve the analytical quality 

of the FTC’s reports, given the hostility of the Bureau of Consumer Protection to 

economic analysis, although having any involvement by BE would certainly be an 

improvement. 

Again, the question of ‘‘sufficiency’’ is inherently something that will be left to the 

Commission’s discretion, but there is no principled reason that it has to be resolved 

through simple majority votes. On the other hand, giving a single Commissioner the 

right to veto an FTC ‘‘recommendation’’ as lacking a ‘‘sufficient’’ analytical basis 

might go too far. 

We recommend striking a balance by requiring a supermajority (majority plus 

one, except in the case of a three-member Commission) of Commissioners to approve 

of the sufficiency of the analysis—essentially that this vote be taken, or at least recorded, separately from the vote on the issuance of the report itself. (The ‘‘sufficiency’’ vote would not stop the FTC from issuing a report.) At the same time, we 

recommend that the outcome of the ‘‘sufficiency’’ vote be disclosed on the first page 

of all reports or other documents containing recommendations. 

Such a mechanism would effectively expand the set of options for which Commissioners could vote, enabling them to express subtler degrees of preference without 

constraining them, as now, into making the binary choice between approving or rejecting a recommendation in toto. In other words, while the cost of expressing disapproval today, in the form of a dissent from a report, may be too high in some 

cases (especially for Commissioners in the majority party), the cost of expressing 

disapproval for the sufficiency of analysis without vetoing an entire report would be 

much lower. Allowing such a vote, and publishing its results, would offer important 

information to the public. It would also increase the leverage of commissioners most 

concerned with ensuring that FTC recommendations are supported by sufficient 

rigor to influence the content and conclusions of FTC reports and similar documents. 

In cases where the three-member majority feels the two-member minority’s objections to analytical rigor are merely a pretense for objections to the recommendations 

themselves, the bill as we envision it would do nothing to stop the majority from 

issuing its recommendations anyway, of course; the ‘‘sufficiency’’ vote in this sense 

may sometimes be merely an expression of preference. Nonetheless, the majority 

Commissioners would likely be compelled to do more to explain why they believe 

the analysis included in support of a recommendation is sufficient, and why the minority is conflating its own policy views with the question of analytical sufficiency. 

These would also be valuable additions to the public’s understanding of the basis 

for Commission recommendations 

The virtue of our proposed approach is that it would further lower the bar for the 

Commission to do something it ought to do anyway: involve the Bureau of Economics in its decision-making. 

Recommendation: Codify Congress’s Commitment to Competition Advocacy 

As we propose amending the RECS Act, consistent with the spirit with which we 

believe the bill is intended, BE would also have to be involved in any competition 

advocacy filings made by the FTC. Again, we believe this is all for the good. But 

it might, on the margin, discourage the FTC from issuing such filings in the first 

place—something we believe the FTC already does not do enough of. Thus, as discussed below, we recommend that Congress do more to encourage competition advocacy filings by the FTC.156 At minimum, this means amending Section 6 to provide 

specific statutory authority for competition advocacy, something the FTC only 

vaguely divines from the Section today. As the text stands today, this authority is 

far from apparent, especially because the current Section 6 makes reference to ‘‘recommendations’’ only with respect to Congress in what we above refer to as Section 

6(f)(ii). 

137 

157Solidifying Habitual and Institutional Explanations of Liability and Defenses Act, 

H.R. 5118, 114th Cong. (2016) [hereinafter SHIELD Act], available at https://www.con 

gress.gov/bill/114th-congress/house-bill/5118/text. 158Standards for Safeguarding Customer Information, 16 C.F.R. § 314. 159The term Magnuson-Moss is inapt for two reasons. First, as former Chairman Muris explains, ‘‘Although within the Commission these procedures are uniformly referred to as ‘Magnuson Moss,’ in fact, the procedures are contained within Title II of the Magnuson Moss Warranty–Federal Trade Commission Improvement Act of 1975. Only Title I involved the Magnuson 

Moss Warranty Act. . .’’ Statement of Timothy J. Muris, supra note 14, at 22, n. 44. Second, 

the safeguards at issue were adopted in 1980, not 1975, when ‘‘Mag-Moss’’ was passed. 160 Complaint, In the Matter of LabMD, Inc., Docket No. 9357 at 4, available at https:// 

www.ftc.gov/sites/default/files/documents/cases/2013/08/130829labmdpart3.pdf. 161PEER-TO-PEER FILE-SHARING TECHNOLOGY, supra note 145. 162Fed. Trade, Comm’n, Peer-to-Peer File Sharing: A Guide for Business (Jan. 2010), available 

at https://www.ftc.gov/tips-advice/business-center/guidance/peer-peer-file-sharing-guide-business. 

Other Sources of Enforcement Authority (Guidelines, etc.) 

The Solidifying Habitual & Institutional Explanations of Liability & Defenses 

(SHIELD) Act 

Rep. Mike Pompeo’s (R–KS) bill (H.R. 5118) 157 clarifies what is already black letter law: agency guidelines do not create any binding legal obligations, either upon 

regulated companies or the FTC. This means the FTC can bring enforcement actions 

outside the bounds of its Unfairness and Deception Policy Statements, its Unfair 

Methods of Competition Enforcement Policy Statement, and its regulations promulgated under other statutes enforced by the Commission (e.g., the ‘‘Safeguards Rule,’’ 

promulgated under the Gramm-Leach-Bliley Act) 158 unless Congress codifies the 

Statements in the statute. The only substantively operative provision of the bill is 

section (B), which provides that: 

Compliance with any guidelines, general statement of policy, or similar guidance issued by the Commission may be used as evidence of compliance with the 

provision of law under which the guidelines, general statement of policy, or 

guidance was issued. 

This does not create a formal safe harbor; it merely allows companies targeted by 

the FTC to cite FTC’s past guidance in their defense. This should be 

uncontroversial. 

Value of the Bill: Increasing Legal Certainty and Decreasing the Coercive Regulatory 

Effect of the FTC’s Soft Law 

The bill would accomplish two primary goals. First, it would formally bar the FTC 

from doing something it has likely been doing in practice for some time: treating 

its own informal guidance as quasi-regulatory. To the extent that the Commission 

actually does so, it would effectively be circumventing the safeguards Congress imposed in 1980 upon the FTC’s Section 5 rulemaking powers by amending the FTC 

Improvement Act of 1975 (commonly called ‘‘Magnuson-Moss’’).159 But of course, for 

exactly this reason, the Commission would never admit that this is what it is doing 

when its enforcement agenda just happens to line up with its previous recommendations. 

More clear and more troubling is that, in the LabMD case, the Commission argued that the company, a small cancer testing lab, had committed an unfair trade 

practice sometime between 2006 and 2008 by failing to take ‘‘reasonable’’ measures 

to prevent the installation and operation of peer-to-peer file-sharing software on its 

network, which made patient billing information accessible to Tiversa, a company 

with specialized tools capable of scouring P2P networks for sensitive information. 

Crucial to the FTC’s Complaint was its allegation that: 

Since at least 2005, security professionals and others (including the Commission) have warned that P2P applications present a risk that users will inadvertently share files on P2P networks.160

The Commission was referring, obliquely, to its 2005 report,161 which offered this 

rather unhelpful suggestion to affected companies: 

Industry should decrease risks to consumers through technological innovation 

and development, industry self-regulation (including risk disclosures), and consumer education. 

Not until January 2010 did the FTC issue ‘‘Peer-to-Peer File Sharing: A Guide 

for Business’’ 162—about the same time, it appears, that the FTC undertook its inVerDate Nov 24 2008 07:37 Mar 18, 2019 Jkt 000000 PO 00000 Frm 00141 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\35459.TXT JACKIE
138 

163 16 C.F.R. § 314.1(b). 164Manne & Sperry, supra note 52, at 20. 165See supra note 66 and note 161. 

vestigation of LabMD. The SHIELD Act would clearly bar the FTC from pointing 

to its own past guidance as creating a legal trigger for liability. The Commission’s 

assessment of ‘‘reasonableness’’ would have to be proven through other factors; indeed, since ‘‘reasonable’’ is found nowhere in Section 5 or even in the Unfairness 

Policy Statement, the Commission would have to prove the underlying elements of 

unfairness, without shortcutting this analysis by oblique reference to its own past 

reports. 

A related concern is the Commission’s application of rules promulgated in one context, in which they have binding authority, to other contexts in which they do not. 

The most striking example of this practice is the Commission’s use of the Safeguards Rule, which ‘‘applies to the handling of customer information by all financial 

institutions over which the [FTC] has jurisdiction,’’ 163 to define unfair data security 

practices, and the remedies applied by the FTC in consent decrees, outside the financial sector. Although the Safeguards Rule has regulatory authority for financial 

institutions, its authority is no different than informal guid-ance (or recommended 

‘‘best practices’’) the Commission offers for everyone else. Nevertheless, the Commission has imposed remedies virtually identical to the Safeguards Rule in nearly every 

data security consent order into which it has entered. 

[T]he majority of the FTC’s [data security] cases, regardless of cause of action 

or facts, impose the same remedy: the set of security standards laid out in the 

FTC’s Safeguards Rule. Most notably, this is true regardless of whether the respondents were financial institutions (to which the Safeguards Rule directly applies) or not (to which the Rule has no direct application), and regardless of 

whether the claim is generally one of deception or unfairness.164

Second, the SHIELD Act would allow companies to raise their compliance with 

FTC guidance as part of their defense. This would, at a minimum, help encourage 

companies to resist settling legally questionable or analytically unsupported enforcement actions. 

Recommendation: Clarify that Consent Decrees, Reports, and FTC Best Practices are 

not Binding 

We propose expanding the bill’s language slightly to ensure that it achieves its 

intended goal: 

No guidelines, general statements of policy, consent decrees, settlements, reports, 

recommended best practices, or similar guidance issued by the Commission shall 

confer any right. 

As should be clear by now, these other forms of soft law are the most important 

aspects of the FTC’s discretionary model, especially given the paucity of policy statements (building upon the three major ones, such as on materiality, for example) or 

issue-specific ‘‘Guides.’’ 

Specifically, the Commission regularly applies its recommended best practices 

(grouped under catchphrases like ‘‘privacy by design’’ and ‘‘security by design’’) as 

mandatory company-specific regulations in consent decrees that are themselves applied, in cookie-cutter fashion, across enforcement actions brought against companies that differ greatly in their circumstances, and regardless of the nature or extent of the injury or the specific facts of their case. 

Second, the LabMD case provides at least one clear example wherein the FTC has 

treated its own previous reports, making vague recommendations about the need for 

better industry data security practices (regarding peer-to-peer file-sharing), as a 

critical part of the trigger for legal liability.165 We suspect this is the tip of the iceberg—that the FTC in fact does this kind of thing quite often, but usually does not 

have to admit it, because it is able to settle cases without revealing its legal arguments. Only in the LabMD case (one of the first (of two) data security cases to be 

litigated after more than a decade of FTC consent decrees in this area) did the Commission have to make the connection between its previous ‘‘recommendations’’ and 

its application of Section 5. Even here, in its LabMD Complaint, it should be noted, 

the Commission did not specifically cite its 2005 P2P file-sharing report, but instead 

vaguely alluded to it—suggesting that even FTC staff were wary of revealing this 

connection. 

139 

166See supra at 46. 167See, e.g., Fed. Trade Comm’n, Federal Trade Commission Enforcement of the U.S.-EU and 

U.S.-Swiss Safe Harbor Frameworks (Dec. 2012), available at https://www.ftc.gov/tips-advice/ 

business-center/guidance/federal-trade-commission-enforcement-us-eu-us-swiss-safe-harbor 168Fed. Trade Comm’n, Copier Data Security: A Guide for Businesses (Nov. 2010), available 

at https://www.ftc.gov/tips-advice/business-center/guidance/copier-data-security-guide-businesses 169Peer-to-Peer File Sharing: A Guide for Business, supra note 162. 170Fed. Trade Comm’n, Mobile App Developers: Start with Security (Feb. 2013), available at 

https://www.ftc.gov/tips-advice/business-center/guidance/mobile-app-developers-start-security 171Fed. Trade Comm’n, Start with Security: A Guide for Business (Jun. 2015), available at 

https://www.ftc.gov/tips-advice/business-center/guidance/start-security-guide-business 172See supra note 12. 173See generally Beales & Muris, supra note 21. 

Recommendation: Specify When a Defendant May Raise Evidence of Its Compliance 

with FTC Guidance 

The bill does not currently specify when in the enforcement process evidence of 

compliance may be cited. It is important that a defendant be able to raise a compliance defense as early as possible. Without such an opportunity, the Commission can 

drag out an investigation that should have been terminated early, as when the subject of the investigation acted in good faith reliance upon the Commission’s own 

statements. Ideally, this would occur during motions to quash CIDs. 

Further, it would help if the FTC amended its rule on such motions, 16 C.F.R. 

§ 2.10, to specify that this defense could be raised at part of a motion to quash. And, 

as we noted above,166 it is critical that these challenges be permitted to remain confidential, as many companies may choose to avoid the risk the public exposure that 

comes with challenging CIDs. 

At a minimum, the defendant should be able to raise this defense in a way that 

is communicated to Commissioners before the Commission’s vote on whether to issue 

a complaint. 

Recommendation: Encourage the FTC to Issue More Policy Statements & Guides 

As the proposed SHIELD Act reflects, while there is some risk of ossification from 

over-reliance on ex ante guidelines and policy statements, the absence of such guidance documents can leave consumers and economic actors with insufficient notice 

of FTC enforcement principles and practices. Absent meaningful constraints on the 

Commission’s discretionary authority, the costs of over-enforcement may be as great 

or greater than the costs of over-regulation. For these reasons, the bill should require the FTC to issue substantive guidelines, allow private parties to petition the 

FTC to issue guidelines, or allow a single Commissioner to force the issue. 

A good place to start would be privacy regulation, where the Commission has 

issued no meaningful guides.167 The Commission has done better on data security, 

with guides, for example, on photocopier data security (2010),168 P2P software 

(2010),169 and mobile app security (2013).170 But none of these, and even the particularly thorough ‘‘Start with Security: A Guide for Business’’ (2015),171 does the 

kind of thing the various antitrust guidelines do: expand upon the analytical framework by which the Commission determines how much security is enough. This must 

be grounded in the component elements of Section 5, not the Commission’s policy 

agenda or technical expertise. 

More important than issue-specific guides would be guidance one step up the Doctrinal Pyramid, explaining how concepts like materiality, weighing injury with benefits, and measuring reasonable avoidability will be measured.172 Such a document 

would greatly enhance the value of issue-specific guides by allowing regulated companies to understand not just what the Commission might demand in the future, 

but the doctrinal legal basis for doing so. 

Remedies 

Appropriate Tailoring of Remedies 

No Bill Proposed 

The FTC has, perhaps predictably, also pushed the envelope with regard to the 

sorts of remedies it seeks against a broader category of targets. Initially, the Commission was given authority to pursue permanent injunctions under Section 13(b) 

as part of its ongoing mission to curb outright fraud.173 Over time, however, the 

FTC has expanded its use of Section 13(b) in order to target companies that engage 

140 

174 Id. at 4. 175See Geoffrey A. Manne, Federal Intrusion: Too Many Apps for That, WALL STR. J. (Sep. 

16, 2014), http://www.wsj.com/articles/geoffrey-manne-federal-intrusion-too-many-apps-for-that1410908397. 176Fed. Trade Comm’n v. Amazon.com, Inc., Case No. C14–1038–JCC, slip op. at 10 (W.D. 

Wash 2016), available at https://www.ftc.gov/system/files/documents/cases/160427amazon 

order.pdf. 177 Id. at 10. 178See, e.g., Federal Trade Commission V. RCA Credit Services, LLC, Case No. 8:08–CV– 

2062–T–27AEP. (M.D. Fla. Jul 21, 2010) at 20 (‘‘Courts also have discretion to include ‘fencingin’ provisions that extend beyond the specific violations at issue in the case to prevent Defendants from engaging in similar deceptive practices in the future.’’). 179 15 U.S.C. § 57(b)-(a)(2) and -(b). 180 Beales & Muris, supra note 21, at 22. 181 Id. at 4 (‘‘The FTC now threatens to expand the use of the Section 13(b) program beyond 

fraud cases, suggesting that it may use Section 13(b) to seek consumer redress even against legitimate companies.’’). 182 Alden Abbott, Time to Reform FTC Advertising Regulation, Heritage Foundation Legal 

Memorandum #140 on Regulation (Oct. 29, 2014), available at http://www.heritage.org/research/reports/2014/10/time-to-reform-ftc-advertising-regulation#_ftnref21. 183 Amazon case at 11. 184 Amazon case at 11. 

in conduct that implicates issues from substantiation claims to product design—all 

far from fraudulent territory.174

For instance, Apple, Google, and Amazon have all been targets of the Commission 

for issues related to the design and function of their respective mobile app stores.175

Amazon, one of the rare parties to proceed to full litigation on a Section 5 unfairness 

case, recently lost a summary judgment motion on a claim that its in-app purchasing system permitted children to make in-app purchases without parental ‘‘informed consent,’’ thus engaging in an ‘‘unfair practice.’’ 176 As part of its case the 

Commission sought a permanent injunction under Section 13(b) against Amazon on 

the basis of the Commission’s claim that it was ‘‘likely to continue to injure consumers, reap unjust enrichment, and harm the public interest.’’ 177

This practice, called ‘‘fencing-in,’’ 178 may be appropriate for the inveterate 

fraudsters—against whom it is authorized under Section 19 of the Act: 

If the Commission satisfies the court that the act or practice to which the cease 

and desist order relates is one which a reasonable man would have known 

under the circumstances was dishonest or fraudulent, the court may grant . . . 

such relief as the court finds necessary.179

The FTC—in the past—indeed viewed Section 13(b) as a tool to police clearly 

fraudulent practices. ‘‘Consistent with the limitations in Section 19, the agency used 

Section 13(b) for a narrow class of cases involving fraud, near fraud, or worthless 

products.’’ 180 Meanwhile, courts, for their part, ‘‘blessed this limited expansion of 

FTC authority,’’ and still see the appropriate scope of Section 13(b) as a limited one. 

But the argument for extending fencing-in beyond the fraud context is extremely 

weak. Nevertheless, the FTC has more recently, as in the Amazon case, sought to 

use 13(b) against legitimate companies, dramatically expanding its scope—and its 

in terrorem effect.181

Such broad ‘‘fencing in’’ relief (imposition of behavioral requirements that are 

more extensive than required [in order] to avoid future violations) goes well beyond prior FTC practice and may be aimed at ‘‘encouraging’’ other firms in similar industries to adopt costly new testing.182

Effectively, from the Commission’s perspective, Aman—with its app store that satisfied the needs of a huge number of consumers—was legally equivalent to ‘‘defendants engaged in continuous, fraudulent practices [who] were deemed likely to reoffend based on the ‘systemic nature’ of their misrepresentations.’’ 183 This could not 

have been what Congress intended. 

The courts, when they are presented with the opportunity to review this approach 

(as they sometimes are in Deception cases and as they virtually never are in Unfairness cases, given the lack of litigation) have been less than receptive. Although 

Amazon lost its motion for summary judgment, it prevailed on the question of 

whether Section 13(b) presented an appropriate remedy for its alleged infractions. 

While permanent injunctions are often awarded in cases where liability under 

the FTC Act is determined, Amazon correctly distinguishes those cases from the 

facts of this case . . . [C]ases in which a permanent injunction has been entered 

involved deceptive, ongoing practices.184

141 

185 Id. at 11. 186 RCA Credit case at 24. 187Fed. Trade Comm’n, FTC Withdraws Agency’s Policy Statement on Monetary Remedies in 

Competition Cases; Will Rely on Existing Law (Jul. 31, 2012), available at https://www.ftc.gov/ 

news-events/press-releases/2012/07/ftc-withdraws-agencys-policy-statement-monetary-remedies. 188Fed. Trade Comm’n, Policy Statement On Monetary Equitable Remedies—Including in Particular Disgorgement and Restitution, in FEDERAL TRADE COMMISSION COMPETITION CASES AD- DRESSING VIOLATIONS OF THE FTC ACT, THE CLAYTON ACT, OR THE HART-SCOTT-RODINO ACT

(2003), available at https://www.ftc.gov/public-statements/2003/07/policy-statement-monetaryequitable-remedies-including-particular. 189Dissenting Statement of Commissioner Maureen K. Ohlhausen, Commission’s Decision to 

Withdraw its Policy Statement on Monetary Equitable Remedies in Competition Cases (Jul. 31, 

2012), available at https://www.ftc.gov/sites/default/files/documents/public_statements/statement-commissioner-maureen-k.ohlhausen/120731ohlhausenstatement.pdf. 

The court properly noted that it was incumbent upon the Commission to ‘‘establish, with evidence, a cognizable danger of a recurring violation.’’ 185

Similarly, in FTC v. RCA Credit (a Deception case), the court rejected the FTC’s 

use of 13(b)—in that case, accepting the permanent injunction but questioning the 

expansion of its scope: 

The undisputed facts demonstrate that this is a proper case for permanent injunctive relief. However, the Court will defer ruling on the appropriate scope 

of an injunction (including whether, as the FTC requests, the injunction should 

include a broad fencing-in provision enjoining misrepresentations of material 

fact in connection with the sale of any goods and services) until after hearing 

evidence on the issue.186

The reluctance of some courts to abet the FTC’s expansion of its use of fencingin remedies to reach legitimate companies is reassuring—and affirms our belief as 

to what Congress intended in Section 13(b). Unfortunately, however, most parties 

do not proceed to ruinously expensive litigation with the Commission, and will accede to the demands of a consent order. This creates undue costs of both the first 

order (companies agreeing to remedies that are larger or more invasive than what 

a court would impose) and the second order (the systemic cost of companies settling 

cases they might otherwise litigate, all regulated entities losing the benefit of litigation, and the FTC having to do less rigorous analysis). 

The FTC’s ability to threaten a permanent injunction, or to dramatically extend 

its scope beyond the practices at issue in a case, gives parties an inefficiently large 

incentive to settle in order to avoid the risk of the more draconian remedy. But, in 

doing so, parties end up opting in to consent orders that allow the FTC to evade 

any judicially enforced limits on the remedies it imposes, which is what the Commission really wants. Whatever the benefits to the agency from permanent injunctions, it arguably receives even more benefit from the ability to impose more detailed behavioral remedies than a court might permit (and to do so in the context 

of a consent order, the violation of which is subject to the lower burden of proving 

contempt rather than an initial violation). 

The Commission’s general resistance to constraints upon its remedial discretion 

was aptly illustrated by its abrupt revocation, in 2012,187 of its 2003 Policy Statement On Monetary Equitable Remedies in Competition Cases (commonly called the 

Disgorgement Policy Statement).188 As Commissioner Ohlhausen noted in her dissent from the withdrawal of the policy: 

Rescinding the bipartisan Policy Statement signals that the Commission will be 

seeking disgorgement in circumstances in which the three-part test heretofore 

utilized under the Statement is not met, such as where the alleged antitrust 

violation is not clear or where other remedies would be sufficient to address the 

violation.189

Not only does this mean that parties in general are more likely to settle, but it 

also means that parties that are facing novel, untested antitrust theories are more 

likely to settle. This allows the Commission to expand its antitrust enforcement authority beyond judicially recognized conduct without risk of reversal by the courts. 

Section 13(b) and the Commission’s disgorgement powers represent tremendous 

weapons to wield over the heads of investigative targets. Their expanding use to impose expansive or draconian remedies in cases involving non-fraudulent, legitimate 

companies and questionable legal theories is extremely troubling. Not only is this 

bad policy, it is also inconsistent with the spirit of the FTC Act, which was designed 

to find and punish actively fraudulent conduct, and to deter anticompetitive behavior that is not countervailed by pro-consumer benefits. But most of all, this gives 

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190 Beales & Muris, Striking the Proper Balance, supra note 21, at 6. 190 15 U.S.C. § 57(b)-(a)(2) and -(b). 190 Beales & Muris, Striking the Proper Balance, supra note 21, at 6–7. 191Fed. Trade Comm’n, FTC Alleges Amazon Unlawfully Billed Parents for Millions of Dollars 

in Children’s Unauthorized In-App Charges (Jul. 10, 2014), available at https://www.ftc.gov/ 

news-events/press-releases/2014/07/ftc-alleges-amazon-unlawfully-billed-parents-millions-dollars; In the Matter of Apple Inc., FTC File No 112 3108, https://www.ftc.gov/enforcement/casesproceedings/112-3108/apple-inc (2014); Fed. Trade Comm’n, Google to Refund Consumers at 

Least $19 Million to Settle FTC Complaint It Unlawfully Billed Parents for Children’s Unauthorized In-App Charges (Sept. 4, 2014), available at https://www.ftc.gov/news-events/press-releases/2014/09/google-refund-consumers-least-19-million-settle-ftc-complaint-it. 192Dissenting Statement of Commissioner Joshua D. Wright, In the Matter of Apple, Inc., 

FTC File No. 1123108, at 3 (Jan. 15, 2014), available at https://goo.gl/0RCC9E. 193Fanning v. Fed. Trade Comm’n, FTC File No. 15–1520, slip op. at 13 (May 9, 2016), available at https://www.ftc.gov/system/files/documents/cases/051816jerkopinion.pdf. 

ments, pushing us further away from the Evolutionary Model and towards the Discretionary Model. 

To correct these problems, at least two things should be done: 

Recommendation: Limit Injunctions to the ‘‘Proper Cases’’ Intended by Congress 

First, the Commission’s use of Section 13(b) remedies should be reevaluated in 

light of the law’s original purpose: 

[O]ne class of cases clearly improper for awarding redress under Section 13(b): 

traditional substantiation cases, which typically involve established businesses 

selling products with substantial value beyond the claims at issue and disputes 

over scientific details with well-regarded experts on both sides of the issue. In 

such cases, the defendant would not have known ex ante that its conduct was 

‘‘dishonest or fraudulent.’’ Limiting the availability of consumer redress under 

Section 13(b) to cases consistent with the Section 19 standard strikes the balance Congress thought necessary and ensures that the FTC’s actions benefit 

those that it is their mission to protect: the general public.190

This same logic applies to a host of other types of cases, as well, including the 

Commission’s recent product design cases.191 Thus the tailoring of the Commission’s 

Section 13(b) powers should not stop merely with substantiation cases, but should 

extend, as a general principle, to any party that had not intentionally or recklessly 

engaged in conduct it should have known was dishonest or fraudulent. As Josh 

Wright noted in his dissent in the Apple prod-uct design case: 

The economic consequences of the allegedly unfair act or practice in this case— 

a product design decision that benefits some consumers and harms others—also differ significantly from those in the Commission’s previous unfairness cases. 

The Commission commonly brings unfairness cases alleging failure to obtain express informed consent. These cases invariably involve conduct where the defendant has intentionally obscured the fact that consumers would be billed. 

Many of these cases involve unauthorized billing or cramming—the outright 

fraudulent use of payment information. Other cases involve conduct just shy of 

complete fraud—the consumer may have agreed to one transaction but the defendant charges the consumer for additional, improperly disclosed items. Under 

this scenario, the allegedly unfair act or practice injures consumers and does 

not provide economic value to consumers or competition. In such cases, the requirement to provide adequate disclosure itself does not cause significant harmful effects and can be satisfied at low cost. 

However, the particular facts of this case differ in several respects from the 

above scenario.192

The same logic that undergirds former Commissioner Wright’s objection to the 

majority’s aggressive application of the UPS in Apple applies equally to the aggressive 13(b) remedies sought in similar cases. 

Recommendation: Narrow Overly Broad ‘‘Fencing-in’’ Remedies 

Similarly, the imposition of unreasonable behavioral demands—‘‘fencing-in’’ of 

conduct beyond that at issue in the case—upon parties subject to FTC enforcement 

is problematic. 

For instance, in Fanning v. FTC, the Commission imposed upon defendant John 

Fanning a requirement that the First Circuit characterized as ‘‘not reasonably related to [the alleged] violation.’’ 193 In 2009, Fanning founded jerk.com, a social networking website that controversially enabled users to nominate certain persons to 

143 

194 Id. at 2–3. 195 Id. at 21–22. 196 Id. at 22. 197Final Order, Fanning v. Fed. Trade Comm’n, FTC File No. 15–1520 (March 13, 2015), 

available at https://www.ftc.gov/system/files/documents/cases/150325jerkorder.pdf 198 Id. at 23–24. 199 Id. at 24. 200See infra at 76. 201 Id. at 2. 

be ‘‘jerks.’’ 194 In issuing a variety of challenges to jerk.com’s business practices— 

including an alleged failure of the site to facilitate paid customers’ removal of negative information—the Commission additionally applied a ‘‘compliance monitoring’’ 

provision aimed directly at Fanning.195 This provision required that Fanning ‘‘notify 

the Commission of . . . his affiliation with any new business or employment,’’ and 

submit information including the new business’s ‘‘address and telephone number 

and a description of the nature of the business’’ for a period of ten years.196 Under 

the Commission’s cease and desist order, it did not matter whether Fanning engaged in reputation work, or started social media sites, or not—the requirement applied regardless of what type of work Fanning did and for whom he did it.197

The First Circuit rebuked the Commission on this point: 

When asked at oral argument, the Commission conceded that this provision 

would ostensibly require Fanning to report if he was a waiter at a restaurant. 

The only explanation offered by the Commission for this breadth is that it has 

traditionally required such reporting.198

Moreover, the Commission cited a string of district court cases upholding similar 

provisions which the court characterized as ‘‘almost entirely bereft of analysis that 

might explain the rationale for such a requirement.’’ 199 While it is encouraging that 

the First Circuit saw fit to rein in the Commission, it is also apparent that the FTC 

frequently receives an extraordinary degree of deference from district courts, even 

when creating punitive provisions that bear little or no connection to challenged 

subject matter. 

In order to deter the Commission from taking advantage of this frequent judicial 

deference by imposing such disconnected ‘‘fencing-in’’ remedies in non-fraud cases— 

which, of course, is compounded by the fact that most cases are never reviewed by 

courts at all—Congress should consider imposing some sort of minimal requirement 

that provisions in proposed orders and consent decrees be (i) reasonably related to 

challenged behavior, and (ii) no more onerous than necessary to correct or prevent 

the challenged violation. 

This reform is also important to minimizing the daisy-chaining of consent decrees 

discussed in the next Section.200 As we note there, the ability of the Commission 

to bring a second enforcement action not premised on Section 5, but rather on the 

terms of a consent decree that is vaguely related to the challenged conduct creates 

several problems. The Commission’s ability to do this is magnified if the initial consent order already contains provisions that reach a broad range of conduct or that 

include a host of difficult conduct remedies that the company may even inadvertently violate. 

Recommendation: Revive the 2003 Disgorgement Policy 

Second, Congress should consider requiring the Commission to return to its previous disgorgement policy, or to propose targeted amendments to it. At a minimum, 

the Commission should be required to perform some process to examine the issue 

and take public comment on it. As Commissioner Ohlhausen noted in her dissent, 

objecting to the vote to rescind the Policy Statement: 

I am troubled by the seeming lack of deliberation that has accompanied the 

withdrawal of the Policy Statement. Notably, the Commission sought public 

comment on a draft of the Policy Statement before it was adopted. That public 

comment process was not pursued in connection with the withdrawal of the 

statement. I believe there should have been more internal deliberation and likely public input before the Commission withdrew a policy statement that appears 

to have served this agency well over the past nine years.201

144 

202The Technological Innovation through Modernizing Enforcement Act, H.R. 5118, 114th 

Cong. (2016) [hereinafter TIME Act], available at https://www.congress.gov/bill/114th-congress/house-bill/5093/text. 203Fed. Trade Comm’n, FTC Charges Deceptive Privacy Practices in Googles Rollout of Its 

Buzz Social Network (Mar. 30, 2011), available at https://www.ftc.gov/news-events/press-releases/2011/03/ftc-charges-deceptive-privacy-practices-googles-rollout-its-buzz. 204Fed. Trade Comm’n, Google Will Pay $22.5 Million to Settle FTC Charges it Misrepresented 

Privacy Assurances to Users of Apple’s Safari Internet Browser (Aug. 9, 2012) available at 

https://www.ftc.gov/news-events/press-releases/2012/08/google-will-pay-225-million-settle-ftccharges-it-misrepresented. 205 Id. 206See, e.g., FTC’s Google Settlement a Pyrrhic Victory for Privacy and the Rule of Law, International Center for Law & Economics (Aug. 9, 2012), available at http://www.lawecon 

center.org/component/content/article/84-ftcs-google-settlement-a-pyrrhic-victory-for-privacy-andthe-rule-of-law.html. 

Consent Decree Duration & Scope 

The Technological Innovation through Modernizing Enforcement (TIME) Act 

Subcommittee Chairman Rep. Michael C. Burgess, M.D.’s (R–TX) bill 

(H.R. 5093) 202 would, in non-fraud cases, limit FTC consent orders to eight years— 

instead of the 20 years the FTC usually imposes. If the term runs five years or 

more, the FTC must reassess the de-cree after five years under the same factors 

required for setting the length of the consent decree from the outset: 

1. The impact of technological progress on the continuing relevance of the consent 

order. 

2. Whether there is reason to believe that the entity would engage in activities 

that violate this section without the consent order 8 years after the consent 

order is entered into by the Commission. 

Shortening the length of consent decrees will do much to address the abuse of consent decrees, but it will not fix the underlying problems, as we discuss below. 

Value of the Bill: Reducing the Abuse of Consent Decrees as De Facto Regulations 

This reform is critical to reducing the FTC’s use of consent decrees as effectively 

regulatory tools. It is entire commonplace for the FTC to impose the same twentyyear consent decree term and the same conditions (drawn from its quasi-regulatory 

reports) on every company, regardless of the facts of the case, the size of the company etc. Limiting the duration of consent decrees would not entirely stop abuse of 

consent decrees as a way to circumvent Section 5 rulemaking safeguards (because 

each consent decree is effectively a mini-rulemaking, which implements the FTC’s 

pre-determined policy agenda), but it would at least limit the damage, and clear 

overly broad consent decrees more quickly. 

The bill would also make it less likely that the FTC could daisy-chain additional 

enforcement actions—that is, bring a second enforcement action not premised on 

Section 5 (and therefore not even paying lip service to its requirements) but on the 

terms of a consent decree that is only vaguely related to the subsequent conduct. 

Such daisy-chaining has allowed enormous leverage in forcing settlements, since the 

FTC Act gives the Commission civil penalty authority only for violations of consent 

decrees (and rules), not Section 5 itself. Thus, the FTC gains the sledgehammer of 

potentially substantial monetary fines the second time around. It also allows the 

FTC to further extend the term of the consent decree beyond the initial 20 years— 

and potentially keep a company operating under a consent decree forever. 

This is essentially what the FTC did to Google. First, in 2011, the FTC and 

Google settled charges that Google had committed an unfair trade practice in 2010 

in by opting Gmail users into certain features of its new (and later discontinued) 

Buzz social network.203 A year later, the FTC imposed a $22.5 million penalty 

against Google in settling charges that Google had violated the 2011 consent decree 

by misleading consumers by, essentially, failing to update an online help page that 

told users of Apple’s Safari browser that they did not need to take further action 

to avoid being tracked, after a technical change made by Apple had rendered this 

statement untrue.204 The FTC’s Press Release boasted ‘‘Privacy Settlement is the 

Largest FTC Penalty Ever for Violation of a Commission Order.’’ 205 The case raised 

major questions about the way the FTC understood its deception authority,206 none 

of which were dismissed because (a) Google, already being under the FTC’s thumb 

and facing a potentially even-larger monetary penalty, was eager to settle the case, 

and (b) the FTC technically did not have to prove the normal elements of deception, 

such as the materiality of a help page seen by a tiny number of users, because it 

was enforcing the consent decree, not Section 5. 

145 

207Manne & Sperry, supra note 52, at 13. 208Start Taking Action on Lingering Liabilities Act, H.R. 5097, 114th Cong. (2016) [hereinafter STALL Act], available at https://www.congress.gov/bill/114th-congress/house-bill/5097/ 

text. 209Fed. Trade Comm’n, Operating Manual: Chapter 3: Investigations, 46 (last visited May 20, 

2016), available at https://www.ftc.gov/sites/default/files/attachments/ftc-administrative-staffmanuals/ch03investigations_0.pdf (providing, in .3.7.4.5, that ‘‘[i]n investigations which have 

been approved by Bureau Directors, closing letters are ordinarily sent to both the applicant and 

the proposed respondent, with copies to their attorneys, if any[,]’’ but not requiring such letters 

in any case). 210See, e.g., Deborah S. Birnbach, Do You Have to Disclose a Government Investigation?, supra 

note 99. 

Perhaps most disconcertingly, the Commission’s 2012 action against Google had 

precious little to do with the conduct that gave rise to its 2011 consent order. To 

be sure, the 2011 order was written in the broadest possible terms, arguably covering nearly every conceivable aspect of Google’s business. But this just underscores 

the regulation-like nature of the Commission’s consent orders, as well as the FTC’s 

propensity to treat cases with dissimilar facts and dissimilar circumstances essentially the same. While that kind of result might be expected of a regulatory regime, 

it is inconsistent with the idea of case-by-case adjudication, which also puts paid to 

the idea that of a ‘‘common law of data security consent decrees’’: 

In this sense the FTC’s data security settlements aren’t an evolving common 

law—they are a static statement of ‘‘reasonable’’ practices, repeated about 55 

times over the years and applied to a wide enough array of circumstances that 

it is reasonable to assume that they apply to all circumstances. This is consistency. But it isn’t the common law. The common law requires consistency of application—a consistent theory of liability, which, given different circumstances, 

means inconsistent results. Instead, here we have consistent results which, 

given inconsistent facts, means [ ] inconsistency of application.207

Recommendation: Allow Petitions for Appeal of Mooted Consent Decrees 

Noticeably not addressed by this bill is the situation in which the FTC has found 

a company in violation of Section 5 for some practice (and imposed a consent decree 

for the violation), then lost in court on essentially the same doctrinal point. At a 

minimum, part of the reassessment of any consent decree should include assessing 

whether court decisions have called into question whether the original allegation actually violated Section 5. Ideally, the bill should also include a procedure by which 

the company subject to a consent decree could petition for review of its consent decree on these grounds. 

Such an amendment should not be controversial, given that the FTC so rarely (if 

ever) litigates its consumer protection cases. 

Other Process Issues 

Open Investigations 

The Start Taking Action on Lingering Liabilities (STALL) Act 

Rep. Susan Brooks’ (R–IN) bill (H.R. 5097)208 would automatically terminate investigations six months after the last communication from the FTC. Commission 

staff can keep an investigation alive either by sending a new communication to the 

target or the Commissioners can vote to keep the investigation open (without alerting the target). Current FTC rules allow the staff to inform targets that their investigation has ended, but does not require them to do so.209

Value of the Bill: Good Housekeeping, Reduces In Terrorem Effects of Lingering Investigations 

This should be among the least controversial of the pending bills. It is simply a 

good house-keeping measure, ensuring that companies will not be left hanging in 

limbo after initial investigation-related communications from the FTC. 

Closing open investigations could have several benefits. 

First, in some circumstances, publicly traded companies may conclude that they 

are required to disclose the FTC’s inquiry in their SEC filings.210 That, in turn, can 

spark a media frenzy that could be as damaging to the company as whatever terms 

the FTC might impose in a consent decree—or at least seem to be less costly to 

managers who are more incentivized to care about the immediate performance of 

the company than the hassle of being subject to an FTC consent decree for the next 

146 

211 Notably, this also includes the potential for the FTC to bring additional enforcement actions premised on violating the terms of the consent decree, however attenuated the subsequent 

enforcement action might be, which is even easier than bringing an enforcement action premised 

directly on Section 5 (in that the FTC need not even purport to satisfy the requirements of Section 5). See e.g., United States v. Google, Inc., Case 5:12-cv-04177-HRL (N.D.Ca. 2012), available 

at https://www.ftc.gov/news-events/press-releases/2012/08/google-will-pay-225-million-settleftc-charges-it-misrepresented. 212 UPS, supra note 9. 213Operating Manual at 9, § 3.2.1.1. 

20 years.211 Making such disclosures can be particularly problematic if management 

intends to shop the company around for acquisition. 

Presumably, a company that feels compelled to disclose an investigation in an 

SEC filling would, today, eventually feel justified in modifying the disclosure to indicate its belief that the investigation has concluded, given a long enough period of 

silence from the Commission. But this could take years, during which time the ‘‘lingering liability’’ could continue to damage the company. The bill (if it includes our 

proposed amendment, below) would give companies a clear indication whether or 

not they can modify their quarterly disclosures and inform shareholders and the 

general public that an investigation has concluded. 

Second, giving subject companies repose after six months of silence from the FTC 

would allow management to focus on running their businesses. This could be especially critical for small companies. 

Third, giving companies greater certainty in this way would reduce the leverage 

that staff may have to coerce companies into settling cases that might otherwise not 

be brought at all, or that companies might litigate. That means, in the first instance, moving closer to the optimal number of cases settled and, in the second instance, increasing the potential for litigation where it is warranted, which benefits 

everyone by allowing ‘‘the underlying criteria [of Section 5] to evolve and develop 

over time’’ through ‘‘judicial review,’’ as the Unfairness Policy Statement explicitly 

intends.212

Fourth, holding target companies in terrorem may have other indirect costs besides driving companies to settle questionable cases. The longer an investigation lingers, or the longer it could linger (before the company can safely assume it is over), 

the more likely the company is to treat the FTC’s ‘‘recommended’’ best practices as 

effectively mandatory, regulatory requirements. This regulation-by-terror is impossible to quantify, but it is a very real concern. To the extent it happens, it contributes to transforming the FTC’s ‘‘inquisitorial powers’’ into a tool by which the FTC 

may treat its workshops and reports as de facto rulemakings, thus at least partially 

circumventing the Section 5 rulemaking safeguards. 

Finally, the bill makes it harder for FTC staff to circumvent Bureau Director 

oversight—and thus avoid any possibility of alerting Commissioners. Current FTC 

rules allow an Initial Phase Investigation to be conducted for up to 100 hours of 

staff time, after which Staff must draft a memo and obtain approval from the Bureau Director to continue the investigation.213 Today, the staff may be able to shoehorn a new investigation into an old investigation for which they have already received Director approval, thus avoiding or forestalling having to seek new approval 

from the Bureau Director. One can imagine that this would be particularly appealing if the Commission’s majority—and thus also its Bureau Directors, who are appointed by the Chairman—has switched parties. This shoehorning may be very easy 

to do given the breadth of the FTC’s investigations: one inquiry about questionable 

data security could very easily morph into another, potentially years later. The proposed bill would reduce this possibility by reducing the menu of available investigations from which staff could pick and choose. In other words, it would help to draw 

lines between old investigations and new ones. While this should not be a significant burden for the Staff, it should help to ensure that other internal decisionmaking safeguards are respected. 

Recommendation: Bar Secret Votes as a Means of Evading the Bill 

As drafted, the bill would allow the Commission to take a (non-public) vote to 

keep an investigation alive without the subject receiving additional communications. 

