RPC Interview: Federal Trade Commissioner Noah Phillips
KEY TAKEAWAYS
- Recent policy changes at the Federal Trade Commission do nothing to protect competition; instead they slow or stop economic activity by driving up costs and creating uncertainty.
- Congress should be in charge of writing a national privacy law, not the FTC.
- Deemphasizing the consumer welfare standard comes with steep costs: consumers will end up paying more for less, and doing so will erode coherence and predictability in antitrust law.
The Federal Trade Commission was established in 1914. Its mission is “to protect consumers and promote competition by preventing anticompetitive, deceptive, and unfair business practices through law enforcement, advocacy, and education without unduly burdening legitimate business activity.”
The commission pursues its mission through a variety of tools and methods, including bringing cases against individual people and companies for violations of consumer protection and competition laws, educational programs, and working to advance government policies that protect consumers and promote competition.
The FTC is headed by five commissioners nominated by the president and confirmed by the Senate. Each commissioner serves a seven-year term, and no more than three commissioners can be of the same political party. The president chooses one commissioner to act as chair, currently Lina Khan, who was confirmed in September 2021. The FTC under Khan has pursued a number of controversial initiatives.
Noah Phillips is the senior Republican on the FTC. He was nominated by President Trump and confirmed unanimously by the Senate in April 2018.
Q: You are four years into a seven-year term at the FTC. What is your proudest accomplishment so far as a commissioner? What are your top priorities in your remaining time on the commission?
A: Antitrust and consumer protection law and policy are complex, so I have pushed for an approach that is faithful to the law, appreciates facts on the ground, and takes into account the tradeoffs that inhere in the choices we must make. Where the commission has had to weigh competition against intellectual property, in cases like 1-800 Contacts and Impax, I’m gratified that appellate courts have ratified my approach both dissenting and for a unanimous commission. I’ve spoken a lot about the tensions we see between competition and privacy, including in some of our cases. Whether it’s M&A or tech policy, I have advocated for a careful approach.
But recognizing complexity does not mean complacency, and so I am proud to support vigorous FTC enforcement. In fiscal year 2020, the last year of the Trump administration, the commission brought 27 merger enforcement actions, the highest number in a single year during the past two decades. On the consumer protection side, we policed massive frauds, protected data security, and enforced privacy law against companies like Facebook, TikTok, YouTube, and Zoom. This enforcement pays dividends, including penalties for wrongdoing, reforms to corporate activity, and – perhaps most importantly – helping show other companies how to follow the law.
Q: In April you gave a speech on merger policy in which you said the current administration is “as hostile to mergers and acquisitions as any in my lifetime.” You also said new M&A policies at the FTC impact smaller players and amounted to saying to companies “give up and don’t make us investigate your merger, or we’ll make you pay.” How has M&A policy at the FTC changed under current leadership? What do you think will be the impact of the change?
A: A number of policy changes the commission has made do nothing to protect competition, instead working to slow or stop M&A activity in general by driving up costs and creating uncertainty. We’re refusing to let companies close deals early when we have no concern, leaving investigations open, and punishing companies that stand up to help us resolve problems. These changes waste agency staff time and taxpayer dollars, making merger review less efficient. They hurt businesses, too: merger investigations already last months to years and cost millions of dollars. All of this makes life especially hard for smaller companies.
I want us to stop or remedy the bad mergers, but trying to make M&A activity across the board more expensive and less certain is the wrong way to do that.
Q: Why are mergers and acquisitions important in promoting competition and investment? What can Congress do to promote pro-competition mergers and acquisitions?
A: Mergers and acquisitions are a critical way that companies grow and change to meet the needs of their customers, including – critically – bringing down prices by improving efficiency. Especially right now, no one should lose sight of how much Americans hurt when prices are too high. Mergers can also help spur innovation and improve product quality. Smaller firms merge to compete more effectively and efficiently against larger rivals. Combining can put financially struggling firms on firmer footing and lower their cost of capital. M&A also encourages startups, one of the historic strengths of our economy. The ability to sell a company leads people to innovate and start companies and venture capitalists to fund them.
M&A can be critical during times of economic adjustment because it helps to allocate assets efficiently and encourages companies, big and small, to meet consumer need. For example, during the height of COVID-19, Thermo Fisher acquired Mesa Biotech, a medical diagnostics company developing rapid PCR testing for COVID-19 and the flu. According to the companies, the combination of Mesa’s technology and Thermo Fisher’s scale would enable the combined company to bring better tests to more people.
Markets work better when M&A policy allows companies to give consumers what they want and need, to innovate, and to freely buy and sell assets. On the flip side, sand in the gears of M&A prevents the market from working.
