Joshua Wright Sworn in as FTC Commissioner

This posting was written by CCH Trade Regulation staff.

FTC Chairman Jon Leibowitz welcomed Joshua D. Wright as an FTC Commissioner at a swearing-in ceremony January 11. President Obama named Wright, a Republican, to a term that ends on September 25, 2019. He was unanimously confirmed by the U.S. Senate on January 1, 2013, and will replace J. Thomas Rosch, who served as a Commissioner beginning in January 2006.

Before joining the FTC, Wright was a Professor of Law at George Mason University School of Law. Wright previously served as the inaugural Scholar in Residence at the FTC Bureau of Competition, from January 2007 to July 2008. Prior to GMU, Wright taught at the Pepperdine University School of Public Policy and clerked for Judge James V. Selna of the U.S. District Court for the Central District of California.

He received a B.A. in Economics at the University of California, San Diego and a J.D. and a Ph.D. in Economics from the University of California, Los Angeles (UCLA), where he was Managing Editor of the UCLA Law Review. According to Truth on the Market blog, Wright would be the first J.D./Ph.D. to serve as an FTC Commissioner and only the fourth economist.

FTC Nominee Faces Questioning from Senate Commerce Committee

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

George Mason University Law Professor Joshua D. Wright faced tough questions from members of the Senate Commerce, Science, and Transportation Committee yesterday afternoon as the committee considered his nomination to serve on the FTC. If confirmed, Wright would replace Commissioner J. Thomas Rosch—a fellow Republican—who remains at the Commission although his term expired in September.

Wright, an economist, has written extensively on antitrust law and economics and is a regular contributor to the Truth on the Market blog. Some of those writings have raised concerns among committee members that Wright might not be right for the FTC.

“I profoundly respect the Federal Trade Commission as an institution, its role in protecting consumers, and its mission in ensuring the effective operation of markets,” Wright said in his prepared testimony. “The Commission has earned its reputation as the world’s premiere competition and consumer protection agency.”

However, Senator Barbara Boxer (D-California) said that some of Wright's writings gave her pause. She questioned why Wright would want to be a member of a Commission that he recently described as having “a history and pattern of appointments evidencing a systematic failure to meet expectations.”

Wright explained that he was not talking about the entire mission of the FTC. His criticism stemmed from the Commission's enforcement record under its FTC Act, Sec. 5 unfair methods of competition authority, as opposed to its consumer protection authority. Wright said that he believed greatly in the FTC's fundamental mission of protecting consumers.

Senator Frank Lautenberg (D-New Jersey) also wondered how Wright’s apparent anti-regulatory stance squared with serving as a regulator. “How do you protect the safety of consumers without rules?” the senator asked.

“I do believe in rules and regulation,” said Wright, in response to the questioning. He added that regulations can harness markets to work for consumers but can also operate to the detriment of consumers.

Commerce committee members also sought assurances from Wright that he would recuse himself from FTC proceedings involving companies for which the nominee had authored reports. Wright stated that he would recuse himself from law enforcement matters pertaining to Google and other appropriate cases where potential conflicts called for recusal for a period of two years.

Noting that the FTC can “sometimes move at a glacial pace,” Senator Maria Cantwell (D-Washington) pressed on the adequacy of the two-year period of recusal.

Wright said that he would check with ethics officials at the FTC about his obligations and would recuse himself if appropriate, but the pledge did not seem to satisfy Cantwell.

Wright also said that, if confirmed, he would look into oil market manipulation. Senators Boxer and Cantwell both believe that the FTC should do more to determine whether market manipulation or false reporting by oil refineries contributed to near-record gas prices in Western states this year. Cantwell wants the agency to take a more aggressive role in policing potential oil market manipulation.

Boxer said that she was not happy with the Commission because it “has never so much as scolded” the oil companies.

Wright also pledged support for the FTC’s efforts to develop a “Do Not Track” mechanism for protecting consumer privacy on the Internet. He said that he supported the Commission’s view in favor of Do Not Track and the FTC privacy report's inclusion of notice and choice obligations.

FTC Commissioners Testify on Fiscal Year 2013 Appropriations Request . . .

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

In testimony before the U.S. House Appropriations Subcommittee on Financial Services and General Government on March 5, the FTC summarized the agency's Fiscal Year (FY) 2013 budget request and described its ongoing work to promote competition and protect American consumers.