We can think of no reason to permit the Commission to hide the existence of a continuing investigation from its subject, however. In fact, although doing so requires 

a small price (an affirmative vote of the Commission), the price is so small that it 

is reasonable to expect that the exception would subsume the rule, and permit the 

Commission to evade the overall benefits of the proposed bill. Thus, we suggest 

amending section (2)(B) of the proposed bill, which authorizes an investigation to 

continue if ‘‘the Commission votes to extend the covered investigation before the exVerDate Nov 24 2008 07:37 Mar 18, 2019 Jkt 000000 PO 00000 Frm 00150 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\35459.TXT JACKIE
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214STALL Act, supra note 208. 215The Freeing Responsible and Effective Exchanges Act, H.R. 5116, 114th Cong. (2016) 

[hereinafter FREE Act], available at https://www.congress.gov/bill/114th-congress/house-bill/ 

5116/text. 216Federal Communications Commission Process Reform Act of 2015, H.R. 2583, 114th Cong. 

(2016), available at https://www.congress.gov/bill/114th-congress/house-bill/2583/actions 217 5 U.S.C. § 552b(a)(1) & (3). 

piration of such period,’’ 214 to also require the Commission to send a communication 

to the subject informing it of the vote. This would add no appreciable cost to the 

Commission’s ability to extend an investigation, but, unlike a non-public vote, it ensures that the subject is made aware of the extension. 

This amendment would have the benefit of allowing the subject’s management to 

take true repose, knowing that an investigation had truly ended. Only then, for instance, would many managers feel comfortable revising a public securities disclosure 

about the company’s lingering potential liability. In short, this would allow companies to clear their good names and get on with the business of serving consumers. 

Commissioner Meetings 

The Freeing Responsible & Effective Exchanges (FREE) Act 

Rep. Pete Olson’s (R–TX) bill (HR 5116)215 would allow a bipartisan quorum of 

FTC Commissioners to meet confidentially under certain circumstances: no vote or 

agency action may be taken, the meeting must be FTC staff only, with a lawyer 

from the Office of General Counsel present, and the meeting must be disclosed publicly online. This would greatly empower other Commissioners by allowing them to 

meet with each other and with Commission staff—potentially without the Chairman, or without the Chairman having organized the meeting. 

The bill does essentially the same thing as the FCC Process Reform Act of 2015 

(H.R. 2583), which was so uncontroversial that it passed the House on a voice vote 

in November 2015.216 Both bills would, for the affected agency, undo an unintended 

consequence of the Government in the Sunshine Act of 1976. That well-intentioned 

effort to bring transparency to agency decision-making in the aftermath of the Watergate scandal has the had the perverse result of undermining the very purpose 

of multi-member commissions. 

Value of the Bill: Restoring the Collegiality of the FTC 

The Sunshine Act calls multi-member commissions ‘‘collegial bod[ies],’’ 217 but the 

effect of the law has been to greatly contribute to the rise of the Imperial Chairmanship, because the law not only requires that ‘‘disposing of’’ (i.e., voting on) major 

items (e.g., rulemakings or enforcement actions) be conducted in public meetings (organized by the Chairman), it also bars Commissioners from ‘‘jointly conduct[ing] 

. . . agency business’’ except under the Act’s tight rules. In effect, this makes it difficult for other Commissioners to coordinate without the Chairman. 

The bill would continue to require that any ‘‘vote or any other agency action’’ be 

taken at meetings held under the Sunshine Act. This would ensure that the FTC 

generally continues to operate in full public view and according to valid process. 

But the bill would allow Commissioners to meet privately, potentially without the 

Chairman present. 

The benefits of such meetings are self-evident. They would encourage collegiality 

and facilitate bipartisan discussions, leading to a more open and inclusive process. 

They would also provide opportunities for minority commissioners to be apprised 

earlier in the process when the Commission is considering various actions, from investigations to issuing consent decrees. 

The fact that the Energy & Commerce Committee has already vetted these reforms for the FCC, and that the full House has already voted for them as part of 

a larger FCC reform package, should make passage of this bill straightforward. 

Recommendation: Ensure that Two of Three Commissioners Can Meet 

As amended by the bill, 15 U.S.C. § 552b(d)(2)(A) would require that the group 

consist of at least three or more Commissioners. This would have the perverse result of rendering the bill useless at present, when the Commission has only three 

Commissioners—because all three would have to be present for a meeting. We recommend simply striking this subsection, so that, on a three-member commission, 

the Democrat and Republican commissioners can meet without the Chairman. 

Part III Litigation 

Numerous commentators have raised serious questions about the FTC’s use of adjudication under Part III of the FTC’s Rules. Commissioner Wright put it best in 

a 2015 speech: 

148 

218 Joshua D. Wright, Commissioner, Fed. Trade Comm’n, Remarks at the Global Antitrust Institute Invitational Moot Court Competition,16–17 (Feb. 21, 2015) (emphasis added), available 

at https://www.ftc.gov/system/files/documents/public_statements/626231/150221judginganti 

trust-1.pdf. 219Terry Calvani & Angela M. Diveley, The FTC At 100: A Modest Proposal for Change, 21 

GEO. MASON L. REV. 1169, 1178–82 (2014). 220 Id. at 1179 (quoting David A. Balto, The FTC at a Crossroads: Can It Be Both Prosecutor 

and Judge?, LEGAL BACKGROUNDER (Wash. Legal Found.) (Apr. 23, 2013), 1). 221Wash. Lgl Found., FTC’s Administrative Litigation Process: Should the Commission Be 

Both Prosecutor and Judge?, YOUTUBE (Mar. 11, 2014), http://youtu.be/a9zvyDr4a-Y, at 9:24. 222 Calvani & Diveley, supra note 219, at 1184. 223 Id. at 1185. 224 Id. at 1184. 

Perhaps the most obvious evidence of abuse of process is the fact that over the 

past two decades, the Commission has almost exclusively ruled in favor of FTC 

staff. That is, when the ALJ agrees with FTC staff in their role as Complaint 

Counsel, the Commission affirms liability essentially without fail; when the administrative law judge dares to disagree with FTC staff, the Commission almost 

universally reverses and finds liability. Justice Potter Stewart’s observation 

that the only consistency in Section 7 of the Clayton Act in the 1960s was that 

‘‘the Government always wins’’ applies with even greater force to modern FTC 

administrative adjudication. 

Occasionally, there are attempts to defend the FTC’s perfect win rate in administrative adjudication by attributing the Commission’s superior expertise at 

choosing winning cases. And don’t get me wrong—I agree the agency is pretty 

good at picking cases. But a 100 percent win rate is not pretty good; Michael 

Jordan was better than pretty good and made about 83.5 percent of his free 

throws during his career, and that was with nobody defending him. One hundred percent isn’t Michael Jordan good; it is Michael Jordan in the cartoon 

movie ‘‘Space Jam’’ dunking from half-court good. Besides being a facially implausible defense—the data also show appeals courts reverse Commission decisions at four times the rate of federal district court judges in antitrust cases 

suggests otherwise. This is difficult to square with the case-selection theory of 

the FTC’s record in administrative adjudication.218

Former FTC Chairman Terry Calvani provides an apt summary of empirical research on the FTC’s perfect win rate.219 He notes FTC practitioner David Balto’s 

study of eighteen years of FTC litigation, in which ‘‘the FTC has never found for 

the respondent and has reversed all ALJ decisions finding for the respondent.’’ 220

Balto concluded ‘‘there appears to be a lack of impartiality by the Commission that 

really undermines the credibility of the pro-cess, and I think that makes it more 

difficult for the FTC to effectively litigate tough cases and get the court of appeals 

to support [its] decisions going forward.’’ 221

We recommend that Congress consider one of two structural reforms. 

Recommendation: Separate the FTC’s Enforcement & Adjudicatory Functions 

Former Chairman Calvani proposes that 

the FTC be reorganized to separate the prosecutorial and adjudicatory functions. The former would be vested in a director of enforcement appointed by and 

serving at the pleasure of the president. Commissioners would hear the cases 

brought before the agency. This model is not alien to American administrative 

law and independent agencies. Labor complaints are evaluated and issued by 

National Labor Relations Board (‘‘NLRB’’) regional directors. Administrative 

hearings are held before ALJs, and appeals from the ALJs are vested in the 

NLRB. Similarly, the Securities and Exchange Commission’s (‘‘SEC’s’’) prosecutorial functions are vested in the Division of Enforcement while administrative 

hearings are held before ALJs and appeals are vested in the SEC. 

This change in organization would eliminate the existence or perception of unfairness associated with the same commissioners participating in both the decision to initiate a case and in its ultimate resolution. It would also make the 

decision to prosecute more transparent. One person would be responsible for the 

agency’s enforcement agenda.222

Calvani notes that this would not significantly alter the responsibility of the powers of Commissioners, since ‘‘the power of a commissioner is relatively slight. The 

only real power of a commissioner is a negative one: blocking an enforcement initiative.’’ 223 But it would ‘‘rather dramatically, [the responsibilities] of the chair.’’ 224 In 

our view, this is a bug, not a feature. 

149 

225 In the Matter of LabMD, Inc., FTC File No. 102 3099 (May 16, 2016), available at https:// 

www.ftc.gov/enforcement/cases-proceedings/102-3099/labmd-inc-matter; POM Wonderful LLC 

v. FTC, 777 F.3d 478 (D.C. Cir. 2015). 226 Joshua D. Wright, Recalibrating Section 5: A Response to the CPI Symposium, CPI ANTI- TRUST CHRONICLE, 4 (2012). 227 Elliott Karr, Essay: Independent Litigation Authority and Calls for the Views of the Solicitor General, 77 GEO. WASH. L. REV. 1080, 1090–91 (2009). 228Standard Merger and Acquisition Reviews Through Equal Rules Act of 2015, H.R. 2745, 

114th Cong. (2015), available at https://www.congress.gov/bill/114th-congress/house-bill/2745 

[hereinafter SMARTER Act]. 229 U.S. House of Rep., Final Vote Results For Roll Call 137 (Mar. 23, 2016) available at 

http://clerk.house.gov/evs/2016/roll137.xml 

Recommendation: Abolish or Limit Part III to Settlements 

More fundamentally, Congress should re-examine the continued need for Part III 

as an alternative to litigation in Federal court. There are important differences between adjudications that originate in Part III proceedings as opposed to those that 

originate in Article III proceedings. Foremost, the selection of venue is an important 

determinant of the FTC’s likelihood of success as well as the level of deference it 

will enjoy. Defendants will likewise see major differences between litigation in the 

different fora: from the range of discovery options available to the range and sort 

of materials considered by the tribunal (e.g., through amicus briefs). And, perhaps 

most important, the different venues each will create different legal norms and rules 

binding upon parties to future proceedings. 

There is also a question regarding to what extent Part III proceedings are more 

than a mere formality. On the one hand, the FTC’s Administrative Law Judge takes 

his job seriously, and has reversed the Commission in, most notably, two recent consumer protection decisions.225 However, on the other hand, the Commission always 

reverses decisions of the ALJ that find against it.226 Which leads to an important 

question: if the Commission is simply going to reverse its ALJ anyway what is the 

point of having an ALJ? 

Even the threat of Part III litigation has a significant effect in coercing defendants to settle with the FTC during the investigation stage—not merely because of 

the direct financial costs of two additional rounds of litigation (first before the ALJ 

and then before the full Commission) prior to facing an independent Article III tribunal, but also because the Part III process drags out the other, less tangible but 

potentially far greater costs to the company in reputation and lost management attention. The threat of suffering two rounds of bad press before going to Federal 

court (or at least one, if the ALJ rules for a defendant but the Commission reverses) 

may persuade some defendants who wouldn’t otherwise to settle. Thus, the current 

operation of Part III rarely, if ever, serves to actually advance the interests of a fair 

hearing on disputed issues, and is more a tool to coerce settlements. 

Congress could end this dynamic by requiring the FTC to litigate in Federal court 

while potentially still preserving Part III for the supervision of the settlement process and discovery. This is not a novel idea, nor would it be disruptive to the FTC 

as the Commission has had independent litigating authority since the 1970s.227 The 

Smarter Act (H.R. 2745) effectively abolishes Part III with respect to merger cases, 

by requiring the FTC to bring Clayton Act Section 7 cases (for preliminary injunctions to stop mergers) in Federal court under the same procedures as the Department of Justice.228 This bill passed by a vote of 230 to 170.229

Finally, those who might object that abolishing Part III would hamstring the 

agency should take comfort in the fact that the FTC uses Part III so rarely anyway. 

Abolishing Part III will not bury the FTC in an avalanche of litigation in Federal 

court. At most it would marginally increase the willingness of companies to resist 

the siren song of settlement, thus resulting in slightly more litigation (and perhaps 

also slightly more cases simply abandoned by staff, if they do not think they could 

win). But this is a trivial price to pay in comparison with the benefit of getting more 

judicial review and consistent enforcement standards and judicial standards of review. The difference between essentially no litigation and some litigation is the key 

difference between the Discretionary and Evolutionary Models. 

Recommendation: Allow Commissioners to Limit the Use Part III 

The least draconian reform would be to empower one or two Commissioners to insist that the Commission bring a particular complaint in Federal court. This would 

allow them to steer cases out of Part III either because they are doctrinally significant or because the Commissioners fear that, unless the case goes to Federal court, 

the defendant will simply settle, thus denying the entire legal system the benefits 

of litigation in building the FTC’s doctrines. In particular, it would be a way for 

Commissioners to act on the dissenting recommendations of staff, particularly the 

150 

230Dissenting Statement of Commissioner Joshua D. Wright, In the Matter of Nomi Technologies, Inc., FTC. File No. 132 3251 (Sept. 3, 2015), 2, available at https://www.ftc.gov/system/files/documents/public_statements/638371/150423nomiwrightstatement.pdf. 231See, supra, at 18. 232See infra at 18. 233 15 U.S.C. § 16(b)(1). 234The act currently provides that ‘‘Nothing in this section shall be construed to require the 

court to conduct an evidentiary hearing or to require the court to permit anyone to intervene.’’ 

15 U.S.C. § 16(b)(2). 235 Ernest Gellhorn, & William E. Kovacic, Analytical Approaches and Institutional Processes 

for Implementing Competition Policy Reforms by the Federal Trade Commission (Dec. 12, 1995), 

Bureau of Economics, about cases that are problematic from either a legal or policy 

perspective. 

Standard for Settling Cases 

No Bill Proposed 

Recommendation: Set a Standard for Settling Cases Higher than for Bringing 

Complaints 

Currently there is no standard for settling cases. The Commission simply applies 

the ‘‘reason to believe’’ standard set forth in Section 5(b)—and very often combines 

the vote as to whether to bring the complaint with the vote on whether to settle 

the matter, when the staff has already negotiated the settlement during the investigation process (because of the enormous leverage it has in this process, as we explain above). As Commissioner Wright has noted, ‘‘[w]hile the Act does not set forth 

a separate standard for accepting a consent decree, I believe that threshold should 

be at least as high as for bringing the initial complaint.’’ 230 Reform in this area is 

especially critical if Congress chooses not to enact the ‘‘preponderance of the evidence’’ standard for issuing complaints.231

While it would certainly be an improvement to adopt even a ‘‘preponderance of 

the evidence’’ standard for the approval of consent decrees (relative to the status 

quo), we believe that this should be the standard for the approval of complaints, and 

that approval of consent decrees should be even higher (although, as we emphasis 

above, the ‘‘preponderance of the evidence’’ is not a particularly high standard).232

The standard and process required by the Tunney Act for antitrust settlements 

would be a good place to begin. That act requires the FTC to file antitrust consent 

decrees with a Federal court, and requires the court make the following determination: 

Before entering any consent judgment proposed by the United States under this 

section, the court shall determine that the entry of such judgment is in the public interest. For the purpose of such determination, the court shall consider: 

(A) the competitive impact of such judgment, including termination of alleged 

violations, provisions for enforcement and modification, duration of relief 

sought, anticipated effects of alternative remedies actually considered, whether 

its terms are ambiguous, and any other competitive considerations bearing upon 

the adequacy of such judgment that the court deems necessary to a determination of whether the consent judgment is in the public interest; and 

(B) the impact of entry of such judgment upon competition in the relevant market or markets, upon the public generally and individuals alleging specific injury from the violations set forth in the complaint including consideration of the 

public benefit, if any, to be derived from a determination of the issues at 

trial.233

If anything, a standard for settlements should require more analysis than this, 

as the Tunney Act has been relatively ineffective. In particular, any approach based 

on the Tunney act should allow third parties to intervene to challenge the FTC’s 

assertions about the public interest.234 This reform could go a long way toward inspiring the agency to perform more rigorous analysis. 

Competition Advocacy 

The FTC occupies a unique position in its role as the Federal government’s competition scold. Despite the absence of direct legal authority over federal, state and 

local actors (which limits the efficacy of competition advocacy efforts), some have argued that ‘‘the commitment of significant Commission resources to advocacy is nonetheless warranted by the past contributions of competition authorities to the reevaluation of regulatory barriers to rivalry, and by the magnitude and durability of 

anticompetitive effects caused by public restraints on competition.’’ 235

151 

available at https://www.ftc.gov/system/files/documents/public_statements/418071/951212 

comppolicy.pdf. 236 James C. Cooper, Paul A. Pautler & Todd J. Zywicki, Theory and Practice of Competition 

Advocacy at the FTC at 3, available at https://www.ftc.gov/sites/default/files/documents/public_events/FTC%2090th%20Anniversary%20Symposium/040910zywicki.pdf. 

237 Id. 238 A search of the FTC’s Advocacy Filings reveals that between January 2009 and January 

2016, 115 separate documents have been filed. See Fed Trade Comm’n, Advocacy Filings available at https://www.ftc.gov/policy/advocacy/advocacy-filings. 239Fed Trade Comm’n, ‘‘Transportation’’ Advocacy Filings, available at https://www.ftc.gov/ 

policy/advocacy/advocacy-filngs?combine=&field matter number value=&field advocacy docuContinued 

The FTC performs two different, but related, kinds of ‘‘competition advocacy’’: 

1. Competition advocacy litigation: The Bureau of Competition occasionally brings 

antitrust cases against nominally public bodies that the FTC believes are ineligible for state action immunity, either because they are effectively operating 

as marketplace participants (e.g., state-run hospitals) or because state-created 

regulatory boards have been so completely coopted by private actors that they 

operate as private cartels, lacking sufficiently clear statement of legislative intent to maintain their state action immunity. 

2. Competition advocacy filings: The Office of Policy Planning files comments with 

state, local, tribal and Federal lawmakers and regulators as to the impact of 

proposed (or existing) legislation or regulation upon consumers and competition. 

In 2004, James Cooper, Paul Pautler and Todd Zywicki (all FTC veterans) provided an empirical basis for comparing the FTC’s level of activity on competition advocacy filings.236 Their analysis included this chart: 

FTC Advocacy Filings, 1980 to 2004237

Since 2009, the FTC has averaged just nineteen competition advocacy filings per 

year.238 On high-tech matters, the Commission has been particularly inactive, making just four filings on ride-sharing,239 four on direct sale of cars to consumers (i.e., 

online),240 and none on house-sharing. It has also made few other broadly tech-reVerDate Nov 24 2008 07:37 Mar 18, 2019 Jkt 000000 PO 00000 Frm 00155 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\35459.TXT JACKIE

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ment terms tid=5283&field date value%5Bmin%5D%5Bdate%5D=January%2C+2009&field date 

value%5Bmax%5D%5Bdate%5D=January%2C+2016&items per page=100. 240Fed Trade Comm’n, ‘‘Automobiles’’ Advocacy Filings, available at https://goo.gl/lq9ACP. 241Fed. Trade Comm’n, The ‘‘Sharing’’ Economy: Issues Facing Platforms, Participants, and 

Regulators (Jun. 9, 2015), available at https://www.ftc.gov/news-events/events-calendar/2015/ 

06/sharing-economy-issues-facing-platforms-participants-regulators 242 Austin, Texas, Ordinance No. 20151217–075 (2015), available at http://www.austin 

texas.gov/edims/document.cfm%3Fid=245769. 243 Jared Meyer, The Reverse of Progress. Austin’s new rules strangle Uber, Lyft—and the ridesharing economy, U.S. NEWS & WORLD REPORT (May 18, 2016), available at http:// 

www.usnews.com/opinion/articles/2016–05-18/austins-very-un-progressive-example-on-uberand-lyft. 244Fed. Trade Comm’n Workshop, Possible Anticompetitive Efforts to Restrict Competition on 

the Internet, Oct. 8–10, 2002, available at https://www.ftc.gov/news-events/events-calendar/ 

2002/10/possible-anticompetitive-efforts-restrict-competition-internet. 245FED. TRADE COMM’N, REPORT OF THE STATE ACTION TASK FORCE (2003), available at 

https://www.ftc.gov/sites/default/files/documents/advocacy_documents/report-state-actiontask-force/stateactionreport.pdf; FED. TRADE COMM’N, POSSIBLE ANTICOMPETITIVE BARRIERS TO

E-COMMERCE: WINE (2003), 3available at https://www.ftc.gov/sites/default/files/documents/advocacy_documents/ftc-staff-report-concerning-possible-anticompetitive-barriers-e-commerce-wine/ 

winereport2.pdf; FED. TRADE COMM’N, POSSIBLE BARRIERS TO E-COMMERCE: CONTACT LENSES: A REPORT FROM THE STAFF OF THE FEDERAL TRADE COMMISSION (Mar. 29, 2004), available at 

https://www.ftc.gov/sites/default/files/documents/advocacy_documents/possible-anticompetitive-barriers-e-commerce-contact-lenses-report-staff-ftc/040329clreportfinal.pdf. 246 Comment on Proposed Direct Shipment Legislation of the Federal Trade Commission to 

the Ohio State Senate (2006), available at https://www.ftc.gov/sites/default/files/documents/ 

advocacy_documents/ftc-staff-comment-honorable-eric-d.fingerhut-concerning-ohio-s.b.179-allowdirect-shipment-wine-ohio-consumers/v060010commentreohiosb179directshipmentofwine.pdf 247Letter of the Federal Trade Commission regarding Assembly bill 9560–A, Senate bills 6060– 

A and 1192 to the New York State legislature (2004), https://www.ftc.gov/sites/default/files/ 

documents/advocacy_documents/ftc-staff-comment-honorable-william-magee-et-al.concerningnew-york.b.9560-s.b.606-and-s.b.1192-allow-out-state-vendors-ship-wine-directly-new-york-consumers/v040012.pdf 248Prepared Statement of Todd Zywicki, Fed. Trade Comm’n, before the Subcommittee on 

Commerce, Trade, and Consumer Protection, Committee on Energy and Commerce United 

States House of Representatives (Oct. 13, 2003), available at https://www.ftc.gov/sites/default/ 

files/documents/advocacy_documents/ftc-statement-u.s.house-representatives-energy-and-commerce-concerning-e-commerce-wine-sales-and-direct-shipment/031030ecommercewine.pdf 249Letter of the Federal Trade Commission regarding Arkansas HB 2286 to the Arkansas 

House of Representatives (2015), available at https://www.ftc.gov/sites/default/files/documents/advocacy_documents/ftc-staff-comment-honorable-doug-matayo-concerning-arkansas-h.b. 

2286-and-fairness-contact-lens-consumers-act-and-contact-lens-rule/041008matayocomment.pdf. 250 Comments of the Staff of the Federal Trade Commission In Re: Declaratory Ruling Proceeding on the Interpretation and Applicability of Various Statutes and Regulations Concerning 

online),240 and none on house-sharing. It has also made few other broadly tech-related miscellaneous filings to other Federal agencies on privacy and data security, 

vehicle-to-vehicle communications, mobile financial services, and the National 

Broadband Plan. 

The FTC held a workshop on the sharing economy in June 2015,241 but has since 

missed the opportunity to do significant competition advocacy work in the area, despite growing protectionist state and local regulation aimed at upstarts like Uber, 

Lyft, Airbnb and others. Recent legislation in Austin, Texas, is sadly illustrative. An 

Austin City Council ordinance,242 essentially regulating ride-sharing services out of 

existence, was approved by (the few) voters who showed up to vote in a referendum.243 This type of overly broad law regulating innovative technology is exactly the sort of thing the FTC should be taking initiative to advocate against, and 

it is unfortunate that, in the face of it, the FTC’s competition advocacy has receded. 

By contrast, in the early 2000s, OPP’s State Action Task Force and Internet Task 

Force made a concerted effort to challenge anticompetitive state and local regulations that hindered online commerce through litigation, testimony and comments. 

The FTC started several campaigns, including one challenging rules making it harder to participate in e-commerce. Unlike the current Commission’s stunted approach, 

the early 2000s FTC started with a workshop,244 released reports explaining the 

problem the FTC’s planned approach,245 and then went on to systematically challenge e-commerce-related regulations (among other things) inconsistent with consumer welfare. Filings included: 

• Comment on Ohio legislation to allow direct shipment of wine to Ohio consumers;246 and on similar New York legislation;247

• Congressional Testimony regarding online wine sales;248

• Comment on Arkansas legislation regarding online contact sales;249 and 

• Comment on Connecticut regulation of contact sales.250

153 

the Sale of Contact Lenses (2002), available at https://www.ftc.gov/sites/default/files/documents/advocacy_documents/ftc-staff-comment-connecticut-board-examiners-opticians-intervenorre-declaratory-ruling-proceeding/v020007.pdf 251 Cooper, Pautler & Zywicki, Theory and Practice of Competition Advocacy at the FTC supra 

note 236, at 2. 252See, e.g., id. at 1, n.3: 

The legal authority for competition advocacy is found in Section 6 of the FTC Act, which allows the FTC to ‘‘gather and compile information’’ that concerns persons subject to the FTC Act, 

and ‘‘to make public such portions of the information obtained’’ that are ‘‘in the public interest.’’ 

(Quoting 15 U.S.C. § 46(a), (f) (2005)). 

253See supra 61. 

The current FTC has many ripe targets for public interest advocacy around the 

Nation as incumbents are, predictably, using regulation to try to stop Internet- and 

app-based competition, especially disruptive new ‘‘sharing economy’’ business models. 

Value of the Idea: Competition Advocacy Is the Most Cost-Effective Way to Serve 

Consumers 

As Cooper, Pautler & Zywicki explain: 

The economic theory of regulation (‘‘ETR’’) posits that because of relatively high 

organizational and transaction costs, consumers will be disadvantaged relative 

to businesses in securing favorable regulation. This situation tends to result in 

regulations—such as unauthorized practice of law rules or per se prohibitions 

on sales-below-cost—that protect certain industries from competition at the expense of consumers. Competition advocacy helps solve consumers’ collective action problem by acting within the political system to advocate for regulations 

that do not restrict competition unless there is a compelling consumer protection rationale for imposing such costs on citizens. Furthermore, advocacy can 

be the most efficient means to pursue the FTC’s mission, and when antitrust 

immunities are likely to render the FTC impotent to wage ex post challenges 

to anticompetitive conduct, advocacy may be the only tool to carry out the FTC’s 

mission.251

Competition advocacy is probably the most cost-effective way the FTC can promote consumer welfare. Anticompetitive practices and agreements backed up by the 

power of the state are much less likely to be corrected by the power of competition 

than those that exist in the marketplace, and antitrust law cannot be used to remove such barriers to competition. The only way for the FTC to even get at such 

conduct is through its competition advocacy arm. 

Recommendation: Clarify Section 6(f) & the FTC May File Unsolicited Comments 

The FTC currently relies on Sections 6(a) (information gathering) and 6(f) 

(issuance of reports) as the basis for its competition advocacy filings.252 But as discussed above,253 Section 6(f) could be read to allow the FTC to make recommendations for legislation only to Congress, not to states or local governments. This is the 

kind of small discontinuity between the statute’s plain meaning and the agency’s 

practice (on an issue that enjoys broad bipartisan support) that should be addressed 

by Congress in regular reauthorization. 

In the same vein, we gather that, if only by standing convention, the FTC does 

not file comments with state and local lawmakers or regulators unless invited to do 

so by someone on the relevant body. This is undoubtedly well-intentioned, perhaps 

grounded in some kind of sense of federalism, but it may have the perverse result 

of denying consumers the benefit of the FTC’s competition-advocacy work where it 

is most needed: when state regulators are so captured by incumbents, or otherwise 

blinded to the benefits of new technologies, that they will resent the FTC’s comment 

as an intrusion upon their decision-making. 

We urge Congress to kill two birds with one stone by amending Section 6(f) to 

add the following bolded text (and, for clarity’s sake, roman numeral subsection 

numbers): 

To (i) make public from time to time such portions of the information obtained 

by it hereunder as are in the public interest; and to (ii) make annual and special reports to the Congress and to submit therewith recommendations for additional legislation; and to (iii) file recommendations for legislation or regulatory 

action with state, local, tribal and Federal bodies; and to (iv) provide for the 

publication of its reports and decisions in such form and manner as may be best 

adapted for public information and use. 

154 

254 Cf. Fed. Trade Comm’n, Federal Trade Commission Office of Policy Planning Organizational Chart, https://www.ftc.gov/system/files/attachments/office-policy-planning/opp-orgchart-may2016.pdf; Fed. Trade Comm’n, Shutdown of Federal Trade Commission Operations 

Upon Failure of the Congress to Enact Appropriations, https://www.ftc.gov/system/files/attachments/office-executive-director/130925ftcshutdownplan.pdf. 255See, e.g., Community Blood Bank v. FTC, 405 F.2d 1011 (8th Cir. 1969). 256 Cal. Dental Ass’n v. FTC, 526 U.S. 756, 766 (1999). 257See Statement of William C. Macleod, Dir. of FTC Bureau of Consumer Protection, Before 

The U.S. House of Representatives Committee on Energy & Commerce; Subcommittee on Transportation & Hazardous Materials; Hearing On Deceptive Fundraising By Charities (Jul. 28, 

1989), available at http://www.freespeechcoalition.org/macleod.htm. 258Protecting Consumers in Commerce Act of 2016, H.R. 5239, 114th Cong. (2016), available 

at https://www.congress.gov/bill/114th-congress/house-bill/5239/text. 

Recommendation: Create an Office of Bureau of Competition Advocacy with 

Dedicated Funding 

The FTC’s Competition advocacy filing function has languished, in part, because 

while competition advocacy litigation resides inside the Bureau of Competition, the 

filings are primarily the responsibility of the Office of Policy Planning (OPP), a relatively tiny organization attached to the Chairman’s office, which has a staff of just 

over a dozen compared to 285 for the Bureau of Competition, 331 for the Bureau 

of Consumer Protection, and 114 for the Bureau of Economics.254

Congress should seriously consider creating an independent office of Competition 

Advocacy, which would manage competition-advocacy filings, and share joint responsibility for competition-advocacy litigation with the Bureau of Competition. In particular, this would mean giving this new Bureau a line item in the FTC’s budget. 

Recommendation: In the Alternative, Reconstitute the Task Force 

As noted above, the Internet Task Force, which was spun off from the broader 

State Action Task Force, had considerable effect through its research, reports, and 

associated filings. A standing Task Force of this nature could provide dividends by 

picking up where the Sharing Economy Workshop left off and studying the effects 

of regulation on the sharing economy around the Nation. A well-done report could 

then be followed by strategic litigation, amicus briefs, and other filings in order to 

promote sound public policy and combat the Internet-age protectionism that is slowing down innovation and competition and the attendant benefit to consumers. 

Expanding FTC Jurisdiction 

Section 5 of the FTC Act empowers the Commission to prevent unfair and deceptive acts and practices by nearly all American businesses (and business people). The 

exceptions are few: ‘‘banks, savings and loan institutions . . ., Federal credit unions 

. . ., common carriers subject to the Acts to regulate commerce, air carriers and 

[certain meat packers and stock-yards]. . . .’’ One important limitation is that the 

FTC Act does not expressly give the Commission jurisdiction over nonprofit organizations. Nevertheless, courts have held that nonprofit status is not in itself sufficient to exempt an organization from FTC jurisdiction.255 In Cal Dental Ass’n v. 

FTC, the Supreme Court noted that the FTC has jurisdiction over both ‘‘ ‘an entity 

organized to carry on business for its own profit’ . . . [as well as] one that carries 

on business for the profit ‘of its members.’ ’’ 256 Thus, various types of nonprofits— 

notably trade associations—can be reached by the FTC depending on their activities, 

but ‘‘purely charitable’’ organizations remain outside of the FTC’s enforcement purview.257

Subcommittee Democrats have revived two sensible proposals from 2008 to expand the FTC’s jurisdiction. Both have long enjoyed bipartisan support, and have 

been endorsed by the Commission under both Republican and Democratic chairmen. 

FTC Jurisdiction over Common Carriers 

The Protecting Consumers in Commerce Act of 2016 

Jerry McNerney’s (D–CA) bill (H.R. 5239)258 would allow the FTC to regulate 

common carriers currently regulated by the Federal Communications Commission. 

In particular, this would ensure that the FTC and FCC have dual jurisdiction over 

broadband—effectively restoring the jurisdiction the FTC lost when the FCC ‘‘reclassified’’ broadband in 2015. 

The FCC recently issued a controversial NPRM proposing privacy and data security rules for broadband that are significantly different from the approach the FTC 

has taken. This bill would moot the need for new FCC privacy and data security 

rules as a ‘‘gap filler.’’ The bill would also allow the FTC to police net neutrality 

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259Federal Trade Commission Reauthorization Act of 2002, S. 2946, 104th Cong. (2002), available at https://www.congress.gov/bill/107th-congress/senate-bill/2946/text. 260 Additional Statement of Commissioner Thomas B. Leary, Hearing Before the H. Subcomm. 

on Commerce, Trade and Consumer Protection of the H. Comm. on Energy and Commerce, 108th 

Cong. (2003), available at https://www.ftc.gov/sites/default/files/documents/public_statements 

/prepared-statement-federal-trade-commission-reauthorization/030611learyhr.pdf; Federal Trade 

Commission Testifies Before Senate in Support of Reauthorization Request for Fiscal Years 2003 

to 2005, available at https://www.ftc.gov/es/node/63553. 261Federal Trade Commission Reauthorization Act of 2008, S. 2831 § 14, 110th Cong. (2008), 

available at https://www.govtrack.us/congress/bills/110/s2831/text 262Prepared Statement of Commissioner Joshua D. Wright, Federal Trade Commission: Wrecking the Internet to Save It? The FCC’s Net Neutrality Rule Before the H. Comm. on the Judiciary. 

114th Cong. (2015), available at https://www.ftc.gov/system/files/documents/public_state ments/632771/150325wreckinginternet.pdf; Ramirez urges repeal of common carrier exemption, 

FTC WATCH, available at http://www.ftcwatch.com/ramirez-urges-repeal-of-common-carrier-exemption/. 263 15 U.S.C. § 45(a)(2). 264 Cf. 15 U.S.C. § 44. 265Prepared Statement of Commissioner Joshua D. Wright, supra, available at https:// 

www.ftc.gov/system/files/documents/public_statements/632771/150325wreckinginternet.pdf 

(internal citations omitted). 266FED TRADE COMM’N, BROADBAND CONNECTIVITY COMPETITION REPORT, 41 (2007), available 

at https://www.ftc.gov/sites/default/files/documents/reports/broadband-connectivity-competition-policy/v070000report.pdf. 

fair or deceptive practices) even if the FCC’s Open Internet Order fails in pending 

litigation. 

Value of the Bill: Reclassification of Broadband by the FCC Should Not Remove FTC 

Jurisdiction 

There has long been unusual bipartisan agreement on ending the common carrier 

exemption. This was proposed by Sen. Byron Dorgan’s proposed FTC Reauthorization Act of 2002,259 and supported by Republican Commissioner Thomas Leary and 

Democrat Commissioner Sheila Anthony.260 Sen. Dorgan last proposed the same reform in 2008.261 More recently, in 2015, Democrat Chairman Edith Ramirez and Republican Commissioner Josh Wright supported this reform.262

Section 5 jurisdiction excludes ‘‘common carriers subject to the Acts to regulate 

commerce.’’ 263 The bill simply edits the definition of ‘‘Acts to regulate commerce’’ 

in Section 4 to remove the Communications Act.264 Thus, the FTC could regulate 

common carriers regulated by the FCC but not transportation common carriers. 

Former Commissioner Joshua Wright summarized the many advantages of keeping the FTC as a cop on the broadband beat: 

The FTC has certain enforcement tools at its disposal that are not available to 

the FCC. Unlike the FCC, the FTC can bring enforcement cases in Federal district court and can obtain equitable remedies such as consumer redress. The 

FCC has only administrative proceedings at its disposal, and rather than obtain 

court-ordered consumer redress, the FCC can require only a ‘‘forfeiture’’ payment. In addition, the FTC is not bound by a one-year statute of limitations as 

is the FCC. The FTC’s ability to proceed in Federal district court to obtain equitable remedies that fully redress consumers for the entirety of their injuries 

provides comprehensive consumer protection and can play an important role in 

deterring consumer protection violations.265

Recommendation: Pass the Protecting Consumers in Commerce Act to End the 

Exemption for Telecom Common Carriers 

Ending the common carrier exemption for telecom companies is long overdue. ‘‘As 

the telecommunications and Internet industries continue to converge, the common 

carrier exemption is likely to frustrate the FTC’s efforts to combat unfair or deceptive acts and practices and unfair methods of competition in these interconnected 

markets.’’ 266 Moreover, the uncertainty surrounding the application of the exemption to new technologies, as well as the long-standing uncertainty around application of the exemption to non-common-carrier activities carried out by common carriers introduce needless administrative costs. 

Recommendation: Require the FCC to Terminate Its Privacy Rulemaking 

With respect to the common carrier exception, the fortunes of the FTC are tied 

to those of the FCC; adopting optimal policy for one requires adopting complimentary policy for the other. The conclusions above are complicated by the FCC’s ongoing efforts to exercise the exclusive authority it claimed when it reclassified Internet 

service providers as common carriers, particularly with respect to privacy and simiVerDate Nov 24 2008 07:37 Mar 18, 2019 Jkt 000000 PO 00000 Frm 00159 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\35459.TXT JACKIE
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267Protecting the Privacy of Customers of Broadband and Other Telecommunications Services, 

Notice of Proposed Rulemaking, WC Docket No. 16–106 (rel. Apr. 1, 2016), available at https:// 

apps.fcc.gov/edocs_public/attachmatch/FCC-16-39A1_Rcd.pdf. 268FTC Improvements Act Section 11 added the following language to 17 U.S.C. § 57a: ‘‘The 

Commission shall not have any authority to promulgate any rule in the children’s advertising 

proceeding pending on the date of the enactment of the Federal Trade Commission Improvements Ante, p. 374. Act of 1980 or in any substantially similar proceeding on the basis of a 

determination by the Commission that such advertising constitutes an unfair act or practice in 

or affecting commerce.’’ 269 Carter, supra note 19. 270Memorandum of Understanding on Consumer Protection Between the Federal Trade Commission and the Federal Communications Commission (Nov. 2015), available at https:// 

www.ftc.gov/system/files/documents/cooperation_agreements/151116ftcfcc-mou.pdf. 271SMARTER Act, supra note 228. 272 A Bill to Amend the Federal Trade Commission Act to Permit the Federal Trade Commission to Enforce Such Act Against Certain Tax-exempt Organizations, H.R. 5255, 114th Cong. 

(2016) available at https://www.congress.gov/bill/114th-congress/house-bill/5255/text. 

lar matters.267 Because the FCC’s rationale for its proposed privacy rules is to fill 

the gap it created by ‘‘reclassifying’’ broadband and thus removing it from the FTC’s 

jurisdiction, enactment of this legislation would moot the need for new FCC rules. 

Accordingly, this bill should include a provision directing the FCC to terminate that 

rulemaking—so that the FTC may resume its former role in policing broadband privacy and data security without unnecessary and costly duplicative regulations. 

This situation is very much unlike that in the 1980 FTC Improvements Act, by 

which Congress both tightened the FTC’s Section 5 rulemaking processes (as instituted in 1975) and also ended the FTC’s children’s advertising rulemaking.268 In 

signing the bill, President Carter lauded the former but objected to the latter: 

We need vigorous congressional oversight of regulatory agencies. But the reauthorization bills passed by the Senate and the House went beyond such oversight and actually required termination of specific, major, ongoing proceedings 

before the Commission. I am pleased that the conferees have modified these 

provisions. If powerful interests can turn to the political arena as an alternative 

to the legal process, our system of justice will not function in a fair and orderly 

fashion.269

President Carter had a point, in general. But in this case, Congress would not 

be telling an agency to stop a pending rulemaking because of a policy difference; 

it would be telling the FCC to stop a rulemaking that it claims is necessary only 

because of a regulatory vacuum of its own creation. 

If the FCC insists on issuing its own rules, the bill will result in overlapping jurisdiction, which could create problems of its own: forum-shopping, inconsistent results, and politicization of the enforcement process. The Memorandum of Understanding reached between the two agencies on how to handle enforcement where 

their authority does overlap will do little to minimize potential conflicts.270 It would 

be particularly incongruous to enact legislation authorizing overlapping and conflicting jurisdiction while Congress is also considering the SMARTER Act, aimed at 

mitigating exactly such problematic overlap in the antitrust enforcement authority 

of the FTC and DOJ.271 None of these concerns are inherent reasons not to restore 

the FTC’s jurisdiction; after all, the FTC is the better regulator, in large part because applying standards of general applicability makes the FTC a more difficult 

agency to capture than a sector-specific regulator like the FCC. But these concerns 

do make it important that passage of this bill be tied to ending the FCC’s foray into 

privacy and data-security regulation. 

FTC Jurisdiction over Tax-Exempt Organizations & Nonprofits 

The Tax Exempt Organizations Act 

Representative Rush’s (D–IL) bill (H.R. 5255) 272 would add tax-exempt, 501(c)(3) 

nonprofits to the definition of ‘‘corporation’’ subject to the FTC Act in Section 4 (15 

U.S.C. § 44). It would not, however, amend Section 4 to remove the language that 

limits the FTC’s jurisdiction to corporations that ‘‘carry on business for [their] own 

profit or that of [their] members.’’ Thus, the FTC would still be limited to policing 

for-profit activities but would have an easier time establishing that a nonprofit was 

essentially conducting for-profit activities. 

157 

273Federal Trade Commission Reauthorization Act of 2008, supra note 261, § 6, available at 

https://www.govtrack.us/congress/bills/110/s2831/text. 274Prepared Statement of the Federal Trade Commission: Hearing Before the S. Comm. on 

Commerce, Science, and Transportation. 110th Cong. (2008), 19, available at https://www 

.ftc.gov/sites/default/files/documents/public_statements/ftc-testimony-reauthorization/p034101 

reauth.pdf. 275 Id. at 16. 276 Id. at 18 n.49. 277The nonprofit designation is a creature of state incorporation law, and obligates corporations to adopt certain governance rules and structures. Federal tax-exempt status is a creature 

of Federal tax law, and, while it obligates companies to limit their corporate purpose (e.g., to 

education, religious activities, etc.), it doesn’t appreciably affect their governance structure. 

Companies can be nonprofit but not tax-exempt, although all tax-exempt companies are nonprofit. 

Value of the Bill: Would Reduce Litigation Expenses for the FTC 

This bill does precisely the same thing proposed by Sen. Byron Dorgan’s FTC Reauthorization Act of 2008.273 The Republican-led FTC supported this provision at 

the time.274

In 2008, in supporting Sen. Dorgan’s version of this bill, the FTC explained the 

advantage of this reform, even though it would not technically change the substance 

of the FTC’s jurisdiction: 

The proposed legislation would also help increase certainty and reduce litigation 

costs in this area. Although the FTC has been successful in asserting jurisdiction against ‘‘sham’’ nonprofits and against non-profit trade associations, the 

proposed legislation would help avoid protracted factual inquiries and litigation 

battles to establish jurisdiction over such entities.275

We agree with the FTC’s 2008 assessment. 