Q: The FTC recently voted to abandon the long-standing, bipartisan policy statement that defined its authority to challenge “unfair methods of competition.” The “consumer-welfare” standard limited FTC enforcement to acts or practices that “cause, or be likely to cause, harm to competition or the competitive process, taking into account any associated cognizable efficiencies and business justifications.” How did the consumer-welfare standard policy place limits on the FTC’s investigative and regulatory abilities? What are the potential negative consequences of the FTC rescinding the policy?
A: The consumer-welfare standard anchors not only U.S. antitrust law but antitrust regimes around the world. Through it, antitrust law aims to protect the competitive process, not individual competitors, thus protecting consumers’ interests in low prices and high product quality, service, variety, and innovation. If one company loses out because someone else sells the same product to consumers for less, that’s a natural part of competition because consumers are better off.
Those who argue that antitrust should deemphasize consumer welfare and focus on other interests – like protecting jobs and less-efficient competitors, reducing income inequality, or rectifying power asymmetries – often fail to acknowledge the steep costs of such a reorientation.
First, consumers will end up paying more for less, and the poorest will suffer most. That should concern us in the best of times, but it is particularly troubling when Americans are struggling with historically high inflation.
Second, moving antitrust law away from the consumer-welfare standard would erode coherence and predictability, critical features of any legal regime. Not only did the pre-consumer-welfare regime prevent beneficial conduct and mergers, it did so inconsistently, chilling the market for corporate control and preventing effective planning by honest businesses. In a notorious pre-consumer-welfare case called Von’s Grocery from 1966, Justice Potter Stewart famously quipped that “the sole consistency that I can find is that … the Government always wins.”
Q: The FTC plays a leading role in enforcing a number of statutes related to privacy, including the Children’s Online Privacy Protection Act and the Fair Credit Reporting Act. Last month, the commission announced it was considering initiating a privacy rulemaking “to curb lax security practices, limit privacy abuses, and ensure that algorithmic decision-making does not result in unlawful discrimination.” Do you support this rule-making or is it a potential overreach of the FTC’s authority and jurisdiction?
A: When it comes to huge decisions like making a national privacy law, Congress is the place to do it. Privacy advocates have a lot of ideas, some of which I like but many that go well beyond the unfairness and deception that the law allows us to regulate. The FTC has an important role to play in privacy, especially enforcing the law. But our general consumer protection rulemaking authority is the wrong place to fashion national privacy policy.
Fashioning privacy legislation or rules will involve value judgments and tradeoffs. For example, some have urged the commission to prohibit targeted advertising. A ban on targeted advertising would take away the ability of small businesses to reach customers and consumers’ freedom to consent to the practice. We might erase billions of dollars in economic growth. That is the sort of major decision that belongs to Congress and not to the unelected members of the commission.
Q: Congress is working on comprehensive national privacy legislation, and a bipartisan, bicameral discussion draft was recently introduced. Do you support Congress passing national privacy legislation? If so, what should be included in the legislation? What role should the FTC play in enforcing any new privacy law?
A: Yes, I support Congress passing national privacy legislation that would provide greater protection for consumers and clarity for businesses. Legislation is most effective when it clearly identifies the problems and harms it is trying to address. Congress will make the ultimate determination, but one thing I think we definitely need is a better flow of information to consumers about what is happening with data collected from their activity.
The FTC is the most effective privacy enforcer in the world. We do more and more effective cases even without a comprehensive national law. We should continue to be the nation’s primary privacy enforcement agency. The FTC stands ready to enforce any new privacy law that Congress passes.
Q: The FTC also plays a lead role in enforcing antitrust laws. Congress is currently considering legislation that would make significant changes to antitrust law in an effort to respond to the size and power of “big tech” firms. Do you have a position on any of the big tech antitrust bills Congress is considering? In general, what elements should Congress consider when updating antitrust law?
A: I think it’s critical to ask the fundamental questions. What problem do you want to solve? What’s the basis for believing it’s a problem? How does the proposal attempt to solve the problem? What effect is the proposal likely to produce?
For example, if conservatives are concerned about censorship taking place at companies we think of as “Big Tech,” e.g., Facebook, but also smaller companies, e.g., Twitter, how does a bill that limits self-preferencing by Amazon solve that problem?
Antitrust law exists to protect competition. It enables markets to work by allowing people to make decisions and companies to meet their needs. Where conduct prevents competition, antitrust law is effective. But sometimes we’re not satisfied with what markets produce, and that is when there is a role for regulation.
