Recap of First Day of FTC’s 21st Century Hearings

Changes in the economy, technology, international business, and data collection have all converged to make the FTC rethink its enforcement priorities going forward. In the spirit of the 1995 Pitofsky Hearings, the FTC on September 13, 2018 kicked off the first day of hearings on Competition and Consumer Protection in the 21^st Century at Georgetown University Law Center. The public hearings are expected to open the debate up to the public and experts so the FTC can formulate a modern antitrust enforcement and consumer protection agenda.

The first day of hearings was broken into three panel discussions which broadly discussed the current landscape of antitrust law, U.S. economic competitiveness, and consumer protection and data privacy. The discussions focused on process and substance and how best to reframe FTC priorities to deal with complex 21^st century issues.

Panelists drew lines in the sand when it came to whether the FTC is successfully navigating the landscape in an era of mega-mergers. Some panelists took the “populist” view that FTC’s merger guidelines are unhealthy for the overall economy and consumer welfare. The FTC has been guided by the “consumer welfare standard” when it comes to mergers, and has accommodated mergers that increase efficiencies and provide benefits in the form of lower prices to consumers.  Those in favor of the consumer welfare standard want to avoid a ‘big is bad’ mentality while keeping the interests of consumers in mind.  Proper antitrust enforcement is about protecting consumers, and protecting the competitive process, not about protecting competitors.  Some panelists argued, however, that the consumer welfare standard has failed to take into account important social concerns like privacy, rising social and income inequality, and decreased economic competition and dynamism. They pointed to recent studies seeming to vindicate the view that the FTC needs to reorient its enforcement procedures because the economy appears to be more concentrated and less dynamic than it used to be.

The key issue of divergence for the panelists was whether the growth of large firms would allow the accumulation of data so vast as to widen the chasm between incumbent firms and new entrants. This line of argument goes like this: firms, particularly tech firms, grow so large and are able to aggregate more data, which in turn provides those companies competitive advantages. Think about Amazon: its acquisition of companies in different sectors will allow it to accumulate vast and unique data about consumer habits, which it can then use to provide more personalized services and competitive variable pricing. While good for the consumer in the near-term, such an inherent advantage is a barrier to entry that new competitors simply cannot overcome. The jury is still out on whether data collection will provide diminishing returns or whether machine learning will ensure increasing returns for a firm that accumulates data. If the latter turns out to be true, then the largest firms will create a barrier that will bar new entrants from competing with incumbents. While the antitrust agencies have approved a number of mega-mergers recently, the FTC is now openly asking questions and allowing debate on whether it must reconsider its enforcement priorities and return to ‘big-is-bad’ enforcement style of early antitrust.

Related to data accumulation was the role of the FTC in protecting consumer privacy. Nearly every consumer device can be connected to the internet in order to provide data about consumer habits. Smart watches, cell phones, and even items like “smart” sneakers, can collect intimate details about an individual. This, in turn, requires the government to consider safeguards in order to ensure that such personal details are protected. The FTC does not have a clear principled policy for relief from harm done in these types of data breaches, for example in the case of Cambridge Analytica or the Ashley Madison breach; however, the discussion marked a clear understanding that the FTC is going to take privacy concerns seriously. Privacy law in the United States is a patchwork of various federal and state laws that do not offer a clear principle for protecting consumers. Panelists discussed how the federal government could model privacy protection laws based on Europe’s General Data Protection Regulation (“GDPR”) and California’s Consumer Privacy Act (“CCPA”). The key issue, as always, is the ability to enforce such commitments.

These inquiries proceed when suspicious conduct can be identified. But in doing so, let us avoid a ‘big is bad’ mentality and let us truly have the interests of consumers in mind. We learned long ago that proper antitrust enforcement is about protecting consumers, and protecting the competitive process, not about protecting competitors. We must not forget that guiding principle. Indeed, that principle is especially important in markets subject to large economies of scale, whether those scale economies are based on traditional production economies or based on network effects, which are often important in the tech sector.

The next hearing is currently slated to take place on September 21, 2018 at the FTC Constitution Center.