The testimony, delivered by FTC Chairman Jon Leibowitz and Commissioner J. Thomas Rosch, outlined steps the agency has taken to carry out its mission. It described FTC consumer protection initiatives as well as recent efforts to ensure that American consumers benefit from competition in the health care, technology, and energy sectors.

The testimony requested $300 million to support 1,186 "full-time equivalent" employees (FTEs) to meet the challenges of FY 2013. This is an overall decrease of $11,563,000 below the FTC’s FY 2012 enacted appropriation, according to the testimony. The FTC anticipates a decrease of $25.5 million related to the replacement of satellite space at 601 New Jersey Avenue due to an expiring lease in August 2012. There are increases for mandatory pay adjustments and technology improvements, among other initiatives.

Commissioner Rosch dissented from the appropriations requested for the FTC, noting that “in these austere times we should do more to perform those [consumer protection or competition] missions with fewer resources.”

. . . Express Concern over GSA Study on Relocating Agency

In a March 8 letter to the leaders of the House Transportation and Infrastructure Committee, the four FTC commissioners expressed concerns with a resolution directing the General Services Administrator to prepare a plan to move the agency out of its headquarters building at 600 Pennsylvania Avenue to Constitution Center, a privately-owned building next to the U.S. Department of Housing and Urban Development.

The commissioners stated that the move would impose well over $100 million in wholly unnecessary costs. In addition, “it is completely infeasible for the FTC to shoehorn its entire Washington, DC operation into the available space at Constitution Center,” according to the commissioners.

The resolution is part of an effort led by House Transportation and Infrastructure Committee Chairman John Mica (Florida) to transfer control of the building at 600 Pennsylvania Avenue, called the Apex Building, to the National Gallery of Art. Rep. Mica introduced the proposed “Federal Trade Commission and National Gallery of Art Facility Consolidation, Savings, and Efficiency Act of 2011” (H.R. 690) in February 2011.

In response to that bill, the then-five commissioners sent a letter to members of the House committee expressing their opposition to the efforts and arguing that the move would impose additional costs on the American taxpayer.

Later in 2011, Congressman Mica included provisions calling for the relocation of the FTC and transfer of the 600 Pennsylvania Avenue property to the National Gallery of Art in legislation proposing a “National Women's History Museum” (H.R. 2844). Rep. Mica contends that relocating the FTC will save taxpayer dollars.

Confidence in Internet Depends on Privacy Protections: FTC

This posting was written by Thomas A. Long, Editor of CCH Privacy Law in Marketing.

Consumers must be confident that their privacy will be protected if they are to take advantage of all the benefits offered by the Internet marketplace, the FTC told the Senate Committee on Commerce, Science and Transportation on June 29.

Commissioner Julie Brill delivered testimony on behalf of the FTC at a hearing examining how entities collect, maintain, secure, and use personal information in today’s economy and whether consumers are adequately protected under current law.

“Privacy has been an important component of the Commission’s consumer protection mission for 40 years,” Brill said. “During this time, the Commission’s goal in the privacy arena has remained constant: to protect consumers’ personal information and ensure that they have the confidence to take advantage of the many benefits offered by the dynamic and ever-changing marketplace.”

FTC Approach

According to the testimony, the FTC has taken a three-pronged approach to preserving consumers’ privacy: law enforcement actions, consumer and business education efforts, and policy initiatives.

In the last 15 years, the FTC has brought more than 300 privacy-related actions, including 34 data security cases; 84 Fair Credit Reporting Act cases; 97 spam cases; 15 spyware cases; and 16 cases enforcing the Children’s Online Privacy Protection Act.

The FTC noted that, while the Commission has not taken positions advocating any particular legislative proposals, it favors data security legislation “that would (1) impose data security standards on companies, and (2) require companies, in appropriate circumstances, to provide notification to consumers when there is a security breach.”

Based on roundtable discussions that involved privacy experts, business representatives, and academics, the FTC staff issued a preliminary report on December 1, 2010, proposing a privacy framework with three main concepts, the testimony stated. First, companies should adopt a “privacy by design” approach by building privacy protections into their everyday business practices, FTC staff recommended.

Second, companies should provide an easy way for consumers to control the collection and use of their personal information—for example, by offering a mechanism to opt out of online behavioral tracking, often referred to as “Do Not Track.” A Do Not Track system should have five key attributes, the FTC said:

(1) It should be universal;

(2) It should be easy to find, understand, and use;

(3) Choices offered should be persistent;

(4) It should be comprehensive, effective, and enforceable; and

(5) It would not only opt consumers out of receiving targeted ads, but it also would opt them out of collection of behavioral data for all purposes other than certain commonly accepted practices.