In fashioning these regulations, I think Congress should focus on conduct it determines is harmful. If it’s bad, we should stop conduct no matter who does it. If it’s good, we should let competition take place. Otherwise, we run the risk of depriving consumers of the benefits of competition. History provides a lesson. The Depression-era Robinson-Patman Act was adopted to protect small retail competitors from larger, more efficient, chain stores. But the law hurt consumers, making food and needed household goods more expensive. We don’t need Robinson-Patman right now.
I do think we need to keep antitrust focused on competition and consumers. Some calls for reform seem to promise that antitrust can solve a host of issues in our society, from the political power of large corporations to privacy to labor rights to racial inequality. These are serious matters, worthy of serious attention; but antitrust is a poor tool for addressing them. Antitrust is not, and should not be, a regulatory catchall.
Q: A recent Supreme Court decision in the case AMG Capital Management v. FTC eliminated a long-standing FTC tool to get monetary relief for consumers harmed by unfair or deceptive acts. What has been the effect of the ruling on the FTC’s ability to crack down on scammers and get relief for consumers? What, if anything, should Congress do in response to the ruling?
A: The Supreme Court’s unanimous decision in AMG holding that the words of a statute matter and Section 13(b) does not permit the FTC to obtain equitable monetary relief for consumers has made it more difficult for the FTC to return money to consumers. The ruling was correct, but it has meant that the commission must go through a lengthy administrative process before it can return to consumers the money that was stolen from them by fraudsters.
Congress could clarify Section 13(b) of the FTC Act and enable the commission to obtain monetary redress for consumers, with appropriate guardrails to give clarity to businesses and focus on consumer harm. A modest change to Section 13(b) would allow the commission to go to federal court and get consumers back what they have lost to scammers.
Q: Democrats have recently been blaming “price-gouging” for inflation across the economy. The FTC has announced investigations into “price-gouging” by large retailers and energy companies, as well as industry actions during the baby formula shortage. Do you support these investigations? Are you worried Democrats may be using the FTC to distract from other causes of price hikes like overregulation and historic inflation? Are all these new investigations spreading FTC staff too thin and diverting their attention from more valuable work?
A: While I cannot get into the particulars of ongoing investigations, generally speaking, I have not seen evidence that anticompetitive conduct is driving the higher prices we’re seeing across the American economy. Consider prices at the pump. In 2021, the White House asked FTC to explore whether “anti-competitive or other illegal practices” were at work, claiming “mounting evidence of anti-consumer behavior by oil and gas companies.” Commissioner Christine Wilson and I asked the White House for this “mounting evidence,” but we never received it. Where we have grounds to believe that anticompetitive conduct may be taking place, the FTC should investigate and take appropriate action. But antitrust investigations based on mere speculation waste resources and distract from the inflationary forces, and policies, causing real harm.
I am extremely skeptical of the narrative that “corporate greed” and lax antitrust policy are to blame for our historically high inflation. That may make for good politics to some, but it distracts from the important policy discussion we need to have. The spread of COVID-19, its impact, and the government response to both provide an ample and far more plausible explanation than the competition problems that concern antitrust. The other big problem with the narrative is its holes. “Corporate greed,” such as it is, was just as much at play when inflation was low. The relevant question is what, if anything, changed. Is the claim that businesses are somehow trying maximize profits more today than before the pandemic? Were they leaving money on the table two years ago? Assuming that kind of economy-wide irrational behavior simply strains credulity.
Q: On October 8, 2021, his final full day as an FTC commissioner before leaving to head the Consumer Financial Protection Bureau, your former colleague Rohit Chopra reportedly cast votes by email on as many as 20 policy statements, cases, and potential rule-makings. The FTC included Chopra’s vote on a change in an FTC policy that passed 3-2 a few weeks later, and some at the FTC claim these “zombie votes” can be used for up to 60 days after a commissioner leaves the FTC. Why are you opposed to allowing these zombie votes? Senator Jerry Moran has introduced legislation to ban the practice of zombie voting at the FTC. Do you support this legislation? Is there anything else you would recommend could be done to limit or eliminate this practice at the FTC?
A: I think it is bad government to allow the votes of former commissioners to count up to 60 days after they have departed. Recent Supreme Court precedent suggests it is also illegal. Zombie voting undermines the legitimacy of decisions made using those votes and leaves those commission actions open to legal challenge. I support Senator Moran’s legislation. The commission could also vote to rescind the 1984 policy approving of the use of these zombie votes. I would support that. But nothing would stop a future commission from reinstating the policy, so legislation banning the use of zombie votes is the most effective way to ensure that this unwise practice is stopped once and for all.
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