Recommendation: Extend Jurisdiction to Tax-Exempt Entities, Including Trade 

Associations 

In 2008, in supporting Sen. Dorgan’s version of this bill, the FTC also said: 

The Commission would be pleased to work with Congressional staff on crafting 

appropriate language. The Commission notes that, as drafted, Section 6 would 

reach only those non-profit entities that have tax-exempt status under section 

501(c)(3) of the Internal Revenue Code. The Commission would benefit from 

broadening this provision to cover certain other nonprofits, such as Section 

501(c)(6) trade associations. The Commission has previously engaged in protracted litigation battles to determine whether such entities are currently covered under the FTC Act. See, e.g., California Dental Ass’n v. FTC, 526 U.S. 756, 

765–69 (1999) (holding that FTC Act applies to anticompetitive conduct by nonprofit dental association whose activities provide substantial economic benefits 

to for-profit members); American Medical Ass’n v. FTC, 638 F.2d 443, 447–448 

(1980) (finding FTC jurisdiction over non-profit medical societies whose activities ‘‘serve both the business and non-business interests of their member physicians’’).276

Recommendation: Extend Jurisdiction to All Non-Profits 

We likewise recommend expanding the bill to encompass all nonprofit corporations, regardless of their tax-exempt status.277 The logic of the FTC’s jurisdiction 

doesn’t turn on the tax-exempt status of organizations, which, for these purposes, 

is essentially a meaningless dividing line between entities. It makes little sense to 

include tax-exempt nonprofits within the FTC’s ambit while excluding nonprofits 

without Federal tax-exempt status. 

Rulemaking 

The FTC makes rules in two ways: (1) under Section 5, through the process created by Congress in 1980 to require additional economic rigor and evidence; and (2) 

under narrow grants of standard APA rulemaking authority specific to a particular 

issue. 

Economic Analysis in All FTC Rulemakings 

No Bill Proposed 

Recommendation: Require BE to Comment on Rulemakings 

The RECS Act, discussed below, would require the FTC to include BE analysis 

of any recommendations it makes for rulemakings. However, this would not apply 

to the FTC’s own rulemakings because that bill is focused on the FTC’s statutory 

158 

278 Exec. Order No. 13,563, 3 C.F.R. 13563 (2012) available at https://www.whitehouse.gov/ 

the-press-office/2011/01/18/executive-order-13563-improving-regulation-and-regulatory-review. 279 Exec. Order No. 12,866 3 C.F.R. 12866 (1993) available at https://www.whitehouse.gov/ 

sites/default/files/omb/inforeg/eo12866/eo12866_10041993.pdf. 280 Exec. Order No. 13,579, 3 C.F.R. 13579 (2012) available at https://www.whitehouse.gov/ 

the-press-office/2011/07/11/executive-order-13579-regulation-and-independent-regulatory-agencies. 281 Cass Sunstein, The President’s Executive Order on Improving and Streamlining Regulation 

by Independent Regulatory Agencies, WHITEHOUSE.GOV BLOG (Jul. 11, 2011), https://www 

.whitehouse.gov/blog/2011/07/11/president-s-executive-order-improving-and-streamlining-regulation-independent-regula. 282 Independent Agency Regulatory Analysis Act of 2015, S. 1607, 114th Cong. (2015), available at https://www.congress.gov/bill/114th-congress/senate-bill/1607/text. 283See Press Release, HEARING: SubCMT to Review 17 Bills Modernizing the FTC for the 

21st Century NEXT WEEK, THE ENERGY AND COMMERCE COMMITTEE (May 17, 2016), https:// 

energycommerce.house.gov/news-center/press-releases/hearing-subcmt-review-17-bills-modernizing-ftc-21st-century-next-week. 284 78 Fed. Reg. 4002 available at https://www.ftc.gov/system/files/documents/federal_ 

register_notices/2013/01/2012–31341.pdf 

authority to make recommendations to Congress, other agencies, and state and local 

governments. 

Requiring regulatory agencies to do cost-benefit analysis has been uncontroversial 

for decades, dating back at least to the Carter Administration. Indeed, in 2011, 

shortly after President Obama issued Executive Order 13563,278 his version of 

President Clinton’s 1993 Executive Order 12866279 applying to Executive Branch 

agencies, he issued a second order, Regulation and Independent Regulatory Agencies, Executive Order 13579.280 The key difference between the two is that the 

President said Executive agencies ‘‘must’’ do cost-benefit analysis for each new regulation, but that independent agencies ‘‘should’’ undertake retrospective analysis of 

its rules and periodically update them. 

FTC Chairman Jon Leibowitz fully endorsed the idea in the White House’s blog 

about the Order: 

President Obama deserves enormous credit for ensuring regulatory review 

throughout the Federal government, including at independent agencies. Although regulations are critically important for protecting consumers, they need 

to be reviewed on a regular basis to ensure that they are up-to-date, effective, 

and not overly burdensome. For all agencies—independent or not—periodic reviews of your rules is just good government. The announcement raises the profile of this issue, and I think that’s a constructive step.281

The chief (indeed, perhaps the only) reason for the difference is that the President 

has no authority over independent agencies, which are creatures and servants of 

Congress. The bipartisan Independent Agency Regulatory Analysis Act of 2015 (S. 

1607) would solve this problem, giving the President the authority to set cost-benefit 

standards for independent agencies as well.282 We fully support that bill and believe 

this requirement should apply to all independent agencies. But there is no reason 

to wait for passage of the more comprehensive bill. The FTC in particular would 

benefit from a commitment to cost-benefit analysis in its rulemakings immediately. 

Of course, it is true that the Commission has abandoned using its Section 5 rulemaking power (precisely because it reflects the Carter-era commitment to cost-benefit analysis). But the Commission does continue to make rules under a variety of 

issue-specific statutes such as several of those now pending before the House Energy 

and Commerce Committee, Subcommittee on Commerce, Manufacturing and Trade 

in May 2016.283 As the chief example of the need for greater economic rigor in FTC 

rulemakings, we note the FTC’s 2012 COPPA rulemaking: the agency expanded the 

definition of ‘‘personal information,’’ thus greatly expanding the number of children’s-oriented media subject to the rule, with no meaningful analysis of what this 

would do to children’s media. 

Despite loud protests from small operators that the rule might cause them to 

cease offering child-oriented products, the FTC produced a meaningless estimate 

that the rule would cost $21.5 million in the aggregate.284 Of course, the real cost 

of the new rule is not the direct compliance cost but the second-order effects of the 

number of providers who exit the children’s’ market, reduce functionality, slow innovation or raise prices—none of which did the FTC even attempt to estimate. This 

was a clear failure of economic analysis. 

We also note Commissioner Ohlhausen’s 2015 dissent from the Commission’s vote 

to update the Telemarketing Sales Rule to ban telemarketers from using four 

‘‘novel’’ payment methods. Ohlhausen cited no less an authority than the Federal 

Reserve Bank of Atlanta (FRBA), which is not merely one of twelve Federal Reserve 

159 

285Separate Statement of Commissioner Maureen K. Ohlhausen, Dissenting in Part, In the 

Matter of the Tel-emarketing Sales Rule, Project No. R411001, at n. 3 (Nov. 18, 2015), available 

at https://www.ftc.gov/system/files/documents/public_statements/881203/151118tsrmkospeech 

.pdf. 286 Id. at 1–2. 287Statement of Timothy J. Muris, supra note 14, at 24. 

Branches, but the one responsible for ‘‘operat[ing] the Federal Reserve System’s Retail Payments Product Office, which manages and oversees the check and Automated Clearing House (ACH) services that the Federal Reserve banks provide to 

U.S. financial institutions.’’ 285 Ohlhausen explained: 

The amendments do not satisfy the third prong of the unfairness analysis in 

Section 5(n) of the FTC Act, which requires us to balance consumer injury 

against countervailing benefits to consumers or competition. Although the 

record shows there is consumer injury from the use of novel payment methods 

in telemarketing fraud, it is not clear that this injury likely outweighs the countervailing benefits to consumers and competition of permitting novel payments 

methods. . . . 

In sum, the FRBA’s analysis of the prohibition of novel payments in telemarketing indicates that any reduction in consumer harm from telemarketing 

fraud is outweighed by the likely benefits to consumers and competition of 

avoiding a fragmented law of payments, not limiting the use of novel payments 

prematurely, and allowing financial regulators working with industry to develop 

better consumer protections.286

Again, it appears that the Commission majority failed to undertake an economically rigorous analysis of the sort BE would likely perform, in this case failing to 

properly weigh injury and countervailing benefits as Section 5(n) requires. 

At a minimum, the Commission would have done well to solicit further public 

comment on its rule, heeding the experience of past chairmen, as summarized by 

Former Chairman Tim Muris: 

By their nature, however, rules also must apply to legitimate actors, who actually deliver the goods and services they promise. Remedies and approaches that 

are entirely appropriate for bad actors can be extremely burdensome when applied to legitimate businesses, and there is usually no easy or straightforward 

way to limit a rule to fraud. Rather than enhancing consumer welfare, overly 

burdensome rules can harm the very market processes that serve consumers’ 

interests. For example, the Commission’s initial proposal for the Telemarketing 

Sales Rule was extremely broad and burdensome, and one of the first acts of 

the Pitofsky Commission was to narrow the rule. More recently, the Commission found it necessary to re-propose its Business Opportunity Rule, because the 

initial proposal would have adversely affected millions of self-employed workers.287

Issue-Specific Rulemakings 

Several Bills Proposed 

Congress has long enacted legislation tasking the FTC with enacting regulations 

in a specific area through standard rulemaking under the Administrative Procedure 

Act. This, in effect, has allowed the FTC to avoid having to conduct rulemakings 

under the Magnuson-Moss Act of 1975 (as amended in 1980). The result has been 

that there may not be anyone left at the FTC who has ever conducted a Section 

5 rulemaking. This contributes to the common misconception that the FTC lacks 

rulemaking authority—something the Chairman and other Commissioners have said 

casually. Of course, they mean that the FTC lacks APA rulemaking authority, and 

that they believe Section 5 rulemaking is too difficult. 

But this belief is unfounded. There is good reason to think that the FTC could 

have conducted a Section 5 rulemaking to address telemarketing complaints, for example, in about the same amount of time it took Congress to pass the Do Not Call 

Act and for the FTC to conduct an APA rulemaking, and perhaps even less. As 

Former Chairman Tim Muris explained, in 2010: 

The Commission’s most prominent rulemaking endeavor, the creation of the National Do Not Call Registry, could have proceeded in a timely fashion under 

Magnuson-Moss procedures. It took two years from the time the rule was first 

publicly discussed until it was implemented. Although it would have been necVerDate Nov 24 2008 07:37 Mar 18, 2019 Jkt 000000 PO 00000 Frm 00163 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\35459.TXT JACKIE
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288 Id. at 27. 289See Press Release, #SubCMT Releases Reform Package to Modernize the FTC and Promote 

Innovation, THE ENERGY AND COMMERCE COMMITTEE (May 5, 2016), https://energycommerce 

.house.gov/news-center/press-releases/subcmt-releases-reform-package-modernize-ftc-and-promote-innovation. 290 Video Privacy Protection Act of 1988, Pub. L. 100–618, 102 Stat. 3195 (Nov. 5, 1988), available at https://www.gpo.gov/fdsys/pkg/STATUTE-102/pdf/STATUTE-102-Pg3195.pdf. 291See Kristian Stout, Pushing Ad Networks Out of Business: Yershov v. Gannett and the War 

Against Online Platforms, TRUTH ON THE MARKET (May 10, 2016), https://truthonthemarket 

.com/2016/05/10/pushing-ad-networks-out-of-business-yershov-v-gannett-and-the-war-againstonline-platforms/. 292 Video Privacy Protection Act Amendments Act of 2012, H.R. 6671, 112th Cong (2012), 

available at https://www.congress.gov/bill/112th-congress/house-bill/6671?q=%7B%22search 

%22%3A%5B%22%5C%22hr6671%5C%22%22%5D%7D&resultIndex=1. 293See Stout, supra note 291. 

essary to structure the proceedings differently, there would have been little, if 

any, additional delay from using Magnuson-Moss procedures.288

This is not idle speculation. Muris actually ran the FTC during its creation of the 

Do Not Call registry. Attempting a Section 5 rulemaking would have been a valuable experience for the FTC, and it might have avoided some of the unintended consequences of ex ante legislation. 

We make two broad recommendations applicable to all six rulemaking bills. 

Recommendation: Require the FTC to Conduct Section 5 Rulemakings & Report on 

the Process 

The FTC would greatly benefit from conducting a Section 5 rulemaking. Congress 

should direct the FTC to conduct such a rulemaking on at least one, and preferably 

two or three, of the issues to be addressed by these proposed issue-specific bills. 

Having multiple rulemakings would produce a more representative experience with 

the FTC’s Section 5 rulemaking powers. However many Section 5 rulemakings the 

FTC does, Congress should direct the FTC to report back in, say, three years as to 

the state of these rulemakings and the FTC’s general experience with its Section 

5 rulemaking procedures. This is the only way Congress will ever be able to make 

informed decisions about how existing Section 5 rulemaking processes might be expedited or streamlined without removing the safeguards that Congress rightly imposed to prevent the FTC from abusing its rulemaking powers. 

Any reconsideration of the FTC’s Section 5 rulemaking processes should be undertaken with the utmost caution. Unfairness is a uniquely elastic concept, which requires unique procedural safeguards if it is to serve as the basis for rulemaking. 

If anything, FTC’s approach to enforcing Section 5 in high tech matters over the 

last 15–20 years reconfirms the need for safeguards: in its ‘‘common law of consent 

decrees,’’ the FTC has paid little more than lip service to the balancing test inherent 

in unfairness, and has increasingly nullified the materiality requirement at the 

heart of the deception policy statement. 

Recommendation: Include Periodic Re-Assessment Requirements in Any New Grants 

of APA Rulemaking Authority 

It is impossible to predict the unintended consequences of any of the proposed 

issue-specific bills granting the FTC new rulemaking authority.289 However narrowly targeted they may seem, they may wind up constraining new technologies or 

business models that would otherwise serve consumers. 

Consider the Video Privacy Protection Act of 1988 (‘‘VPPA’’), which barred ‘‘wrongful disclosure of video tape rental or sale records.’’ 290 After the experience of Judge 

Robert Bork, whose video rental records were made an issue at his (failed) Supreme 

Court confirmation hearings, this quick-fix bill must have seemed utterly 

uncontroversial. Yet it proved overly rigid in the digital age. In 2009, an anonymous 

plaintiff sued Netflix over its release of data sets for the Netflix Prize, alleging that 

the company’s release of the information constituted a violation of the VPPA.291 In 

2011 Netflix launched a feature integrating its service with Facebook—everywhere 

except in the U.S., citing the 2009 lawsuit and concerns over the VPPA. After two 

years, President Obama signed legislation (H.R. 6671) amending the VPPA to allow 

Netflix and other video companies to give consumers the option of sharing information about their viewing history on social networking sites like Facebook.292 Despite 

this amendment, the VPPA continues to threaten to overly restrict novel online 

transactions that were never contemplated or intended by the drafters of the statute.293

The VPPA is just one of many laws that have proven unable to keep up with technological change (the 1996 Telecommunications Act, (largely) a classic example of 

161 

294 15 U.S.C. § 6506. 295See supra note 284. 296Fed. Trade Comm’n, FTC Policy Statement on Unfairness (Dec. 17, 1980), available at 

https://www.ftc.gov/public-statements/1980/12/ftc-policy-statement-unfairness 

the Rulemaking Model, comes readily to mind). To protect against this inevitability, 

Congress should include regular review of legislation as a ‘‘safety hatch.’’ The 1998 

Children’s Online Privacy Protection Act (COPPA) included this review provision: 

Not later than 5 years after the effective date of the regulations initially issued 

under . . . this title, the Commission shall— 

(1) review the implementation of this chapter, including the effect of the implementation of this chapter on practices relating to the collection and disclosure 

of information relating to children, children’s ability to obtain access to information of their choice online, and on the availability of websites directed to children; and (2) prepare and submit to Congress a report on the results of the review under paragraph (1).294

In principle, this is the right idea. However, in practice, this requirement has 

proven ineffective. The FTC’s review of COPPA included little meaningful analysis 

of the cost of COPPA.295 Indeed, the FTC used the discretion afforded it by Congress in the statute to expand the definition of the term ‘‘personal information’’ in 

ways that appear to have reduced the availability, affordability and diversity of children’s media—yet without any economic analysis by the Commission. 

At a minimum, Congress should include something like the following in any issuespecific grant of new APA rulemaking authority it enacts: 

Not later than 5 years after the effective date of the regulations initially issued 

under . . . this title, and every 5 years thereafter, the Commission shall— 

(1) direct the Bureau of Economics, with the assistance of the Office of Technology Research and Investigation, to review the implementation of this chapter, 

including the effect of the implementation of this chapter on practices relating 

to [affected industries]; and 

(2) prepare and submit to Congress a report on the results of the review under 

paragraph (1). 

Conclusion 

The letter by which the FTC submitted the Unfairness Policy Statement to the 

Chairman and Ranking Member of the Senate Commerce Committee in December 

1980 concludes as follows: 

We hope this letter has given you the information that you require. Please do 

not hesitate to call if we can be of any further assistance. With best regards, 

/s/ Michael Pertschuk, Chairman296

We believe it’s high time Congress picked up the phone. 

To be effective, any effort to reform the FTC would require a constructive dialogue 

with the Commission—not just those currently sitting on the Commission, but past 

Commissioners and the agency’s staff, including veterans of the agency. Along with 

the community of practitioners who navigate the agency on behalf of companies and 

civil society alike, all of these will have something to add. We do not presume to 

fully understand the inner workings of the Commission as only veterans of the 

agency can. Nor do we presume that the ideas presented here are necessarily the 

best or only ones to accomplish the task at hand. But reform cannot be effective if 

it begins from the presumption that today’s is the ‘‘best of all possible FTCs,’’ or 

that any significant reform to the agency would cripple it. 

Unfortunately, many of those who would tend to know the most about the inner 

workings of the agency are also the most blinded by status quo bias, the tendency 

not just to take for granted that the FTC works, and has always worked, well, but 

to dismiss proposals for change as an attacks upon the agency. It would be ironic, 

indeed, if an agency that wields its own discretion so freely in the name of flexibility 

and adaptation were itself unwilling to adapt. 

We believe that reforms to push the FTC back towards the Evolutionary Model 

can be part of a bipartisan overhaul and reauthorization of the agency, just as they 

were in 1980 and 1994. At stake is much more than how the FTC operates; it is 

nothing less than the authority of Congress as the body of our democratically elected representatives to steer the FTC. Congress should not, as Justice Scalia warned 

162 

297 Util. Air Regulatory Grp. v. EPA, 134 S. Ct. 2427, 2446 (2014). 1The 2016 Presidential Transition Task Force was co-chaired by Theodore Voorhees and Leah 

Brannon. Samantha Knox served as the Reporter and Organizer of the Task Force. The Task 

Force members included Roxane Busey, Mary Ellen Callahan, Dennis Carlton, Michael A. Carrier, Paul T. Denis, Douglas H. Ginsburg, Louis Kaplow, Donald C. Klawiter, William Kovacic, 

in 2014 in UARG v. EPA, willingly ‘‘stand on the dock and wave goodbye as [the 

FTC] embarks on this multiyear voyage of discovery.’’ 297

AMERICAN BAR ASSOCIATION SECTION OF ANTITRUST LAW

PRESIDENTIAL TRANSITION REPORT: THE STATE OF ANTITRUST 

ENFORCEMENT—JANUARY 2017 

The views expressed herein are on behalf of the American Bar Association Section 

of Antitrust Law. They have not been approved by the House of Delegates or the 

Board of Governors of the American Bar Association, and unless otherwise noted, 

should not be construed as representing the policy of the American Bar Association. 

I. INTRODUCTION 

II. EXECUTIVE SUMMARY 

A. Enforcement Matters 

B. Legal Doctrine 

C. Industry-Specific Issues 

D. International Matter 

III. ENFORCEMENT MATTERS 

E. Agency Enforcement and Policy 

F. Cartel Enforcement 

G. Civil Enforcement and Litigation 

H. Mergers 

I. Consumer Protection 

IV. LEGAL DOCTRINE 

J. Monopoly 

K. Antitrust and Intellectual Property 

V. INDUSTRY-SPECIFIC ISSUES 

L. Financial Sector 

M. Healthcare Industry 

VI. INTERNATIONAL 

N. Establishing U.S. Focus and Leadership in International Antitrust Policy 

O. Clarify the Jurisdictional Character of the FTAIA 

P. Encourage Direct Agency Intercession in Foreign Agency Proceedings 

Q. Engage in a Critical Self-Assessment of U.S. Antitrust Procedures 

VII. CONCLUSION 

I. INTRODUCTION 

The Section of Antitrust Law of the American Bar Association (the ‘‘Section’’) is 

pleased to offer its views regarding the current state of Federal antitrust and consumer protection enforcement and its recommendations for ways the new administration might consider further strengthening policy and enforcement to deal with 

new challenges on the horizon. The views and recommendations contained in this 

Report are those of the Section. They have not been approved by the House of Delegates or the Board of Governors of the American Bar Association, and unless otherwise noted, should not be construed as representing the policy of the American Bar 

Association. 

This will be the eighth sequential Presidential Transition Report prepared by the 

Section. Section Chairs, Roxann E. Henry (2015–16) and William MacLeod (2016– 

17), appointed this Presidential Transition Task Force of 20 lawyers, professors, and 

economists in May 2016.1 The membership of the Task Force mirrors the deep exVerDate Nov 24 2008 07:37 Mar 18, 2019 Jkt 000000 PO 00000 Frm 00166 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\35459.TXT JACKIE
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Jon Leibowitz, Abbott B. Lipsky, Jr., A. Douglas Melamed, Fiona Scott Morton, James H. 

Mutchnik, Richard Parker, Lydia Parnes, James Rill, and Joel Winston. Megan Browdie served 

as the Young Lawyer Representative to the Task Force. The views and conclusions of Task 

Force Members that are reflected in this Report have been provided in their individual capacities and should not be attributed in any way to their law firms, clients or academic institutions, 

as applicable. 

pertise, diversity of viewpoint and breadth of experience of the Section’s 6,900 members. The Task Force includes attorneys in private practice representing defendants 

and plaintiffs; a member of the Federal judiciary; and antitrust law and economics 

scholars from the Nation’s leading universities. More than half of the members have 

served in senior leadership positions in the Antitrust Division of the Department 

of Justice (the ‘‘Division’’) or the Federal Trade Commission (the ‘‘FTC’’) (collectively, 

the ‘‘Agencies’’), including several former Assistant Attorneys General and Commissioners. Members of the Task Force have served in every Administration extending 

back more than four decades. Task Force members have also made significant contributions to the body of scholarly literature in the fields of competition and consumer protection law, and have been active in the international competition community, including as advisors to foreign competition authorities and the International 

Competition Network (ICN). 

The Task Force Members represent a diverse range of political, ideological, and 

professional views, and the Report is the result of an often vibrant and spirited debate among the members. In keeping with the strong philosophy favoring action by 

consensus that animates all Section reports and publications, all Members worked 

hard to accommodate one another’s perspectives, with the result that some of the 

findings and conclusions offered herein would not have been written in exactly the 

same way by any individual member writing alone. This being said, the Report has 

been endorsed by all Task Force members and was approved by the Section’s Council. 

II. EXECUTIVE SUMMARY 

Antitrust figured prominently in the 2016 Election: for the first time in recent 

memory, both major parties prominently featured their respective viewpoints on 

competition and consumer protection policy. Campaign commentary included sharp 

criticism of an alleged absence of vigor and overall ineffectiveness in current patterns of antitrust enforcement, with comments calling for sharp, even radical reorientation of enforcement policy, especially in the review of proposed mergers and 

treatment of large industrial firms. As will be seen in this Report, the Section does 

not share these views about the current state of antitrust enforcement policy. To 

the contrary, although dynamic market forces will always pose challenges for government enforcement policy, and enforcement efforts must adapt to meet those challenges, the Section’s view is that the Nation’s system of competition enforcement 

has been in good hands, that an arc of continuous improvement and advancement 

can be discerned that stretches back over many years and multiple administrations, 

and that enforcement policy should remain firmly tethered to its statutory basis. 

This Report is divided into four sections. First, the Report focuses on the current 

state of antitrust and consumer protection enforcement under the stewardship of the 

Agencies. This section reviews cartel, civil, merger, and consumer protection enforcement, with an emphasis on issues that are likely to present the most significant 

challenges over the next four years. In its second section, the Report addresses some 

of the most important and challenging doctrinal questions facing the Agencies and 

courts today. Section three of the Report discusses some of the unique competition 

issues that will be facing two key industrial sectors: healthcare and financial services. Finally, the last section of the Report discusses challenges facing the Administration, the Agencies, and U.S. firms in the international arena as competition enforcement regimes proliferate and continue to evolve throughout the world. 

A. Enforcement Matters 

The Agencies have a broad range of policy tools at their disposal and for the most 

part have been making good use of them. Agency guidance plays an important role 

in ensuring that markets function efficiently and competitively. The Section encourages the Agencies to continue providing this guidance in written form, including formal guidance documents, agency reports, closing statements, speeches by top agency 

officials, and the like. Written guidance from the Agencies is especially important 

in connection with novel market conditions and forms of behavior as well as in circumstances where there has been a shift in the Agencies’ enforcement policies and 

priorities. Further guidance is particularly needed on vertical issues arising in the 

context of mergers, resale price maintenance, state action, and intellectual property 

(‘‘IP’’). The Section encourages the Agencies to continue to use litigation as a policy 

164 

tool to clarify important issues. The Agencies should continue to review and comment on legislation and regulations that affect competition policy, agency jurisdiction, and the abilities of agencies to effectuate their missions. 

The Section commends the Division for the continued success of its cartel enforcement program, and encourages the Division to build on this success by providing 

increased transparency and ongoing practical guidance on its Corporate and Individual Leniency Programs, and promoting the adoption of similar leniency programs 

throughout the world. This initiative could alleviate our concern that the sentencing 

and fining processes in international cartel investigations have grown too complex 

to understand, and encourages the Division to closely examine its policies and procedures for ‘‘volume of commerce’’ (VOC) determinations. 

Also needed is further guidance in the wake of the Yates Memorandum. The Section commends the Division for recognizing the importance of corporate compliance 

measures in several recent sentencing proceedings, and encourages the Division to 

pursue an open dialogue with the bar and business community about model ‘‘robust’’ 

compliance programs and effective detection and screening techniques. The Division 

should also consider exploring proactive methods of cartel detection in partnership 

with federal, state, and local law enforcement agencies. 

The Section commends the Agencies’ recent focus on litigating cases and being 

‘‘trial ready.’’ To enhance this facet of enforcement, we propose that the Agencies 

form a working group to identify procedural and structural measures that could improve antitrust litigation in Federal court. Potential reforms might include structuring trials by issue (instead of by party) and greater use of court-appointed experts. 

In the merger enforcement area, the Section focuses on the need for increased 

transparency, including in merger trials, and increased utilization of closing statements for merger investigations not resulting in agency action. The Section also recommends that the Agencies make greater use of merger retrospectives to evaluate 

the effectiveness of merger policy, tools, and remedies. These studies should focus 

on both price and output effects, and should evaluate the efficacy of tools and models used to evaluate mergers. Finally, the Section reiterates the need for process 

symmetry between the Division and the FTC in merger enforcement litigation. 

In consumer protection, law enforcement and the regulatory landscapes have 

changed significantly over the last four years. This Report notes numerous initiatives of the FTC, as well as actions of the Consumer Financial Protection Bureau 

(CFPB) and the Federal Communications Commission (FCC), that have enhanced 

protection of the Nation’s consumers. However, the overlapping jurisdictions of the 

FTC, CFPB, and FCC give rise to risks of inconsistent regulatory approaches that 

cause confusion and complicate compliance, particularly with respect to privacy protection. Such inconsistencies could undermine the objectives the Agencies seek to 

advance. 

The Section urges the FTC, FCC, and CFPB to take action to address these risks, 

including by supporting repeal of the common carrier exception in the FTCA and 

by adopting consistent privacy protection frameworks. The Section urges the FTC 

and CFPB to adopt reforms to enhance the transparency and fairness of the enforcement process, including dedicating resources to cases involving significant consumer 

harm, using civil investigative demands more judiciously, adopting internal guidelines for staff in communicating with investigation targets, reducing burdens of 

‘‘boilerplate’’ order provisions, tailoring monetary relief to the injury caused and the 

defendant’s culpability, and providing targets with the opportunity to meet with decision makers. Finally, the Section notes the need for additional guidance and harmonization on topics relating to abusive and unfair practices (CFPB’s and FTC’s respective standards), data security, monetary remedies, advertising interpretation, 

and ‘‘clear and conspicuous’’ disclosure requirements. 

B. Legal Doctrine 

The Agencies will play a pivotal role in shaping legal doctrine over the next four 

years. The Report identifies needs in key substantive areas—better delineation of 

problematic exclusionary conduct that may have adverse market effects—where the 

Agencies can reduce legal uncertainty and avoid conflicts by offering sound policy 

leadership. 

With respect to exclusionary conduct, the Section sees three areas that could benefit from further Agency attention and guidance. First, two-sided markets are increasingly important in today’s economy, but have received relatively little attention 

in recent court decisions and Agency statements. Second, there is need for further 

clarification concerning the legal analysis of contracts that reference rivals. Third, 

further guidance would be helpful in assessing the potential anticompetitive and 

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procompetitive effects of tying and bundling arrangements, particularly in light of 

recent conflicting decisions issued by the Third and Ninth Circuits. 

With regard to patent matters, the Section recommends that the Agencies gather 

and analyze further evidence related to activity that may have competitive significance—for example with respect to patent assertion entities and potential holdups 

and holdouts—and share their assessments of competitive effects with the public 

and other government agencies. The Section also encourages the Agencies to consider the multinational implications of actions that alter patent rights and remedies. 

C. Industry-Specific Issues 

In certain industries, unique challenges and complexities arise when analyzing 

questions of competition law. The Obama Administration focused a large portion of 

its antitrust enforcement efforts on the healthcare and financial sectors. The Report 

addresses some of the key issues in these sectors facing the incoming Administration. 

With respect to the financial sector, when evaluating proposals for new or revised 

regulations that will be administered by other agencies, the Section encourages the 

Agencies to consider the adverse effect that regulations might have on competition, 

particularly with respect to the burdens the regulations may impose on smaller 

firms. As for mergers of financial institutions, the Section believes that the Agencies 

should not alter their legal standards in order to benefit equity holders of banks. 

Finally, further clarification is needed regarding the Division’s treatment of cases 

involving alleged interference with financial benchmarks and in particular the implications for enforcement policy and sentencing where the underlying misconduct 

could be seen as fraud or anticompetitive behavior or a combination of the two offenses. 

With respect to the healthcare industry, the Section encourages the Agencies to 

provide further guidance on their merger analysis, including the theories of harm 

and potential benefits resulting from vertical integrations, exclusive contracts, merger-specific efficiencies, and the competitive impact of electronic healthcare records, 

and regulatory policies at the state and Federal levels. The Section also encourages 

the FTC to articulate and apply a rule-of-reason enforcement policy with respect to 

reverse payment settlements and to assess the implications for competition and consumer protection of discouraging purchases or refusing to deal in pharmaceutical 

markets. 

D. International Matters 

The global expansion of competition law regimes has dramatically increased the 

complexity and cost of compliance for U.S. businesses. The Section commends the 

Agencies for working to address these challenges through formal and informal cooperation, communication, and consensus-building efforts. However, there is much 

work yet to be done. Now, more than ever, it is important for the United States to 

speak with one voice in international antitrust matters. The Section encourages the 

Agencies to work more closely with each other and with the Administration to develop and communicate a unified global antitrust policy. To accomplish this goal, the 

Administration may wish to consider how the Executive Branch could facilitate 

more extensive coordination between the Agencies and better respond to pressing 

international competition law matters. The Section commends the Agencies for their 

efforts to promote comity through deference to foreign authorities’ enforcement actions. That said, where appropriate legal grounds exist, and where consistent with 

U.S. policy, the Agencies should not hesitate to intervene in foreign enforcement 

proceedings where it appears that U.S. firms are being subjected to rules or policies 

that are antithetical to U.S. antitrust law, particularly where serious due process 

concerns are at stake. Finally, in the wake of recent Federal appellate decisions 

opining that the Federal Trade and Antitrust Improvements Act (FTAIA) is a substantive element of a Sherman Act claim, the Section recommends that the Agencies 

clarify that the FTAIA places a jurisdictional limit on Sherman Act enforcement. 

III. ENFORCEMENT MATTERS 

A. Agency Enforcement and Policy 

1. Guidance 

Where there are uncertainties in the Agencies’ enforcement policies or priorities, 

it is often essential for the Agencies to provide guidance. The formal guidance can 

take the form of formal guidance documents (such as the Horizontal Merger Guidelines of 2010) or FTC opinions. Informal guidance can take the form of agency reVerDate Nov 24 2008 07:37 Mar 18, 2019 Jkt 000000 PO 00000 Frm 00169 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\35459.TXT JACKIE
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2See, e.g., FED. TRADE COMM’N, PATENT ASSERTION ENTITY ACTIVITY: AN FTC STUDY 8–13 

(2016) (hereinafter FTC PAE STUDY), available at www.ftc.gov/system/files/documents/reports/ 

patent-assertion-entity-activity-ftc-study. 3The recent guidance issued by the Division and the FTC communicating the decision to treat 

wage-fixing and no-poaching agreements as criminal violations going forward provides an excellent example of this. See DEP’T OF JUSTICE, ANTITRUST DIV., FED. TRADE COMM’N, ANTITRUST

GUIDANCE FOR HUMAN RESOURCE PROFESSIONALS (Oct. 2016), available at www.ftc.gov/system/ 

files/documents/public_statements/992623/ftc-doj_hr_guidance_final_10-20-16.pdf. 4 Cf. Verizon Commc’ns, Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 414 (2004) 

(discussing how mistaken inferences of conduct can chill potentially procompetitive business activity). 5See Renata Hesse, Acting Ass’t Att’y Gen., U.S. Dep’t of Justice, Antitrust Div., And Never 

the Twain Shall Meet?: Connecting Popular and Professional Visions for Antitrust Enforcement, 

Opening Remarks at the 2016 Global Antitrust Enforcement Symposium 15 (Sept. 20, 2016), 

available at www.justice.gov/opa/speech/acting-assistant-attorney-general-renata-hesse-antitrust-division-delivers-opening. 

ports,2 speeches by key agency personnel, amicus briefs, decisions to litigate, or closing statements. Agency guidance is important and beneficial for multiple reasons, 

such as providing clarity for businesses, moving competition policy in the right direction, and ensuring a U.S. perspective on the international arena. Agency guidance is also particularly useful to communicate a shift in enforcement policy or practice.3

Furthermore, uncertainty as to the boundaries of antitrust laws may chill potentially procompetitive conduct or enable potentially anticompetitive behavior to continue unchecked. Businesses may be less willing to engage in novel business activities that could benefit consumers.4 Moreover, agency guidance and enforcement not 

only define the boundaries of how the Agencies view and enforce the law, but may 

also impact how courts rule in litigation. 

Guidance also ensures a place for the U.S. perspective on the international stage. 

Because so many foreign antitrust authorities look to the Agencies for leadership 

and study U.S. enforcement decisions and cases, clearly articulated guidance helps 

achieve uniformity across jurisdictions. Moreover, an international presence and influence as to antitrust policy is particularly critical in an era in which some foreign 

competition agencies use the pretense of antitrust enforcement as a cover to mask 

decisions that are actually based on industrial policy or protectionism. 

Speeches, while not binding on the Agencies or as long-lasting as more formal 

agency documents, can give advance notice of enforcement priorities and the views 

of agency leadership regarding how best to analyze certain forms of conduct. For instance, in her first speech as Acting Assistant Attorney General, Renata Hesse offered important insights into the use of bargaining models in analyzing vertical 

mergers and the Division’s skepticism of procompetitive claims in horizontal mergers.5 Indeed, for changes in agency thinking, an agency speech or other non-enforcement guidance can be the fairer approach, at least in the first instance, than initially embarking on litigation. 

Business review letters from the Division and advisory opinions from the FTC 

serve as another avenue for providing guidance on novel conduct. More important, 

by setting forth the respective agency’s reasoning for how it views proposed conduct, 

these documents in effect make a policy statement as to what characteristics of the 

conduct are considered to be beneficial or harmful for consumers. 

2. Inter-Agency Coordination 

The Section commends the coordination between the Agencies, especially when 

issuing guidance. Inter-agency coordination will ensure that the benefits that result 

from issuing guidance, discussed above, are fully recognized. With respect to enforcement, greater coordination will not only make the Agencies more effective but 

also help achieve uniformity within the United States and provide a consistent message internationally. 

The Section believes that the necessary level of coordination can be accomplished 

in a variety of ways. For example, joint workshops provide a useful and convenient 

opportunity to clarify enforcement community thinking. To be most effective, such 

workshops should ideally be linked to some internal implementation mechanism coordinated between both agencies. Annual joint agency statements at key antitrust 

bar events, such as the ABA Enforcers’ Roundtable or the Global Antitrust Enforcement Symposium, discussing the themes and goals of the Agencies going forward 

provide other meaningful opportunities for clarifying agency policies and intentions 

in a coordinated way. 

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6See, e.g., Hawaii v. Standard Oil, 405 U.S. 251, 262 (1972) (‘‘By offering potential litigants 

the prospect of a recovery in three times the amount of their damages, Congress encouraged 

these persons to serve as ‘private attorneys general.’ ’’). 7See Jan M. Rybnicek & Joshua D. Wright, Defining Section 5 of the FTC Act: The Failure 

of the Common Law Method and the Case for Formal Agency Guidance, 21 GEO. MASON L. REV. 

1287, 1311 (2014). 8See, e.g., ORG. FOR ECON. COOPERATION AND DEV., COMPETITION COMMITTEE, COMMITMENT

DECISIONS IN ANTITRUST CASES: NOTE BY THE UNITED STATES 7 (2016), available at 

www.justice.gov/atr/file/873491/download (citing a total of only six civil non-merger cases with 

litigated outcomes between January 1, 2011 and April 30, 2016). 9See also Peter Navarro, Senior Economic Advisor, Trump Campaign, Statement on Monopoly 

Power of New Media Conglomerates, Oct. 23, 2016, available at https://www.donaldjtrump 

.com/press-releases/statement-on-monopoly-power-of-new-media-conglomerates (‘‘AT&T, the original and abusive ‘‘Ma Bell’’ telephone monopoly, is now trying to buy Time Warner. . . . Donald Trump would never approve such a deal because it concentrates too much power in the 

hands of the too and powerful few.’’); Ryan Knutson, Trump Says He Would Block AT&T-Time 

Warner Deal, THE WALL STREET JOURNAL, Oct. 22, 2016, available at http://www.wsj.com/articles/trump-says-he-would-block-at-t-time-warner-deal-1477162214; S. Elizabeth Warren, Reigniting Competition in the American Economy, Keynote Remarks at New America’s Open Markets Program Event 6 (June 29, 2016), available at www.warren.senate.gov/files/documents/ 

2016-6-29_Warren_Antitrust_Speech.pdf (advocating for increased scrutiny of vertical mergers 

and for a revision of the non-horizontal merger guidelines). 10See U.S. DEP’T OF JUSTICE, Press Release, Department of Justice and Federal Trade Commission Issued Revised Horizontal Merger Guidelines: 2010 Guidelines More Accurately Represent Agencies’ Merger Review Process, August 19, 2010, available at https://www.justice.gov/ 

opa/pr/department-justice-and-federal-trade-commission-issue-revised-horizontal-merger-guidelines (describing ‘‘several important ways’’ in which new guidelines differed from previous guidelines). 

3. Litigation as a Policy Tool 

The Section recommends using litigation on important antitrust issues as a complement to public guidance and policy development. Litigation serves a critically important role in developing the law. Therefore, it is important for agencies to litigate 

their own cases (as opposed to leaving it to ‘‘private attorneys general’’ 6 to challenge 

potential antitrust violations). 

Private litigation does not always protect consumers and it often results in damage recovery for past practices, rather than injunctive relief that would stop the consumer harm from occurring. To further the antitrust laws’ core tenet of benefiting 

consumers, it is important for the Agencies to be seen as a leader in taking cases 

to court. Litigating cases also tests the current boundaries of the antitrust laws in 

a way that guidance alone cannot. In short, the primary benefit of a litigated decision with respect to shaping antitrust policy is that its outcome is an analysis and 

balancing of opposing arguments, such that the decision explains both what conduct 

is deemed legal and what is deemed illegal.7

The Section notes that there have been some recent expressions of concern that 

the Agencies may have become risk averse to litigation, especially with respect to 

conduct cases.8 While the Section lacks the information to agree or disagree, we believe the Agencies should demonstrate a willingness to take intelligent risks if the 

payoff enhances consumer welfare and moves the law in the proper direction. Even 

losing a case can have a beneficial effect on antitrust policy, for example, by contributing to a better understanding of the boundaries of what is considered acceptable 

competitive conduct. 

