Biden’s Federal Commerce Fee Is Now At Full Energy – What That Means For Enterprise Leaders
The building of the Federal Trade Commission in downtown Washington DC.
Breaking a partisan deadlock, there are now three FTC Commissioners appointed by Democrats, and two appointed by Republicans who are in charge of how the FTC spends its resources prosecuting the federal competition (or antitrust) laws. As one might imagine, while there are certain topics for which there may be bipartisan consensus (for example see the FTC’s latest suits challenging two hospital mergers), there are other topics for which a new regime can now take action.
As a brief background, there are two Federal agencies charged with enforcing the antitrust laws: the Federal Trade Commission and the Department of Justice Antitrust Division. The DOJ Antitrust Division falls under the Attorney General, and an Associate Attorney General is nominated and confirmed to preside over the agency (currently Jonathan Kanter). The FTC, by contrast, has five Commissioners, and President Biden’s latest nominee, Alvaro Bedoya, broke the 2-2 political tie that had existed since October 2021.
As previously discussed here, Biden set out an ambitious antitrust agenda at the outset of his administration, issuing an Executive Order that set out a “whole of government” approach to increase consumer choice and decrease concentration in a number of sectors. Now, with an FTC majority, Democrats are in a stronger position to pursue that agenda, and recruit other federal agencies to help pursue this mission.
There are four major areas where one can expect action: labor freedom / mobility, privacy and related data collection, challenges to deals previously unchallenged, and any significant price increases on everyday/essential goods.
Labor Freedom / Mobility. One of the core contentions of Biden’s executive order was that workers are paid too little and have too few options, whereas corporations have used tactics such as non-compete clauses (that prevent former employees from competing with their former employers) that have created an imbalance of power in labor negotiations. Until now, other than state specific prohibitions on non-competes, there has been no federal action aimed at addressing this phenomenon.
One of the potential actions of the new FTC is to create rules that are designed to curb or otherwise eliminate the use of non-competes. FTC staff members have publicly stated that non-compete rules would lead to higher wages, better working conditions, and increased competition for the goods those companies sell.
The reason for this type of initiative would likely require the new Democratic FTC majority is because of arguments made by conservative critics that such rules are not within the FTC’s authority and would not account for pro-competitive aspects of non-competes, such as investments in trade secrets and employee training. Democrats may also try to advance such rules with others that may not have bipartisan support, such as the right for customers to self-repair and regulations on prescription drugs.
Privacy and Related Data Collection. Unlike in Europe with GDPR, there is no US federal privacy regime that governs the collection and use of data, especially online. The newest FTC commissioner, Alvaro Bedoya, is a privacy expert who has previously advocated to bar law enforcement’s use of facial recognition as well as and automated scanning of social media for purposes of immigration enforcement.
As in labor, the FTC can be expected to engage in rulemaking on this front. It would likely bear upon how corporations are permitted to collect and use personal data, and also touch on areas such as targeted advertising and artificial intelligence. Confirming the fact this is a partisan issue, the existing Democratic Commissioners have stated that they are in favor of privacy rulemaking, whereas the Republican Commissioners have expressed concerns and skepticism over such rules.
FTC Chairwoman Khan has consistently expressed an interest in the intersection of competition and privacy, which touches on their ongoing actions against Big Tech. The Chairwoman has also referenced the intersection between privacy and civil rights, such as those involving personal autonomy and children. Republican opponents can be expected to resist these efforts as overreaches of the FTC’s authority and an attempt to create new substantive laws.
New Types of Deal Challenges. In the opening year of Biden’s FTC, there was bipartisan report to challenge certain vertical deals, which are those between companies that do not directly compete with one another, but rather have a supply or other vertical relationship (such as research support) in the distribution chain. This came as a surprise to several in the antitrust community, because the grand majority of deal challenges are allegedly horizontal, or directly competitive, in nature. Vertical deals are generally considered pro-competitive under the law, absent some critical input being foreclosed to competitors.
With the new Democratic majority, the FTC may challenge deals in ways that have never or very seldom been recognized as problems of competition. Examples may include mergers that are argued to lead to lower wages for workers, excessive overall bargaining power (also known as conglomerate effects where the merging parties are neither vertically aligned nor horizontally competitive), or would lead to the excessive aggregation of data.
These potential efforts dovetail with legislative efforts to substantially expand the antitrust laws to recognize theories of harm that have not been recognized by courts. Thus, even if such challenges do not succeed, they will embolden efforts to push for legislative changes that may have general bipartisan support.
Price hikes harmful to everyday consumers. With the original COVID-19 outbreak, there were efforts by the Federal Agencies and State AGs to prevent “price gouging” on essential goods such as masks and hand sanitizer. This trend has since spilled over into essentials apart from COVID-19 such as gasoline and meat. Several of these industries were specifically called out by the Biden Executive Order.
One can expect that price hikes in this respect will be defended as normal fluctuations in supply and demand, and it is an international phenomenon (such as Ukraine) that is driving up the costs of these goods. The FTC may decide to initiate industry studies or authorize investigations to confirm whether there are any competitive dynamics that are driving these prices.
It would not be a stretch to argue that the FTC is looking for at least one “poster-child” example of how excessive concentration or some other anticompetitive act played a role in such a price increase. If that were the case, it would incentivize corporate America as a whole to confirm that there is no conduct they are involved that could be accused in a similar light.
Ramifications for Business Leaders. Thus, for all of these initiatives, a good rule of thumb for all business leaders is that your company should avoid being the “poster-child” for any of the phenomenon that Biden argues requires these actions and remedies. In short, companies should avoid: practices that anecdotally or globally prevent worker mobility or upward wages for those workers, collecting data that appears to benefit companies in ways that sacrifice privacy rights, completing deals that appear to confirm or aggravate these phenomenon, and increase prices for goods that many Americans rely upon without a clear explanation as to why it was unavoidable.
Put another way, companies should do their best to be a part of the solution to these problems, rather than the opposite. Examples of this would be: promoting and documenting the fact that your company is ahead of the curve on compensation and employee development, use data in ways for which consumers clearly consent and are pivotal to the quality of your offering, complete deals that allow workers and consumers to have increased options rather than fewer, and find ways to build trust with consumers that the prices your company is charging are as aggressive as possible, in response to competition.