Third, the staff report called on companies to improve their privacy notices so that consumers, advocacy groups, regulators, and others can compare data practices and choices across companies, thus promoting competition.

The Commission vote to issue the testimony was 5-0, with Commissioner J. Thomas Rosch dissenting in part and issuing a separate statement recommending that the Commission and Congress learn more about Do Not Track before proceeding.

Commissioner Rosch’s Statement

“The root problem with the concept of ‘Do Not Track’ is that we, and with respect, the Congress, do not know enough about most tracking to determine how to achieve the five attributes identified in today’s Commission testimony, or even whether those attributes can be achieved,” Rosch said.

“This is not to say that a Do Not Track mechanism is not feasible. It is to say that we must gather competent and reliable evidence about what kind of tracking is occurring before we embrace any particular mechanism. We must also gather reliable evidence about the practices most consumers are concerned about.”

Continuity and Change Were FTC Themes for 2009

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

In a speech to attendees of the American Bar Association’s Section of Antitrust Law Spring Meeting in Washington, D.C. in March, the newly-appointed FTC Chairman Jon Leibowitz said that he intended to build on the accomplishments of past FTC chairs and that there
would be continuity in enforcement.

The pledge for continuity was reiterated by Leibowitz in September at Fordham University’s annual conference on international antitrust law and policy. At that time, however, Leibowitz said that in addition to continuity, there would be change.

Merger Enforcement

There was continuity in merger enforcement. The agency wrapped up its challenge to specialty grocer Whole Foods Market, Inc.’s acquisition of rival Wild Oats Markets, Inc. in March 2009. The case was originally filed in 2007, when the parties announced their intention to merge.

In addition, the FTC approved two major mergers in the pharmaceutical industry. In October, the FTC conditionally approved Pfizer, Inc.’s proposed $68 billion acquisition of Wyeth, and Schering-Plough Corporation was permitted to proceed with its proposed $41.1 billion acquisition of Merck & Co. Inc. Outside the pharmaceuticals sector, the FTC approved the combination of Japanese consumer electronics makers Panasonic Corporation and Sanyo Electric Co., Ltd.

Administrative challenges also led parties to abandon mergers in 2009. The agency blocked the combination of providers of drycast hardscape sold at home improvement centers.

Two mergers in the health care area were abandoned. CSL Limited’s proposed $3.1 billion acquisition of Talecris Biotherapeutics Holdings Corporation was called off after the agency challenged the deal on the ground that it would substantially reduce competition in the U.S. markets for plasma-derivative protein therapies. And Thoratec Corporation abandoned its proposed $282 million acquisition of rival HeartWare International, Inc., after the FTC charged that the transaction would substantially reduce competition for left ventricular
devices.

Also in the health care area, Southwest Virginia’s dominant hospital system agreed to settle an FTC challenge to its 2008 acquisition of an outpatient imaging center and an outpatient surgical center.

Monopolization, Unfair Methods of Competition

In discussing change at the FTC in his Fordham address, Leibowitz talked about challenging monopolization and expanding the agency’s use of its authority to prohibit unfair methods of competition under the FTC Act.

The agency’s December complaint against computer chip maker Intel Corporation for monopolization can be seen as an example of change at the agency.

The FTC announced on December 16 that it had issued an administrative complaint against Intel for monopolizing the markets for central processing units and creating a monopoly in the markets for graphics processing units. The vote to issue the complaint was 3-0, with Commissioner William E. Kovacic recused.

Commissioner J. Thomas Rosch issued a separate statement, in which he concurred in part and dissented in part. Commissioner Rosch said that he concurred in the issuance of a complaint based on pure FTC Act, Section 5 claims, but dissented on public policy grounds to the extent the complaint contained Sherman Act, Section 2 ‘‘tag-along’’ claims.

FTC Sues Intel for Monopolization

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The Federal Trade Commission (FTC) announced today that it has issued an administrative complaint against Intel Corporation for engaging in monopolization. An administrative trial could begin next September.

Intel is charged with monopolizing the markets for Central Processing Units (CPUs) and creating a monopoly in the markets for graphics processing units (GPUs).