4. Specific Areas Where Guidance Could Be Useful 

There are a number of areas within competition law where additional guidance 

could be especially helpful. As economic and commercial realities develop, so too 

must application of the antitrust laws in these areas. Several important, illustrative 

areas of antitrust law that could benefit from additional guidance are discussed 

below. 

a. Vertical Issues 

Non-horizontal merger enforcement is one particular area that would benefit from 

agency guidance, given the recent increase in industry consolidation and vertical 

mergers. These mergers have attracted considerable attention recently.9 The last 

such guidelines were issued in 1984, and there have been substantial changes in 

antitrust policy and the application of modern economics thinking since then.10 The 

2010 Horizontal Merger Guidelines do not address vertical or conglomerate mergers. 

The uncertainty in thinking about non-horizontal mergers becomes particularly apparent when one compares Acting Assistant Attorney General Renata Hesse’s recent 

comment, noted previously, that ‘‘the Antitrust Division and the FTC have become 

justifiably more skeptical about the promise of procompetitive benefits of mergVerDate Nov 24 2008 07:37 Mar 18, 2019 Jkt 000000 PO 00000 Frm 00171 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\35459.TXT JACKIE
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11 Hesse, supra note 5, at 15 (emphasis added). 12 U.S. DEP’T OF JUSTICE & FED. TRADE COMM’N, NON-HORIZONTAL MERGER GUIDELINES § 4.24 

(1984), available at www.justice.gov/atr/non-horizontal-merger-guidelines. 13Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877, 881 (2007); State Oil Co. 

v. Khan, 522 U.S. 3, 22 (1997). 14The last government action against RPM was brought almost 20 years ago and the last 

speech by an agency head was in 2009. See United States v. Ixtlera de Santa Catarina, 1996 

WL 925857 (E.D. Pa. 1996); Christine Varney, Ass’t Att’y Gen., U.S. Dep’t of Justice, Antitrust 

Div., Antitrust Federalism: Enhancing Federal/State Cooperation, Remarks as Prepared for the 

National Association of Attorneys General Columbia Law School State Attorneys General Program (Oct. 7, 2009), available at www.justice.gov/atr/speech/antitrust-federalism-enhancingfederalstate-cooperation. 15 Compare, Anti-Monopoly Guideline on Abuse of Intellectual Property Rights (promulgated 

in draft form by the Anti-Monopoly Comm’n of the State Council, Nat’l Dev. and Reform 

Comm’n, Dec. 31, 2015) (China), available at http://www.aipla.org/committees/committee _pages/Standards_and_Open_Source/Committee%20Documents/IPR%20Guideline%20%28draft 

%29%2020151231-EN.pdf with Provisions on Prohibition of Abuse of Intellectual Property 

Rights to Eliminate or Restrict Competition (promulgated on Apr. 7, 2015 by the State Admin. 

for Indus. and Commerce) (China), available at http://www.linklaters.com/pdfs/mkt/beijing/ 

19848090.pdf. 16 U.S. DEP’T OF JUSTICE & U.S. PATENT & TRADEMARK OFFICE, POLICY STATEMENT ON REMEDIES FOR STANDARDS-ESSENTIAL PATENTS SUBJECT TO VOLUNTARY F/RAND COMMITMENTS

(Jan. 8, 2013), available at www.justice.gov/sites/default/files/atr/legacy/2014/09/18/ 

290994.pdf. The Section notes that the proposed revisions to the IP Licensing Guidelines do not 

include a discussion of SEPs. 17FTC PAE STUDY, supra note 2. This study is the FTC’s ‘‘first use of its Section 6(b) authority to investigate transactions in the [IP] marketplace.’’ Id. at 14. 

ers,’’ 11 with the 1984 Guidelines’ statement that ‘‘substantial economies are afforded 

by vertical integration [and thus] the [agencies] will give relatively more weight to 

expected efficiencies in determining whether to challenge a vertical merger.’’ 12

Another important vertical issue, resale price maintenance (RPM), historically received a fair amount of attention through litigated cases. However, despite being the 

subject of two important Supreme Court cases that have ushered in the use of rule 

of reason analysis to this practice,13 RPM is an area of Federal antitrust law that 

has received little apparent attention in recent years.14 Recognizing that the current 

state of RPM law in both minimum and maximum price contexts requires sophisticated balancing of pro- and anti-competitive tendencies, the dearth of guidance from 

the Agencies in the form of either guidelines or litigated cases leaves open important questions in an area of law that can have a direct and substantial impact on 

consumers. For example, it would be beneficial for the Agencies to provide guidance 

on how they think about balancing asserted quality and service benefits that can 

flow from maintaining minimum prices for certain types of products against the potential that RPM reduces competition to the detriment of consumers. Perhaps equally important, the Agencies should provide guidance on how they would analyze the 

vigor of interbrand competition in markets where some producers have restricted 

intrabrand competition among distributors of their products. 

b. Intellectual Property 

Much valuable work could be devoted to providing guidance at the intersection 

of antitrust and intellectual property laws. The Agencies’ efforts in updating the 

Antitrust Guidelines for Intellectual Property are timely, especially in light of recently issued IP guidelines by several foreign jurisdictions (some of which diverge 

from generally accepted antitrust principles in the United States). For example, 

China has issued two separate sets of IP guidelines that conflict in several important areas with each other and with the position of other antitrust agencies, including in the United States.15 As noted previously, guidelines from the Division and 

FTC are critical for providing clarity in the international arena, and may help to 

achieve international conformity on important cross-border antitrust issues. 

The Agencies have issued policy statements regarding Standard Essential Patents 

(SEPs), such as the joint statement issued by the Division and the Patent and 

Trademark Office on remedies for SEP violations subject to Fair, Reasonable and 

Non-Discriminatory (FRAND) commitments.16 These have been helpful, although 

certain aspects of those reports raise issues that merit additional analysis regarding 

the legal rights of the parties involved. The Section applauds the FTC’s recent 6(b) 

Study on patent assertion entities that recommends, among other things, litigation 

reforms that lower the costs and burdens of defending an infringement suit but preserve the patent system’s beneficial role in promoting innovation and consumer welfare.17 The Section encourages the Agencies to continue undertaking studies of competitive issues in the IP arena designed to provide guidance where the potential exists for competitive harm. Likewise, clarification of enforcement policy for the interVerDate Nov 24 2008 07:37 Mar 18, 2019 Jkt 000000 PO 00000 Frm 00172 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\35459.TXT JACKIE
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18FTC v. Phoebe Putney Health Sys., 133 S. Ct. 1003 (2013). 19FTC v. N.C. State Bd. of Dental Exam’rs, 135 S. Ct. 1101 (2015). 20FED. TRADE COMM’N, FTC STAFF GUIDANCE ON ACTIVE SUPERVISION OF STATE REGULATORY

BOARDS CONTROLLED BY MARKET PARTICIPANTS (Oct. 2015), available at www.ftc.gov/system/ 

files/attachments/competition-policy-guidance/active_supervision_of_state_boards.pdf. At least 

two states, California and Oklahoma, have also issued guidance. See California Attorney General Opinion No. 15–402 (Sept. 10, 2015), Oklahoma Executive Order 2015–33 (July 17, 2015); 

Letter from E. Scott Pruitt, Att’y Gen. of Okla., to All Boards and Commissions with Active Market Participant Majorities (Aug. 17, 2015). 21See Comm’r Maureen K. Ohlhausen, Reflections on the Supreme Court’s North Carolina 

Dental Decision and the FTC’s Campaign to Rein in State Action Immunity, Remarks before 

the Heritage Foundation (Mar. 31, 2015), available at www.ftc.gov/system/files/documents/public_statements/634091/150403heritagedental.pdf; State Bd. of Dental Exam’rs, 135 S. Ct. at 

1116–17. 22See, e.g., Teladoc v. Texas Medical Board, No. 1-15-CV-343, 112 F. Supp. 3d 529 (W.D. Tex. 

2015) (granting motion for preliminary injunction against anticompetitive rulemaking by selfinterested licensing board); Robb v. Conn. Bd. of Veterinary Med., 157 F. Supp. 3d 130 (D. Conn. 

2016) (motion to dismiss granted in antitrust suit by veterinarian over his vaccination procedures); Axcess Med. Clinic v. Miss. Bd. of Med. Licensure, No. 3:15-cv-307 (S.D. Miss. 2015) (suit 

brought challenging board’s finding of unauthorized practice of medicine by non-physician owners of pain management practice) (subsequently dismissed); Henry et al., v. N.C. Acupuncture 

Licensing Bd. et al., No. 1:15-cv-831 (M.D.N.C. 2015) (suit by physical therapists and patients 

regarding cease and desist letter from the board regarding dry needling services). 23 Brief for Amicus United States of America, Solarcity v. Salt River Project Agricultural Improvement and Power District, No. 15-17302 (9th Cir. Jun. 7, 2016); Brief for the United States 

and Fed. T. Comm’n, Teladoc, No. 16–50017 n.1 (5th Cir. Sept. 9, 2016) (disclosing parallel FTC 

investigation). 24For example, the SMARTER Act would: (1) create identical standards for the FTC and Division for obtaining a preliminary injunction against a proposed merger or acquisition; and (2) 

eliminate the FTC’s ability to pursue administrative adjudication to challenge a proposed transaction when it seeks a preliminary injunction in court. H.R. 2745, 114th Cong. (2016). 

section between IP and antitrust would be welcome where uncertainty remains concerning the agencies’ views of the boundaries their policies. 

A further discussion of antitrust policy as it relates to IP issues is contained in 

Section IV-B infra. 

c. State Action Doctrine 

To its credit, the FTC has secured important decisions limiting the scope of the 

state action doctrine in two recent cases before the Supreme Court, Phoebe Putney 18

and North Carolina Dental Board.19 In the aftermath of North Carolina Dental 

Board and in response to the request for advice from state officials and others as 

to what constitutes antitrust compliance for state regulatory occupations, the FTC 

staff provided guidance on two issues: (1) When does a state regulatory board require active supervision by the state to invoke the state action defense? and (2) 

What factors are relevant to determining whether the active supervision requirement is satisfied? 20

While the above Guidance clarified some of the issues raised by the Supreme 

Court’s ruling on what constitutes active supervision, the approach taken by the 

FTC seems to be a statement of best practices and a safe harbor for state supervision of licensing boards. The factors articulated may be viewed as relevant by the 

FTC staff in interpreting the ‘‘constant requirements’’ of active supervision as set 

forth in North Carolina Dental Board and other Supreme Court precedents.21

There continues to be confusion about the Supreme Court’s ruling in North Carolina Dental Board and, at least with respect to licensing boards, concern by members of such boards about their potential antitrust exposure as individuals. A variety of cases alleging antitrust violations have been brought.22 As the FTC Staff 

Guidance notes, some cases raise issues that are unlikely to be found to have an 

anticompetitive effect on competition, as opposed to individual competitors. The 

agencies have filed amicus briefs in at least two recent Federal cases and have at 

least one pending investigation in this area.23

5. Legislation, Regulation, and Executive Action 

The Agencies have long advocated against efforts by regulators to limit the application of the antitrust laws. The Section encourages the Agencies to continue to review and comment on Federal legislation and regulations that affect competition 

policy, agency jurisdiction, and procedures,24 or the ability of agencies to effectuate 

their missions (including agency budgets). 

The Agencies should also continue to be vigilant in monitoring state actions and 

regulations that may be anticompetitive or designed to protect incumbent firms from 

competition. The Agencies should continue to provide their expert input with respect 

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25 E.g., Competition and the Potential Costs and Benefits of Professional Licensure, before the 

H. Comm. on Small Bus., 113th Cong. (2014) (statement of Andrew Gavil, Dir. Office of Policy 

Planning, Fed. Trade Comm’n) (providing an overview of the FTC’s advocacy efforts in the area 

of occupational licensing). 26 E.g., Workshop Transcript, The ‘‘Sharing’’ Economy: Issues Facing Platforms, Participants, 

and Regulators (June 9, 2015), available at www.ftc.gov/system/files/documents/public_events/ 

636241/sharing_economy_workshop_transcript.pdf (examining competition, consumer protection, 

and economic issues arising in the sharing economy). 27 E.g., Workshop Transcript, Auto Distribution: Current Issues and Future Trends (Jan. 19, 

2016), available at https://www.ftc.gov/system/files/documents/public_events/895193/auto_ 

distribution_transcript.pdf (including a discussion of restrictions on manufacturers’ ability to engage in direct selling and new technological developments affecting distribution, among other 

topics). 28 E.g., FED. TRADE COMM’N & DEP’T OF JUSTICE, ANTITRUST DIV., JOINT STATEMENT ON CER- TIFICATE-OF-NEED LAWS AND SOUTH CAROLINA HOUSE BILL 3250 (2016), available at 

www.ftc.gov/system/files/documents/advocacy_documents/joint-statement-federal-trade-commission-antitrust-division-u.s.department-justice-certificate-need-laws-south-carolina-house-bill3250/160111ftc-doj-sclaw.pdf (advocating for repeal of South Carolina’s CON law). The FTC has 

also submitted comments in opposition to New York, Virginia, Tennessee, West Virginia, and 

Alabama COPA laws. See, e.g., Comment by the FTC regarding Certificate of Public Advantage 

Applications Filed pursuant to New York Public Health Law, 10 NYCRR, Subpart 83–1 (Apr. 

22, 2015), available at https://www.ftc.gov/system/files/documents/advocacy_documents/ftcstaff-comment-center-health-care-policy-resource-development-office-primary-care-health-systems/ 

150422newyorkhealth.pdf. 29 Exec. Order 13,725, 81 Fed. Reg. 23,417 (Apr. 15, 2016), available at www.whitehouse.gov/ 

the-press-office/2016/04/15/executive-order-steps-increase-competition-and-better-inform-consu 

mers. 30Such requirement would be similar to the regulatory impact analysis that is already required of executive agencies undertaking new regulatory initiatives. See Exec. Order 12,866, 58 

Fed. Reg. 51,735 (Sept. 30, 1993); OFFICE OF MGMT. & BUDGET, EXEC. OFFICE OF THE PRESIDENT, CIRCULAR A–4, REGULATORY ANALYSIS (2003). 

to state laws that: (1) involve occupational licensing;25 (2) add unnecessary new barriers to entry to platform and sharing companies, like Uber or AirBnB;26 (3) place 

anachronistic distribution requirements on innovative, vertically integrated companies (e.g., laws to exclude car manufacturers from operating in states without physical dealer locations);27 and (4) circumvent the antitrust laws in the healthcare area, 

including, but not limited to, Certificate of Public Advantage (COPA) laws and Certificate of Need (CON) laws.28

To effectively and efficiently perform their antitrust and consumer protection missions, the Agencies must receive sufficient funding to attract and retain competent 

staff, conduct investigations, and engage in all the other enforcement activities on 

which consumer welfare depends. Given that the U.S. economy and population are 

projected to grow, it is plausible that the Agencies would need more resources to 

enable them to continue to effectively carry out their role in protecting consumers, 

but as always in the competition for appropriations, a compelling argument must 

be articulated. We encourage the Agencies to advocate for the resources they require, and to ensure that the quality of their work is not undermined by the quantity of demands placed upon them. 

Finally, the Section notes that, on April 15, 2016, President Obama issued an Executive Order (E.O.) requiring executive agencies to ‘‘identify specific actions that 

they can take in their areas of responsibility to build upon efforts to detect [competitive] abuses . . . [and] address undue burdens on competition.’’ 29 This E.O. opens 

opportunities for the Agencies to ensure that sound competition policy is appropriately and effectively recognized and utilized by executive agencies and departments. The Division and FTC should participate in the antitrust reviews. Their advocacy would enhance the regulatory impact analyses that agencies are already required to undertake. In light of this mandate, the Administration may also consider 

whether a public competitive impact analysis should be undertaken in connection 

with proposed regulations.30

B. Cartel Enforcement 

1. Introduction 

Over the past two decades, the Division has transformed cartel enforcement for 

the better. The Division’s enforcement efforts have had unparalleled success, an accomplishment that has had dramatic global implications. Today, more than 120 

countries have cartel enforcement regimes; bid-rigging, market allocation and pricefixing are now criminal offenses in more than 20 of these jurisdictions. From the 

lysine and citric acid cases that first raised the specter of parallel enforcement actions, and the nine-digit fines and substantial jail sentences, to the more recent, 

sprawling automotive parts investigations, prosecution and defense of international 

171 

31 U.S. Dep’t of Justice, Congressional Submission FY 2017 Performance Budget 4, available 

at www.justice.gov/jmd/file/821001/download. 

32 Id. 33 U.S. Dep’t of Justice, Sherman Act Violations Yielding a Corporate Fine of $10 Million or 

More (Sept. 12, 2016), available at www.justice.gov/atr/sherman-act-violations-yielding-corporate-fine-10-million-or-more. 34See, e.g., Scott Hammond, Deputy Ass’t Att’y Gen., Antitrust Div., U.S. Dep’t of Justice, The 

Evolution of Criminal Antitrust Enforcement Over the Last Two Decades, Remarks at the 24th 

Annual Nat’l Institute on White Collar Crime (Feb. 25, 2010), available at www.justice.gov/atr/ 

file/518241/download. 35 Id. 36See, e.g., Scott Hammond, Deputy Ass’t Att’y Gen., U.S. Dep’t of Justice, Antitrust Div., Cornerstones of an Effective Leniency Program, Presented before the ICN Workshop on Leniency 

Programs (Nov. 22–23, 2004), available at www.justice.gov/atr/speech/cornerstones-effective-leniency-program. 37See, e.g., Hammond, supra note 35. 

cartel investigations have grown increasingly complex in the United States and in 

jurisdictions around the world. Over the last decade, the Division has collected more than $11 billion in criminal 

fines and penalties; 98 percent of these fines were collected in connection with prosecution of international cartels.31 The average corporate fine has also increased over 

the last decade. Until 1994, the largest corporate fine imposed for a single Sherman 

Act violation was $6 million.32 Today, fines of $10 million or more are commonplace, including fines in excess of $100 million.33 More than sanctions, these amounts represent a fraction of the value to consumers of this enforcement activity. 

The Section commends the Division on its remarkable successes, and offers several recommendations to ensure that the criminal enforcement program remains vibrant and effectively deters future violations. 

2. Corporate and Individual Leniency Policies 

The Division adopted the current version of its Corporate and Individual Leniency 

Policies in 1993, and these policies remain the mainstay of the Division’s anti-cartel 

enforcement efforts.34

These policies work because they are transparent and because the Division promotes them widely and implements them carefully and consistently.35 The Section 

encourages the Division to maintain these efforts, seek out opportunities to promote 

the Leniency Policies, and clarify any uncertainties through public statements. Practical guidance in the form of a ‘‘case study’’ addressing requirements or expectations 

for securing first-in conditional leniency (e.g., timing, document productions, proffers, and employee interviews) and unconditional leniency (e.g., full or partial restitution) would further the bar’s and the business community’s understanding of the 

Leniency Programs and what applicants should expect when seeking conditional 

and, ultimately, unconditional leniency. The Section encourages the Division to continue its efforts to increase transparency and provide information about its operations. 

The Division has played, and continues to play, a leading role in developing cartel 

prosecution processes, including the development and operation of its own leniency 

programs for corporations and individuals. The Section commends the Division for 

making these developments transparent to the world through its prosecutions, 

speeches, policy statements, and model agreements.36 The Division also takes seriously its emissary responsibilities by having its most senior and experienced prosecutors attend antitrust conferences, such as the International Cartel Workshop, the 

Organisation for Economic Co-operation and Development (OECD), and the ICN. 

The Division also meets formally and informally with prosecutors and enforcers the 

world over. Leniency has become the hallmark of nearly every cartel enforcement 

regime around the world; more than 50 countries have adopted leniency programs.37

We encourage the Division to remain engaged with these activities and events in 

order to promote the adoption and operation of transparent (and ultimately mutually beneficial) leniency programs throughout the world. 

3. Sentencing Complexities 

A concern is spreading among the members of the antitrust defense bar that sentencing and fining processes for cartel prosecutions here and abroad are becoming 

too complex to understand. The ranges of imposed sentences and fines are so broad 

that it is unclear as to how such outcomes were determined. Transparent and fair 

outcomes following cartel investigations are important for the companies and individuals that find themselves in such matters. If the resolution (i.e., jail time to be 

served and the fines to be paid) cannot be understood or is perceived to be unfair, 

companies and individuals may choose not to cooperate. In the past, the Division 

172 

38For example, the Division recently released updated annotated versions of the model corporate and individual plea agreements; the Section commends the Division for continuing to 

offer such practical and helpful guidance. See U.S. Dep’t of Justice, Antitrust Div., Model Annotated Corporate Plea Agreement (Aug. 29, 2016), available at https://www.justice.gov/atr/file/ 

889021/download; U.S. Dep’t of Justice, Antitrust Div., Model Annotated Individual Plea Agreement (Aug. 29, 2016), available at https://www.justice.gov/atr/file/888481/download. See also 

United States v. Kabaya Indus. Co., Ltd. d/b/a KYB Corp., NO. 1:15-cr-98 (S.D. Ohio 2015); Gary 

R. Spratling, Deputy Ass’t Att’y Gen., Antitrust Div., U.S. Dep’t of Justice, Transparency in Enforcement Maximizes Cooperation from Antitrust Offenders, Address at Fordham University 

School of Law (Oct. 15, 1999), available at https://www.justice.gov/atr/speech/transparency-enforcement-maximizes-cooperation-antitrust-offenders; Hammond, supra note 35. 39 In the 2012 Presidential Transition Report, the Section recommended that ‘‘given the rapidly expanding state of global cartel enforcement, consideration might be given to whether it 

would be worthwhile for the Division to coordinate with foreign jurisdictions on how VOC calculations are handled in order to create a uniform approach and more effectively allocate VOC 

among relevant jurisdictions.’’ The Section renews this recommendation. 40 U.S. Dep’t of Justice, Antitrust Div., Division Update Spring 2015, available at 

www.justice.gov/atr/division-update/2015/criminal-program-update. 41 U.S. Dep’t of Justice, Antitrust Div., Division Update Spring 2016, Criminal Enforcement 

Trends Charts, available at www.justice.gov/atr/criminal-enforcement-fine-and-jail-charts. 42FY 2017 Performance Budget, supra note 32. 43See Memorandum of Deputy Att’y Gen. Sally Quinn Yates, Individual Accountability for 

Corporate Wrongdoing (Sept. 9, 2015), available at www.justice.gov/dag/file/769036/download. 44See, e.g., Brent Snyder, Deputy Ass’t Att’y Gen., U.S. Dep’t of Justice, Antitrust Div., Individual Accountability for Antitrust Crimes, Remarks at the Yale Global Antitrust Enforcement 

Conference (Feb. 19, 2016), available at www.justice.gov/opa/speech/deputy-assistant-attorneygeneral-brent-snyder-delivers-remarks-yale-global-antitrust. 

has consistently provided guidance and transparency with respect to its sentencing 

policies and procedures, including the interpretation and implementation of the Sentencing Guidelines.38 The Section encourages the Division to reexamine the fundamental building blocks of the sentencing process, including, most importantly, the 

volume of commerce (VOC) determinations in domestic and international cartel 

cases. VOC determinations can present highly troubling risks of ‘‘double counting’’ 

and unfair sentencing outcomes in international cartel cases. These risks are heightened in cases involving component products and in cases where enforcers in different jurisdictions adopt differing approaches to calculating the relevant VOC. The 

Section encourages the Division to adopt measures for treating VOC determinations 

consistently across its cases and to promote greater coordination and consistency 

among enforcers making VOC determinations in international cartel cases. If, upon 

a closer review, the Division identifies gaps in its prior guidance, the Section encourages the Division to issue general statements of enforcement policy about VOC 

determinations or any other factor in the sentencing process.39

4. Individual Responsibility 

The Division has always focused considerable attention on the role of individual 

executives in antitrust enforcement and over the years has developed an aggressive 

and increasingly well-calibrated record of incarceration of the executives who most 

heavily participated in and personally directed the illegal conduct. The United 

States is sending twice as many individuals to prison for cartel offenses as it did 

in the 1990s.40 During this period, average prison terms have grown to two years.41

The Division has been especially successful at building cases against foreign executives in international cartel cases. To date, nearly 90 foreign defendants have served 

or have been sentenced to serve prison sentences in the U.S. for antitrust violations.42

In the wake of the Yates Memo,43 the Division has intensified its focus on holding 

individuals accountable.44 In relevant part, the Yates Memo requires the cooperating corporation to provide all information against its own culpable executives in 

order to obtain corporate credit in plea (and potentially leniency) negotiations. The 

Yates Memo provides that the Department will not release executives as part of a 

cooperation deal with a corporation or resolve matters with the corporation until the 

Department has a clear plan to resolve actions against the individuals. Finally, the 

Yates Memo instructs the Department to pursue prosecution of executives in both 

civil and criminal cases. 

The Section encourages the Division to provide clear and transparent guidance as 

to how the Yates Memo will affect Division enforcement and prosecution efforts. 

Specifically, further guidance is needed on the definition and identification of the 

‘‘highest ranking, most culpable employee,’’ and how and when the Division will negotiate ‘‘carve-in’’ and ‘‘carve-out’’ determinations. The Section also urges the Division to provide explicit guidance addressing when, if ever, individuals would be 

173 

45See, e.g., Brent Snyder, Deputy Ass’t Att’y Gen., U.S. Dep’t of Justice, Antitrust Div., Remarks at the Sixth Annual Chicago Forum on Int’l Antitrust, (Jun. 8, 2015) available at https:// 

www.justice.gov/opa/speech/deputy-assistant-attorney-general-brent-snyder-delivers-remarkssixth-annual-chicago. 46 United States v. Kayaba Indus. Co., Ltd. d/b/a/KYB Corp., No. 1:15-cr-98 (S.D. Ohio 2015). 47 U.S. Sentencing Guidelines Manual §§ 8B2.1, 8D1.4 (U.S. Sentencing Comm’n 2013). 48 Cf. Brent Snyder, Deputy Ass’t Att’y Gen., Compliance Is a Culture, Not Just a Policy, Remarks as Prepared for the International Chamber of Commerce and United States Council of 

International Business Joint Antitrust Compliance Workshop (Sept. 9, 2014), available at 

www.justice.gov/atr/file/517796/download. 49See, e.g., Thomas O. Barnett, Ass’t Att’y Gen., Antitrust Div., U.S. Dep’t of Justice, Global 

Antitrust Enforcement, Speech at Georgetown Law Center Global Antitrust Enforcement Symposium (Sept. 26, 2007), https://www.justice.gov/atr/speech/global-antitrust-enforcement; ANTITRUST MODERNIZATION COMM’N, REPORT AND RECOMMENDATIONS 247 (2007), available at 

http://govinfo.library.unt.edu/amc/report_recommendation/amc_final_report.pdf. 50See, e.g., Hammond, supra note 35. 

charged in civil antitrust enforcement actions and explain the rationale for that 

practice. 

5. Compliance Programs and Sentencing Credit 

The Section commends the Division’s recognition of companies’ compliance efforts 

in recent public statements and sentencing proceedings.45 To date, the Division has 

offered sentencing benefits to corporate defendants that implemented more robust 

antitrust cartel compliance measures after their prior misconduct had been discovered.46 The Section applauds this development and believes that it brings the Division closer in line with the provisions of the United States Sentencing Guidelines.47

The Section encourages the Division to expand its review of compliance programs 

in place prior to the occurrence of the misconduct, and to consider providing appropriate credit for robust compliance programs. Such recognition would reward companies that go well beyond adopting corporate statements and conducting online training, and encourage more companies to engage in sample audits of behavior, review 

trade association travel and agendas, document investigative and disciplinary procedures, monitor e-mail traffic for competitor contacts, and adopt a ‘‘tone at the top’’ 

that deters competitor misconduct. The Section respectfully suggests that the opportunity to earn sentencing credit for robust compliance programs would be a very attractive ‘‘carrot’’ that would foster compliance well beyond individual enforcement 

actions.48

As a way to proceed, the Section recommends that the Division pursue an open 

dialogue with the bar and business community regarding adoption of ‘‘robust’’ and 

effective compliance methods and improved detection and screening techniques. A 

first step might be a Division-hosted roundtable discussion that compares and contrasts what works and what does not work, what is ‘‘exemplary’’ vs. ordinary, and 

what could be scored positively under the United States Sentencing Guidelines and 

by the Division. Another step could be a request for comments from the antitrust 

bar and business community in order to develop antitrust-specific minimum compliance guidelines and identify those exemplary compliance measures which could support a reduction in sentencing upon the detection of offense. 

6. Cartel Detection 

Cartels are among the greatest threats to a competitive economy, and effective 

cartel enforcement in the United States is one of the most important missions of 

modern antitrust law.49 The Division’s successes in pursuing this mission have depended in large part on the contributions of leniency applicants and other informants.50 To expand on the success of its program, the Section encourages the Division 

to be more proactive in identifying possible cartels. Such activity might include the 

examination of empirical evidence to see where cartel pricing may exist, intersected 

with or supplemented by examination of settings particularly conducive to collusion. 

Detection would be enhanced through greater outreach to industry trade groups, 

large buyers, or others that may be in a position to observe suspicious activity. 

What, if any, enforcement action would then be appropriate will depend on the magnitude of possible overcharges, the nature and extent of preliminary indications that 

illegal activity may be taking place, and the feasibility of focused follow-on activity 

(rather than fishing expeditions) that might identify whether, in fact, serious violations have occurred. 

The Division’s outreach and education efforts with federal, state and local law enforcement agencies and state attorneys general have been helpful. These ‘‘on-theground’’ agencies are well-suited to detect cartels and to learn about potential antitrust misconduct, for example, in association with local procurements. In the past, 

the Division’s close relationships with these local agencies generated many longVerDate Nov 24 2008 07:37 Mar 18, 2019 Jkt 000000 PO 00000 Frm 00177 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\35459.TXT JACKIE
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51See R. Lanzillotti, The Great School Milk Conspiracies of the 1980s, 11 REV. OF INDUS. ORG. 

413 (1996); Press Release, U.S. Dep’t of Justice, Justice Department Reaches Settlement with 

Dean Foods Company (Mar. 29, 2011), available at https://www.justice.gov/opa/pr/justice-department-reaches-settlement-dean-foods-company; Press Release, U.S. Dep’t of Justice, Five 

School Bus Owners Indicted for Bid-Rigging and Fraud Conspiracies at Puerto Rico Public 

School Bus Auction (May 21, 2015), available at https://www.justice.gov/opa/pr/five-schoolbus-owners-indicted-bid-rigging-and-fraud-conspiracies-puerto-rico-public-school; Anne K. Bingham, Ass’t Att’y Gen., and Gary R. Spratling, Deputy Ass’t Att’y Gen., Antitrust Div., U.S. Dep’t 

of Justice, Criminal Antitrust Enforcement, Presentation before the Criminal Antitrust Law and 

Procedure Workshop, ABA Section of Antitrust Law (Feb. 23, 1995), available at https:// 

www.justice.gov/atr/speech/criminal-antitrust-enforcement-joint-address-aag-anne-k-bingamanand-daag-gary-rspratling. 52Press Release, U.S. Dep’t of Justice, Navy Civilian Engineer Pleads Guilty to Attempted Espionage (June 15, 2015), available at https://www.justice.gov/opa/pr/navy-civilian-engineerpleads-guilty-attempted-espionage; Press Release, U.S. Dep’t of Justice, Former U.S. Navy Contractor Pleads Guilty to False Statement Charges (Feb. 23, 2016), available at https:// 

www.justice.gov/usao-mdpa/pr/former-us-navy-contractor-pleads-guilty-false-statement-charges; 

Scott D. Hammond, Ass’t Att’y Gen., Antitrust Div., U.S. Dep’t of Justice, Detecting and Deterring Cartel Activity through Effective Leniency Program, Speech Before the International Workshop on Cartels (Nov. 21–22, 2000), available at https://www.justice.gov/atr/speech/detectingand-deterring-cartel-activity-through-effective-leniency-program. 53Scott Hammond, Ass’t Att’y Gen., Antitrust Div., U.S. Dep’t of Justice, An Update of the 

Antitrust Division’s Criminal Enforcement Program, Speech Before the ABA Section of Antitrust 

Law Cartel Enforcement Roundtable (Nov. 16, 2005), available at https://www.justice.gov/atr/ 

speech/update-antitrust-divisions-criminal-enforcement-program. 54See European Commission, Competition, Cartels, http://ec.europa.eu/competition/cartels/ 

leniency/leniency.html. 

standing and important prosecutions successes, such as with the school milk and 

school bus conspiracies.51 Military procurement cartel cases were also built in cooperation with Department of Defense Inspector Generals and related investigators.52

7. Prohibitions on Leniency Disclosures 

The Section commends the Division on its realistic and balanced view regarding 

the demands on public and even private companies to make appropriate constituent 

(e.g., employee, shareholder, and auditor) disclosures about antitrust events, including the application for, and the receipt of, conditional leniency or the service of a 

grand jury subpoena at the outset of an investigation. The Division recognizes that 

its immediate investigative interests must be balanced against the obligations of its 

investigative subjects and targets to serve the important public interest of keeping 

constituents, including actual and prospective shareholders, informed of material developments.53 By contrast, leniency programs in other jurisdictions like the European Commission go further in restricting a cooperating company’s ability to disclose the existence and content of a leniency application, and statements submitted 

may not be used for any other purpose other than the Commission’s own cartel proceedings.54 The Section believes that confidentiality restrictions imposed by other 

competition authorities deprive U.S. firms of the opportunity to satisfy investor or 

other constituent needs for material information, and may conflict with U.S. securities law requirements. The Section encourages the Division to provide private or 

public consultative guidance to these other jurisdictions regarding confidentiality restrictions (whether outright bans or prior-consent requirements) in leniency programs that would force a company to choose between the benefits of the program 

and the need to inform constituents of material developments. 

C. Civil Enforcement and Litigation 

Antitrust litigation is notoriously complex—a daunting exercise for the litigants 

and the courts. The typical case involves substantial testimony from economists and 

other experts, esoteric theories, hypothetical constructs, and predictions about the 

future, all before a judge who may never have encountered such a case before. The 

stakes can be extraordinarily high, with billions of dollars and the structures of industries riding on the decisions. The quality of court decisions regarding mergers 

and other antitrust cases is central to the Agencies’ work, valuable to businesses 

seeking to better understand what types of conduct are lawful, and critical to the 

economy that depends on the right outcomes. Accordingly, improvements in the 

quality of adjudication could yield substantial payoffs. 

The Section proposes that the Agencies launch a joint project to identify and recommend potential improvements in the conduct of antitrust civil litigation in the 

Federal courts. We recommend that the Agencies convene a working group that includes their most experienced litigators, members of the private bar, economic consultants, and Federal judges to formulate proposals regarding the conduct of comVerDate Nov 24 2008 07:37 Mar 18, 2019 Jkt 000000 PO 00000 Frm 00178 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\35459.TXT JACKIE
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55While the Section provides these two topics by way of example, and recommends that these 

and other issues be the subject of further exploration and discussion, the Section has not considered the merits of these proposals and does not take a position on their adoption. 56Other jurisdictions have experimented with a form of this approach, sometimes referred to 

by supporters and critics alike as ‘‘hot tubbing.’’ CIVIL JUSTICE COUNCIL, CONCURRENT EXPERT

EVIDENCE AND ‘HOT-TUBBING’ IN ENGLISH LITIGATION SINCE THE ‘JACKSON REFORMS’: A LEGAL

AND EMPIRICAL STUDY (July 2016); Steven Rares, Using the ‘‘Hot Tub’’—How Concurrent Expert 

Evidence Aids Understanding Issues, 95 J. INTELL. AND INDUST. PROP. SOC’Y OF AUSTRALIA AND

NEW ZEALAND 28 (2013). Some commentators have advocated for its adoption in the United 

States. See Scott Welch, From Witness Box to the Hot Tub: How the ‘‘Hot Tub’’ Approach to Expert Witnesses Might Relax an American Finder of Fact, 5 J. INT’L COMM. L. AND TECH. 154 

(2010) (‘‘The Australian concurrent evidence procedure, informally known as ‘‘hot tubbing,’’ may 

provide an excellent opportunity for a court to more thoroughly understand the issues between, 

and testimony of, expert witnesses.’’). 57See J. Gregory Sidak, Court-Appointed Neutral Economic Experts, 9(2) J. COMPETITION L. 

& ECON., 359–394 (2013) (arguing that ‘‘wider use of Rule 706 would assist the judge and jury 

and would facilitate the prompt settlement of intellectual property, antitrust, securities, contract, business tort, and other complex disputes.’’). 58Garry Downes, Problems with Expert Evidence: Are Single or Court-Appointed Experts the 

Answer?, 15 J. JUDICIAL ADMIN. 185 (2006). 59See Rares, supra note 57. 

plex antitrust adjudication. Involvement of these stakeholders in the formulation of 

the proposals will enhance their credibility as balanced enhancements to the litigation process and increase the likelihood of their adoption and success. The Agencies 

could use the recommendations from the working group to suggest alternative 

modes of proceeding in future cases. Lessons learned from these experiences could 

enable more informed decisions about the efficacy of the techniques implemented, 

what refinements or supplements may be warranted, and which innovations should 

be implemented more broadly. 

The Section notes that the Agencies are in a unique position both to convene such 

a working group and to foster the implementation of new approaches to litigation. 

For example, if a particular proposal were to be endorsed, the Agencies could announce, in advance, their intention to recommend it to judges in the next set of 

cases they bring. This approach would avoid the concern that the Agencies were proposing procedural suggestions opportunistically. 

Topics that may merit exploration and discussion include the sequencing of presentations at trial and increased use of court-appointed experts.55 With respect to the 

first possible topic, the working group might explore alternative trial structures, including the organization of trial presentations by issue, rather than by party (e.g., 

where the plaintiff or government presents its entire case, followed by defendant). 

Similarly, experts’ appearances could be broken up and sequenced so that testimony 

addressing a particular question might be followed immediately by the opposing expert’s testimony on the same topic, with rebuttal right after that. Another emerging 

concept that has faced some resistance but nevertheless warrants experimentation 

and further study involves having experts appear side by side so that questions may 

be put to both experts simultaneously and to allow for direct exchanges between the 

experts.56

With respect to the second possible topic, the working group might explore ways 

in which the parties and the court could make greater use of court-appointed experts.57 A court-appointed expert might supplement parties’ experts, either operating independently or acting after the two sides’ expert reports have been submitted. A court-appointed expert might also be used to aid in the conduct of trial. 

For example, if the two parties’ experts were to testify side by side, a court-appointed expert might help to question them or join the group in the discussion, offering opinions in addition to posing queries.58 Court-appointed experts might also assist in the structuring of litigation. Court-appointed experts might be able to identify an issue that, if addressed early, may more quickly and efficiently resolve a dispute or narrow disagreement. Before trial, they might distinguish issues on which 

the contesting experts largely agree and focus the trial on areas where disagreement 

remains. After trial, they might articulate significant areas of remaining disagreement and provide a common template for addressing them in post-trial briefings. 

The Section, in proposing that the working group convened by the Agencies consider these and other topics, is motivated in part by positive reports on the use of 

related techniques in other legal systems. For example, in Australia, Canada, and 

New Zealand, the courts sometimes have experts appear together,59 and arbitration 

is often successful with a more informal and interactive approach. These other models may help generate ideas and give reason to believe that alternatives exist that 

may be superior. 

176 

60The Section calculated the above-referenced data as of October 17, 2016. See Press Releases, 

Antitrust Div., Dep’t of Justice, available at www.justice.gov/justice-news?keys=&component= 

376&topic=All&date[value][month]=&date[value][year]=&items_per_page=25 and Press Releases, 

Fed. Trade Comm’n Press Releases, available at www.ftc.gov/news-events/press-releases. 

D. Mergers 

Antitrust merger enforcement should remain a major focus of the Agencies. While 

there is broad support for the basic framework of U.S. antitrust merger analysis, 

concerns exist with the level of transparency into how that framework is being applied by the Agencies, the effectiveness of merger policy and the tools used to apply 

it, and the impact of procedural differences between merger litigation conducted by 

the Division and the FTC. The Section recommends that the Agencies address concerns about transparency and effectiveness through more detailed use of Competitive Impact Statements and Aids to Analysis of Public Comment, increased utilization of closing statements, and public presentation of detailed merger retrospective 

studies. To address concerns over procedural differences between the two Federal 

enforcement agencies in merger litigation, the Section recommends that the Administration endorse legislation that would require the FTC to invoke Section 15 of the 

Clayton Act, 15 U.S.C. § 25, to challenge unconsummated mergers in Federal court. 

1. Increased Transparency 

While the Agencies traditionally have maintained a shared commitment to providing transparency in their approach to merger enforcement, the Section believes 

that there would be substantial public benefit if the Agencies were to provide even 

greater transparency into their thinking about merger enforcement practices and 

standards. Transparency increases public confidence in merger enforcement decisions, enables more rigorous assessment of the effectiveness of merger policy, and 

contributes to general deterrence of transactions the Agencies believe to be anticompetitive by enabling merging parties and their counsel to self-police against 

more clearly revealed standards (thus also conserving agency resources). By increasing transparency in U.S. merger enforcement, the Agencies will also be modeling 

best practices that can be adopted by enforcement authorities around the world— 

authorities that play an increasingly significant role in multi-jurisdictional merger 

review. 

Litigated merger cases present great opportunities for transparency, as the Agencies must prove their cases in court, but there are ways in which the merger litigation process might be improved to increase transparency. The Section recommends 

that the Agencies, while protecting legitimate interests in the confidentiality of commercially and competitively sensitive business information, should encourage the 

courts (1) to conduct merger trials in open court, and (2) to require public versions 

of expert reports so that analytical models, empirical methods, and their application 

can be evaluated. 

The inclusion of more detailed discussions of analytical models and empirical 

methods in some Division Competitive Impact Statements and FTC Aids to Analysis 

of Public Comment has fostered greater transparency into the thinking behind settled merger investigations. More often than not, however, those important documents merely reiterate points made in the complaint without offering greater insight into the foundations for those allegations. The Section recommends that the 

Agencies further enhance transparency by making greater use of Competitive Impact Statements and Aids to Analysis of Public Comment to reveal the foundations 

both for complaint allegations and remedies accepted. 

Increased utilization of closing statements for those merger investigations not resulting in agency action is perhaps the greatest source of incremental transparency 

in that public knowledge of those matters is the weakest. After averaging over three 

closing statements per year in investigations of Hart-Scott-Rodino (HSR) reportable 

transactions closed between 2011 and 2013, the Agencies have issued only three 

closing statements in total for investigations of HSR reportable transactions closed 

between 2014 and the present, and none this year.60 The Section recommends that 

the Agencies commit to issuing more frequent closing statements in most HartScott-Rodino reportable second request investigations not resulting in a contested 

complaint or consent order, particularly to clarify important considerations of enforcement policy or implementation. Over time, the Agencies should consider issuing 

closing statements in all Hart-Scott-Rodino reportable second request investigations. 

In the past four Fiscal Years, the Agencies have commenced fewer than fifty second 

request investigations per year, more than half of which resulted in contested complaints or consent orders, so this suggestion would require issuing only fewer than 

177 

61See FED. TRADE COMM’N AND DEP’T OF JUSTICE, HART-SCOTT-RODINO ANN. REP. APP’X A 

(FY 2015), available at www.ftc.gov/system/files/documents/reports/federal-trade-commissionbureau-competition-department-justice-antitrust-division-hart-scott-rodino/160801hsrreport.pdf. 62See EUROPEAN COMMISSION MERGER STATISTICS 2016, available at http://ec.europa.eu/competition/mergers/statistics.pdf. 63See COUNCIL OF ECON. ADVISERS, ISSUES, BRIEF, BENEFITS OF COMPETITION AND INDICATORS OF MARKET POWER 9 (Updated May 2016), available at www.whitehouse.gov/sites/default/ 

files/page/files/20160502_competition_issue_brief_updated_cea.pdf. 64See Dennis W. Carlton, Why We Need to Measure the Effect of Merger Policy and How to 

Do It, 5 COMPETITION POL’Y INT’L 1 (2009). 

twenty-five closing statements per year.61 By way of comparison, the European 

Commission issued the equivalent of closing statements in roughly seventy transactions per year over the past four calendar years.62

Finally, the Section recommends that retrospective analysis of past enforcement 

decisions—challenges brought, transactions remedied by consent, and those cleared 

without agency action—should be performed and the results published with greater 

frequency in order to enhance transparency. As discussed in more detail infra, 

transparency would be enhanced by the Agencies presenting retrospectives in open 

workshops that include detailed presentation and discussion of the methods and 

models employed in past enforcement decisions and how those methods and models 

were implemented. 

2. Evaluating the Effectiveness of Enforcement Policy, Tools and Remedies 

Despite broad consensus in the antitrust community in support of the basic framework of antitrust merger analysis, questions have been raised about the effectiveness of merger policy, linking merger policy to various measures of industry concentration regarded as indicators of declining competition.63 The Section recommends that the Agencies utilize retrospective analysis of past merger enforcement decisions to lead a detailed examination of how well merger policy has worked 

and whether the tools being used to evaluate and remedy mergers are adequate. 

