Second FTC Open Committee Meeting Continues to Highlight Competition Agenda | WilmerHale
On July 21, 2021, the Federal Trade Commission (“FTC” or “Commission”) held its second open meeting of the Commission. There were three items on the agenda: (1) whether or not to rescind a 1995 policy statement on pre-approval and notice provisions in merger cases; (2) a proposed policy statement on repair restrictions; and (3) the repeal of the care labeling rule.
Key takeaways from the meeting include:
- The FTC continues to take steps to strengthen competition and increase the agency’s ability to use its authority to block potentially anti-competitive transactions. At the meeting, the commissioners voted (3-2) to repeal a 1995 policy that relaxed the merger review report requirements for companies that had entered into merger-related settlements. By repealing the policy statement, the FTC may be able to require notice or pre-approval as a condition of any merger when a party is under a consent decree.
- The FTC continues to focus on areas where its competition and consumer protection authority overlap. For example, the FTC will strengthen its enforcement of manufacturer repair restrictions that make it difficult and more expensive for independent retailers and consumers to service repairs, and has expressed interest in developing rules in this area.
- The FTC may choose to keep existing rules that are not detrimental to consumers and still serve a purpose, rather than using resources to modernize them where they are not at the heart of the government’s current focus. agency on competition and data misuse.
- Although open meetings have increased the transparency of the Commission’s activities, they can come at a cost. Commissioners may avoid staff input and dialogue between Commissioners in order to avoid waiving privilege relating to the deliberative process of the Commission.
Read our coverage of the first open meeting of the Commission held on July 1, 2021.
Revocation of the 1995 Policy Statement on Pre-Approval and Notice Provisions
Prior to 1995, the FTC required parties entering into merger agreements to obtain agency approval for future transactions in similar markets. This requirement lasted ten years and often included the need to provide advance notice of transactions that were below Hart-Scott-Rodino (“HSR”) reporting thresholds. In 1995, the agency issued a statement eliminating these requirements.
At the public meeting, the commissioner voted 3-2 (depending on the party) to repeal the 1995 policy statement that removed the pre-approval and notice provisions from most merger regulations. The pre-approval provisions place the burden on businesses of demonstrating that their transactions are not anti-competitive. The advance notice provisions require companies to notify the FTC in advance of certain transactions, even if they fall below HSR reporting thresholds. By rescinding the policy statement, the FTC may be able to require notice or pre-approval as a condition of any merger when a party to the merger is already under a consent decree.
It is not known how the FTC will use these provisions. During the public meeting of the Commission, President Lina M. Khan simply said that the FTC would use these provisions on the basis of “the facts and circumstances of the proposed transaction”. Therefore, this policy could impact how companies negotiate consent orders with the FTC, as entering into a consent order could limit the ability of companies to complete future acquisitions, injecting greater uncertainty. in the merger execution process.
During the meeting, President Khan also referred to the Commission’s lack of resources to justify rescinding the 1995 policy: “Since the FTC has dramatically reduced the use of these pre-approval provisions, the The agency has encountered many examples of companies repeatedly offering identical or similar agreements. in the same market, despite the fact that the Commission had previously determined that these agreements were problematic. Companies have also, in several cases, sought to buy back assets that the Commission has ordered those same companies to sell. President Khan detailed that “[w]With a pre-approval provision, the Commission must open a whole new investigation, then go to court to block the deal again. This additional burden is draining the already limited resources of the Commission. “
Repair Restriction Enforcement Policy
The commissioners also voted unanimously to adopt a policy statement making it clear that it will make illegal repair restrictions a priority for enforcement. During the public meeting, all commissioners agreed that increased enforcement is needed as repair restrictions can increase costs for consumers, stifle innovation, shut down business opportunities, create unnecessary waste, delay repairs timely and undermine resilience. According to the policy statement, this burden is borne more heavily by underserved communities, including communities of color and low-income Americans, and has only been exacerbated by the pandemic as consumers have relied more. on technology.
The vote and adoption of the policy statement follows both a May 2021 FTC report titled “Nixing the Fix: An FTC Report to Congress on Repair Restrictions” and the Executive Order (“EO”) July 2021 publication of President Biden on promoting competition in the United States. Economics that specifically dealt with repair restrictions. In Nixing the Fix, the FTC took a detailed look at repair restrictions in the market and found that many manufacturers use a variety of methods to make consumer products more difficult to repair. These methods include, for example, using adhesives to make parts more difficult to replace, limiting the availability of spare parts, unavailability of diagnostic software, and developing products with designs that make them more difficult to replace. less secure or more difficult independent repairs. The report also concluded that manufacturers lack strong evidence to justify most repair restrictions and, in fact, both restrict competition and overburden consumers with these practices. The EO, which deals with business practices that inhibit competition, has specifically focused on repair markets and encouraged the FTC to consider using its regulatory authority to tackle “unfair anti-competitive restraints on repair. third party or self-repairing items ”.
The policy statement unanimously adopted by the Commissioners says the Commission will devote more enforcement resources to tackling restrictive repair practices that prevent small businesses, workers, consumers and government entities from repairing their repairs. own products. The Commission will rely on its authority under the Magnuson-Moss Warranty Act, which prohibits, among other things, related agreements that make the warranty of a consumer product conditional on the use of a third-party service provider or use of a particular product, unless the guarantor provides the services or products free of charge or obtains a waiver from the FTC. To see 15 USC § 2302 (c). He also indicated that he would rely on his authority under Section 5 of the FTC Act, which prohibits unfair or deceptive acts or practices, as well as unfair competitive methods, in or affecting commerce, and encompasses violations of the Sherman Act, which prohibits certain exclusionary and other anti-competitive behaviors.
The FTC has identified several ways to improve law enforcement in this area. More specifically, the Commission:
- Examine complaints and other information provided to the FTC to determine if there are instances where the Commission should take action against violators to seek an appropriate injunction.
- Closely monitor private litigation to determine whether the Commission wishes to investigate a series of unfair or deceptive acts or practices or file an amicus brief.
- Explore rule making, if applicable.
- Consider remedial restrictions for violations of antitrust laws, for example, restrictions that may constitute tied selling agreements or monopoly practices, such as refusals to sell, exclusivity or exclusionary design, that violate the Sherman Act (which would also violate Section 5 of the Federal Trade Commission Act)
- Assess whether the repair restrictions constitute unfair acts or practices prohibited by Section 5 of the FTC Act, and analyze any significant claims made to buyers and users to determine if they are also prohibited under Section 5 .
- Coordinate with decision makers and state law enforcement officials to ensure compliance with applicable laws and regulations.
Care labeling rule
The Care Labeling Rule, which has been in effect since 1971, requires manufacturers and importers to affix labels with care instructions to clothing. As part of its regular review of the rule, the Commission released a proposal to repeal the rule in July 2020. At the public meeting, the commissioners voted 5-0 not to repeal the rule. The reasons given for the decision were that most of the public comments received in response to the proposed repeal were largely in favor of the rule, and that it did not make sense to devote resources to revising the rule. rule at present given the others (more urgent). The commissioners, however, said in a statement that they would consider ways to improve the rule in the future.