“Intel has engaged in a deliberate campaign to hamstring competitive threats to its monopoly,” said FTC Bureau of Competition Director Richard A. Feinstein. “It’s been running roughshod over the principles of fair play and the laws protecting competition on the merits. The Commission’s action today seeks to remedy the damage that Intel has done to competition, innovation, and, ultimately, the American consumer.”

Relevant Markets, Monopoly Power

A CPU is a type of microprocessor used in a computer and is often described as the “brains” of a computer. Intel’s unit share in the CPU markets at issue has exceeded 75 percent in each of the years since 1999, and its share of revenue in these markets has consistently exceeded 80 percent during that time, the FTC alleged.

The FTC identified a second set of relevant product markets for GPUs, in which Intel is likely to obtain monopoly power. GPUs originated as specialized integrated circuits for the processing of computer graphics but have evolved to take on greater functionality, the agency explained.

Unfair Methods of Competition, Unfair Acts and Practices

The agency contended that the computer chip maker maintained its monopoly in the CPU markets and strengthened its monopoly position in the GPU markets through unfair methods of competition and unfair acts or practices that date back to 1999 and continue to today.

According to the FTC, Intel used threats and rewards aimed at the world’s largest computer manufacturers, including Dell, Hewlett-Packard, and IBM, to coerce them not to buy rival computer CPU chips. In addition, allegedly, Intel secretly redesigned key software, known as a compiler, in a way that deliberately stunted the performance of competitors’ CPU chips.

The agency also contends that, once Intel found itself falling behind the competition in the critical market for GPUs, the chip maker embarked on a similar anticompetitive strategy to smother potential competition from GPU chips.

Relief Sought

To remedy the anticompetitive damage alleged in the complaint, the FTC is seeking an order which includes provisions that would prevent Intel from using threats, bundled prices, or other offers to encourage exclusive deals, hamper competition, or unfairly manipulate the prices of its CPU or GPU chips. The FTC said that it also might seek an order prohibiting Intel from unreasonably excluding or inhibiting the sale of competitive CPUs or GPUs, and prohibiting Intel from making or distributing products that impair the performance of non-Intel CPUs or GPUs.

Commissioner Rosch’s Partial Dissent

The Commission vote approving the administrative complaint was 3-0, with Commissioner William E. Kovacic recused, and Commissioner J. Thomas Rosch issuing a separate statement in which he concurred in part and dissented in part.

Commissioner Rosch, in his separate statement, said that he concurred in the issuance of a complaint based on pure FTC Act Section 5 claims, but dissented on public policy grounds to the extent the complaint contained Sherman Act, Section 2 “tag-along” claims.

“The collateral consequences of including any Section 2 claims are very unfavorable for both Intel and the Commission,” Rosch said. Because Intel was facing a suit filed by the New York Attorney General under Section 2 in addition to a number of Section 2 treble damage class actions, Rosch argued that perhaps “as a matter of policy the Commission should not spend public resources on a duplicate claim.”

Rosch also pointed to the risk that private plaintiffs might free ride off of the Commission’s work or that the Commission could be placed in a position where an unfavorable outcome in those cases could be cited against it.

FTC Case “Misguided”

Intel posted the following response on its website:

"Intel has competed fairly and lawfully. Its actions have benefitted consumers. The highly competitive microprocessor industry, of which Intel is a key part, has kept innovation robust and prices declining at a faster rate than any other industry. The FTC's case is misguided. It is based largely on claims that the FTC added at the last minute and has not investigated. In addition, it is explicitly not based on existing law but is instead intended to make new rules for regulating business conduct. These new rules would harm consumers by reducing innovation and raising prices."

According to Intel senior vice president and general counsel Doug Melamed, "This case could have, and should have, been settled. Settlement talks had progressed very far but stalled when the FTC insisted on unprecedented remedies—including the restrictions on lawful price competition and enforcement of intellectual property rights set forth in the complaint—that would make it impossible for Intel to conduct business."

"The FTC's rush to file this case will cost taxpayers tens of millions of dollars to litigate issues that the FTC has not fully investigated,” said Melamed, who served in the Department of Justice Antitrust Division during the Clinton Administration. “It is the normal practice of antitrust enforcement agencies to investigate the facts before filing suit. The Commission did not do that in this case.”

Other Actions Against Intel

In November, New York State filed an action charging Intel with monopolization in violation of the Donnelly Act and Section 2 of the Sherman Act. (See Trade Regulation Talk, November 4, 2009 posting).