There is growing literature on the effect of past mergers. Most merger retrospective studies focus on price effects, but interpretation of the results of those studies 

may be confounded by quality effects arising from the merger under study or other 

efficiencies that benefit consumers. For this reason, it is the combination of higher 

prices and reduced output that is required to conclude that a merger was anti-competitive.64 The Section encourages the Agencies to support and undertake merger 

retrospective studies with price and output effects as part of the study. 

Price and output are not the only factors that should be studied to assess a merger’s effect. Particularly given the increased emphasis in recent enforcement decisions on the innovation effects of mergers, the Section recommends that post-merger 

effects on new product introductions, research and development, and other measures 

of innovation should also be analyzed as part of merger retrospective studies. The 

impact of mergers and merger enforcement on the behavior of firms in the industry 

should also be part of the Agencies’ merger retrospective studies, particularly 

whether enforcement in an industry might deter future efficient mergers that might 

otherwise go forward. In sum, the Section recommends that the Agencies undertake 

merger retrospectives that take into account not just the effect of mergers on price, 

but also the effects of mergers on output, product innovation, and future merger activity. 

In order to assess the adequacy of the tools used to evaluate mergers, there also 

needs to be an assessment of the accuracy of those tools in predicting merger outcomes. The Section recommends that the Agencies develop a clear record for each 

merger of what tools and models were used along with the models’ associated assumptions and predictions. With this record in place, the Agencies could then revisit 

those analyses post-merger in order to determine which models and assumptions 

worked best. For example, the Agencies could examine how well econometric merger 

simulation models do in predicting post-merger prices, output, and market shares 

and which assumptions (e.g., assumed efficiencies, assumed strategies employed by 

the firms, the instability or imprecision of the parameters estimated in the demand 

system, or the failure to account for new product introductions) in retrospect were 

ones that were shown later to be false. The Agencies could also examine whether 

static merger simulation models were more useful than crude analysis where price 

is assumed to be a function of market concentration. Similarly, the Agencies could 

determine the performance of gross upward pricing pressure indices (GUPPIs) compared to market shares or static simulation models. 

Problematic mergers can be remedied by a variety of means, including structural 

solutions—divestitures handled either prior or subsequent to the merger being remedied—and behavioral solutions, though the latter are more controversial. ApproVerDate Nov 24 2008 07:37 Mar 18, 2019 Jkt 000000 PO 00000 Frm 00181 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\35459.TXT JACKIE
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65See Renata Hesse, Acting Ass’t Att’y Gen., Antitrust Div., U.S. Dep’t of Justice, And Never 

the Twain Shall Meet?: Connecting Popular and Professional Visions for Antitrust Enforcement, 

Opening Remarks at the 2016 Global Antitrust Enforcement Symposium 15 (Sept. 20, 2016), 

available at www.justice.gov/opa/speech/acting-assistant-attorney-general-renata-heese-antitrust-division-delivers-opening. 66See id.; see also Edith Ramirez, Chairwoman, Fed. Trade Comm’n, Keynote Remarks at the 

Tenth Annual Global Antitrust Enforcement Symposium 8–9 (Sept. 20, 2016), available at 

https://www.ftc.gov/system/files/documents/public_statements/985423/ramirez_global_antitru st_enforcement_symposium_keynote_remarks_9-20-16.pdf. 67See AM. BAR ASS’N, SECTION OF ANTITRUST LAW, PRESIDENTIAL TRANSITION REPORT: THE

STATE OF ANTITRUST ENFORCEMENT 2012 at 9–10 (Feb. 2013) [hereinafter 2012 PRESIDENTIAL

TRANSITION REPORT], available at http://www.americanbar.org/content/dam/aba/administrative/antitrust_law/at_comments_presidential_201302.authcheckdam.pdf. 68 Id. 69See The Standard Merger and Acquisition Reviews Through Equal Rules Act of 2015, 

H.R. 2745 114th Cong. (as passed by the House, March 23, 2016), available at 

www.congress.gov/bill/114th-congress/house-bill/2745; ANTITRUST MODERNIZATION COMM’N, REPORT AND RECOMMENDATIONS 131–32, 138–41 (Apr. 2007), available at http://gov 

info.library.unt.edu/amc/report_recommendation/amc_final_report.pdf. 70 AM. BAR ASS’N, REPORT OF THE ABA COMMISSION TO STUDY THE FEDERAL TRADE COMMIS- SION (1969) [hereinafter Kirkpatrick Report]. The Kirkpatrick Report was commissioned by 

President Nixon in response to a scathing critique of the FTC by a Ralph Nader-sponsored group 

of law students. See E. COX, R. FELLMETH & J. SCHULZ, THE CONSUMER AND THE FEDERAL

TRADE COMMISSION (1969). 71See Fed. Trade Comm’n, Strategic Plan for Fiscal Years 2014 to 2018 10 (April 30, 2014), 

available at www.ftc.gov/system/files/documents/reports/2014-2018-strategic-plan/spfy14-fy18 

.pdf. 

priately, the Agencies regularly question the efficacy of merger remedies,65 and occasionally review them retrospectively. Maintaining confidence in merger remedies 

should remain a priority of the Agencies. The Section recommends another retrospective study of the effectiveness of the various remedies used. Among other issues, 

we recommend considering divestitures to ‘‘upfront buyers,’’ divestitures handled by 

the parties or third-party trustees post-merger, and behavioral remedies, in order 

to make sure that remedies are appropriate to the transaction and effective at preserving competition.66 When the remedies involve behavioral restrictions on information sharing and require monitoring by the Agencies, the Section endorses evaluation of the effectiveness of such remedies on an ongoing basis. 

3. Process Symmetry Between Division and FTC in Merger Enforcement Litigation 

The Section has previously identified the need for greater process symmetry in 

the standards for the grant of a preliminary injunction motion in merger challenges 

brought by the Division and the FTC.67 The Section recommended administrative 

action or amendment of Section 13(b) of the FTC Act to ensure that it is applied 

consistently with traditional equitable standards for injunctive relief applicable to 

the Division, noting that the outcome of challenges to proposed mergers should depend on the merits of the proposed transaction and the competitive issues it raises, 

not on procedural differences depending on which Agency happens to draw the 

case.68 The Section did not, however, address the issue of merger challenges through 

administrative proceedings under Part 3 of the Commission’s Rule of Practice, another procedural difference from DOJ enforcement practice regarded by some as potentially outcome determinative. 

Since the Section published its recommendation, the SMARTER Act was introduced in Congress and passed the House of Representatives to harmonize preliminary injunction standards and require the FTC to resolve challenges to 

unconsummated mergers in Federal court, consistent with the 2007 recommendation of the Antitrust Modernization Commission.69 Accordingly, the Section recommends that the Administration support legislation that would require the FTC 

to invoke Section 15 of the Clayton Act, 15 U.S.C. § 25, to challenge unconsummated 

mergers in Federal court, a recommendation that is consistent with the 2007 recommendation of the Antitrust Modernization Commission. In making this recommendation, the Section neither endorses nor opposes the approach to these issues 

taken in the SMARTER Act. 

E. Consumer Protection 

1. Introduction 

For decades, the FTC has been the Nation’s premier consumer protection agency. 

Since the publication of the ABA Report in 1969,70 in which the Agency was criticized for its passivity and neglect, the FTC has been a vigorous and effective agency, 

boasting an aggressive enforcement program to stop unfair or deceptive acts or practices.71 In the 1980s, the FTC promulgated three seminal documents—the DecepVerDate Nov 24 2008 07:37 Mar 18, 2019 Jkt 000000 PO 00000 Frm 00182 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\35459.TXT JACKIE
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72Fed. Trade Comm’n, FTC Policy Statement on Deception (Oct. 14, 1983), available at 

https://www.ftc.gov/system/files/documents/public_statements/410531/831014deceptionstmt 

.pdf. 73Fed. Trade Comm’n, FTC Policy Statement on Unfairness (Dec. 17, 1980), available at 

https://www.ftc.gov/public-statements/1980/12/ftc-policy-statement-unfairness. 74Fed. Trade Comm’n, FTC Policy Statement Regarding Advertising Substantiation (Mar. 11, 

1983), available at https://www.ftc.gov/public-statements/1983/03/ftc-policy-statement-regarding-advertising-substantiation. 75The Deception Statement defines deception as a representation, omission, or practice that 

is likely to mislead consumers acting reasonably under the circumstances, in a material way 

(i.e., in a way that is likely to cause consumer injury). The Unfairness Statement defines an 

unfair act or practice as one that causes, or is likely to cause, substantial consumer injury that 

is not reasonably avoidable by consumers and is not outweighed by benefits to consumers and 

competition. In 1984, Congress enshrined the unfairness definition into the FTC Act as Section 

5(n), 15 U.S.C. § 45(n). The Deception Statement’s focus on ‘‘consumers acting reasonably’’ and 

the Unfairness Statement’s requirement that the injury from the practice not be reasonably 

avoidable by consumers recognize the role that consumers themselves play in avoiding harm. 76See PRESIDENTIAL TRANSITION REPORT, supra note 68, at 21 n.48 (February 2013). 77The FTC reportedly allotted $165,879,000, and $175,043,000, to its consumer protection 

mission in FY 2015 and 2016, respectively. The allotments exceeded those for competition, which 

were $127,121,000 and $134,163,000, respectively. See Fed. Trade Comm’n, Congressional Budget Justification Summary for FY 2016 38, available at www.ftc.gov/system/files/documents/reports/fy-2016-congressional-budget-justification/2016-cbj.pdf. 78For example, the FTC recently settled one of the largest actions brought to date against 

charity fraud. Between March 2016 and May 2016, the FTC settled charges against four sham 

charities that claimed to help cancer patients, but instead spent $187 million of donors’ money 

on their operators, families and friends, and fundraisers. Under the settlement, the sham charities were permanently dissolved and their assets liquidated, and a multimillion dollar penalty 

issued. See Press Releases, Fed. Trade Comm’n, FTC, States Settle Claims Against Two Entities 

Claiming to Be Cancer Charities; Orders Require Entities to Be Dissolved and Ban Leader from 

Working for Non-Profits (Mar. 30, 2016), available at www.ftc.gov/news-events/press-releases/ 

2016/03/ftc-states-settle-claims-against-two-entities-claiming-be-cancer. 2015 was also a record 

year of debt collection enforcement, with twelve cases brought against fifty-two defendants and 

nine settlements reaching nearly $94 million in judgments. See Fed. Trade Comm’n, Annual 

Highlights 2015, Enforcement, available at www.ftc.ogv/reports/annual-highlights-2015. The 

FTC also continues to target deceptive health claims, settling a complaint in July 2016 against 

the marketers of a powdered drink mix touted as enabling opiate-addicted consumers to overcome addiction and withdrawal. The terms of the settlement require the company to discontinue 

all deceptive claims, and to pay $235,000 as redress or disgorgement. See Press Release, Fed. 

Trade Comm’n, Sellers of At-Home Treatment for Opioid Withdrawal and Addiction Barred from 

Making Deceptive Claims (July 6, 2015), available at www.ftc.gov/news-events/press-releases/ 

2016/07/sellers-home-treatment-opioid-withdrawal-addiction-barred-making. 

tion,72 Unfairness,73 and Advertising Substantiation 74 Policy Statements—that ever 

since have defined the parameters under which the agency exercises its enforcement 

authority. In particular, the Deception and Unfairness Policy Statements have 

served to focus the FTC’s actions on practices that are, or are likely to be, harmful 

to consumers.75

The Section has long recognized the FTC’s key role in protecting consumers from 

harm, noting in both its 2008 and 2012 Transition Reports that the FTC’s consumer 

protection mission has exceeded its competition mission in resources,76 activity, and 

public attention. This remains true today.77 While the Section has recommendations 

for improvement, the Section acknowledges and applauds the impressive contributions of the FTC’s consumer protection mission to consumer welfare and a competitive economy.78 Indeed, for over 30 years, FTC enforcement efforts have protected 

consumers from a wide variety of fraudulent, misleading, and unfair practices and 

have returned many hundreds of millions of dollars to victims injured by these practice. 

The FTC, however, is no longer the proverbial primary ‘‘cop on the consumer protection beat.’’ The past four years have witnessed considerable change in the consumer protection law enforcement and regulatory landscape, with both the CFPB 

and the FCC playing increasingly important roles in consumer protection enforcement; the three agencies have overlapping jurisdiction. Accordingly, the Report includes recommendations for those agencies as well. 

2. Overlapping Privacy Jurisdiction 

The overlapping jurisdiction of the FTC, the FCC, and the CFPB presents the 

very real possibility of inconsistent approaches, nowhere more noticeably than in the 

privacy arena. This was underscored most recently when the FCC adopted its 2015 

Open Internet Order and reclassified the provision of Internet broadband access as 

180 

79Protecting and Promoting the Open Internet, GN Docket No. 14–28, Report and Order on 

Remand, Declaratory Ruling, and Order, 30 FCC Rcd. 5601 (2015) (hereinafter 2015 Open Internet Order). 80FTC v. AT&T Mobility, No. 15-16585, 2016 WL 4501685 (9th Cir. Aug. 29, 2016). 81The FTC Act specifically exempts ‘‘common carriers subject to the Acts to regulate commerce’’ from the Commission’s jurisdiction. 15 U.S.C. § 45(a)(2). The Commission has taken the 

position that common carriers are exempt from its jurisdiction only to the extent that they are 

engaged in common carrier activities (an ‘‘activity-based exemption’’). However, the Ninth Circuit held that common carriers are entitled to that exemption by virtue of their status (a ‘‘status-based exemption’’). AT&T Mobility, 2016 WL 4501685, at *4. In October 2016, the FTC petitioned the Ninth Circuit for a rehearing en banc, challenging the dismissal of the agency’s suit 

under Section 5. Petition for Rehearing En Banc, AT&T Mobility, 2016 WL 4501685 (filed Oct. 

13, 2016). 82See Oversight of the Fed. Trade Comm’n Before the S. Comm. on Commerce, Science, and 

Transp., 114 Cong. 25 (2016) (Statement of the FTC), available at www.ftc.gov/system/files/documents/public_statements/986433/commission_testimony_oversight_senate_09272016.pdf; 

Maureen K. Ohlhausen, Commissioner, Fed. Trade Comm’n, 100 is the New 30: Recommendations for the FTC’s Next 100 Years, Address at the GCR Antitrust Law Leaders’ Forum 2014 

12–14 (Feb. 7, 2014), available at www.ftc.gov/system/files/documents/public_statements/100- 

new-30-recommendations-ftcs-next-100-years/140207gcrantitrust-mko.pdf; Consumer Online Privacy: Hearing Before the S. Comm. on Commerce, Science, and Transp., 111th Cong. 24–26 

(2010) (Statement of the FTC), available at www.ftc.gov/os/testimony/100727consumer 

privacy.pdf; H.R. 3402, The Calling Card Consumer Protection Act: Hearing Before the Subcommittee on Commerce, Trade, and Consumer Protection of the Committee on Energy and Commerce, 110th Cong. 12–13 (2008), available at www.ftc.gov/os/2008/09/P074406prepaidcc.pdf. 83See Protecting the Privacy of Customers of Broadband and Other Telecommunications Services, 81 ed. Reg. 23360 (Proposed Apr. 20, 2016), available at www.gpo.gov/fdsys/pkg/FR-2016- 

04-20/pdf/2016-08458.pdf. 84 Council Directive 95/46 of the European Parliament and of the Council of Oct. 24, 1995 on 

the Protection of Individuals with Regard to the Processing of Personal Data and on the Free 

Movement of Such Data, 1995 O.J. (L 281) 31 (EU). 85 Under the US–EU Safe Harbor, transfer of personal data from the EU to a U.S. organization was lawful if the U.S. organization receiving the data has unambiguously and publicly disa ‘‘telecommunications service’’ under Title II of the Telecommunications Act.79 The 

provision of broadband service by Internet service providers (ISPs) is now deemed 

a common carrier service. As such, it is exempt from the FTC’s jurisdiction pursuant 

to the common carrier exemption in the FTC Act. Further, the Court of Appeals for 

the Ninth Circuit recently held in FTC v. AT&T Mobility,80 that common carriers 

are exempt from the FTC’s jurisdiction even in their provision of non-common carrier services.81 However, the FCC’s authority over non-common carrier services is 

limited, leaving a potential regulatory gap for non-common carrier services offered 

by common carriers. Thus, similar activities engaged in by different entities, one of 

which has common carrier status, may be regulated differently. Over the years, the 

FTC has urged Congress to repeal the common carrier exemption.82 The Section believes that this exemption is outdated and urges the FTC and the FCC to support 

its repeal. 

The potential for inconsistent regulatory approaches is significant, as witnessed 

by the FCC’s recently adopted Privacy Rules.83 The FCC’s rules take a different approach from the FTC in determining what data is considered sensitive and, therefore, subject to enhanced consent. The FTC has required affirmative or opt-in consent only for uses of certain sensitive types of data including financial, health, precise geolocation and children’s data, for example. The FCC’s approach, on the other 

hand, largely treats as sensitive other types of data that the FTC has not historically considered sensitive, namely web browsing data and application usage history, 

and requires opt-in consent for the use of such data. Thus, non-broadband providers 

subject to FTC authority may collect and use web browsing and application usage 

data while broadband providers are subject to different requirements for such data. 

The Section believes these inconsistent approaches warrant ongoing attention and 

urges the agencies to consider whether these differing approaches have a detrimental effect on competition and consumer welfare. 

The overlapping privacy jurisdiction and related inconsistent approaches to privacy enforcement also create confusion among other nation-states when U.S. privacy 

law is relevant, for example, as part of cross-border data transfers. The European 

Union’s (EU) data protection law prohibits companies from transferring the personal 

data of EU data subjects to countries outside of the European Economic Area (EEA) 

unless those countries have ‘‘adequate’’ privacy laws.84 Adequacy is often correlated 

to an umbrella privacy law that mirrors the EU approach; the United States, however, takes a sectoral approach to privacy. Until October 2015, U.S. companies that 

certified to the EU–U.S. Safe Harbor Framework could rely on that Framework as 

a valid legal basis for transferring the data of EU data subjects to the United 

States.85 Based in part on its negative perception of the U.S. sectoral approach to 

181 

closed its commitment to comply with the ‘‘Safe Harbor Privacy Principles’’ as set out in the 

Commission Decision 2000/520, 2000 O.J. (L215) 7 (EC), available at http://eurlex.europa.eu/ 

LexUriServ/LexUriServ.do?uri=CELEX%3A32000D0520%3AEN%3AHTML. The FTC has 

brought enforcement actions against companies who have falsely claimed that they were certified members of the Safe Harbor Framework when their certifications had lapsed or they had 

never applied for membership in the program at all. Press Release, Fed. Trade Comm’n, Thirteen Companies Agree to Settle Charges They Falsely Claimed To Comply with International Safe 

Harbor Framework (Aug. 17, 2015), available at www.ftc.gov/news-events/press-releases/2015/ 

08/thirteen-companies-agree-settle-ftc-charges-they-falsely-claimed. 86Maximillian Schrems v. Data Prot. Comm’r, Case C–362/14, available at curia.europa.eu/ 

juris/document.jsf?docid=169195&doclary=en. 87See, e.g., Nancy Libin The FCC’s Privacy Problem, THE HILL, Sept. 22, 2016, available at 

http://thehill.com/blogs/congress-blog/technology/297199-the-fccs-privacy-problem. 88FED. TRADE COMM’N, PROTECTING CONSUMER PRIVACY IN AN ERA OF RAPID CHANGE: RECOMMENDATIONS FOR BUSINESSES AND POLICYMAKERS 9 (2012), available at https://www.ftc.gov/ 

sites/default/files/documents/reports/federal-trade-commission-report-protecting-consumer-privacy-era-rapid-change-recommendations/120326privacyreport.pdf. 89See, e.g., In the Matter of Presto Auto Loans, Inc., File NO. 2016–CFPB–0021 (Sept. 20, 

2016), available at https://s3.amazonaws.com/files.consumerfinance.gov/f/documents/2016- 

CFFPB-0021_Document_001_09202016.pdf. 90See, e.g., Nomi Techs., Inc., Docket No. C–4538, 2015 WL 5304114 (F.T.C. Aug. 28, 2015). 

The dissenting statements of Commissioners Ohlhausen and Wright criticized the majority’s decision to bring the case despite the technical nature of the violations and the absence of evidence 

of consumer harm. See id at *5, *8. In 1997, the FTC published its Compliance Assistance and 

Civil Penalty Leniency Policies for Small Entities, which establish a ‘‘variety of mechanisms 

available for small business to obtain’’ compliance advice and describe the ‘‘FTC’s approach to 

reducing or waiving civil penalties for small entities in various mitigating circumstances.’’ 62 

Continued 

privacy, the European Court of Justice issued a decision in 2015 finding that the 

EU–U.S. Safe Harbor insufficiently protected EU residents’ personal data.86 Following this decision, the EU and the United States negotiated the Privacy Shield, 

a new legal basis for U.S. companies to rely on when transferring personal data 

from the EEA to the United States. The Privacy Shield has already attracted critics, 

however, and some commentators worry that the inconsistent privacy enforcement 

frameworks among the FTC, the FCC, and the CFPB may weaken the Privacy 

Shield’s effectiveness.87 Reducing the ability for U.S. companies to transfer personal 

data effectively and appropriately could impact the U.S.’s competitive posture. Although the Section is not advocating for an umbrella privacy law at this time, it 

does observe that the inconsistent privacy approaches pose a risk of harm to U.S. 

companies and competition internationally. More consistency among the regulatory 

approaches would likely yield reduced compliance costs and promote competitiveness with resulting benefit to consumers.88

3. Enforcement 

Although the FTC has many tools at its disposal to foster compliance with the 

law, it is, at its core, an enforcement agency. The Section recommends that the FTC 

adopt a number of reforms to help it deploy its limited enforcement resources in a 

manner that enhances the impact of its actions while, at the same time, treating 

target companies in a way that is fair and proportionate to the alleged offenses. 

Where appropriate, the Report includes parallel recommendations relating to the 

CFPB and the FCC. 

The Section recommends that the FTC adopt reforms to enhance the transparency 

and fairness of the enforcement process. Government investigations and enforcement actions are inherently different from private disputes. They are not contests 

between equals—federal agencies have enormous advantages in terms of resources 

and power. Businesses, especially smaller companies and their principals, simply 

cannot afford in many cases to take on the risks and costs of defending themselves 

during an investigation or when confronted with a complaint and order. Unless they 

are careful in how they use their leverage, the agencies may cause unintended damage to companies and the marketplace without corresponding benefits to consumers 

or competition. It is critical that the process be fair and transparent. 

Case selection: The FTC and CFPB have broad prosecutorial discretion in choosing 

targets for their law enforcement actions. The Section recommends that the agencies 

focus their limited enforcement resources on cases involving significant consumer 

harm. This has not always been the case. Recently, for example, the CFPB has 

brought actions for technical violations of certain statutes against very small companies, in many cases where the challenged practices—and even the companies themselves—had ceased. The consumer injury in those cases appeared to be minimal, 

and it was not otherwise apparent what public policy goals the cases served.89 From 

time to time, the FTC also has prosecuted small companies for minor violations.90

182 

Fed. Reg. 16809 (Apr. 8, 1997). Although the Policies only apply to civil penalties and not to 

other remedies the FTC can pursue, they evidence the importance of the FTC carefully considering the impact of its actions on small businesses. The FTC recently reaffirmed the Policies 

in announcing dramatic increases in the maximum civil penalties it can seek for violations of 

various laws and rules enforced by the FTC. Adjustment of Civil Monetary Penalty Amounts, 

81 Fed. Reg. 42476 (June 30, 2016). 91Some recent CIDs have sought all information that might possibly relate to violations of 

virtually every consumer protection law that might apply. Although the FTC does not need ‘‘reason to believe’’ a specific violation has occurred before commencing an investigation, it should 

minimize the use of these types of fishing expeditions. 

The agencies should recognize the enormous impact their law enforcement actions 

can have, especially on small businesses that, as a result, often lose the assets, customers, business partners, and financing they need to survive. 

Civil Investigative Demands: FTC investigations (like those of the CFPB) often 

begin with the issuance of civil investigative demands (CIDs). The Section recommends that the agencies use this powerful tool judiciously to avoid unnecessary 

costs to companies and individuals who receive them. 

The FTC has broad, but not unfettered, authority to conduct investigations and 

compel the production of documents and information. The Section recognizes that 

CIDs must be written broadly enough to ensure that the documents and information 

necessary to carry out the investigation are produced, especially when the agency 

is unfamiliar with how the company compiles and maintains its records. Nevertheless, there has been a trend in recent years toward generic and overly-broad CIDs 

that are not tailored to the nature of the business or the practices at issue. The result in many cases has been that companies have incurred astronomical costs in responding. While the agency staff is willing to some extent to negotiate narrower 

terms and/or extend production deadlines, small companies and individuals in particular may end up facing resource demands they cannot afford. Just the legal fees 

alone that targets incur in negotiating the terms of the CID and making the production can be prohibitive. This problem has been exacerbated by the FTC’s and 

CFPB’s adoption of specific electronic submission standards that require formats 

that frequently are different from those used by the company in the ordinary course 

of business. As a result, the company may be forced to hire third-party contractors— 

at substantial cost—to transfer the records into the required format. 

Although a company can file a petition to quash or limit a CID, these petitions 

are made public—which imposes considerable reputational costs on a company—and 

are rarely granted. Rather than casting a net designed to bring in every possible 

fish, the Agencies should, in the first instance, issue CIDs that are more narrowly 

focused, with the option of following up with additional CIDs should that be necessary.91

Information sharing in investigations: The extent to which FTC staff is willing to 

reveal to an investigational target the practices about which they have concerns and 

the legal theories underlying those concerns varies widely from case to case. In some 

cases, the staff has encouraged open discussions at an early stage of the investigation so that the company understands the nature of, and theories underlying, the 

investigation and has an opportunity to provide countervailing evidence or arguments before decisions are made. In other cases, the company only finds out what 

the matter is about when confronted with a proposed complaint and order that has 

been authorized by the Director of the Bureau of Consumer Protection (BCP). Even 

at this point, the company may not be told what the real basis for the charges is, 

and the proposed pleadings may not make it clear. In these cases, the company is 

at a severe disadvantage and is forced to decide how to respond based on incomplete 

information. The need for greater transparency begins with the resolution issued by 

the Commission authorizing the use of compulsory process. The resolution ostensibly is designed to give the CID recipient notice of the nature of the investigation. 

In practice, the ‘‘omnibus’’ resolutions the FTC commonly uses are broad and generic and provide little guidance or any real boundaries on the scope of the investigation. 

In litigation, where pleadings precede discovery, parties have access to the basis 

for information demands. That context is fundamental to the process whereby parties invoke and courts apply the balancing test of relevance and burden that governs 

discovery under the Federal Rules of Civil Procedure. Subjects of government investigations should also have the information necessary to understand demands that 

can impose significant costs and consequences. The Section recommends that the 

FTC adopt internal guidelines for staff on communicating with investigational targets about the contemplated law enforcement action. Absent compelling circumstances indicating otherwise, staff should be as transparent as possible, as early 

as possible in the process, and should encourage a dialogue on the substantive 

183 

92 An executive order issued by President Clinton in 1996 [Exec. Order No. 12,988, 61 Fed. 

Reg. 4729 (Feb. 5, 1996)] requires Federal agencies that conduct or otherwise participate in Federal civil litigation on behalf of the U.S. government, before filing cases in court or administratively, to make a reasonable effort to notify all parties about the nature of the dispute and to 

attempt to achieve a settlement. There are several, narrow exceptions to this requirement, including cases involving forfeiture or bankruptcy, when the assets or defendants themselves are 

subject to dissipation or flight, or when ‘‘exigent circumstances make providing the notice impracticable or such notice would otherwise defeat the purpose of the litigation,’’ such as in cases 

seeking a temporary restraining order or preliminary injunction. Id. 93See Press Release, Fed. Trade Comm’n, FTC Rule Incorporating Sunset Policy for Existing 

Administrative Orders in Consumer Protection and Antitrust Cases (Nov. 20, 1995), available 

at www.ftc.gov/news-events/press-releases/1995/11/ftc-rule-incorporating-sunset-policy-existingadministrative. The Commission justified keeping Federal court orders unlimited because ‘‘many 

of these orders are against defendants involved in hard-core fraud.’’ Id. As explained in the text, 

the FTC now files most of its cases in Federal court, including non-fraud cases. 94Most orders include ‘‘fencing-in’’ relief that extends beyond prohibiting the violations alleged 

in the complaint to reach purportedly related practices. For instance, the Commission typically 

will seek against a company that is alleged to have made unsubstantiated claims about the efficacy of a particular dietary supplement for treating or preventing a specific health condition an 

order that requires scientific substantiation for any claim about the health benefits, efficacy, or 

performance of any food, drug, or dietary supplement. E.g., POM Wonderful v. FTC, 777 F.3d 

478, 505 (D.C. Cir. 2015). The company under order is often left guessing, at the peril of civil 

penalties or a contempt citation for an order violation, at which implied claims the FTC will 

find in future advertising and what substantiation for those claims it will deem sufficient. 95For example, data security orders typically require expensive biennial security audits. E.g., 

In the Matter of Snapchat, Inc., Docket No. C–4501, 2014 WL 1993567, at *14 (F.T.C. May 8, 

2014). 

issues. This is not only fairer to the company, but is likely to result in enforcement 

recommendations that are more thoughtful and better supported. This will also help 

focus the investigation (and remediation) more effectively, avoiding the broad CID 

requests and responses addressed above. 

The Section recommends that the CFPB adopt similar guidelines. The CFPB often 

uses its Notice of Opportunity to Respond and Advise (NORA) process to notify companies in general terms of the allegations against them. As is the case with the 

FTC’s consent authority process, however, the NORA notification takes place after 

staff and their supervisors have conducted extensive and expensive investigation, 

after they have concluded that the case should be prosecuted, but before respondents have understood the nature of the concerns. These decisions are rarely reversed. In addition, sending a NORA is discretionary with CFPB staff. In some recent cases, CFPB staff has not only declined to provide NORAs, but never even notified the companies of their interest in the matter before serving them with Notices 

of Charges that it had filed in its administrative tribunal and issuing a press release. By doing so, the staff deprived the companies of the opportunity to provide 

information that might have caused the staff to reconsider its decision to file the 

cases in the first instance and the opportunity to avoid the costs of unnecessary demands, as well as the opportunity to settle the charges pre-filing and pre-press release.92

Order Provisions: One manifestation of the burden of contesting FTC investigations is in the consent orders that the FTC imposes on alleged violators. Resourceconstrained companies and individuals without a realistic recourse to litigation may 

have to accept orders that impose burdens unnecessary to achieve legitimate remedial purposes. The burdens can be unduly harsh, raising competitors’ costs and even 

threatening companies’ existence. Moreover, they can acquire the mantle of precedent over time, making it very difficult for a company to argue for treatment different from that accorded to others. Accordingly, the Section recommends that the 

FTC consider: 

• Reducing the burden of standard ‘‘boilerplate’’ order provisions: FTC orders contain a number of administrative provisions that are, more or less, the same in 

every order. For example, since 1996—the past 20 years—the FTC has required 

companies signing administrative orders to agree to an order duration of 20 

years (longer, if there are subsequent violations) and Federal court orders that 

last in perpetuity.93 This can create a severe burden on the companies involved, 

given the breadth and vagueness of ‘‘fencing in’’ order provisions 94 as well as 

burdensome affirmative obligations.95 Especially in areas where technology is 

rapidly evolving, order provisions that make sense when they are entered may 

no longer be appropriate in 10 years, let alone 20 years later, and may serve 

to chill innovative and useful corporate practices. Although FTC rules allow for 

a petition to modify an order based on ‘‘changed conditions of law or fact’’ or 

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96FTC Rule of Practice § 2.51, 16 C.F.R. § 2.51 (2016). 97 A recent addition to the CFPB’s boilerplate requires defendants, before transferring or selling any of their ‘‘operations’’ to a third party, to notify the purchaser of the existence of the 

CFPB order, and obtain the purchaser’s written agreement to comply with the order. See, e.g., 

In the Matter of TMX Finance LLC, File No. 2016–CFPB–0022 (Sept. 26, 2016). Although the 

term ‘‘operations’’ is undefined, this provision apparently is designed to avoid the long-standing 

rule that an asset purchaser is not a ‘‘successor or assign’’ under an order unless the sale was 

designed to evade the order or the purchaser simply continued the seller’s business unchanged. 

As a result of the CFPB’s new policy, companies under order, for the duration of that order, 

likely cannot sell assets even to bona fide purchasers for anything close to their real value, if 

at all. This is unfairly punitive, and the Section recommends that the CFPB eliminate this provision from its orders. 98 It is not clear why these time periods vary from case to case and provision to provision, 

but in some instances it may depend on the relative knowledge and negotiating skill of the company’s counsel. Having a shorter overall sunset in all orders could remove the inconsistency by 

making it unnecessary to have separate sunsets for each provision. 99See, e.g., In the Matter of Practice Fusion, Inc., Docket No. C–4591, 2016 WL 3345406 

(F.T.C. Aug. 16, 2016), available at www.ftc.gov/system/files/documents/cases/160816prac 

ticefusiondo.pdf. 100For example, the press release issued by the FTC announcing a settlement with Consumer 

Education Group notes that the civil penalty (most of which was suspended due to inability to 

pay) ‘‘is equivalent to the revenue defendants obtained through their illegal acts.’’ See Press Release, Fed. Trade Comm’n, Sales Lead Generators Fined and Barred from Violating FTC’s Telemarketing Sales Rule (Nov. 1, 2016), available at https://www.ftc.gov/news-events/press-releases/2016/11/sales-lead-generators-fined-barred-violating-ftcs-telemarketing. The CFPB also 

has insisted on civil monetary penalties in every case. That agency, unlike the FTC, has unre-

‘‘that the public interest so requires,’’ 96 in practice the standard for an order 

modification is very high and the process is often protracted and costly. CFPB 

orders typically sunset after five years. The Section recommends that the FTC 

adopt a comparable sunset period for both administrative and district court orders, at least where there are no extenuating circumstances (such as fraud or 

recidivism) justifying a longer duration. 

Similarly, FTC administrative and Federal court orders include provisions (the 

so-called ‘‘Scofflaw’’ provisions) that require the respondent/defendant to distribute the order to various individuals, keep records, report changes such as 

asset sales, mergers or bankruptcy, and file compliance reports.97 Some of these 

provisions last for the duration of the order, while others sunset after various 

numbers of years ranging from three to twenty, depending on the case.98 The 

Federal court boilerplate traditionally has imposed additional Scofflaw provisions beyond those in administrative orders that, for example, give the FTC the 

right to gather information in various ways. Some of these additional provisions 

are burdensome and intrusive. For example, one Federal court order’s Scofflaw 

provision permits the FTC to contact the defendant directly, and not through 

counsel, about order-related matters (although counsel may be present during 

FTC ‘‘interviews’’). Provisions such as these were drafted originally to ensure 

sufficient oversight of defendants that were engaged in fraud. The FTC increasingly has filed cases, including routine non-fraud cases, in Federal court, however. But, rather than ameliorating the harsh Federal court Scofflaw provisions, 

the FTC has imported them into some administrative orders.99 The Section recommends that the FTC reconsider this approach so that burdensome Scofflaw 

provisions are not imposed on respondents or defendants engaged in legitimate 

businesses. 

• Seeking monetary relief that corresponds more closely to the nature of the violations, the extent of consumer injury, and the culpability of the respondent/defendant: The FTC has increasingly sought strong monetary relief—civil penalties, restitution, and/or disgorgement—in ordinary Section 5 cases. Historically, the FTC sought restitution or disgorgement mainly in cases of fraud or 

blatant deception with tangible consumer injury, and tied the amount sought 

to the injury or unjust enrichment that could be traced to the violations. It now 

appears, however, that the FTC demands monetary relief in virtually all cases, 

even where the violations were unintentional and marginal and the injury 

slight or nonexistent. Moreover, staff in consent negotiations commonly seek the 

maximum possible relief regardless of the facts of the case or any mitigating 

circumstances, and without consideration of litigation risk. For example, in recent civil penalty cases, staff have pursued the defendant’s gross revenues without consideration of the statutorily imposed civil penalty factors that take into 

account, among other things, the defendant’s degree of culpability and the nature and seriousness of the violations.100

185 

stricted civil penalty authority in cases alleging unfair or deceptive acts or practices. 15 U.S.C. 

§ 5565(c). 101 An exception is for fraud cases in which the Commission may seek ex parte relief. 102 47 C.F.R. § 0.311. 103 E.g., FTC v. Universal-Rundle Corp., 387 U.S. 244, 251 (1967); but see Johnson Products 

Co. v. FTC, 549 F.2d 35, 41 (7th Cir. 1977) (FTC may not issue orders that ‘‘would arbitrarily 

destroy one of many violators in the market,’’ citing L.G. Balfour Co. v. FTC, 442 F.2d 1, 24 

(7th Cir. 1971)). 

Although the Section believes that the FTC has reason to raise the cost of violating the law in appropriate cases, the Section recommends that those efforts be 

tempered by considerations of equity and proportionality, as well as the constraints 

imposed by the statutes and case law. Monetary relief in non-fraud cases should not 

be punitive or threaten a company’s ability to compete. In evaluating the deterrent 

effect of an order, the Commission should take into account the enormous damage 

an FTC action can cause a defendant, beyond any monetary judgment. In an age 

of instant and comprehensive information, whenever interested parties, such as licensing bodies, or prospective finance sources or vendors, search for information 

about individuals or companies, those named in FTC cases can be indefinitely 

branded as wrongdoers, even when the alleged violations were never proven in court 

or may have been inadvertent or minor. Seeing the agency’s increased focus on extending liability to third parties for assisting violators, finance sources, vendors, and 

others may be very reluctant to provide the money or services to those facing FTC 

actions or under an order. 

Meeting Decision Makers: The FTC has well-established ‘‘due process’’ norms that 

give targets facing possible enforcement the opportunity to meet with division and 

Bureau managers before a complaint recommendation is forwarded to the Commission, and then with Commissioners before the complaint is issued or filed.101 This 

process generally works well, but could be improved by encouraging transparency 

earlier in the investigation. 

The CFPB, on the other hand, does not appear to have any comparable process. 

With some exceptions, the Assistant Director of Enforcement and his superiors have 

been unwilling to meet with many companies they are deciding to prosecute. This 

can have serious disadvantages: companies cannot know that their concerns have 

been heard (which in some cases may make them less willing to settle), and the decision makers are denied information that would better inform their decisions. The 

Section recommends that the CFPB adopt standard internal appeal procedures like 

those of the FTC. 

While the FCC has procedural due process measures that resemble those of the 

FTC, there are some important differences in the authority delegated to staff. In 

particular, the Enforcement Bureau has delegated authority to propose forfeitures 

only up to a maximum amount of $100,000.102 The FCC must vote to approve any 

forfeiture above $100,000. However, the Enforcement Bureau has delegated authority to resolve investigations via consent agreements involving any amount of money, 

even in matters that involved an earlier, FCC-voted proposed forfeiture. Thus, the 

Bureau has significant authority to undertake enforcement actions and shape enforcement policy on its own, without Commission involvement. The Section recommends that the FCC consider reducing the delegated authority of the Enforcement Bureau and requiring Commission votes on any consent agreements involving 

payments that exceed the Bureau’s delegated authority for proposed forfeitures. 

4. Guidance 

In addition to law enforcement and rulemaking, one of the principal ways the 

FTC and other agencies that enforce Federal consumer protection laws encourage 

compliance is by providing guidance on their legal interpretations and expectations 

as applied to specific industries or practices. The FTC has broad (but not unlimited) 

discretion in choosing strategies for fostering compliance, including bringing individual enforcement actions even when the violative practices are common throughout an industry.103 In many situations, however, guidance may be more effective 

and efficient than enforcement in fostering compliance. It also may be fairer to the 

individual defendants, who can suffer catastrophic damage from being the subject 

of government law enforcement simply because they happened to be selected among 

many other possible targets. This is especially true when the law is unclear and the 

practices at issue are long-standing or widespread. 

Although enforcement actions are a good means of providing guidance, their usefulness for this purpose is often limited by the information they reveal. Businesses 

carefully scrutinize complaints and orders to glean insights into the agencies’ thinkVerDate Nov 24 2008 07:37 Mar 18, 2019 Jkt 000000 PO 00000 Frm 00189 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\35459.TXT JACKIE
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104The FTC and CFPB have taken somewhat different positions on whether an order establishes standards for lawful versus unlawful conduct that apply beyond the individual case at 

issue. The FTC stresses that its orders often contain fencing-in relief that may go beyond what 

the law requires and may not be required of other companies. See Letter from Joel Winston, 

Fed. Trade Comm’n to Jonathan L. Kempner, Mortgage Bankers Assoc. (June 17, 2004), available at www.ftc.gov/system/files/documents/advisory_opinions/letter-mortgage-bankers-association-regarding-ftc-settlementfairbanks/040617staffopltrtomba.pdf. CFPB Director Richard 

Cordray, on the other hand, recently asserted that it would be ‘‘ ‘compliance malpractice’ for executives not to take careful bearings from the contents of these orders about how to comply with 

the law and treat consumers fairly.’’ See Richard Cordray, Speech at the Consumer Bankers 

Assoc. (Mar. 9, 2016), available at www.consumerfinance.gov/about-us/newsroom/prepared-remarks-of-cfpb-director-richard-cordray-at-the-consumer-bankers-association/. 105 Note, however, that the Dodd-Frank Act transferred the FTC’s authority to ‘‘prescribe rules 

[or] issue guidelines’’ to the CFPB in areas of overlapping jurisdiction. 12 U.S.C. § 5581(b)(5). 

The FTC generally has interpreted this transfer to apply only to formal types of guidance (such 

as agency-issued industry guides), rather than, for example, staff opinion letters or other less 

formal guidance. 106Section 1031 of the Dodd-Frank Act prohibits unfair, deceptive, or abusive acts or practices. 12 U.S.C. § 5531. 107See FTC Policy Statement on Unfairness, supra note 74. 108See FTC Policy Statement on Deception, supra note 73. 

ing.104 In some cases, however, the pleadings are not sufficiently clear or detailed 

in identifying the alleged illegal conduct to serve this purpose, and businesses are 

left to ‘‘read the tea leaves’’ as to how the agencies might view their particular practices. 

The agencies have issued useful guidance in many areas and in many forms, including enforcement policy statements, advisory opinions, informal staff opinion letters, warning letters, studies, reports, bulletins, speeches, testimony, and business 

education materials.105 Topics run the gamut from advertising testimonials and endorsements, to ‘‘native advertising,’’ to motor vehicle financing under the Equal 

Credit Opportunity Act. The Section recommends that the agencies provide further 

guidance on four substantive issues: 

a. The Meaning of ‘‘Abusive’’ 

The CFPB’s abusiveness authority 106 has been applied in an inconsistent manner, 

and it is often difficult to discern why the CFPB has challenged a particular practice 

as abusive, as opposed to (or in addition to) unfair or deceptive. The agency has resisted providing additional guidance on this term beyond the statutory definition. 

The Section encourages the CFPB to provide a policy statement on abusive acts or 

practices, similar to those issued by the FTC on unfairness 107 and deception 108 in 

the 1980s, which have proven extremely useful. 

b. Monetary Remedies 

The FTC in many cases has not clearly articulated its rationale for the type or 

amount of monetary relief it demands, and in some cases where the rationale was 

evident, the legal theory behind it was questionable. For example, as noted earlier, 

FTC staff have demanded civil penalties in rule violation cases based on the defendant’s gross revenues, a disgorgement measure, rather than the statutorily-imposed 

civil penalty factors. In the interests of greater transparency, the Section recommends that the FTC issue a policy statement setting forth the theories on which 

it relies to justify its demands for monetary relief. 

The CFPB has taken an even more aggressive approach in seeking fines under 

Dodd-Frank and other statutory authorities. Understanding the ways in which the 

CFPB is analyzing the purported harm would be useful for companies to integrate 

compliance in their operations, and gauge the potential risks. 

c. Advertising Interpretation and Disclosures 

The agencies have pursued failure to disclose theories and imposed ‘‘clear and conspicuous’’ disclosure requirements with increasing vigor in recent years. This has 

created considerable uncertainty for businesses in determining what information is 

sufficiently important (e.g., material and necessary to prevent unfairness or deception) that it must be disclosed and where the disclosures must appear (e.g., in advertising or at point of sale). The different opinions on claim interpretation and disclosure clarity at the Commission in POM Wonderful were not reconciled in the decision of the D.C. Circuit, leaving additional uncertainty as to whether and what kind 

of substantiation is needed for a claim, what claims trigger a disclosure, and how 

much information should be disclosed. 

Especially in the case of short-form broadcast advertising, there simply is not sufficient space to include all of the information the agencies have deemed necessary 

in forms of advertising. The need for qualifying information is especially important 

187 

109For example, the FTC has brought twenty-five or so cases in the past few years against 

auto dealers alleging the failure to adequately disclose in advertising certain material conditions, qualifications, and restrictions on the advertised offer. See generally Letter from Malini 

Mithal, Acting Assoc. Dir., Div. of Fin. Practices, FTC to Paul Sanford, Ass’t Dir., Supervision 

Examinations, CFPB (May 27, 2016), available at https://www.ftc.gov/system/files/documents/ 

reports/ftc-enforcement-activities-related-compliance-regulation-z-truth-lending-act-regulation-mconsumer/160606cfpbrpttila.pdf?utm_source=govdelivery (summarizing recent FTC enforcement 

actions against auto dealers). In most cases, the disclosures appeared in the fine print at the 

bottom of a print ad or on the last screen of a television ad, consistent with how auto manufacturers and dealers have been advertising for decades. Without questioning the merits of these 

cases, given the uncertainty about the agency’s disclosure standards and the severe impact on 

the dealers that were unlucky enough to have been singled out, this may have been a situation 

where clearer guidance could have been issued before beginning enforcement. 110Marc Jarsulic, Ethan Gurwitz, Kate Bah, and Andy Green, Center for American Progress, 

REVIVING ANTITRUST: WHY OUR ECONOMY NEEDS A PROGRESSIVE COMPETITION POLICY (June 

2016); S. Elizabeth Warren, Reigniting Competition in the American Economy, Keynote Remarks at New America’s Open Markets Program Event (June 29, 2016), available at 

www.warren.senate.gov/files/documents/2016-6-29_Warren_Antitrust_Speech.pdf. 111 Comm’r Terrell McSweeny, U.S. Fed. Trade Comm’n, Making Antitrust Work for the 21st 

Century, Keynote Remarks at Washington Center for Equitable Growth (Oct. 6, 2016), available 

at https://www.ftc.gov/system/files/documents/public_statements/988713/mcsweeny_-_keynote _remarks_at_equitable_growth_10-6-16.pdf; Renata Hesse, Acting Ass’t Att’y Gen., U.S. Dep’t of 

Justice, Antitrust Div., And Never the Twain Shall Meet?: Connecting Popular and Professional 

Visions for Antitrust Enforcement, Opening Remarks at the 2016 Global Antitrust Enforcement 

Symposium (Sept. 20, 2016), available at www.justice.gov/opa/speech/acting-assistant-attorneygeneral-renata-hesse-antitrust-division-delivers-opening; Edith Ramirez, Chairwoman, U.S. Fed. 

Trade Comm’n, Keynote Remarks at the 2016 Global Antitrust Enforcement Symposium 

(Sept. 20, 2016), available at https://www.ftc.gov/public-statements/2016/09/keynote-remarksftc-chairwoman-edith-ramirez; Comm’r Maureen K. Ohlhausen, U.S. Fed. Trade Comm’n, Does 

the U.S. Economy Lack Competition, And If So What To Do About It?, Remarks at Hogan 

Lovells, Hong Kong (June 1, 2016), available at https://www.ftc.gov/system/files/documents/ 

public_statements/952273/160601doesuseconomylackcomp.pdf. 

to establish when the cost of the qualification is the loss of other information or the 

loss of the advertisement itself. In any medium, increasing the amount of information that must be disclosed can obscure the most important messages, thus creating 

a tension with the ‘‘clear and conspicuous’’ objectives of the disclosure. 

Moreover, there is uncertainty on how the ‘‘clear and conspicuous’’ standard will 

be applied in particular fact situations. While some uncertainty is inevitable given 

the fact-specific nature of deception, the Section recommends that the agencies look 

for additional opportunities to clarify their expectations in specific areas through 

guidance and give businesses an opportunity to come into compliance before the 

agencies start bringing enforcement actions.109 The Section encourages the Commission to explore each element of disclosure policy—from the representation that 

would trigger a disclosure to the clarity and prominence of the disclosure—and how 

the factors vary across media. 

IV. LEGAL DOCTRINE 

A. Monopoly 

The Section does not support the aggressive view, espoused recently by certain 

politicians and administration economists, that competition has declined in the 

United States as a result of the increasing concentration in key industries, which 

itself is attributed to the reluctance of the Agencies to challenge and the failure of 

courts to block more mergers.110 Evidence offered in support of the criticism has 

been vague and anecdotal at best, but the evidence available to analysts outside the 

Agencies does not permit the kind of analysis that the Agencies themselves can conduct with the information obtained in the course of law enforcement. The Agencies 

are in a unique position to add empirical evidence to the debate. The Section applauds the Agency officials who have addressed the criticism. We believe a more systematic response would contribute a great deal to public confidence in antitrust enforcement. For example, as we noted above, the Agencies should address this question in their merger retrospective studies. Likewise, the Section recommends that 

the Agencies use their authority to identify and assess conduct that may generate 

adverse economic consequences in the United States. Such an assessment should 

precede any conclusion 111 that a marked reorientation of enforcement emphasis or 

new legal rules are needed. 

It has always been an important responsibility of the Agencies to preserve competition and to ensure that anticompetitive exclusion is deterred in order to preclude 

firms from achieving dominant market positions by anticompetitive means. Both actual collusion and exclusion are harmful to consumers. Thus, the Agencies should 

188 

112See David S. Evans, Attention Rivalry Among Online Platforms, 9 J. COMPETITION L. &

ECON. 313 (2013). 113Similar issues can arise with non-price conduct. See, e.g., Lorain Journal Co. v. United 

States, 342 U.S. 143 (1951); United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir. 2001); 

United States v. Visa U.S.A., Inc., 344 F.3d 229 (2d Cir. 2003). 114 838 F.3d 179 (2d Cir. 2016). 115 838 F.3d at 206. 

identify and attack conduct that achieves, enhances, or maintains market power by 

disadvantaging competitors other than by means of efficiency-based competition. 

Vigorous enforcement of the competition laws must be balanced with the need to 

encourage truly competitive conduct that benefits consumers and achieves cognizable efficiencies. With this in mind, the Section respectfully suggests that there 

are three particularly salient matters that deserve close attention and are ripe for 

close enforcement attention, competition advocacy, and Agency guidance in coming 

years: (1) two-sided markets, (2) contracts referencing rivals (CRRs), and (3) tying 

and bundling. 

1. Two-Sided Markets 

Two-sided or multi-sided markets are increasingly important in the economy, and 

raise complicated and unique antitrust issues.112 To date, these complex issues have 

not received sufficient attention. The Section therefore recommends that the Agencies take steps to provide greater guidance and clarity, including by issuing statements of enforcement policy and through bringing enforcement actions. 

A two-sided market is one in which one firm (often called a platform) receives revenues from separate groups that are dependent on each other in some way. For example, a newspaper charges readers for subscriptions and also charges advertisers 

for advertisements. The newspaper may charge more for advertisements if it has 

more subscribers, and so the two sides are dependent on each other. As this example demonstrates, there is a close relationship between two-sided markets and markets involving complementary goods. The Section recommends that the Agencies 

clarify whether two-sided markets require special antitrust analysis or are a general 

case of complementary products. 

Industries characterized by two-sided or multi-sided markets cannot be fully understood without a clear understanding of the interaction between the multiple 

sides. This impacts multiple parts of the antitrust analysis, including: 

• Analysis of constraints on the exercise of market power. While a firm may be 

able to exercise market power on one side of a two-sided market even if the second side is competitive, the competitive nature of the second side may also constrain the first. For example, the publisher of the only local newspaper in a 

community might be reluctant or unable profitably to exercise market power 

over readers (e.g., by charging high prices or reducing the quality of distribution) if doing so will reduce readership and thus the amount the publisher can 

charge advertisers that are able to choose between the newspaper and other 

forms of local advertising such as radio. Because the price increases could cause 

both lost sales to readers and lost revenues from advertisers, the two-sided nature of the market could preclude or limit the exercise of market power on either side. 

• Analysis of competitive effects. Conversely, conduct that might appear anticompetitive if one focuses entirely on one side of the market might seem benign 

or procompetitive when both sides of the market are taken into account. For example, a newspaper might charge a price below marginal cost in order to generate increased readership and thus more advertising revenue. The price might 

appear predatory if the antitrust analysis focuses solely on the reader market. 

However, if the other side of the market is taken into account, the conduct 

might appear to be an efficient mans of defraying fixed costs.113

The recent decision in United States v. American Express 114 illustrates both the 

increasing importance of two-sided markets and the need for clarification of the applicable legal standards and appropriate modes of legal and economic analysis. The 

court appears to take the position that, in a vertical restriction case involving a twosided market, the lawfulness of the allegedly anticompetitive conduct depends on 

the effect of the conduct on the defendant’s customers on both sides of the market.115 The Section recommends that the Agencies encourage courts to examine the 

effect of the conduct on both sides of the market as a whole instead of the effects 

just on the defendant’s customers. 

189 

116See Joshua D. Wright, Comm’r, Fed. Trade Comm’n, Simple but Wrong or Complex but 

More Accurate? The Case for an Exclusive Dealing-Based Approach to Evaluating Loyalty Discounts (June 3, 2013), available at www.ftc.gov/sites/default/files/documents/public_state ments/simple-wrong-or-complex-more-accurate-case-exclusive-dealing-based-approach-evaluatingloyalty/130603bateswhite.pdf. 117See, e.g., Fiona Scott-Morton, Deputy Asst. Att’y Gen., U.S. Dep’t of Justice, Antitrust Div., 

Contracts that Reference Rivals, Address at the Georgetown University Law Center: Antitrust 

Seminar (April 5, 2012), available at https://www.justice.gov/atr/file/518971/download. 118 Benjamin Klein & Andres Lerner, The Economics of Alternative Antitrust Standards for 

Loyalty Contracts, ANTITRUST L.J. (forthcoming 2016). 119 Compare Allied Orthopedic Appliance v. Tyco Health Care Group LP, 592 F.3d 991 (9th 

Cir. 2009), with Virgin Atl. Airways v. British Airways, 257 F.3d 256 (2d Cir. 2001). 120 United States v. Apple, Inc., 791 F.3d 290 (2d Cir. 2015). 

2. Contracts Referencing Rivals (CRRs) 

CRRs contain terms that refer to or depend on information about rivals, e.g., their 

sales, prices or offers. They include provisions such as: (1) ‘‘most favored nation’’ 

provisions (MFNs), in which one party promises to trade with the other on terms 

as good as, or sometimes better than, the terms on which it trades with other trading partners; (2) loyalty or ‘‘market share’’ discounts, in which the price paid by the 

buyer depends in part on the percentage of its purchases from the seller; (3) exclusive dealing and exclusive distributorship agreements, which require one party to 

deal exclusively with the other for certain products or services; and (4) rights of first 

refusal, by which one party promises that the other will have a chance to meet or 

beat any offer the promisor receives from another party. 

CRRs are ubiquitous and can have procompetitive or anticompetitive effects depending on the context.116 They often promote increased output and other efficiencies, such as risk-sharing or aligning incentives in the distribution chain. For 

example, an MFN can facilitate efficiency-enhancing transactions where one party 

is concerned that, because of changing circumstances or its lack of information 

about the market, it might wind up being disadvantaged compared to rivals. A right 

of first refusal can provide similar benefits. A loyalty discount can align incentives 

between suppliers and distributors in times of unforeseen demand shifts, when 

quantity discounts would not provide suitable incentives if demand increases or decreases materially, and can shift some of the risk of falling demand from the distributor to the supplier. 

CRRs may also have anticompetitive effects. MFNs can deter price cuts and raise 

entry barriers by in effect imposing a tax on lower prices offered to other or new 

trading partners. Loyalty discounts can deter purchasers from dealing with rival 

suppliers if doing so would push the percentage purchased from the firm offering 

the loyalty discount below certain thresholds and they can exclude rivals that are 

able to serve only a small part of the buyer’s needs. Exclusive dealing and, less commonly, exclusive distributorship agreements can exclude rivals by restricting their 

access to customers and input suppliers. And right of first refusal provisions can diminish competition by deterring rival sellers from trying to sell to the potential customer who is subject to that form of contractual restriction. 

The Agencies have been instrumental in conceptualizing the competitive impact 

of CRRs and bringing them to the forefront of antitrust dialogue.117 But, while economic analysis of CRRs has advanced, the appropriate legal analysis remains unclear, in part because of problems administering standards implied by some economic analyses. For example, the kind of discount attribution test favored by some 

economists for loyalty discounts raises difficult factual issues with which courts 

have had little experience.118 Judicial decisions, particularly those regarding loyalty 

discounts, have been inconsistent.119

The Section recommends that the Agencies look for opportunities to advance the 

evolution of legal doctrine applicable to CRRs through enforcement actions, amicus 

briefs, and perhaps agency guidelines. Greater clarity about the legal rules would 

benefit businesses in assessing the risk associated with a particular provision, as 

well as reduce judicial errors and litigation costs. 

The recent case involving Apple’s e-book pricing model highlights the need for further guidance relating to CRRs.120 In the Apple e-books matter, the Division alleged 

that Apple facilitated an illegal horizontal price-fixing agreement among the publishers of e-books. Further guidance is needed to clarify how similar CRRs would 

be analyzed in a vertical context (absent evidence of horizontal collusion). 

3. Tying and Bundling 

A tying arrangement is an agreement by a party to sell one product on the condition that the buyer also purchase a separate product. Tying can be challenged as 

190 

121 E.g., Int’l Salt Co. v. United States, 332 U.S. 392 (1947). 122 Illinois Tool Works v. Independent Ink Inc., 547 U.S. 28 (2006). 123 Id. at 45 (‘‘Many tying arrangements . . . are fully consistent with a free, competitive market.’’). 124 253 F.3d 34 (D.C. Cir. 2001). 125 See, e.g., Brantley v. NBC Universal, Inc., 675 F.3d 1192, 1200 (9th Cir. 2012) (‘‘Like other 

vertical restraints, tying arrangements may promote rather than injure competition.’’); David 

Evans & Michael Salinger, Why Do Firms Bundle and Tie? Evidence from Competitive Markets 

and Implications for Tying Law, 22 YALE J. ON REG. 37 (2005). 126See, e.g., Collins Inkjet Corp. v. Eastman Kodak Co., 781 F.3d 264, 271–72 (6th Cir. 2015) 

(a tying arrangement may be anticompetitive if it ‘‘tends to force more efficient competitors out 

of the tied product market’’); Steven C. Salop, The Raising Rivals’ Cost Foreclosure Paradigm, 

Conditional Pricing Practices and the Flawed Incremental Price-Cost Test, 81 ANTITRUST L.J. __, 31–32 (forthcoming 2017), available at http://scholarship.law.georgetown.edu/cgi/viewcontent 

.cgi?article=2632&context=facpub. 127 See Daniel A. Crane & Graciela Miralles, Toward a Unified Theory of Exclusionary 

Vertical Restraints, 84 S. CAL. L. REV. 605, 646 (2011) (‘‘[A] contract or contractual provision 

should be deemed to foreclose some share of the market only when it prevents an equally efficient competitor from profitably offering its own set of contractual terms that the customer reasonably might chose in lieu of the defendant’s terms for some increment of the market’s output.’’); Elyse Dorsey & Jonathan M. Jacobson, Exclusionary Conduct in Antitrust, 89 ST. JOHN’S

L. REV. 101, 134–36 (2015). 128 Cascade Health Sol’ns v. PeaceHealth, 515 F.3d 883 (9th Cir. 2008). 129LePage’s Inc. v. 3M, 324 F.3d 141 (3d Cir. 2003). 

an act of exclusion under Section 2 of the Sherman Act, as well as under Section 

1 of the Sherman Act and Section 3 of the Clayton Act. 

Early decisions held tying arrangements to be per se illegal.121 More recent decisions suggest that judicial disapproval of tying arrangements is dissipating.122 The 

Supreme Court in Illinois Tool Works v. Independent Ink Inc. clearly indicated that 

tying arrangements are not always or almost always anticompetitive.123 In addition, 

in United States v. Microsoft,124 the D.C. Circuit declined to apply the per se rule 

to the tying of an operating system and a web browser, reasoning that platform software tying arrangements may have procompetitive efficiencies. 

Other courts and commentators have observed that tying frequently has procompetitive effects, including: (1) enhanced ability to assure product quality; (2) achieving economies through joint production, distribution, or marketing; (3) undermining 

collusion by enabling secret price-cutting; (4) precluding excessive markups by sellers of complementary products; and (5) avoiding double marginalization.125

Although less numerous, some commentators and decisions have continued to find 

potential anticompetitive effects in tying arrangements, including: (1) raising prices 

to consumers; (2) limiting consumer choices; and (3) excluding or impairing rivals 

by raising their costs, thereby triggering higher prices and facilitating anticompetitive price discrimination.126

Bundling, like tying, is a practice that, in different market contexts, can be either 

procompetitive or anticompetitive. Bundled discounts are awarded to customers who 

make a designated number of purchases across multiple product lines. Bundled discounts offered by large firms with numerous product lines may impair competition 

in circumstances where the bundled discount cannot be matched by smaller firms 

lacking broad product lines, regardless of whether the smaller firm is the more efficient producer of a particular product.127 On the other hand, bundling can result 

in a real discount, reducing market prices and increasing competition, and can help 

generate economies of scope and scale. 

The Third and Ninth Circuits disagree on the proper antitrust test for bundled 

discounts. The Ninth Circuit applies predatory pricing standards (though without 

the recoupment feature).128 The Third Circuit rejects predatory pricing tests and 

condemns bundled discounts that ‘‘foreclose the opportunities of rivals’’ in an ‘‘unnecessarily restrictive way.’’ 129 When different rules apply to conduct depending on 

where it occurs, the potential for erroneous enforcement is unacceptably high. The 

Section suggests that bundling is another area ripe for an Agency enforcement policy statement to identify and distinguish the circumstances where the practice produces procompetitive or anticompetitive effects. 

In light of the countervailing considerations that tying and bundling cases 

present, this is an area in which the Agencies should proceed carefully, concentrating on practices they believe to be truly anticompetitive, while considering the 

efficiency justification both as a matter of prosecutorial discretion and as presented 

in court. Such prudential enforcement activity would be very helpful in drawing the 

line between what is procompetitive and what is not. 

191 

130Douglas H. Ginsburg et al., The Troubling Use of Antitrust to Regulate FRAND Licensing, 

10 COMPETITION POL’Y INT’L ANTITRUST CHRON. 1 (2015); see also, J. Gregory Sidak, The Antitrust Division’s Devaluation of Standard-Essential Patents, 104 GEO. L.J. ONLINE 48, 61 & n.49 

(2015). 131Sidak, supra note 131 at 61 & n.49; ANNE LAYNE-FARRAR, PATENT HOLDUP AND ROYALTY

STACKING THEORY AND EVIDENCE: WHERE DO WE STAND AFTER 15 YEARS OF HISTORY? (2014), 

available at http://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=DAF/ 

COMP/WD%282014%2984&doclanguage=en. 132See, e.g., William F. Lee & A. Douglas Melamed, Breaking the Vicious Cycle of Patent Damages, 101 CORNELL L. REV. 384 (2016). 133See, e.g., Bill Baer, Ass’t Att’y Gen., U.S. Dep’t of Justice, Reflections on the Role of Competition Agencies When Patents Become Essential, Remarks at the 19th Annual Int’l Bar Association Competition Conference (Sept. 11, 2015); Edith Ramirez, Chairwoman, U.S. Fed. Trade 

Continued 

B. Antitrust and Intellectual Property 

1. Patent-Related Antitrust Issues 

The Section recommends that the Agencies study patent-related antitrust issues, 

in particular those related to phenomena sometimes called ‘‘holdup’’ and ‘‘holdout.’’ 

It is generally accepted that the ownership of a patent by itself is not presumed to 

create a presumption of market power, and that the proper assertion of a valid patent is not an antitrust violation. By the same token, improper assertions of patent 

rights, like those involving other assets, can raise questions of competitive significance. ‘‘Patent holdup’’ occurs, for example, when an SEP holder that has made a 

commitment to license its patents on FRAND terms instead uses the essential nature of its patent (‘‘standard-lock-in’’) to charge an unjustifiably higher royalty than 

would have been possible before its patent was included in the standard.’’ 130

Supracompetitive compensation can lead to deadweight loss from revenue raising, 

deter commercialization of patented technologies, reduce follow-on invention, exacerbate strategic uses of patents to raise rivals’ costs, and induce costly overinvestment 

in patents to be used for those purposes or defensively. Subcompetitive compensation can reduce returns to investment in patentable inventions, and the prospect 

thereof could reduce such investment in innovation, or standard-setting, or both. 

Holdout refers to the situations in which an implementer either delays or refuses 

to take a license or engages in bad-faith challenges to patent validity or in which 

a patent holder delays, or refuses to offer, or engages in bad-faith negotiation regarding, a license to the entire portfolio of patents, or any subset thereof, held by 

the patent holder or any commonly controlled entity for which the implementer 

seeks a license or conceals or fails to disclose the entire portfolio of patents held by 

the patent holder or any commonly controlled entity.131 Both holdup and holdout 

can arise with respect to technologies included in, or necessary as a practical matter 

to implement, public standards and patented technologies that are not included in 

standards. 

The holdup issue raises a number of questions. One is whether patent holders 

that assert SEP patents are able to obtain supracompetitive royalties from users in 

an individual case or whether implementers of patented technologies can force patent holders to accept less than competitive royalties.132 Another, very different question is whether the costs incurred by technology users for using patented standards 

technology have in the aggregate been excessive, e.g., would harm the product market or restrict output. Empirical studies on the subject require data, most of which 

is available only in aggregated form, which has obvious limitations. A finding that 

aggregate costs to technology users are not excessive could mean that patent holdup 

has not in the aggregate deterred the use of patented standards technologies or follow-on inventions, but such a finding would not itself demonstrate the absence of 

adverse effects from holdup. Aggregated data would not disclose problematic holdup 

if, for example, (1) relatively few patents were asserted in the period studied and 

the percentage of patents being asserted increases over time or (2) excessive royalties when patents are asserted have distorted the use of, or follow-on invention 

based on, the asserted patents or created perverse incentives for over-patenting. 

Careful analysis of the context is important, because neither holdup nor excessive 

pricing, without more, violates the antitrust laws. 

There is no consensus about the factual significance and likelihood of the phenomena known as holdup and holdout, and the disagreements about these factual 

issues have important ramifications for patent policy and antitrust policy regarding 

patents. The Section concurs in the statements of ranking enforcement officials that 

high or low returns standing alone do not form the basis for a finding of an antitrust violation in the absence of evidence of unlawful exclusionary conduct.133 It is 

192 

Comm’n, Standard-Essential Patents and Licensing: An Antitrust Enforcement Perspective, 8th 

Annual Global Antitrust Enforcement Symposium (Sept. 10, 2014). 134See, e.g., Christine A. Varney, Ass’t Att’y Gen., Antitrust Div. U.S. Dep’t of Justice, Coordinated Remedies: Convergence, Cooperation, and the Role of Transparency, Remarks as Prepared 

for the Institute of Competition Law New Frontiers of Antitrust Conference (Feb. 15, 2010) (encouraging antitrust agencies to ‘‘endeavor to make our remedial decisions with our eyes open 

to their consequences beyond our shores, taking steps to minimize their extraterritorial effects; 

let us keep our eyes open to what our sister agencies have already done in particular cases, 

so that we do not unnecessarily diverge from their decisions’’). 135See supra note 134. 136Press Release, European Comm’n, Antitrust: Commission Accepts Legally Binding Commitments by Samsung Electronics on Standard Essential Patent Injunctions (April 29, 2014) (IP/ 

14/1490). 137 Case AT.39985-Motorola-Enforcement of GPRS standard essential patents, Comm’n Decision, 2014 O.J. (C 344) 06. 138 NDRC Administrative Sanction Decision No. 1 [2015] (Mar. 2, 2015), available at http:// 

www.ndrc.gov.cn/gzdt/201503/t20150302_666209.html. Specifically, the NDRC approved the 

‘‘rectification plan’’ submitted by Qualcomm, under which the company agreed: (1) not to bundle 

Chinese SEPs and non-SEPs and to provide patent lists during negotiations; (2) to charge royalties of not more than 5 percent for Chinese 3G SEPs and 3.5 percent for Chinese 4G SEPs using 

a royalty base of 65 percent of the net selling price of the device; (3) not to condition the sale 

of baseband chips on signing a licensing agreement with terms that NDRC found to be unreasonable (e.g., a no-challenge clause); and (4) to provide existing licensees with an opportunity 

to elect to take the new terms for sales of branded devices for use in China. 139Final Order in the Matter of Rambus Incorporated, File No. 011–0017, Dkt. No. 9302 

(F.T.C. 2007), available at https://www.ftc.gov/sites/default/files/documents/cases/2007/02/ 

070205finalorder.pdf. The cease and desist order was ultimately overturned by the United 

States Court of Appeals for the District of Columbia Circuit on other grounds. Rambus v. FTC, 

522 F.3d 456 (D.C. Cir. 2008), cert. denied, 129 S. Ct. 1318 (2009). 

the exclusionary conduct that raises the unresolved questions. We therefore recommend that the Agencies gather reliable and credible information on—and propose 

a framework for evaluating—holdup and holdout, and the circumstances in which 

either may be anticompetitive. The Agencies are particularly well-suited to gather 

evidence and assess competitive implications of such practices, which could then inform policymaking, advocacy, and potential cases. The Agencies’ perspectives could 

contribute valuable insights to the larger antitrust community. 

2. International Issues Related to Intellectual Property 

In addition to patent issues, international topics are significant, most notably in 

the context of the multinational implications of agency actions and the effect of decisions by agencies such as the International Trade Commission (ITC). 

a. Multinational Effects 

Worldwide portfolio licensing remedies pose significant comity concerns, especially 

when such remedies are not consistent with other jurisdictions’ policies.134 The 

United States, for example, does not regulate price; instead, because of a concern 

about innovation incentives, the United States protects the right of IP holders to 

set the prices of their products.135 In contrast, several foreign countries have ‘‘excessive pricing’’ prohibitions and some foreign competition authorities have applied 

them to IP rights. 

While the FTC and some foreign agencies have threatened to impose extra-jurisdictional remedies in some instances, other foreign jurisdictions have appropriately 

refrained from imposing remedies with extraterritorial effects. For example, the 

antitrust agencies in Europe and China typically have limited their remedies to domestic conduct pertaining to domestic patents. In April 2014, for example, the European Commission’s Directorate-General for Competition (DG Competition) entered 

into a settlement with Samsung 136 and issued a decision against Motorola Mobility 137 essentially prohibiting both companies from seeking injunctive relief against 

willing licensees of standard essential patents except under certain limited circumstances. DG Competition specifically limited its remedy to conduct occurring in 

the European Economic Area (EEA), and only to patents granted in the EEA. Likewise, in a 2015 penalty decision against Qualcomm for allegedly abusing a dominant 

position by charging unreasonably high royalties, bundling SEP and non-SEP licenses without justification, and imposing other unreasonable conditions on the sale 

of baseband chips (such as requiring a waiver of the licensee’s right to challenge 

the agreement), China’s National Development and Reform Commission (NDRC) 

limited remedies to conduct related to Chinese patents being licensed for use in 

China only.138 In contrast, in the Rambus matter,139 the FTC’s cease and desist 

order applied to the company’s enforcement of its patents everywhere in the world. 

In light of the significant comity concerns presented by extraterritorial remedies inVerDate Nov 24 2008 07:37 Mar 18, 2019 Jkt 000000 PO 00000 Frm 00196 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\35459.TXT JACKIE
193 

140See, e.g., Chinese Antimonopoly and Anti-unfair Competition Enforcement Bureau of State 

Administration for Industry & Commerce, Antitrust Guideline on Intellectual Property Rights 

Abuses 16, available at http://www.saic.gov.cn/fldyfbzdjz/gzdt/201601/W02016010858039947 

3419.pdf. 141 547 U.S. 388 (2006). 142 19 U.S.C. § 1337(d)–(f). 143 E.g., Colleen V. Chien & Mark A. Lemley, Patent Holdup, The ITC, and the Public Interest, 

98 CORNELL L. REV. 1, 16 (2012). 144Whether the threat of an exclusion order is likely to lead to inflated royalties depends in 

part on the likelihood of an exclusion order being granted, and thus far the ITC has granted 

only one exclusion order on an SEP, which was disapproved by the USTR. See U.S. Trade Representative Exec. Office of the President, Disapproval of the U.S. International Trade Commission’s Determination in the Matter of Certain Electronic Devices, Including Wireless Communication Devices, Portable Music and Data Processing Devices, and Tablet Computers, Investigation No. 337–TA–794 (2013), available at https://ustr.gov/sites/default/files/08032013%20 

Letter_1.PDF (hereinafter USTR 2013 Veto Letter to ITC). 

volving patents, the Section recommends that the Agencies refrain from seeking 

such remedies. 

Some foreign competition authorities have also considered imposing broad requirements that IP holders share their IP with others, including competitors. The United 

States strongly disfavors such requirements, while some Asian competition agencies 

have argued in favor of sanctioning refusals to license and making licensing compulsory.140 The Agencies also recognize that practices such as tying and bundling, discriminatory licensing, cross-licensing, and grantbacks can be procompetitive, and 

thus call for an effects-based analysis. In contrast, some Asian competition agencies 

appear to apply presumptions that such licensing conduct is anticompetitive. To protect the ability of U.S. businesses to innovate and compete, the Agencies may wish 

to consider whether the concerns warrant an adjustment in U.S. policy or an international dialogue that might reconcile these conflicting policies. 

b. International Trade Commission 

In addition to multinational implications, issues arise from the differences between the standards that Federal courts apply for injunctions and the United States 

International Trade Commission’s (ITC) applies for exclusionary remedies. The U.S. 

Supreme Court’s decision in eBay Inc. v. MercExchange,141 held that a district court 

must apply the same standards required in all other injunction cases. After eBay, 

a district court must consider and weigh whether: the plaintiff will suffer irreparable harm; money damages are inadequate to compensate the plaintiff; the balance of hardships weigh in the plaintiff’s favor; and the public interest would not 

be disserved by the issuance of an injunction. Because the only relief available before the ITC is injunctive in nature, complainants’ primary remedy is an exclusion 

order excluding the importation of infringing goods,142 rather than money damages 

which are not available there. With its own statutory scheme that lays out a test 

for exclusion orders, the ITC does not follow the eBay test. For that reason, it is 

possible that patent holders who appear before the ITC could obtain exclusion orders when they would not be entitled to injunctions, or vice versa.143 This divergence in standards could result in different outcomes for similar conduct depending 

on the tribunal addressing that conduct, and thus could have a significant impact 

on litigants’ choice of tribunals. 

The possibility that SEP owners might attempt to avoid district courts and obtain 

bargaining power in royalty negotiations by seeking exclusion orders at the ITC 

raises issues for the appropriate analysis of patent holdup disputes. If the ITC were 

to issue exclusion orders to SEP owners under circumstances in which injunctions 

would not be appropriate under the eBay standard, the inconsistency could induce 

SEP owners to strategically use the ITC in an effort to achieve settlements of patent 

disputes on terms that might require payment of supracompetitive royalties. 

Though it is not clear how likely this is or whether the risk has led to 

supracompetitive prices in the past, this dynamic could lead to holdup by SEP owners and unconscionably higher royalties.144 We recognize that Congress has already 

established by statute standards and factors that the ITC should weigh for determining when the ITC should grant an exclusion order, but suggest that the Agencies consider offering guidance to the ITC about potential SEP holdup and holdout. 

The Section believes that analysis of these issues could also yield valuable information for the Office of the United States Trade Representative (USTR) in exercising its review function to overturn what it considers to be inappropriate ITC orders. For example, can litigants be counted on to seek intervention in appropriate 

cases? If not, does the USTR have adequate mechanisms to ensure review when appropriate? We believe scrutiny on questions like these would be worthwhile. 

194 

145Michael A. Carrier, Patent Assertion Entities: Six Actions the Antitrust Agencies Can Take, 

at 2–3, CPI ANTITRUST CHRON. (Jan. 2013), available at https://www.justice.gov/sites/default/ 

files/atr/legacy/2013/04/03/paew-0034.pdf. 146See Mark A. Lemley & A. Douglas Melamed, Missing the Forest for the Trolls, 113 COLUM. 

L. REV. 2117, 2157–58 (2013). 147See id. at 2158–61, 2178–80. 148For a critique of the royalty-stacking theory, see Alexander Galetovic & Kirti Gupta, Royalty Stacking and Standard Essential Patents: Theory and Evidence from the World Mobile Wireless Industry (June 2016), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id= 

2790347. 

3. Patent Acquisitions and Dispositions 

The Agencies should look at purchases and sales of patents as they would other 

assets, to evaluate their impact on competition. 

It is generally accepted that the ownership of a patent by itself is not presumed 

to create a presumption of market power. By the same token, acquisitions and dispositions of intellectual property, like those involving other assets, can raise questions of competitive significance. Reflecting the complexity of the setting, the Agencies should recognize the potential harms and benefits from the creation and exploitation of large patent portfolios. In some circumstances, such collections ‘‘can be 

used offensively, and can be valuable primarily because of their size rather than the 

validity of each patent in the portfolio.’’ 145 At the same time, the Agencies should 

take into account, as they do in other asset acquisitions, the potentially significant 

efficiencies from such acquisitions. In particular, they should recognize the potential 

benefits of aggregating complementary patents in solving the Cournot complements 

problem.146

Combining substitute patents (i.e., patents covering competing products or methods to accomplish the same objective) may raise Clayton Act issues applicable to 

horizontal mergers. Despite this, resolution of the competitive implications of a particular combination is often made difficult by uncertainty about the validity and 

scope of patents, and thus, about their competitive significance. The Agencies should 

use merger retrospectives to shed light on these issues. 

The Agencies should also consider harm to competition that could result from 

disaggregating complementary patents. Disaggregating such patents could lead to a 

double marginalization problem that results in increased costs for technology users, 

and could be a strategic device for raising costs for firms that compete with one or 

more of the patent holders.147 Enforcement actions based on the Sherman Act could 

be warranted depending on factors including contract terms (e.g., requiring the targeting of product market rivals of the original owner) and the increased likelihood 

that the disposition of the patents will lead to higher aggregate prices for technology 

users without evident procompetitive justification. 

4. Standard Development Organizations 

Standard Development Organizations (SDOs) present multiple antitrust issues, 

including the role the Agencies should play and Sherman Act Section 1 considerations. 

d. General Agency Practice 

As a starting point, the Section recommends that the Agencies continue their 

scrutiny of SDOs. While such organizations promise significant procompetitive benefits in the form of interoperability, innovation, and enhanced consumer choice, they 

are also capable of having anticompetitive effects in the form of boycotts, the exercise of monopsony power, and holdup. Holdup concerns could arise from, for example, (1) the avoidance of FRAND or royalty-stacking obligations through transfer, 

tying, and bundling,148 (2) inadequate measures to prevent patent holders from exercising market power, and (3) enabling implementers to compel subcompetitive royalty rates as a condition of including the patented technologies in the standard. On 

the other hand, conduct such as tying and bundling may be procompetitive or benign. There are numerous procompetitive reasons for portfolio licensing, including 

reducing transaction costs and providing implementers with freedom to operate. 

While the guidance supplied by the Agencies as to whether certain SDO and other 

joint conduct may violate the antitrust laws has been instructive and should be continued, the Agencies should be careful when utilizing the business review letter 

process to emphasize that this form of guidance is highly fact-specific to the matter 

at hand. As the Division has recognized, it is unlikely that there is a ‘‘one-size-fitsall’’ template for analyzing SDO policies regarding IP rights. Because SDOs ‘‘vary 

195 

149 U.S. DEP’T OF JUSTICE AND FED. TRADE COMM’N, ANTITRUST ENFORCEMENT AND INTELLECTUAL PROPERTY RIGHTS: PROMOTING INNOVATION AND COMPETITION 33–34 n.5, 48 (2007), available at http://www.ftc.gov/reports/innovation/P040101PromotingInnovationandCompetition 

rpt0704.pdf. 150See, e.g., Am. Soc’y of Mech. Eng’rs v. Hydrolevel Corp., 456 U.S. 556 (1982). Seeking an 

injunction against a willing licensee also could potentially violate § 2 of the Sherman Act or § 5 

of the Federal Trade Commission Act. 151See, e.g., Anne Layne-Farrar & A. Jorge Padilla, Assessing the Link Between Standards 

and Patents, in INNOVATIONS IN ORGANIZATIONAL IT SPECIFICATION AND STANDARDS DEVELOP- MENT 19, 2426 (Kai Jacobs ed., 2012). 152See, e.g., Rudi Bekkers et al., Declared Essential Patents (Hoover Institution, IP2, Working 

Paper No. 16003, 2016); M. Rysman & T. Simcoe, Patents and the Performance of Voluntary 

Standard Setting Organizations, 54 MGMT. SCI. 11, 1920–34 (2008); David Yoffie et al., 

Qualcomm Incorporated 2009, Harvard Business School case study 9–710–433 (2011); see also, 

e.g., Rambus v. FTC, 522 F.3d 456 (D.C. Cir. 2008). 153 Note that any such liability must be consistent with the Standards Development Organization Advancement Act of 2004 (SDOAA), which extends the protections provided by the National 

Cooperative Research and Production Act of 1993 to SDOs. The SDOAA provides that the rule 

of reason applies to SDOs while they are engaged in standards development activities and limits 

liability to actual, as opposed to treble, damages so long as they properly notify the Agencies. 

15 U.S.C. §§ 4301–4306 (2016). 154See USTR 2013 Veto Letter to ITC, supra note 144. 

widely in size, formality, organization and scope,’’ 149 decisions regarding specific 

rules are ordinarily best left to individual SDOs and their members to decide. 

e. Sherman Act Section 1 Considerations 

Some contend that, under certain circumstances, SDO patent policies could violate 

the antitrust laws.150 The argument is that, first, such policies could enable even 

patent holders that agreed to comply with the patent policies to exercise market 

power ex post through, for example, inadequate measures to prevent the exercise of 

such market power. Second, they could enable technology users to exercise market 

power ex ante by, for example, requiring patent holders to agree to subcompetitive 

royalty rates as a condition of inclusion of their patented technologies in the standard. There is no case law that directly supports such contentions. 

Standard-setting may confer market power, and in these settings, the Agencies 

could study the extent to which a FRAND declaration limits the potential market 

power derived from a patent’s inclusion in a standard. Some empirical research suggests that standardization does not confer market power, but rather serves to 

‘‘crown [existing] winners.’’ 151 Other research and cases show that standardization 

has conferred market power.152 In those instances in which an SDO creates market 

power in the technology market for an SEP holder, the Agencies should consider 

whether there may be circumstances in which the SDO might be in violation of Section 1 if it fails to take reasonable steps to prevent the exercise of that market 

power, such as a suitably defined and enforced FRAND policy or whatever effective 

alternative the SDO chooses. 

As the Agencies have recognized, SDOs generally have leeway to set their own 

policies. While the Section acknowledges that it is a contested issue and there are 

strongly held opposing viewpoints, some of us believe that in appropriate cases SDO 

policies (or the lack thereof) can form the basis for a Section 1 claim. One example 

is provided by FRAND and royalty-stacking obligations, which are generally a matter of contract law, but which could conceivably form the basis of a Section 1 claim 

if SDOs do not implement policies that would prevent such obligations from being 

evaded through transfer of FRAND-encumbered patents.153

There are a variety of possible alternatives to existing FRAND policies that SDOs 

might consider. These include requiring SDO members to use a certain type of arbitration when parties cannot agree on a FRAND rate and addressing the circumstances under which SDO members could seek injunctions or exclusion orders 

for infringement of FRAND-encumbered patents. 

5. Competition Advocacy 

The Agencies have done an effective job informing the PTO, USTR, Congress, ITC, 

and others of their competition concerns in the SEP area. In particular, the USTR 

disapproved an exclusion order from the ITC concerning an SEP, a decision that reflected arguments made by the Agencies.154 Those efforts should be continued but 

are likely insufficient on their own to achieve competitive outcomes. If informed parties benefit from the status quo, competition advocacy alone will not be able to 

change their behavior. The Agencies could analyze the incentives that drive the remaining anticompetitive behavior, and consider what they could do to change those 

incentives. For example, the Agencies could (1) litigate cases that raise significant 

196 

155See, e.g., Credit Suisse v. Billings, 551 U.S. 264 (2007). 156See, e.g., OECD, Competition and Financial Markets Key Findings (2009). 157See, e.g., Daniel K. Tarullo, Member, Board of Governors of the Fed. Reserve Sys., Statement before the U.S. Senate Committee on Banking, Housing, and Urban Affairs (Sept. 9, 2014) 

(noting the Federal Reserve was ‘‘cognizant that regulatory compliance can impose a disproportionate burden on smaller financial institutions’’ and tried to work with smaller institutions to 

try to minimize this burden when implementing the Dodd-Frank Act). 158For example, based on assets held, the four-firm concentration ratio of commercial banks 

in the United States was below 45 percent in 2014. See, e.g., Steven Schaeffer, Five Biggest U.S. 

Banks Control Nearly Half Industry’s $15 Trillion in Assets, FORBES (Dec. 3, 2014) (reporting 

data from SNL Financial). 159See, e.g., Sen. Elizabeth Warren, Reigniting Competition in the American Economy, Keynote Remarks at New America’s Open Markets Program (June 29, 2016). 160 Brian Akins et al., Bank Competition and Financial Stability: Evidence from the Financial 

Crisis, 51 J. OF FIN. AND QUANTITATIVE ANALYSIS 1 (2016). 161BOARD OF GOVERNORS OF THE FED. RESERVE SYS., REPORT TO CONGRESS ON THE AVAIL- ABILITY OF CREDIT TO SMALL BUSINESS (2012); Ben R. Craig & Valeriya Dinger, Bank Mergers 

and the Dynamics of Deposit Interest Rates, 36 J. OF FIN. SERVS. RESEARCH 111–33 (2009); 

Charles Kahn et al., Bank Consolidation and the Dynamics of Consumer Loan Interest Rates, 

78 J. OF BUS. 99–133 (2005). 162See, e.g., Washington Mut. Sav. Bank v. Federal Deposit Ins. Corp., 482 F.2d 459 (9th Cir. 