In addition, Intel has agreed to pay $1.25 billion to Advanced Micro Devices (AMD) and to abide by a set of business practice provisions to resolve antitrust litigation and patent cross-license disputes, the companies announced on November 12, 2009. AMD agreed to drop all pending litigation against the computer chip maker, including a case in the federal district court in Delaware and two
cases in Japan.

Earlier this year, Intel was fined €1.06 billion by the European Commission based on similar allegations. (See Trade Regulation Talk, May 15, 2009 posting.)

The administrative complaint is In the Matter of Intel Corporation, FTC Docket No. 9341, December 16, 2009. Text of the complaint, statements by the Commissioners, and a news release appear here on the FTC website. Further details will appear in CCH Trade Regulation Reporter.

New FTC Chair Promises Continuity in Enforcement Activity

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

FTC Chairman Jon Leibowitz told attendees of the American Bar Association’s Section of Antitrust Law Spring Meeting in Washington, D.C. that they can expect continuity at the agency as he begins his term as chairman.

Speaking at the enforcement roundtable on March 27, Leibowitz said that he intends to build on the accomplishments of past FTC chairs. He said that there will be continuity in merger enforcement and health care enforcement.

Leibowitz discussed a number of merger successes, including the blocked merger between two hospital providers in Northern Virginia and the preliminary injunction against the combination of CCC Information Services Inc. and Mitchell International Inc.—the first preliminary injunction won by the agency in six years.

Pay-for-Delay Drug Agreements

One of Leibowitz’s highest priorities will be stopping pay-for-delay agreements between brand name drug makers and generic competitors. The use of these agreements under which brand name companies pay generics to stay out of the marketplace will be stopped either through litigation or legislation, according to Leibowitz.

The chairman noted that Christine Varney, the nominee for Assistant Attorney General in charge of the Department of Justice Antitrust Division, considers pay-for-delay agreements to be anticompetitive. He predicted that that the two federal antitrust agencies will be much more in sync going forward.

Standard Setting

The Commission will continue to stay active in challenging anticompetitive standard setting activity. The agency suffered a significant defeat before the U.S. Court of Appeals in Washington, D.C. in this area. The appellate court vacated a Commission decision finding that technology company Rambus Inc. engaged in deceptive conduct as a participant in the standard setting process.

Consumer Protection

On the consumer protection front, Leibowitz forecast that the Commission would continue to be active, especially with respect to sub-prime lending. He noted that the FTC action against Bear Stearns Companies, LLC and its subsidiary, EMC Mortgage Corporation for allegedly engaging in unlawful practices in servicing consumers’ home mortgage loans. The companies agreed to pay $28 million to settle to settle the FTC charges.

Two of Chairman Leibowitz’s collegues—Commissioners Paula Jones Harbour and J. Thomas Rosch—also spoke during the Spring meeting.

Competition/Privacy Nexus

Commissioner Harbour said that one of her priorities for the remainder of her term will be developing an understanding of the interplay between privacy and competition. Firms compete on price and nonprice dimensions, and privacy could be one of those dimensions.

Harbour discussed the issue during a March 25 program, entitled “Section 2 and Article 82 Circling the High-Tech Sector: Will They Coordinate or Collide.” She also discussed datasets as antitrust markets, referring to her dissent in the Commission’s 2007 decision not to challenge the Google/DoubleClick combination. In the dissent, she questioned the impact on competition from the combination of the two companies’ datasets and the corresponding privacy concerns.

Roles of Federal Antitrust Agencies

Commissioner J. Thomas Rosch defended the FTC’s record—as well as Section 5’s prohibition on unfair methods of competition—during a March 25 program, entitled “FTC’s Section 5 Hearings: New Standards for Unilateral Conduct.”

Rosch answered the question of why there are two federal antitrust agencies by distinguishing the FTC from the Department of Justice Antitrust Division. Rosch said that the Department of Justice is an arm of the Administration. By contrast, the FTC is: (1) independent and not beholden to the Administration; (2) an expert agency; and (3) a prosecutor and a judge.

Commission’s Partiality?

Responding to criticism of the Commission’s record of siding with complaint counsel, Rosch remarked that he had some concerns with what could appear to be a lack of impartiality. However, he noted that Commission opinions were appealable to federal appellate courts, and that this appealability prevented the commissioners from “indulging themselves.”

In addition to making these comments, Rosch gave an update on the agency’s progress in issuing a report on unilateral conduct. He said that it was coming and was about three-quarters finished.