1973) (holding that all bank merger applications are subjected to traditional antitrust analysis 

and if violation is discerned, balancing of banking factors and anticompetitive effects is made, 

but FDIC, in weighing these interests, may not apply competitive standard more stringent than 

antitrust laws.); Robert E. Litan, Deputy Asst. Att’y Gen., Dept. of Justice, Antitrust Div., Antitrust Assessment of Bank Mergers, (Apr. 6, 1994) (‘‘The Division uses the same standards to 

assess the competitive impacts of all mergers, whether or not they involve banks.’’). 

antitrust concerns; or (2) file amicus briefs in private cases when the issues are important to obtaining procompetitive outcomes. 

In the context of SDO patent policies, the Agencies have contributed to the public 

policy discussion and offered guidance to particular SDOs through the business review letter process. We encourage the agencies to continue reminding practitioners 

that general guidance does not define the limits of the law, and that the availability 

of guidance is not a signal that pre-approval is required or preferred before SDOs, 

or other entities in other areas, adopt new policies. 

V. Industry-Specific Issues 

A. Financial Sector 

1. Interaction of Competition and Regulation 

Financial markets are heavily regulated by a variety of government agencies such 

as the Federal Reserve (including the CFPB), SEC, and CFTC. Though government 

agencies in charge of competition policy have to work within the existing regulations 

and are in some circumstances constrained by legal precedents from using the antitrust laws to constrain industry behavior in a regulated industry, they can sometimes influence the content of the regulations and their adjudication.155 The principle that competition is desirable applies to many features of financial markets and 

it is a very valuable application of agency resources to explain the positive and negative competitive consequences of various regulations.156 As a general matter, regulations impose disproportionate burdens on small firms compared to large firms and 

therefore one can expect that regulations will favor large financial firms over small 

ones and will discourage entry of financial firms at a small scale.157 The Agencies 

should make sure that the cost to the competitive process of those consequences 

should be considered as various regulatory bodies contemplate any regulatory 

change and evaluate current regulations. 

2. Banking 

By conventional competition benchmarks, the commercial banking sector in the 

U.S. is not highly concentrated nationally, although concentration has increased recently.158 Given the generally modest national concentration in banking, despite the 

large size of some individual firms, calls for breaking up large national banks to promote competition 159 do not appear to be justified by the current state of knowledge 

about competition and efficiency in banking. However, some studies have found that 

when measured at a local level, banking is concentrated in certain areas.160 Local 

concentration in banking can affect the availability of credit to borrowers (especially 

small firms) as well as the rates paid to depositors.161 Usual merger analysis would 

identify such harms and those must be considered in evaluating any merger. The 

Section is aware of no support for the proposition that competition policy as applied 

to banking should give any special consideration to stockholders or debt holders of 

banks (excluding depositors).162 Mergers that would enrich stockholders or debt 

197 

163See, e.g., Gelboim v. Bank of Am. Corp., 823 F.3d 759 (2d Cir. 2016) (U.S. dollar London 

Interbank Offered Rate); In re Aluminum Warehousing Antitrust Litig., 833 F.3d 151 (2d Cir. 

2016) (the ‘‘Midwest Premium’’ for aluminum); In re London Silver Fixing, Ltd., Antitrust Litigation, No. 14–MD–2573 (VEC), 2016 WL 5794777 (S.D.N.Y. Oct. 3, 2016) (the silver ‘‘Fix 

Price’’); In re Commodity Exchange, Inc. Gold Futures and Options Trading Litigation, No. 14– 

MD–2548 (VEC), 2016 WL 5794776 (S.D.N.Y. Oct. 3, 2016) (the gold ‘‘Fix Price’’); Alaska Electrical Pension Fund v. Bank of America Corp., No. 14–CV–7126, 2016 WL 1241533 (JMF) 

(S.D.N.Y. Mar. 28, 2016) (U.S. dollar ISDAfix); In re Foreign Exchange Benchmark Rates Antitrust Litigation, 74 F. Supp. 3d 581 (S.D.N.Y. 2015) (benchmark rates in the Foreign Exchange 

market). 164See, e.g., Board of Trade of City of Chicago v. United States, 246 U.S. 231 (1918) (members 

of Board of Trade were restricted from trading off the exchange; the restriction forced more trading on the exchange, thereby promoting its success). 165See, e.g., id. 166ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT, ‘‘BRIEFING NOTE, OECD 

HEALTH STATISTICS 2014: HOW DOES THE UNITED STATES COMPARE? 3 (2014), available at 

www.oecd.org/unitedstates/Briefing-Note-UNITED-STATES-2014.pdf. 167MARTIN GAYNOR, EFFICIENCIES ANALYSIS: FALSE DICHOTOMIES, MODELING AND APPLICATIONS TO HEALTH CARE (Aug. 3, 2014). 

holders but harm consumers deserve no special treatment or exception when applied 

to banking. Similarly, the prohibition of entry of new banking entities that could 

take advantage of certain scale or scope efficiencies in order to protect the profitability of existing banks is not justified from the viewpoint of competition policy. 

Claims that competition policy should yield to other objectives—for example, the difficulty of regulating new entities—should be evaluated relative to less costly alternatives—for example, a requirement that the new entity post sufficient financial 

capital to satisfy legitimate regulatory concerns. In that way, legitimate regulatory 

concerns can be separated from protectionist efforts to restrain competition to the 

detriment of consumers. An evaluation of whether current or proposed regulations 

needlessly distort competition would be appropriate. 

3. Setting Benchmark Prices 

Several recent cases have focused on the collective activity of firms that claim to 

set a rate or pricing benchmark for such things as interest rates, gold prices, aluminum prices, foreign exchange, and the like.163 If the process turns out to be 

flawed either because of poor design or because the participants do something other 

than what they claim, the benchmark’s value is affected. Although the courts in recent cases have provided some guidance, the Agencies should provide further guidance as to whether and under what circumstances such conduct is actionable and, 

if it is, whether it is appropriate to treat those cases as fraud, breach of contract, 

or antitrust cases. 

4. Creation of Markets 

Exchanges create organized markets and are often regulated by sector-specific 

agencies like the SEC or CFTC. In many unregulated sectors, entities also may collaborate to create de facto markets, though not organized. The creation of markets, 

whether organized formally or not, requires collective action among participants. Information is often exchanged and certain rules on participation might be specified. 

A joint venture that collects information can misuse that information to exclude others from getting it. At the same time, rules limiting participation or conduct of participants can be desirable in order to prevent free riding, thereby enabling the markets to exist.164 Liquidity is a key attribute of many markets and rules that enhance 

liquidity at the expense of broad participation can be desirable. Forcing access to 

certain clearing functions of exchanges can be a form of free riding. The Division 

should remain vigilant that the creation and operation of financial services markets 

remain open, transparent, and accessible for all market participants. Experience has 

shown that transparent market exchanges drive procompetitive benefits and efficiencies, often leading to reduced prices and expanded output of market-made transactions.165

B. Healthcare Industry 

1. Antitrust Enforcement by the FTC and Division Following Healthcare Reform 

The healthcare industry is one of the largest sectors in the U.S. economy, accounting for approximately one-fifth of GDP.166 Parts of the public as well as the private 

U.S. healthcare system are based on principles of competition, and therefore the system only functions as well as the markets that support it.167 This point also applies 

to the operation of the Affordable Care Act (ACA), which requires competition in 

healthcare markets to be cost effective. However, as suggested by the ACA and recognized by the FTC and the Division, some forms of cooperation between providers 

198 

168 Edith Ramirez, Chairwoman, Fed. Trade Comm’n, Keynote Address at Antitrust in 

Healthcare Conference (hereinafter ‘‘Keynote Address’’) (May 12, 2016), available at https:// 

www.ftc.gov/system/files/documents/public_statements/950143/160519antitrusthealthcarekey 

note.pdf (‘‘[P]rocompetitive collaborations are already permissible under the antitrust laws.’’). 169Fed. Trade Comm’n & Dep’t of Justice, Statement of Antitrust Enforcement Policy Regarding Accountable Care Organizations Participating in the Medicare Shared Savings Program 

(2011). 170The Statement provides a rule of reason analysis for ACOs that are financially or clinically 

integrated, id. at 4, and a ‘‘safety zone’’ for networks that enjoy 30 percent or less for each service provided by two or more of the ACO providers, id. at 7. It also sets forth the conduct that 

may be suspect for ACOs with high PSA shares. See id. at 10–11. 171 Julie Brill, Comm’r, Fed. Trade Comm’n, A Common Goal: The U.S. Federal Trade Commission’s Health Care Enforcement Program and Its Implications for ACOs, Sixth Annual Accountable Care Organization Summit Preconference (June 2015), available at https:// 

www.ftc.gov/system/files/documents/public_statements/673881/150617aco-summit.pdf. 172See, e.g., FTC v. Penn State Hershey Med. Ctr., No. 1:15-cv-2362, 2016 WL 2622372 (M.D. 

Pa. May 9, 2016) (denying FTC’s motion for preliminary injunction), rev’d, 838 F.3d 327 (3d Cir. 

2016). 173St. Alphonsus Med. Ctr. Nampa v. St. Luke’s Health Sys., 778 F.3d 775 (9th Cir. 2015); 

FTC v. OSF Healthcare Sys., 852 F. Supp. 2d 1069 (N.D. Ill. 2012). 174Penn State Hershey, 2016 WL 2622372. 175FTC v. Advocate Health Care, No. 15 C 11473, 2016 WL 4063481 (N.D. Ill. June 14, 2016) 

(denying FTC’s motion for preliminary injunction), rev’d, 842 F.3d 460 (7th Cir. 2016). 176 United States v. Aetna, Inc., No. 1:16-cv-01494 (D.D.C. filed July 21, 2016); United States 

v. Anthem, Inc., No. 1:16-CV-01493 (D.D.C. filed July 21, 2016). 177See United States v. Aetna, Inc. (N.D. Tex. 1999) (‘‘Aetna’s acquisition of Prudential will 

also consolidate its purchasing power over physicians’ services in Houston and Dallas, enabling 

and others may be beneficial and not necessarily in violation of the antitrust 

laws.168

In response to the ACA and the perceived tension between the ACA’s encouragement of cooperation and the antitrust laws, the FTC and Division developed a Policy 

Statement 169 that provides a framework for analyzing networks, which at its core 

recognizes the continued relevance and importance of competition in healthcare reform. The Statement applies to accountable care organizations (ACOs) that serve 

both Medicare beneficiaries and commercially insured patients. It does not apply to 

mergers, which are evaluated under the Horizontal Merger Guidelines.170 However, 

as recently acknowledged, the FTC has not filed a single enforcement action against 

an ACO.171 Its principal focus has been on mergers. 

The Section recommends that the Agencies continue to challenge mergers, acquisitions and other transactions in the healthcare industry where such challenges are 

based on sound economic principles and focused on transactions that raise antitrust 

concerns. While some have argued that the goals of healthcare reform and antitrust 

are in conflict,172 for the reasons noted above, they are not. Effective competition 

in healthcare remains critical to the performance of this important sector. The Section urges the Agencies to continue to reiterate that reform does not displace competition in the healthcare industry, that antitrust enforcement is fully compatible 

with healthcare reform, and that mergers or conduct that reduce competition cannot 

be justified by measures to improve quality and lower costs that can be achieved 

by other means.173

2. Agency Challenges to Healthcare Mergers 

The FTC has had some notable recent success in challenging a physician merger 

in St. Luke’s and healthcare provider mergers that raise competitive issues. The 

Section recommends that the FTC continue to challenge mergers that it believes 

substantially harm competition, despite the litigation risk, because of the important 

role competition plays in restraining the rise of national healthcare costs. As noted 

above, some challenges will fail, but an occasional failure does not diminish the 

value of litigation. Even cases that the Agencies lose help to clarify the law and 

demonstrate the Agencies’ willingness to bring difficult cases in an effort to further 

develop the law. And losses in lower courts should be assessed and appealed if the 

decisions appear unsound. The Section encourages the FTC to appeal hospital merger decisions as it did in Penn State Hershey Medical Center 174 and Advocate 

NorthShore,175 when the agency feels the court did not follow sound precedent for 

analyzing the competitive effects of a merger. 

The Division’s recent challenges to two health insurance mergers highlight the 

importance of careful competitive analysis of these markets.176 The Section notes 

with interest the relevant markets pleaded in these complaints and the alleged monopsony effect of the mergers that would lower prices paid to providers. While previously relied upon,177 this theory could be further expanded and explained by the 

Division to observers and practitioners in speeches, economic models and the like. 

199 

the merged entity to unduly reduce the rates paid for those services.’’). See also Marius 

Schwartz, Econ. Dir. of Enf’t, Antitrust Div., U.S. Dep’t of Justice, Buyer Power Concerns and 

the Aetna-Prudential Merger, 5th Annual Health Care Antitrust Forum, Northwestern University School of Law (Oct. 20, 1999). 178Fed. Trade Comm’n, Examining Health Care Competition Workshops (Feb. 2014 and Mar. 

2015). The materials and presentations are available at https://www.ftc.gov/news-events/ 

events-calendar/2015/02/examining-health-care-competition. 179See, e.g., Fed. Trade Comm’n, Comments on Centers for Medicare & Medicaid Services’ 

Proposed Changes in Contracting for Medicare Part D (March 11, 2014). 180 James Landman, Director at Inst. for Population Health Improvement, & Joe Miller, General Counsel for America’s Health Ins. Plans, Remarks on Trends in Provider Consolidation, at 

Antitrust Division of the Department of Justice’s Public Workshop: Examining Health Care 

Competition (Feb. 25, 2015) (citing Medicare payment rules). 181 United States v. United Reg’l Health Care Sys., No. 7:11-cv-00030 (N.D. Tex. 2011). 182 United States v. Charlotte-Mecklenburg Hosp. Auth., No. 3:16-cv-00311-RJC-DCK 

(W.D.N.C. 2016). See also Fiona Scott Morton, Theodore Nierenberg Prof. of Econ. At Yale U. 

Sch. of Management, Healthcare Contracting, at Antitrust Division of the Department of Justice’s Public Workshop: Examining Health Care Competition (Feb. 24, 2015). 183Lawton Robert Burns, Dir. of Wharton Ctr. for Health Mgmt. & Econ. at U. Penn., Physician-Hospital Consolidation, Payer-Provider Consolidation & Payer-Provider Consolidation, at 

Antitrust Division of the Department of Justice’s Public Workshop: Examining Health Care 

Competition (Feb. 25, 2015). 184Leemore Dafny, Dir. of Health Enter. Mgmt. at Kellogg Sch. of Mgmt. at Nw. U., Effects 

of Cross-Market Combinations: Theory and Evidence from Hospital Markets, at Antitrust Division of the Department of Justice’s Public Workshop: Examining Health Care Competition (Feb. 

25, 2015). See also Leemore Dafny, Kate Ho & Robin S. Lee, The Price Effects of Cross-Market 

Hospital Mergers (Nw. Inst. For Policy Research, Working Paper 16-05, 2016). 185ProMedica Health Sys. v. FTC, 749 F.3d 559 (6th Cir. 2014). 186 James Landman, Dir. of Inst. for Population Health Improvement, & Joe Miller, Gen. 

Counsel for America’s Health Ins. Plans, Remarks on Trends in Provider Consolidation, at Antitrust Division of the Department of Justice’s Public Workshop: Examining Health Care Competition (Feb. 25, 2015). 187Kenneth Kizer, Dir. of Inst. For Population Health Improvement, U. Cal. Davis Health 

Sys., & Joe Miller, General Counsel for America’s Health Ins. Plans, Remarks on Trends in Provider Consolidation, at Antitrust Division of the Department of Justice’s Public Workshop: Examining Health Care Competition (Feb. 25, 2015). 

3. Work Product from Healthcare Workshops and Areas of Study 

In an effort to keep abreast of developments in this rapidly changing industry, 

the FTC in conjunction with the Division and the Centers for Medicare & Medicaid 

Services (CMS), has held extensive workshops with industry leaders in 2014 and 

2015.178 The Section commends the Agencies for this joint endeavor and encourages 

them to continue to hold more joint workshops in the future on issues where clarity 

is needed, or new evidence is available that can guide policy. Medicare policies, including its payment rules, can influence provider consolidation and other aspects of 

market competition,179 and the Section encourages FTC and Division lawyers and 

economists to play a more active role in influencing Medicare policies and rules so 

as to take into account the effect on competition and antitrust issues beyond 

ACOs.180

Although these workshops have provided material suitable for policy development 

and analysis, there have been no revisions to the Policy Statements issued in 1996; 

few, if any, speeches by government officials outlining some of the enforcement policies coming forth from these workshops; and few enforcement actions based on the 

theories of harm discussed during the workshop. At a minimum the Section encourages the Agencies to consider providing more detailed, focused guidance on: 

(1) The anticompetitive use of contracting devices by dominant hospital providers 

as evidenced in the Division’s suit against United Regional Health Care System 181 challenging exclusive contracts, and the recent case brought by the Division against Carolinas HealthCare System challenging steering restrictions.182 What are the principles that cause the Division to choose these cases 

for enforcement? 

(2) The various theories of harm and potential benefits that can result from the 

vertical integration of hospitals and physicians,183 insurers and physicians, 

and cross market consolidation of providers;184 and 

(3) The broader implications of the recent FTC victories in St. Luke’s, ProMedica 

Health System 185 and Penn State Hershey Medical Center, including a better 

understanding of cognizable, merger specific efficiencies 186 and how efficiencies can be achieved by contract rather than merger or consolidation.187

The Section also encourages the FTC to continue its research and analysis, particularly with respect to the: 

200 

188 133 S. Ct. 2223, 2237–38 (2013). 189 In re Loestrin Antitrust Litig., 814 F.3d 538, 549 (1st Cir. 2016); King Drug Company of 

Florence v. Smithkline Beecham Corp., 791 F.3d 388, 403 (3d Cir. 2015); In re Opana ER Antitrust Litig., 162 F. Supp. 3d 704, 717 (N.D. Ill. 2016); In re Actos End Payor Antitrust Litig., 

2015 WL 5610752, at *13 (S.D.N.Y. Sept. 22, 2015); In re Aggrenox Antitrust Litig., 94 F. Supp. 

3d 224, 242 (D. Conn. 2015); United Food & Commercial Workers Local 1776 & Participating. 

Employers Health & Welfare Fund v. Teikoku Pharma USA, 74 F. Supp. 3d 1052 1069–70 (N.D. 

Cal. 2014); In re Effexor XR Antitrust Litig., 2014 WL 4988410, at *20–22 (D. N.J. Oct. 6, 2014), 

appeal docketed and consolidated with In re Lipitor Antitrust Litig., 46 F. Supp. 3d 523, 544 

(D.N.J. 2014) Lipitor, No. 15–1184 (3d Cir. July 8, 2015); Time Ins. Co. v. AstraZeneca AB, 52 

F. Supp. 3d 705, 709–10 (E.D. Pa. 2014); In re Lipitor Antitrust Litig., 46 F. Supp. 3d 523, 544 

(D.N.J. 2014), appeal docketed and consolidated with In re Effexor XR Antitrust Litig., No. 14– 

4202 (3d Cir. July 8, 2015); In re Niaspan Antitrust Litig., 42 F. Supp. 3d 735, 751 (E.D. Pa. 

2014); In re Wellbutrin XL Antitrust Litig., No. 08-cv-02431 (E.D. Pa. Jan. 17, 2014); In re 

Nexium (Esomeprazole) Antitrust Litig., 968 F. Supp. 2d 367, 392 (D. Mass. 2013). 190Michael A. Carrier & Steve Shadowen, Product Hopping: A New Framework, 92 NOTRE

DAME L. REV. 167 (2016). 191Dennis Carlton, Frederick Flyer & Yoad Shefi, Does the FTC’s Theory of Product-Hopping 

Promote Competition?, 12 J. OF COMP. LAW & ECON. 495–506 (2016). 

(4) Competitive impact of electronic health records and whether they deter patients from switching to alternative providers. 

4. Reverse-Payment Settlements in the Pharmaceutical Industry 

In the past two decades, the FTC has paid particular attention to settlements by 

which brand-name drug companies pay generic firms to settle patent litigation and 

delay entering the market. In its 2013 decision in FTC v. Actavis, the Supreme 

Court, though it rejected the FTC’s proposal to apply a ‘‘quick look’’ analysis, held 

that these agreements could have ‘‘significant anticompetitive effects’’ and violate 

the antitrust laws under the rule of reason.188 In the three years since the decision, 

courts have begun to flesh out the Actavis framework. 

The issue that has received the most attention is whether the term ‘‘payment’’ is 

limited to cash or whether it extends to other types of consideration. The overwhelming majority of courts—including two Federal courts of appeals—that has 

analyzed the issue has held that payment is broader than cash.189 These decisions 

are consistent with the emphasis of substance over form in antitrust. Other issues 

that the Agencies may confront in the years ahead include the antitrust analysis 

the courts should apply, the role of the patent merits, causation, pleading requirements, and the role of state law. 

For the past two decades, the FTC has played a crucial role in litigating reversepayment settlement cases, filing amicus briefs, collecting settlements filed under the 

2003 Medicare Modernization Act, and raising awareness of these issues. With jurisprudence accumulating in the wake of Actavis, the Section encourages the FTC to 

provide much-needed guidance to businesses, consumers, and the courts. 

5. ‘‘Product Hopping’’ 

Another issue that has arisen in the pharmaceutical industry is ‘‘product hopping,’’ which occurs when a brand-name drug company switches from one version 

of a drug to another. Most reformulations, especially those made when a generic is 

not about to enter the market, do not raise anticompetitive concerns. But some may. 

By reformulating a drug and switching the prescription base to the new product, 

a brand firm can avoid regulatory regimes designed to encourage generic entry, 

namely the Hatch-Waxman Act and state drug product selection laws. 

The courts have tended to distinguish between ‘‘hard switches,’’ viewed as anticompetitive because the brand removes the original drug from the market, and ‘‘soft 

switches,’’ viewed as not concerning because the original remains on the market. 

Some recent scholarship has contended that this distinction should not be accorded 

dispositive significance, and has argued that both types of behavior could conceivably not make economic sense absent its impairment of generic competition.190

Other scholarship has argued that neither type of conduct should violate the antitrust laws given the risks involved with asking courts to second-guess the value of 

innovation.191

The Section recommends that the FTC continue to follow developments in this 

area and to share its analysis of the nuances and consequences of product hopping 

and any nuances and consequences of adjudicating these cases. The Section also recommends that the FTC share its views through amicus curiae briefs in these cases 

as appropriate. 

6. Pharmaceutical Samples 

One practice that has recently received attention and that could have an effect 

on the development of generic drugs is brand firms’ refusal to provide samples to 

201 

192 21 U.S.C. § 355–1(a)(1). 193Darren S. Tucker, Gregory F. Wells & Margaret E. Sheer, REMS: The Next Pharmaceutical 

Enforcement Priority?, 28 ANTITRUST 74, 74 (2014). 194 21 U.S.C. § 355–1(f)(8). 195Lauren Battaglia, Risky Conduct with Risk Mitigation Strategies? The Potential Antitrust 

Issues Associated with REMS, ANTITRUST HEALTH CARE CHRON., Mar. 2013, at 26, 28. 196See generally HOVENKAMP ET AL., IP AND ANTITRUST, Chap. 15 (2015 Supp.). 197See, e.g., Mylan Pharmaceuticals, Inc. v. Warner Chilcott Pub. Lim Co., No. 15–2236, 2016 

WL 5403626 (3d Cir. Sept. 28, 2015). 198For discussion of antitrust concerns raised by restricted distribution systems outside the 

REMS setting, see Michael A. Carrier, Nicole Levidow, & Aaron S. Kesselheim, Using Antitrust 

Law to Challenge Turing’s Daraprim Price Increase, 31 BERKELEY TECH. L. J. (forthcoming 

2017), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2724604. 

generic manufacturers that request them. Under the Food and Drug Administration 

Amendments Act of 2007 (FDAAA), the FDA may require the use of Risk Evaluation 

and Mitigation Strategies (REMS) if needed to ensure that a drug’s benefits outweigh its risks.192 Nearly 40 percent of new drugs are subject to REMS restrictions, 

with many of these including distribution restrictions.193

Although REMS programs serve important purposes, Congress was concerned 

that they could delay generic entry, and thus made clear that holders of REMS-covered products would not be able to use REMS to ‘‘block or delay approval’’ of an 

Abbreviated New Drug Application (ANDA).194 A central element of the Hatch-Waxman Act was a generic manufacturer’s ability to rely on the brand’s clinical studies 

if it could show that its drug was bioequivalent to the brand’s drug. Bioequivalence 

can be established by testing samples of the brand drug, which (absent REMS) 

generics can acquire from distributors or wholesalers.195 The challenge is that when 

an REMS program prevents distributors and wholesalers from selling the drug, and 

the brand refuses to sell to the generic, the generic lacks access to the samples 

needed for testing and may not be able to demonstrate bioequivalence in order to 

obtain an ANDA.196

Generally, a firm does not have a duty to deal with its competitors. But the REMS 

restrictions imposed by the FDA can raise complex questions of market access. The 

interplay of competition and the regulatory regime calls for close scrutiny. The FTC 

has participated as amicus curiae in cases raising this issue,197 and the competitive 

effects of distribution systems in the industry remain the subject of studies outside 

REMS settings.198 The Section also recommends that the FTC monitor and comment on potential legislative and regulatory approaches to the issue that might be 

viable complements or alternatives to antitrust enforcement. 

VI. INTERNATIONAL 

A. Establishing U.S. Focus and Leadership in International Antitrust Policy 

1. Dramatic Recent Growth in Global Antitrust Enforcement 

A dramatic expansion in active competition law enforcement that began in the 

1980s now encompasses more than 130 jurisdictions and virtually every significant 

transaction, business enterprise, and economic sector worldwide. This global expansion of antitrust rules undoubtedly did much to enhance competition, most obviously 

by increasing the scope of business activity subject to legal limitations on ‘‘hardcore’’ cartel conduct. Such hard-core cartel prohibitions are among the most analytically sound and widely-supported policies characteristic of free-market economies. 

Limitations on anticompetitive structural transactions as well as on unilateral conduct by monopolists or ‘‘dominant’’ firms also are based upon persuasive policy rationales and enjoy broad support, although design and implementation of the latter 

prohibitions involve a variety of significant challenges. 

On the broadest level, global acceptance of the idea of free markets and the appropriate role of legal proscriptions on anticompetitive business conduct has been revolutionary in scope—and may constitute a fundamental reorientation of microeconomic policy thinking with the long-run potential to provide significant economic 

benefits for all participants in the global economy. But the jurisdiction-by-jurisdiction process that produced this worldwide antitrust expansion also created numerous and conflicting variations in nearly every aspect of competition law—including 

substance, procedure, remedy, institutional framework, and many other key characteristics of antitrust enforcement and compliance. 

This huge antitrust expansion dramatically increased the cost and complexity of 

compliance. While industries, companies and business activities operate increasingly 

across borders, enforcement is still primarily national (with important supranational 

and subnational enforcement regimes as well—e.g., the EU and Mercosur, EU Member States, states of the U.S., autonomous regions of Spain, provinces and other subVerDate Nov 24 2008 07:37 Mar 18, 2019 Jkt 000000 PO 00000 Frm 00205 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\35459.TXT JACKIE
202 

199There is some history of successful attempts to escalate pressing current international antitrust enforcement frictions up through the Executive Branch: leading examples include the 

merger of Boeing with McDonnell-Douglas and addressing recent and serious due process issues 

in Asian jurisdictions. These tend to be ad hoc interventions, where essential, to address enterprise-threatening problems that agency-to-agency contacts have failed to resolve. There appears 

to be no formal mechanism to invoke Executive Branch assistance outside of crisis-generating 

events. 

ordinate jurisdictions in China, etc.). There are numerous and still-expanding opportunities for friction, complexity, and inefficiency capable of adversely affecting the 

economy, the business community, and consumers inside and outside the U.S. Costs 

can arise from inapt substantive standards (including intermixture and confusion 

within many competition laws of both economic and other policy goals), lack of 

transparency, inadequate procedural protections, inexperienced decision makers, 

and institutions struggling to deal with the complexities of antitrust law, economics 

and procedure essential to effective antitrust enforcement. Moreover, the near-universal practice of applying local antitrust rules to any conduct that results in adverse local competitive effects—regardless of the nationality or location of the parties or of the offending conduct—assures that businesses must deal constantly with 

the complex interactions of numerous and to some extent conflicting provisions of 

competition laws of a multitude of jurisdictions, regardless of where their operations 

are located. 

The potential that such costs and frictions would arise as antitrust expanded globally was anticipated early on by the antitrust enforcement community (agency officials, scholars, members of the antitrust bar, the business community, and others). 

Solutions were sought through a variety of institutions and processes. Existing 

frameworks for international coordination to identify and minimize these costs and 

complexities (primarily the ICN, created in 2001, and the Competition Committee 

of the OECD, whose institutional pedigree traces back to the Marshall Plan, as well 

as a broad web of both ad hoc and formalized bilateral interagency relationships) 

offer some scope for discussion and reform. These networks of bilateral and multilateral relationships have been active for decades. Over time, this interaction has consistently encouraged the broader adoption of enforcement modalities of, such as 

criminal procedures and remedies, leniency programs, surreptitious surveillance and 

other sophisticated investigation techniques, as well as systems of private redress, 

including possibilities for collective actions similar to class actions. But harmonization and/or amelioration of conflicting elements of international enforcement remains challenging, and many conflicts remain to be resolved. 

The Agencies have contributed enormously to the progress of competition law and 

procedure, and we believe they can improve the effectiveness of their efforts. From 

at least the early 1980s, the Division generally included international matters within the portfolio of a specific Deputy Assistant Attorney General (‘‘DAAG’’), eventually making this the sole responsibility of an ‘‘international’’ DAAG. But that dedicated position no longer exists. By contrast, the FTC has assembled and maintained 

a well-staffed, experienced and focused International Division. There has long been 

a Foreign Commerce Section at the Division, but it is much smaller and appears 

to be active at a more technical level in recent years, relative to the FTC International Division. In the meantime, the international antitrust enforcement landscape has rapidly grown more complex, suggesting that restoring the position of the 

International DAAG would give the Division a clearer voice and facilitate more coordination in the Agencies’ approach to this critical area. 

There is no self-evident formula for strengthening current international antitrust 

assistance and reform efforts by the United States. One option that should be considered is to establish a transparent, formal, and consistent process for coordinating 

the two Federal enforcement agencies’ efforts in the field of international antitrust 

policy. The agencies should be encouraged to: 

(5) Develop a mechanism to coordinate their efforts to monitor global developments; 

(6) Anticipate the adverse effects of flawed foreign legislation; 

(7) Identify ill-advised and conflicting mandates embodied in underlying substantive law, inadequate procedural protections, institutional arrangements, 

and other troublesome features of international competition-law regimes that 

adversely affect U.S. consumers and businesses, the U.S. economy, and the 

world economy; and 

(4) Identify or open appropriate channels to engage the Executive Branch when 

necessary to resolve elevated disputes.199

203 

200See, e.g., Abbott B. Lipsky, Jr. & Kory Wilmot, The Foreign Trade Antitrust Improvements 

Act: Did Arbaugh Erase Decades of Consensus Building?, ANTITRUST SOURCE at 7–9 (2013), 

available at www.americanbar.org/content/dam/aba/publishing/antitrust_source/aug13_lip 

sky_7_30f.authcheckdam.pdf. 201See F. Hoffman-La Roche Ltd. v. Empagran S.A., 542 U.S. 155, 162 (2004). 202 E.g., Minn-Chem, Inc. v. Agrium Inc., 683 F.3d 845 (7th Cir. 2012); Animal Sci. Prods., 

Inc. v. China Minmetals Corp., 654 F.3d 462 (3d Cir. 2011). 203 546 U.S. 500 (2006). 204See, e.g., Lipsky & Wilmot, supra note 203, at 1–2. 205See, e.g., Br. for the United States of America at 6–7, United States v. AU Optronics Corp., 

et al., No. CR–09–0110 (N.D. Cal. Apr. 8, 2011). 

B. Clarify the Jurisdictional Character of the FTAIA 

Congress adopted the Foreign Trade and Antitrust Improvements Act (FTAIA) in 

response to concerns from U.S. businesses that strict application of U.S. antitrust 

law to their foreign conduct would disadvantage them in competition against nonU.S. companies. Although the law has been criticized for its lack of clarity, it was 

clear in the legislative history and to those involved in consideration of these proposals that the FTAIA was intended to create a jurisdictional limit, rather than an 

additional substantive element of a Sherman Act violation.200 Other potential bases 

for limiting the reach of U.S. antitrust law—substantive law and comity—were explicitly excluded from the FTAIA’s intended scope. Although its precedential force 

is subject to debate, the Supreme Court accepted the jurisdictional character of the 

FTAIA in its first decision construing the law.201

More recently, however, several Federal appellate courts have opined that FTAIA 

is substantive, not jurisdictional.202 This evolution emerged adventitiously from a 

civil rights decision, Arbaugh v. Y & H Corp.203 In that context, the Court adopted 

the simple rule that limitations placed on statutory rights would be regarded as 

substantive unless specifically declared jurisdictional by the Congress. The Court 

did not, however, consider whether its opinion would or should have retroactive effect on the FTAIA’s specific limitations on antitrust law. 

Classifying the FTAIA as substantive shifts the question of extraterritorial reach 

from the early pleading stage to merits discovery, later pleading stages, and/or trial. 

Eliminating the possibility of early dismissal of antitrust claims against foreign parties and conduct subjects defendants to the well-recognized expense, burden, and 

delay characteristic of U.S. antitrust litigation, even with regard to claims falling 

outside U.S. jurisdiction.204

In prior litigation, including as recently as 2011, the Agencies have taken the position that the FTAIA is a jurisdictional limit.205 The Section urges the Administration and the Agencies to continue to help clarify that the FTAIA is a jurisdictional 

statute by means of advocacy, legal positions taken in agency cases and amicus 

briefs submitted to courts presiding in private and/or state antitrust cases, and/or 

through legislation if appropriate. Congress’s intent is abundantly clear to those familiar with the history of the policy debate and the legislative record of the FTAIA. 

The foreign reach of U.S. antitrust is a critical policy question that is better settled 

by direct confrontation of the key issues, rather than by requiring a search for 

‘‘magic words’’ in prior legislation. 

Parties should not be forced to engage in discovery and merits defense of claims 

where it can be determined at the outset that the impugned conduct lacks the defined material nexus with U.S. economic interests specified in the FTAIA. A substantive construction of FTAIA is contrary to these bedrock considerations, while a 

jurisdictional construction supports them. 

C. Encourage Direct Agency Intercession in Foreign Agency Proceedings 

3. Background 

U.S. agencies characteristically engage in a great deal of substantive analysis— 

concerning the law, theoretical and empirical economics, and antitrust policy—in 

connection with matters that they investigate. It is an increasingly frequent pattern 

in international antitrust enforcement that similar transactions and conduct arise 

in many jurisdictions—and fall to be considered by antitrust agencies in a variety 

of jurisdictions—at about the same time. Multinational merger enforcement is an 

obvious example, but the same should be said of matters involving cartels, joint ventures, intellectual property activity, and dominant-firm conduct. 

It is widely appreciated that the U.S. agencies are often in direct communication 

with foreign counterparts where investigations involve similar parties, industries, or 

competitive practices. It appears that such discussions can improve case outcomes— 

by clarifying the economic theory of a case, by improving the accuracy of the factual 

conclusions underlying a decision, or by harmonizing remedies adopted in different 

204 

206 AM. BAR ASSOC. SECTION OF ANTITRUST LAW, BEST PRACTICES FOR ANTITRUST PROCEDURE

(2015), available at http://www.americanbar.org/content/dam/aba/directories/antitrust/dec15 

_lipsky_tritell_12_11f.authcheckdam.pdf. 

jurisdictions and thereby reducing their collective burden on parties involved in 

cases of cross-border conduct. 

6. The Agencies Should Enhance Efforts to Communicate with Foreign Counterparts 

on Issues Affecting U.S. Industries and Firms 

The Agencies should demonstrate an increased willingness to communicate directly with foreign antitrust agencies considering matters involving U.S. industries 

and firms. Where appropriate legal grounds exist, and where otherwise consistent 

with U.S. policy, the Agencies should actively seek to intercede in foreign enforcement proceedings involving U.S. firms. Where there are existing bilateral channels, 

they should be used for this purpose, but the agencies should not hesitate to explore 

new channels, as may be feasible and appropriate in particular circumstances. This 

is particularly important for cases where basic procedural standards are materially 

deficient, or where foreign agency actions (or proposed actions) are contrary to 

sound substantive law, to consensus notions of territoriality, or to other practices 

that enjoy broad consensus support among antitrust enforcement authorities in numerous jurisdictions. 

D. Engage in a Critical Self-Assessment of U.S. Antitrust Procedures 

The international antitrust community has engaged in extensive critical examination of a wide variety of topics in antitrust enforcement, including substantive law, 

institutional design, and many other aspects of competition law. Recently there has 

been a surge of interest in the question of antitrust procedure—which procedures 

best support accurate, impartial, and efficient antitrust decisions? On May 22, 2015, 

the Section issued a Report on Best Practices for Antitrust Procedure, covering all 

main phases of government antitrust proceedings: investigation, alleging infringement, conducting proceedings to assess and render judgment upon such allegations 

and formulation of remedies for infringements, including the process of appeal and 

review.206 The ICN recently adopted Guidance regarding Investigative Procedure, 

covering issues of this character that arise in the pre-complaint investigation phase 

of government antitrust investigations. 

VII. CONCLUSION 

The ABA Section of Antitrust Law is grateful for the opportunity to present this 

Report to the Administration. The Section looks forward to working closely with the 

Division and the FTC over the next four years, and stands ready to be of service 

to the Administration and the Agencies in the critical task of promoting and preserving free and open competition in the Nation’s economy. 

205 

1 Alaska Prof’l Hunters Ass’n v. FAA, 177 F.3d 1030, 1035 (D.C. Cir. 1999) (citations omitted). 2See infra notes 43–46 and accompanying text. 3Perez v. Mortgage Bankers Assoc., 135 S. Ct. 1199, 1209 (2015) (citing FCC v. Fox Television 

Stations, Inc., 556 U.S. 502, 515 (2009)) (‘‘[T]he APA requires an agency to provide more substantial justification when ‘its new policy rests upon factual findings that contradict those which 

underlay its prior policy; or when its prior policy has engendered serious reliance interests that 

must be taken into account. It would be arbitrary and capricious to ignore such matters.’ ’’). See 

also Elizabeth McGill, Agency Self-Regulation, 77 GEO. WASH. L. REV. 859, 875 (2009). 4See, e.g., In re: FTC’s Proposed Information Requests to Patent Assertion Entities and Other 

Entities Asserting Patents in the Wireless Communications Sector, Project No. P131203 (Dec. 

16, 2013) (responding to the FTC’s decision to investigate Patent Assertion Entities and contending that the proposed information requests were consistent with the requirements of the 

Paperwork Reduction Act, 44 U.S.C. § 3501 et seq.). 5See, e.g., Ross v. FTC, 135 S. Ct. 92 (2014) (challenging FTC’s authority to obtain monetary 

restitution under § 13(b) of the FTC Act); FTC v. Wyndham Worldwide Corp., 799 F.3d 236 (3d 

Cir. 2015) (challenging the FTC’s authority to regulate cybersecurity breaches under the ‘‘unfairness’’ prong of § 5 of the FTC Act). 

FILE NOS. 1623079, 1623080, 1623081, & 1623082 

COMMENTS OF WASHINGTON LEGAL FOUNDATION

TO THE FEDERAL TRADE COMMISSION

CONCERNING PROPOSED CONSENT AGREEMENTS AND REQUEST

FOR PUBLIC COMMENTS IN ZERO-VOC PAINT CLAIMS CASES

IN RESPONSE TO THE PUBLIC NOTICE PUBLISHED AT 82 FED. REG. 32,818 

(JULY 18, 2017) 

Dear Commissioners: 

As set forth below, the Washington Legal Foundation (‘‘WLF’’) strongly objects to 

the Federal Trade Commission’s (the ‘‘FTC,’’ the ‘‘Commission’’) proposed efforts to 

re-open and ‘‘harmonize’’ the consent orders issued in the PPG Architectural Finishes, Inc. (Docket No. C–4385) and The Sherwin-Williams Company (Docket No. C– 

4386) cases, with the consent orders the FTC recently entered into with Benjamin 

Moore & Co, Inc. (File No. 1623079), ICP Construction, Inc. (File No. 1623081), Imperial Paints (File No. 1623080), and YOLO Colorhouse (File No. 1623082), which 

the FTC published on July 11, 2017 (‘‘New Orders’’). 

WLF believes that the proposed New Orders and related harmonization proposal 

run a grave risk of sacrificing many of the benefits derived from the previously consensus-based Green Guides, whereby the agency exhibited regulatory humility and 

filled gaps in its knowledge and expertise by working with industry and consumers. 

WLF believes that ‘‘[t]hose regulated by an administrative agency are entitled to 

‘know the rules by which the game will be played.’ ’’ 1 Accordingly, modifying the 

Green Guides with respect to emissions and VOC-free claims, in WLF’s view, requires further notice-and-comment proceedings. The Green Guides create what are 

essentially substantive rules, requiring that they be amended directly only through 

a notice-and-comment process.2 Changing the Green Guides outside of the noticeand-comment process erodes the FTC’s effectiveness and undermines its ability to 

successfully defend its use of agency discretion.3

Even if such notice-and-comment proceedings are not required, such proceedings 

would be a better way to avoid disrupting the settled expectations of the industry. 

Notice-and-comment proceedings would also serve to rein in critics’ perceptions that 

the Commission has overstepped its bounds through the sweeping embrace of a new 

‘‘common law’’ of negotiated settlements, especially in this particular case where the 

latest proceedings, if approved by the Commission, would have the effect of changing substantive law without explanation. 

WLF submits this comment to the FTC with respect to all of the above-referenced 

proposed New Orders published on July 11, 2017. 

I. Interests of WLF 

Founded in 1977, WLF is a nonprofit, public-interest law firm and policy center 

based in Washington, DC, with supporters throughout the United States. WLF devotes a substantial portion of its resources to defending free enterprise, individual 

rights, limited government, and the rule of law. To that end, WLF regularly appears 

before Federal administrative agencies, including the FTC, to ensure adherence to 

the rule of law.4 Likewise, WLF has participated as amicus curiae in litigation challenging the scope of the FTC’s regulatory authority under the FTC Act.5 In addition, 

206 

6See, e.g., Kurt Wimmer, et al., Data Security Best Practices Derived from FTC § 5 Enforcement Actions, WLF WORKING PAPER (January 2017); John G. Greiner & Zoraida M. Vale, FTC 

Intensifies Scrutiny of ‘‘Native Advertising,’’ WLF LEGAL OPINION LETTER (April 15, 2016); Christopher Cole, Jerry Schwartz, & Natalia Medley, Sustainable ‘‘Green Advertising’’: Implications 

of FTC’s Guidelines for Public, Private, & Self-Regulation, WLF WEBINAR (February 21, 2013). 7Martin Shapiro, Administrative Discretion: The Next Stage, 92 Yale L.J. 1487, 1489 n.11 

(1983). 8 Appalachian Power Co. v. EPA, 208 F.3d 1015, 1020 (D.C. Cir. 2000). 9 15 U.S.C. § 45(a)(2). 

10 15 U.S.C. § 57a. 11 15 U.S.C. §§ 45(b), 57b. 12 16 C.F.R. Part 260. 13Fed. Trade Comm’n, Press Release, FTC Approves Final Orders Settling Charges Against 

The Sherwin-Williams Co. and PPG Architectural Finishes, Inc.; Issues Enforcement Policy 

Statement on ‘‘Zero VOC’’ Paint Claims (Mar. 6, 2013), https://www.ftc.gov/news-events/pressreleases/2013/03/ftc-approves-final-orders-settling-charges-against-sherwin. 14Fed. Trade Comm’n, Enforcement Policy Statement Regarding VOC-Free Claims for Architectural Coatings (Mar. 6, 2013), https://www.ftc.gov/sites/default/files/documents/cases/2013 

/03/130306ppgpolicystatement.pdf. 

WLF’s Legal Studies Division, the publishing arm of WLF, frequently produces articles and hosts discussions on a wide array of legal issues related to FTC activities.6

These proceedings raise issues that sweep much more broadly than the FTC’s efforts to regulate paint manufacturers’ VOC-free clams for architectural coatings. 

The central challenge of administrative law over the past several decades has been 

to ‘‘narrow[w] the category of actions considered to be so discretionary as to be exempted from review.’’ 7 As the size of the administrative state continues to expand, 

it is more imperative than ever that agencies play by the rules—especially the rule 

of fair notice—and that affected stakeholders continue to have a meaningful opportunity to participate in the operation of their government. Courts have criticized the 

increasing use of agency-created legislative rules whereby ‘‘[l]aw is made, without 

notice and comment, without public participation, and without publication in the 

Federal Register of the Code of Federal Regulations.’’ 8 The FTC’s recent actions in 

the zero-VOC paint-claims cases implicate these core concerns. 

II. Background 

A. The FTC’s Statutory Authority 

Section 5 of the FTC Act authorizes the Commission to take steps to prevent businesses and individuals (with certain limited exceptions) from using ‘‘unfair or deceptive acts or practices in or affecting commerce.’’ 9 The FTC may use formal rulemaking procedures to issue binding rules that regulate unfair or deceptive acts or 

practices.10 The FTC may act less formally by publishing guidance, enforcement 

policies, and other public statements to further its statutory objectives. Alternatively, the FTC may investigate, commence civil actions against, and obtain 

agreement to consent orders with businesses and individuals that allegedly engage 

in unfair or deceptive acts or practices.11

B. The FTC’s Efforts to Regulate VOC-Free Claims for Architectural Coatings 

The FTC Issues the Green Guides. In 1992, the FTC issued the ‘‘Guides for the 

Use of Environmental Marketing Claims,’’ 12 which later became known as the 

‘‘Green Guides.’’ The Green Guides represented the FTC’s best understanding of 

how § 5 of the FTC Act applied to environmental advertising and marketing practices. The FTC updated the Green Guides in 1996, 1998, and 2012. As a basis for 

originally issuing and later directly amending the Green Guides, the FTC held public hearings and workshops, completed a consumer perception study, and followed 

notice-and-comment procedures. 

The FTC Agrees to Consent Orders and Issues Green Guides Enforcement Policy. 

On March 6, 2013, the FTC approved consent orders with PPG Architectural Finishes, Inc. (‘‘PPG’’) and The Sherwin-Williams Company (‘‘Sherwin-Williams’’) to settle alleged violations of § 5 for marketing ‘‘zero VOC’’ paints.13 At the same time, 

the FTC published the ‘‘Enforcement Policy Statement Regarding VOC-Free Claims 

for Architectural Coatings’’ (‘‘Enforcement Policy’’) without an opportunity for the 

public and industry to weigh in as it had with the guides themselves.14 The Enforcement Policy stated that the Commission was replacing the definition of ‘‘trace 

amounts of a substance’’ in the Green Guides with a new definition that applied specifically to VOC-free claims for architectural coatings. The Enforcement Policy also 

introduced the element of human safety as a factor in the advertising claim analysis. The announced Enforcement Policy signaled to the remainder of the architectural coatings industry the Commission’s policy going forward. 

207 

15Fed. Trade Comm’n, Press Release, Paint Companies Settle FTC Charges That They Misled 

Consumers; Claimed Products Are Emission-and VOC-free and Safe for Babies and other Sensitive Populations, https://www.ftc.gov/news-events/press-releases/2017/07/paint-companiessettle-ftc-charges-they-misled-consumers-claimed. 16See, e.g., Benjamin Moore & Co., Inc.; Analysis to Aid Public Comment, 82 Fed. Reg. 32818, 

32820 (July 18, 2017), https://www.ftc.gov/system/files/documents/cases/benjamin_moore 

_analysis.pdf. 

17 5 U.S.C § 553. 18 16 C.F.R. Part 260. 19 U.S. Gov’t Publishing Office, Code of Federal Regulations (Annual Edition), https:// 

www.gpo.gov/fdsys/browse/collectionCfr.action?collectionCode=CFR. 44 U.S.C. § 1510 (a) limits 

publication in that code to rules ‘‘having general applicability and legal effect.’’ See Brock v. Cathedral Bluffs Shale Oil Co., 796 F.2d 533, 539 (D.C. Cir.1986) (Scalia, J.). 20See Brief of Petitioner, LabMD, Inc., at 38–43, LabMD, Inc. v. FTC, No. 16-16270 (11th Cir. 

Dec. 27, 2016) (arguing ‘‘as a matter of law consent decrees cannot provide parties with fair notice, for Due Process Clause purposes, of an agency’s interpretation of its governing statute or 

one of its regulations.’’); Amicus Curiae Brief of Washington Legal Foundation, at 7, FTC v. 

Wyndham Worldwide Corp., 799 F.3d 236 (3d Cir. Oct. 6, 2014) (arguing that ‘‘the FTC’s ‘catchas-catch-can’ approach to regulatory enforcement under § 5 is not only deeply unfair to the business community, but it also fails far short of satisfying the legal standard for fair notice’’); Appellant’s Opening Brief and Joint Appendix Vol. 1, pp JA1–55, at 41, FTC v. Wyndham Worldwide Corp., 799 F.3d 236 (3d Cir. Oct. 6, 2014) (arguing that because a complaint or a consent 

decree ‘‘is not a decision on the merits and therefore does not adjudicate the legality of any action by any party thereto, it does not and cannot provide fair notice of what the law either requires or proscribes.’’). The House of Representative Committee on Oversight and Government 

reform also held hearings to hear testimony on the FTC’s use of consent decrees in the privacy 

and data security space. Access to video of the hearings is available at https://oversight.house.gov/hearing/federal-trade-commission-section-5-authority-prosecutor-judge-jury-2/. 21 16 C.F.R. § 260.1. 22See infra note 43 and accompanying text. 

The FTC Agrees to Additional Consent Orders and Proposes to ‘‘Harmonize’’ All 

Consent Orders. On July 11, 2017, the FTC issued complaints and the New Orders 

with four more companies in the architectural coatings industry.15 The New Orders 

added yet another definition of ‘‘trace amounts’’ (now three) for the purposes of assessing ‘‘free-of’’ claims for architectural coatings. The FTC also stated that it will 

‘‘propose harmonizing’’ these four New Orders with the PPG and Sherwin-Williams 

consent orders: ‘‘Specifically, the Commission plans to issue orders to show cause 

why those [PPG and Sherwin-Williams] matters should not be modified pursuant to 

Section 3.72(b) of the Commission Rules of Practice, 16 CFR 3.72(b).’’ 16 WLF is 

aware of no consumer-perception studies (FTC-commissioned or otherwise) that justify the Commission’s new positions in the consent orders or the Enforcement Policy. 

III. To Provide Clarity and Address Due Process and Equal Protection 

Concerns, the FTC Should Treat the Green Guides as Substantive Rules 

The FTC Published the Green Guides Using a Rulemaking Process. The FTC published the Green Guides using a process very similar to the substantive rulemaking 

procedure prescribed by the Administrative Procedure Act (‘‘APA’’).17 For example, 

the FTC’s Green Guide-related activity included performing research on consumer 

understanding and perceptions, undertaking a notice-and-comment process, submitting the resulting guidance for approval by the full Commission, and—most significantly—publishing the final Green Guides in the Code of Federal Regulations.18 The 

FTC’s decision to formally publish the Green Guides in the Code of Federal Regulations should not be overlooked or ignored, given that the Code of Federal Regulations is ‘‘the codification of the general and permanent rules published in the Federal Register by the departments and agencies of the Federal Government.’’ 19 Although the Commission lacks traditional APA notice-and-comment rulemaking authority, by using a process that in many respects resembled typical APA rulemaking, the Commission exercised significant regulatory humility in issuing the 

Green Guides, a characteristic notably absent in other areas of recent FTC activity 

(e.g., privacy and data security enforcement).20

Industry Relies on the Green Guides as an Authoritative Rule. Although the Green 

Guides bear all of the hallmarks of an APA rulemaking, including publication in the 

Code of Federal Regulations, the FTC also suggests that the Green Guides have no 

substantive effect and attempts to disavow their legislative nature: ‘‘[The Green 

Guides] do not confer any rights on any person and do not operate to bind the FTC 

or the public. The Commission, however, can take action under the FTC Act [only] 

if a marketer makes an environmental claim inconsistent with the guides.’’ 21 But 

surely the Commission cannot have it both ways. Interpretive guidance by an agency can and often does become binding.22 While the FTC’s reserving prosecutorial disVerDate Nov 24 2008 07:37 Mar 18, 2019 Jkt 000000 PO 00000 Frm 00211 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\35459.TXT JACKIE
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23 Commissioner Azcuenaga stated, ‘‘As the guides expressly state, the majority of the Commission does not view its guides as having the force and effect of law but as explanations of 

existing statutory terms and obligations. . . . I cannot agree. By stating definitively, for example, that a particular act ‘is deceptive’ or that particular conduct ‘would be deceptive,’ or that 

under specified circumstances, firms ‘must’ or ‘should’ act in a particular way, language that 

appears throughout the document, I believe that the document has ‘defined with specificity’ a 

deceptive act or practice as set forth in section 18(a)(1)(B) [requiring Magnuson-Moss rulemaking].’’ Dissenting Statement of Commissioner Mary L. Azcuenaga Concerning Isuance of 

Commission Guides on Environmental Marketing Claims, 57 Fed. Reg. 36363, 36368 (Aug. 13, 

1992). 24See, e.g., FED. TRADE COMM’N, PROTECTING CONSUMER PRIVACY IN AN ERA OF RAPID

CHANGE: RECOMMENDATIONS FOR BUSINESSES AND POLICYMAKERS, at vii (2012), http://ftc.gov/ 

os/2012/03/120326privacyreport.pdf (‘‘The final privacy framework is intended to articulate 

best practices for companies that collect and use consumer data. These best practices can be 

useful to companies as they develop and maintain processes and systems to operationalize privacy and data security practices within their businesses. The final privacy framework contained 

in this report is also intended to assist Congress as it considers privacy legislation. To the extent 

the framework goes beyond existing legal requirements, the framework is not intended to serve 

as a template for law enforcement actions or regulations under laws currently enforced by the 

FTC.’’); FED. TRADE COMM’N, FACING FACTS: BEST PRACTICES FOR COMMON USES OF FACIAL

RECOGNITION TECHNOLOGIES, at iii (2012), https://www.ftc.gov/sites/default/files/documents/ 

reports/facing-facts-best-practices-common-uses-facial-recognition-technologies/121022facial tech 

rpt.pdf (‘‘The recommended best practices contained in this report are intended to provide guidance to commercial entities that are using or plan to use facial recognition technologies in their 

products and services. However, to the extent the recommended best practices go beyond existing legal requirements, they are not intended to serve as a template for law enforcement actions 

or regulations under laws currently enforced by the FTC.’’) 25Whether FTC guidance can provide authoritative notice that satisfies constitutional fair-notice requirements remains unanswered. In a case against LabMD, Inc., the FTC has asserted 

that its guidance ‘‘Protecting Personal Information: A Guide for Business’’ provided the defendant with notice of reasonable security standards. See Brief of the Federal Trade Commission at 

50–52, LabMD, Inc. v. FTC, No. 16–16270 (11th Cir. Feb. 9, 2017) (referencing the Guide for 

Business, complaints, and consent decrees related to data security, and published guides by 

other Federal agencies). In the FTC’s case against Wyndham, the district court held that the 

FTC is not required to promulgate formal rules before enforcing § 5, and noted that some of the 

other publications by the FTC (including complaints and consent orders) provide some guidance. 

FTC v. Wyndham Worldwide Corp., 10 F. Supp. 3d 602, 617–21 (D.N.J. 2014). On appeal, the 

Third Circuit also did not reach the question of whether the FTC’s guidance provides authoritative notice of the FTC’s interpretation of ‘‘reasonable security.’’ FTC v. Wyndham Worldwide 

Corp., 799 F.3d 236 (3d Cir. 2015). The appellate opinion in the LabMD case may provide greater clarity. 26 Christopher v. SmithKline Beecham Corp., 576 U.S. 142, 158–59 (2012). 

cretion and exercising self-restraint through the Green Guides is admirable, stakeholders have come to rely upon the guides as authoritative and binding. The danger 

this incoherent approach presents was not lost on then-FTC Commissioner 

Azcuenaga, who dissented based on the Commission’s efforts to mask these substantive provisions as ‘‘guidance.’’ 23

The FTC cannot maintain that the Green Guides, Enforcement Policy, and even 

its consent orders are not substantive, while simultaneously insisting that they provide constitutionally sufficient fair notice to those entities regulated by them how 

to comport with the law. While the Commission frequently seeks to provide guidance, it consistently equivocates on what are best practices and what are legal requirements.24 Here, in the event of a challenge, the Commission is almost certain 

to point to the Green Guides as authoritative sources of notice for due-process purposes.25 While the Green Guides do an admirable job at addressing due-process considerations related to notice, recent efforts to modify them through enforcement proceedings create serious jurisprudential and policy concerns. On the one hand, the 

guides are authoritative and serve important due-process functions. On the other 

hand, the FTC’s effort to disavow the binding nature of the guidance, which would 

provide some protection to regulated entities, leaves industry and the public guessing as to what the law may require at any given moment in time. As the Supreme 

Court has emphasized, ‘‘[i]t is one thing to expect regulated parties to conform their 

conduct to an agency’s interpretations once the agency announces them; it is quite 

another to require regulated parties to divine the agency’s interpretations in advance or else be held liable when the agency announces its interpretations for the 

first time in an enforcement proceeding and demands deference.’’ 26

The Green Guides Lose Authoritativeness When Amended by Consent Orders. 

Amending the Green Guides through means other than directly via the previously 

used notice-and-comment process diminishes their authoritativeness, which may 

negatively impact the deference courts give them and leaves them more susceptible 

to attack if the Commission attempts to use them as a basis for an enforcement action. Agency deference by courts is based, in part, on an agency’s formality, thorVerDate Nov 24 2008 07:37 Mar 18, 2019 Jkt 000000 PO 00000 Frm 00212 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\35459.TXT JACKIE
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27 ‘‘The fair measure of deference to an agency administering its own statute has been understood to vary with circumstances, and courts have looked to the degree of the agency’s care, its 

consistency, formality, and relative expertness, and to the persuasiveness of the agency’s position.’’ United States v. Mead Corp., 533 U.S. 218, 228 (2001) (internal citations omitted); Chevron U.S.A. Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 844 (1984). ‘‘The weight [accorded to an administrative] judgment in a particular case will depend upon the thoroughness 

evident in its consideration, the validity of its reasoning, its consistency with earlier and later 

pronouncements, and all those factors which give it power to persuade, if lacking power to control.’’ Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944). 28Perez v. Mortgage Bankers Assoc., 135 S. Ct. 1199, 1209 (2015) (citing FCC v. Fox Television 

Stations, Inc., 556 U.S. 502, 515 (2009)) (‘‘[T]he APA requires an agency to provide more substantial justification when ‘its new policy rests upon factual findings that contradict those which 

underlay its prior policy; or when its prior policy has engendered serious reliance interests that 

must be taken into account. It would be arbitrary and capricious to ignore such matters.’ ’’). 29See SEC v. Chenery Corp., 332 U.S. 194, 203 (1947). Congress may limit or provide rulemaking and/or enforcement authority. Id. at 196, 207. 30See Lydia B. Parnes & Carol J. Jennings, Through the Looking Glass: A Perspective on Regulatory Reform at the Federal Trade Commission, 49 ADMIN. L. REV. 989, 995 (1997). 31Fed. Trade Comm’n, Advertising to Kids and the FTC: A Regulatory Retrospective That Advises the Present, 8 (Mar 2, 2004), https://www.ftc.gov/sites/default/files/documents/public_ 

statements/advertising-kids-and-ftc-regulatory-retrospective-advises-present/040802adstokids 

.pdf. 

oughness in its consideration, and consistency of its statements.27 These factors may 

not be met when settlement agreements with private parties repeatedly change the 

substantive legal requirements and interpretations without justifying departing 

from the formal notice-and-comment process, as is the case here. By reducing the 

formality used when changing substantive rules and failing to use a process that 

incorporates industry and consumer input, the FTC has undermined the likelihood 

that courts will accord the agency deference when evaluating environmental-marketing decisions under the arbitrary and capricious standard.28

The Green Guides’ Effectiveness Is Diminished When They Are Amended Outside 

of the Notice-and-Comment Process. Amending the Green Guides without justification or explication through negotiated consent decrees via enforcement investigations rather than using the previously established notice-and-comment process also 

reduces the guides’ effectiveness as interpretive guidance for regulated businesses, 

thereby undercutting the Commission’s goal in publishing them in the first place. 

Instead of looking solely to the Green Guides, businesses must now look to the 

Green Guides, the Enforcement Policy, and myriad settlement agreements negotiated without the participation of all relevant industry stakeholders to try to ascertain the FTC’s expectations. Accordingly, businesses wishing to make environmental-marketing claims arguably do not have fair notice of the law. Moreover, they 

face the risk of arbitrary regulatory enforcement because the FTC could change its 

mind at any time. In contrast, treating the Green Guides like an agency rule would 

allow businesses and entities to know that changes will not be made without the 

opportunity to participate in an open and transparent process that provides a full 

opportunity to be heard. 

The Green Guides are imperfect, but at least they are relatively clear, authoritative statements developed with industry and consumer participation—and fundamentally they derive from efforts to understand precisely how consumers view 

and interpret certain types of environmental claims. Such participation is the foundation of both due process and regulatory humility. Assuming the FTC wants the 

Green Guides to be authoritative and followed by businesses and individuals, the 

Commission should treat them as authoritative statements, thereby reassuring the 

public that the Green Guides will be updated in a transparent, predictable, and 

participatory manner. 

IV. Case-By-Case Legislation by Consent Decree Is Inappropriate 

The FTC Can Choose Between Rulemaking and Adjudication to Execute Congressionally Delegated Powers. Generally, Federal agencies have discretion to choose between rulemaking and enforcement to execute their statutory responsibilities.29 The 

FTC’s rulemaking authority is specifically circumscribed by Congress. To use its 

rulemaking authority, the FTC must follow additional requirements that are more 

cumbersome than the routine APA process.30 Congress has imposed additional requirements on the Commission because of its ‘‘grossly overreaching proposal’’ to regulate advertising to children in the 1970s.31 Unfortunately, history may be repeating itself with the Commission’s increasing commitment to legislation-by-negotiatedconsent-decree. The FTC’s use of its adjudicatory authority generally is understandable. But here, where the Commission has seemingly abandoned—without explaVerDate Nov 24 2008 07:37 Mar 18, 2019 Jkt 000000 PO 00000 Frm 00213 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\35459.TXT JACKIE
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32Prepared Statement of the Federal Trade Commission on Data Security: Hearing Before the 

Subcomm. on Commerce, Mfg., and Trade of the H. Comm. on Energy and Commerce, 112th 

Cong. 11 (2011) (statement of Edith Ramirez, Comm’r, Federal Trade Commission) (‘‘[E]ffective 

consumer protection requires that the Commission be able to promulgate these rules in a more 

timely and efficient manner.’’). 33Solove & Hartzog, The FTC and the New Common Law of Privacy, 114 COLUMBIA L. REV. 583 (2014). 34The EPA has addressed VOC emissions from architectural coatings in a final published 

rule, 40 C.F.R. Part 59 Subpart D (‘‘National Volatile Organic Compound Emission Standards 

for Architectural Coatings’’). 

nation—use of an interpretive process that was working well, it leaves much to be 

desired. 

The FTC Has Abandoned Its Rulemaking Procedures in Favor of Guidance and 

Adjudication. The inefficient and time-consuming process Congress imposed through 

the Magnuson-Moss Act has led the FTC to all but abandon even its statutorily prescribed rulemaking authority.32 Instead, the Commission appears in recent years to 

have begun legislating through consent decree (e.g., in the area of data privacy and 

security) 33 or using a quasi-rulemaking process such as the one previously used to 

issue and directly amend the Green Guides. After the FTC’s rulemaking authority 

was so substantially restricted by Congress, the Commission undermines whatever 

authority it retains by overreaching in its use of enforcement-action settlements as 

a substitute for substantive and binding lawmaking processes like those used to 

publish the Green Guides. 

The FTC’s Guidance and Adjudication Process Has Taken the Place of Rulemaking. The FTC’s recent Green Guides enforcement activity against the architectural coatings industry appears to be an end-around the rigorous rulemaking procedures that Congress assigned to the FTC. Until these latest order-related changes 

to the rules, the FTC utilized a ‘‘guide-making’’ process that closely resembles the 

APA’s notice-and-consent rulemaking process to issue and directly amend the Green 

Guides. This process provides clear due process, equal protection, and related policy 

benefits, including the kind of broad-based participation and transparency that bolsters the Commission’s stature as the premier consumer-protection law enforcement 

agency. But the FTC’s subsequent Enforcement Policy and two sets of consent orders dramatically change the Green Guides without those same procedural safeguards and policy benefits. Inexplicably, the FTC now seeks to ‘‘harmonize’’ all of 

the consent orders to require six members of the architectural coatings industry to 

comply with consistent ‘‘rules’’ on emissions and VOC-free claims. This is de facto 

legislation through consent orders and, under FTC’s proposed process, no effective 

negotiation is available among and by the public, non-parties, and arguably even 

parties to the prior orders whose settled expectations will now be upended. 

The FTC’s Regulatory Approach to the Architectural Coatings Industry Raises 

Practical Challenges. The FTC has not indicated what it will do with the seemingly 

obsolete Enforcement Policy. Under the FTC’s recently proposed order-related 

changes, anticipating precisely what the law is for architectural coatings emissions 

and VOC-free claims seems virtually impossible. The PPG and Sherwin-Williams orders and Enforcement Policy differ markedly from the Green Guides, in that they 

introduce the concept of protecting human health to change how the VOC-level 

would be measured. And because the New Orders drastically expand the scope of 

coverage from only VOCs to any emissions, they are inconsistent with the PPG and 

Sherwin-Williams orders and Enforcement Policy—hence the FTC’s stated desire to 

obtain ‘‘harmonization.’’ 

The FTC’s approach also creates competition-policy concerns triggered by the 

FTC’s having closed-door meetings with some industry participants during consentorder negotiations and providing them with informal guidance not provided to other 

industry participants. As a result, architectural coatings businesses have a confusing array of FTC regulatory guidance, enforcement policies, consent orders, and 

other informal guidance to decipher. Moreover, the Environmental Protection Agency (‘‘EPA’’) also regulates the architectural coatings industry, potentially creating 

conflicting obligations.34 Thus, the Commission’s proposed labeling requirements regarding the VOC content and emissions of architectural coatings have the potential 

to create the very problems that it sought to avoid by treading carefully when it 

released the Green Guides. WLF urges the Commission to reconsider the wisdom 

of regulating so specifically in an area already squarely addressed by EPA regulations. In sum, the situation strongly suggests that regulators, businesses, and consumers would all be better off using a notice-and-comment process that involves all 

affected stakeholders. 

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35The Green Guides state that certain terminology related to ‘‘free-of’’ claims may be tailored 

on a case-by-case basis. 16 C.F.R. § 260.9 (‘‘’Trace contaminant’ and ‘background level’ are imprecise terms, although allowable manufacturing ‘trace contaminants’ may be defined according to 

the product area concerned. What constitutes a trace amount or background level depends on 

the substance at issue, and requires a case-by-case analysis.’’). But mere notice that a change 

may occur is not fair notice of what that change will be. 36 Alaska Prof’l Hunters Ass’n v. FAA, 177 F.3d 1030, 1035 (D.C. Cir. 1999) (citations omitted). 37LabMD, Inc. v. Federal Trade Commission, No. 16–16270 (11th Cir.), is currently pending 

decision before the Eleventh Circuit following oral argument. The appellant argues that the FTC 

did not provide fair notice of the data security standards that were allegedly violated. See, e.g., 

Stegmaier & Bartnick, Physics, Russian Roulette, and Data Security: The FTC’s Hidden DataSecurity Requirements, 20 GEO. MASON L. REV. 673, 719 (2013) (‘‘Entities have not been given 

proper notice of what data-security practices are ‘reasonable’ and ‘adequate’ ’’ through the FTC’s 

use of enforcement actions rather than rulemaking). 38See, e.g., Altria Group, inc. v. Good, 555 U.S. 70, 89 n.13 (2008) (acknowledging that a ‘‘FTC 

consent order is. . .only binding on the parties to the agreement’’). 39 Beatrice Foods, Co. v. FTC, 540 F.2d 303, 312 (7th Cir. 1976). 40SEC v. Chenery Corp., 332 U.S. 194, 202 (1947). 41 Inviting comment on this consent order is not the same as undertaking the notice-and-comment process previously used to amend the Green Guides, because the consent decree itself is 

non-binding precedent to everyone but the party agreeing to it, and this comment is only intended to highlight the procedural infirmity of seeking to change the law when an authoritative 

interpretation already exists. 42See Kristine Cordier Karnezis, Annotation, Construction and Application of ‘‘Chevron Deference’’ to Administrative Action by United States Supreme Court, 3 A.L.R. FED. 2d 25, 39 

(2005); 2 AM. JUR. 2D ADMINISTRATIVE LAW § 77 (2002). 

gotiated settlement agreements to amend and clarify broad and often very precise 

and specific formal guidance raises serious due process and equal protection questions.35 Constitutional due process and equal protection requirements and basic administrative-law principles require adequate and fair notice of laws and regulations 

before agency enforcement occurs. As the D.C. Circuit has said, ‘‘Those regulated by 

an administrative agency are entitled to ‘know the rules by which the game will be 

played.’ ’’ 36 An agency’s reliance upon negotiated FTC settlements to provide such 

notice and signal agency interpretations has been seriously questioned and is currently being actively litigated.37 How should businesses not under an FTC order decipher the inconsistencies of the Green Guides, Enforcement Policy, and consent orders not directly applicable to them? 

Such an inscrutable approach to regulatory enforcement is not only deeply unfair 

to affected industry stakeholders, but it falls far short of satisfying the legal standard for fair notice. To begin with, it is widely understood that a consent decree binds 

only the parties to the agreement.38 Such private settlements in no way constrain 

the FTC’s future enforcement decisions; unlike formal rulemaking, they do not even 

purport to lay out general enforcement principles. ‘‘Nor is a consent decree a controlling precedent for later Commission action.’’ 39 Rather, the ‘‘function of filling in the 

interstices of [a statute] should be performed, as much as possible, through quasilegislative promulgation of rules to be applied in the future.’’ 40

Only one of the Commission’s actions—issuing and directly updating the Green 

Guides—involved a multi-year effort with numerous revisions that directly and specifically addressed consumer and industry input in commentary accompanying the 

guides when they were published in the Federal Register. To meet due process and 

fair notice obligations, the proposed changes to the Green Guides through the harmonization of the New Orders seem at least as deserving of public participation and 

commentary.41 Otherwise, there can be little faith that the FTC’s action is anything 

other than arbitrary. 

As a result, the FTC seriously risks losing any judicial deference when it alters 

or, more generously, ‘‘discovers’’ new specific requirements in formal guidance that 

no reasonable party could have reason to know existed.42

V. The Commission Should Update the Green Guides Using the Notice-andComment Process 

Given the pragmatic and constitutional concerns with ad hoc legislation-by-consent-decree, the Commission should directly amend the Green Guides to incorporate 

its latest interpretations of § 5 of the FTC Act as applied to environmental marketing claims. 

The FTC Should Treat the Green Guides as a Substantive Rule and Use the Notice-and-Comment Process to Update It. The FTC should enforce the Green Guides 

as written until it takes appropriate steps to directly amend and otherwise explain 

and justify the Commission’s changes. Given the strong similarities between the 

issuance of the Green Guides and the issuance of substantive rules under the APA, 

the FTC should consider how courts have viewed agency changes to substantive 

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43Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Ins. Co., 463 U.S. 29, 41 (1983) (holding that 

the rescission or modification of a rule promulgated using the APA notice-and-comment process 

must not be ‘‘arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with 

law.’’); United States v. Nixon, 418 U.S. 683, 696 (1974) (‘‘So long as this regulation remains 

in force the Executive Branch is bound by it.’’); Vitarelli v. Seaton, 359 U.S. 535, 540 (1959) 

(‘‘[T]he Secretary of the Interior] here . . . was bound by the regulations which he himself had 

promulgated for dealing with such cases. . . .’’); Service v. Dulles, 354 U.S. 363, 388 (1957) 

(‘‘[The Secretary of State] could not, so long as the Regulations remained unchanged, proceed 

without regard to them.’’); United States ex rel. Accardi v. Shaughnessy, 347 U.S. 260, 267 (1954) 

(‘‘As long as the regulations remain operative, the Attorney General denies himself the right 

to sidestep the Board or dictate its decision in any manner.’’). 44 5 U.S.C § 551(5). See e.g., Perez v. Mortgage Bankers Assoc., 135 S.Ct. 1199, 1206 (2015) 

(citing FCC v. Fox Television Stations, Inc., 556 U.S. 502, 515 (2009) (The APA mandates ‘‘that 

agencies use the same procedures when they amend or repeal a rule as they used to issue the 

rule in the first instance.’’); Nat’l Family Planning and Reprod. Health Assoc. v. Sullivan, 979 

F.2d 227, 231 (D.C. Cir. 1992) (requiring the use of notice-and-comment rulemaking to issue a 

‘‘directive’’ significantly altering the meaning of a regulation originally issued through noticeand-comment rulemaking). 45 E.g., Shell Offshore, Inc. v. Babbitt, 238 F.3d 622, 629 (5th Cir. 2001) (‘‘Interior’s new policy 

is a substantive rule for purposes of the APA, and Interior was required to submit their new 

rule for notice and comment.’’); Appalachian Power Company v. EPA, 208 F.3d 1015, 1024 (D.C. 

Cir. 2000) (‘‘It is well-established that an agency may not escape the notice-and-comment requirements. . .by labeling a major substantive legal addition to a rule a mere interpretation.’’). 46 E.g., Christopher v. SmithKline Beecham Corp., 567 U.S. 142, (2012) (explaining that deference is ‘‘unwarranted’’ when ‘‘the agency’s interpretation conflicts with a prior interpretation 

or when it appears that the interpretation is nothing more than a convenient litigating position 

or a ‘post-hoc rationalization’ advanced by an agency seeking to defend past agency action 

against attack’’); Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Ins. Co., 463 U.S. 29, 42 (1983) 

(‘‘The courts may not accept appellate counsel’s post hoc rationalizations for agency action.’’). 47The FTC may consider working with the EPA on studies relevant to VOC-related claims 

and labels. Recently, the FTC and U.S. Department of Agriculture completed a joint consumer 

perception study of ‘‘recycled content’’ and ‘‘organic’’ claims. FED. TRADE COMM’N, Consumer 

Perception of ‘‘Recycled Content’’ and ‘‘Organic’’ Claims (Aug. 10, 2016), https://www.ftc.gov/system/files/documents/reports/consumer-perception-recycled-content-organic-claims-joint-staff-report-federal-trade-commission/consumer_perception_of_recycled_content_and_organic_2016-08- 

10.pdf. 

rules implemented under the APA. An agency is bound by its regulations until it 

changes them via a process that is reasonable, non-arbitrary, and supported by the 

record.43 To change a substantive rule issued through notice-and-comment procedures, an agency must repeat those notice-and-comment process.44 Agencies cannot 

avoid the notice-and-comment process by simply couching a change as a new interpretation.45 Of course, post-hoc explanations for changes to substantive rules that 

did not go through a notice-and-comment process (such as through consent orders 

with private parties) are especially vulnerable to attack through the courts because 

there is no record by which to rationalize the changes.46

Because the Green Guides were created like a substantive rule, directly amended 

like a substantive rule, and enforced like a substantive rule, the FTC should continue to directly amend the Green Guides as an agency would any substantive rule 

under the APA—through the notice-and-comment process. The FTC describes the 

Green Guides as interpretive guidance, but they constitute a substantive rule because they provide a specific and definite interpretation of the FTC’s broad scope 

of authority under § 5 of the FTC Act, they were issued through the notice-and-comment process, and they were published in the Code of Federal Regulations. Once the 

FTC determined to use these processes to promulgate the Green Guides, its choice 

was not without consequence. Here, because the Commission has undertaken such 

rigorous procedures to promulgate the Green Guides, its decision to change them 

without resort to those same procedural safeguards seems arbitrary and capricious. 

Addressing these concerns would help permit the FTC to retain the clear 

authoritativeness of the Green Guides and likely receive the deference from courts 

it desires. Such a process would also afford businesses with a crucial opportunity 

to provide expert input into the regulatory process and receive fair notice of obligations under the law.47

VI. Conclusion 

The Commission should conform the New Orders to the previously established requirements and not otherwise amend the Green Guides without using a notice-andcomment process that takes into account the specific considerations present in the 

architectural coatings industry. Pending the completion of such a process, the FTC 

should, at least with respect to non-parties to the consent orders or other parties, 

hold its enforcement authority in abeyance. Rather than seeking to bootstrap the 

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1FTC Stakeholder Perspectives: Reform Proposals to Improve Fairness, Innovation, and Consumer Welfare, 115th Cong. (2017), S. Comm. on Commerce, Science, and Trans., Subcomm. on 

Consumer Protection, Product Safety, Insurance, and Data Security, https://www.commerce 

.senate.gov/public/index.cfm/2017/9/ftc-stakeholder-perspectives-reform-proposals-to-improvefairness-innovation-and-consumer-welfare (September 26, 2017). 2See EPIC, About EPIC, https://epic.org/epic/about.html. 3See, e.g, Marc Rotenberg, EPIC Executive Director, Testimony before the U.S. Senate Committee on Commerce, Science, and Transportation, Internet Privacy and Profiling (June 13, 

2000), https://epic.org/privacy/internet/senate-testimony.html; Letter from EPIC to the U.S. 

Senate Committee on Commerce, Science, and Transportation on Oversight of the FTC (Sept. 

26, 2016), https://epic.org/privacy/consumer/EPIC-Letter-Sen-Comm-CST-FTC-Oversight.pdf. 4See Complaint, Request for Investigation, Injunction, and Other Relief, In the Matter of Uber 

Technologies, Inc. (Jun. 22, 2015), https://epic.org/privacy/internet/ftc/uber/Complaint.pdf; 

Complaint and Request for Injunction, Request for Investigation and for Other Relief, In the 

Matter of Microsoft Corporation, (July 26, 2001), https://www.epic.org/privacy/consumer/ 

MS_complaint.pdf; see also Complaint, Request for Investigation, Injunction, and Other Relief, 

In the Matter of Facebook, Inc, (Dec. 17, 2009), https://epic.org/privacy/inrefacebook/EPICFacebookComplaint.pdf; Complaint, Request for Investigation, Injunction, and Other Relief, In 

the Matter of Google, Inc, (Feb. 16, 2010), https://epic.org/privacy/ftc/googlebuzz/Google 

Buzz_Complaint.pdf. 

nesses in the industry, the FTC should consider using regulatory self-restraint to 

seek to provide the public, including consumers and other agencies whose regulations may overlap or even conflict, with an opportunity to comment upon and participate in an open and public discussion. This process will permit affected constituencies to have appropriate time and opportunity to seek clarification on the requirements without the threat of immediate fines (for those already under order) and investigation (for the remainder of the industry). This approach addresses practical 

considerations, constitutional due-process concerns, and competition policy concerns 

with some parties having more information than others about the FTC’s compliance 

expectations for the Green Guides. 

Respectfully submitted, 

CORY L. ANDREWS, 

RICHARD A. SAMP, 

Washington Legal Foundation. 

ELECTRONIC PRIVACY INFORMATION CENTER

Washington, DC, September 26, 2017 

Hon. JERRY MORAN, Chairman, 

Hon. RICHARD BLUMENTHAL, Ranking Member, 

U.S. Senate Committee on Commerce, Science, and Transportation, 

Subcommittee on Consumer Protection, Product Safety, Insurance, and Data Security, 

Washington, DC. 

RE: Hearing on ‘‘FTC Stakeholder Perspectives: Reform Proposals to Improve Fairness, Innovation, and Consumer Welfare’’ 

Dear Chairman Moran and Ranking Member Blumenthal: 

We write to you regarding the upcoming hearing on ‘‘FTC Stakeholder Perspectives: Reform Proposals to Improve Fairness, Innovation, and Consumer Welfare.’’ 1

As evidenced by recent massive data breaches, data protection is perhaps the most 

important consumer welfare issue facing the FTC today. The FTC must do more do 

more to safeguard American consumers. The FTC’s continued failure to act against 

the growing threats to consumer privacy and security could be catastrophic. 

EPIC is a public interest research center established in 1994 to focus public attention on emerging privacy and civil liberties issues.2 EPIC is a leading advocate for 

consumer privacy and has appeared before this Committee on several occasions.3

EPIC has fought for privacy rights for Internet users at the Federal Trade Commission for more than two decades. We filed landmark complaints about privacy violations by Uber, Microsoft, Facebook, and Google.4

The FTC’s Current Approach is Insufficient to Protect Consumer Privacy 

and Security 

American consumers face unprecedented privacy and security challenges. The recent data breach by consumer credit reporting agency Equifax exposed the personal 

information—including names, addresses, phone numbers, dates of birth, social seVerDate Nov 24 2008 07:37 Mar 18, 2019 Jkt 000000 PO 00000 Frm 00217 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\35459.TXT JACKIE
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5 Equifax Inc., Equifax Releases Details on Cybersecurity Incident, Announces Personnel 

Changes, https://investor.equifax.com/news-and-events/news/2017/09–15–2017–224018832 

(Sept. 15, 2017). 6See EPIC, Code of Fair Information Practices, https://www.epic.org/privacy/consumer/ 

code_fair_info.html. 7See EPIC v. FTC, No. 12–206 (D.C. Cir. Feb. 8, 2012). 8See, e.g., FED. TRADE COMM’N, Consumer Sentinel Network Data Book (Feb. 2016), https:// 

www.ftc.gov/system/files/documents/reports/consumer-sentinel-network-data-book-januarydece 

mber-2015/160229csn-2015databook.pdf. 9 Commission Rules of Practice, 16 C.F.R. § 2.34 (C) (2014). 

10Federal Trade Commission Act, 15 U.S.C. § 46 (2006). 

curity numbers, and driver’s license numbers—of 143 million people.5 This the latest in a growing number of high-profile hacks that threaten the privacy, security, 

and financial stability of American consumers. Far too many organizations collect, 

use, and disclose detailed personal information without following proper procedures 

for safeguarding that information. Our government must respond with comprehensive, baseline privacy protections that ensure Fair Information Practices—an internationally recognized set of informational privacy practices 6—are applied across the 

Internet ecosystem. 

At this time, the FTC is simply not doing enough to safeguard the personal data 

of American consumers. While we respect the efforts of the Commission to protect 

consumers, the reality is that the FTC lacks the statutory authority, the resources, 

and the political will to adequately protect the online privacy of American consumers. 

The FTC’s privacy framework—based largely on ‘‘notice and choice’’—is simply not 

working. Research shows that consumers rarely read privacy policies; when they do, 

these complex legal documents are difficult to understand. Nor can industry self-regulatory programs provide realistic privacy protections when they are not supported 

by enforceable legal standards. 

Even when the FTC reaches a consent agreement with a privacy-violating company, the Commission rarely enforces the Consent Order terms.7 American consumers whose privacy has been violated by unfair or deceptive trade practices do 

not have a private right of action to obtain redress. Only enforceable privacy protections create meaningful safeguards, and the lack of FTC enforcement has left consumers with little recourse. 

Fundamentally, the FTC is not a data protection agency. Without regulatory authority, the FTC is limited to reactive, after-the-fact enforcement actions that largely focus on whether companies honored their own privacy promises. Because the 

United States currently lacks comprehensive privacy legislation or an agency dedicated to privacy protection, there are very few legal constraints on business practices that impact the privacy of American consumers. 

EPIC’s Recommendations 

Maintaining the status quo imposes enormous costs on American consumers and 

businesses. Consumers face unprecedented threats of identity theft, financial fraud, 

and security breach.8 Privacy protections based on industry self-regulation and burdensome ‘‘notice and choice’’ policies do not provide meaningful safeguards for consumers. The FTC must issue effective guidance and use its Section 5 enforcement 

authority to ensure adequate protection of consumer privacy in the digital age. 

Moreover, the FTC must promptly investigate business practices, pursue complaints, enforce existing Consent Orders, and modify proposed settlements to reflect 

public comments. The Commission’s ongoing failure to fulfill these obligations is (1) 

contrary to the explicit purpose of the statutory provision that allows the Commission to request comments from the public;9 (2) contrary to the broader purpose of 

the Commission to police unfair and deceptive trade practices;10 and (3) contrary to 

the interests of American consumers. 

We urge Congress to consider the Commission’s use of Section 5 authority in the 

context of the greater American legal landscape. Because the U.S. lacks a comprehensive privacy law or an agency dedicated to privacy protection, there are very 

few legal constraints on business practices that impact the privacy of Americans. 

The FTC’s already modest Section 5 authority helps to deter and penalize the abuse 

of data. Any effort to limit the Commission’s authority—coupled with Congress’ failure to update America’s privacy laws—is a disservice to the vast majority of Americans who are increasingly concerned about their loss of privacy and want their government to do more to protect this important democratic value. 

215 

We ask that this letter be submitted into the hearing record. We look forward to 

working with you to improve the FTC’s authority in this field and to develop rules 

to provide meaningful and much-needed protections for consumer privacy. 

Sincerely, 

MARC ROTENBERG, 

EPIC President. 

CAITRIONA FITZGERALD, 

EPIC Policy Director. 

CHRISTINE BANNAN, 

EPIC Policy Fellow. 

Æ