On July 21, 2021, the Federal Trade Commission (“FTC” or “Commission”) held its second Open Commission Meeting. There were three items on the agenda: (1) whether or not to rescind a 1995 policy statement on prior approval and prior 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 is continuing to take steps to strengthen competition and increase the agency’s ability to use its authority to block potentially anticompetitive transactions. At the meeting, the Commissioners voted (3-2) to rescind a 1995 policy that had loosened merger review reporting requirements for companies that had entered into merger related settlements. By rescinding the policy statement, the FTC may be able to require prior notice or prior approval as a condition of any merger where 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 increase its enforcement of manufacturer repair restrictions that make it difficult and more costly for independent retailers and consumers to service repairs, and it has signaled an interest in rulemaking in this area.
- The FTC may opt to keep existing rules that are not harmful to consumers and still serve some purpose, rather than expending the resources to modernize them where they are not central to the agency’s current focus on competition and data misuse.
- Although the open meetings have increased transparency into Commission business, they may come at a cost. The Commissioners may be avoiding staff input and dialogue among the Commissioners in order to avoid waiver of the Commission’s deliberative process privilege.
Read our coverage of the first Open Commission Meeting held on July 1, 2021.
Recission of 1995 Policy Statement on Prior Approval and Prior Notice Provisions
Prior to 1995, the FTC required parties that entered into merger settlements to obtain the agency’s approval for future transactions in similar markets. This requirement lasted ten years and often included the need to provide prior notice of transactions that were below the Hart‑Scott-Rodino (“HSR”) reporting thresholds. In 1995, the agency issued a statement eliminating these requirements.
At the open meeting, the Commissioner’s voted 3-2 (along party lines) to rescind the 1995 policy statement that had eliminated prior approval and prior notice provisions from most merger settlements. Prior approval provisions place the burden on companies to demonstrate that their transactions are not anticompetitive. Prior notice provisions require companies to provide the FTC with advanced notice of certain transactions, even if they fall below the HSR reporting thresholds. By rescinding the policy statement, the FTC may be able to require prior notice or prior approval as a condition of any merger where a party to the merger is already under a consent decree.
It’s not clear how the FTC will employ these provisions. During the open Commission meeting, Chair Lina M. Khan simply stated that the FTC will employ these provisions based on “facts and circumstances of the proposed transaction.” Therefore, this policy could impact how companies negotiate consent orders with the FTC because entering into a consent order could limit companies’ ability to complete future acquisitions, injecting greater uncertainty into the merger enforcement process.
During the meeting, Chair Khan also referred to the Commission’s lack of resources as a justification for rescinding the 1995 policy: “Since the FTC substantially reduced using these prior approval provisions, the agency has encountered numerous examples of companies repeatedly proposing the same or similar deals in the same market, despite the fact that the Commission had earlier determined that those deals were problematic. Companies have also, in several cases, sought to buy back assets that the Commission ordered those same companies to divest.” Chair Khan detailed that “[w]ithout a prior approval provision, the Commission must initiate a whole new investigation and then go into court to block the deal anew. This additional burden drains the already strapped resources of the Commission.”
Enforcement Policy on Repair Restrictions
The Commissioners also voted unanimously to adopt a policy statement making clear that it will make unlawful repair restrictions an enforcement priority. During the open meeting, all Commissioners agreed that increased enforcement is necessary because repair restrictions can raise costs for consumers, stifle innovation, close off business opportunities, create unnecessary waste, delay timely repairs, and undermine resiliency. According to the policy statement, this burden is borne more heavily by underserved communities, including communities of color and lower-income Americans, and was only exacerbated by the pandemic as consumers relied more heavily on technology.
The vote and adoption of the policy statement follow both a May 2021 FTC report, titled “Nixing the Fix: An FTC Report to Congress on Repair Restrictions,” and President Biden’s July 2021 Executive Order (“EO”) on Promoting Competition in the American Economy that specifically addressed repair restrictions. In Nixing the Fix, the FTC comprehensively reviewed repair restrictions in the marketplace, and found that many manufacturers are using 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, making diagnostic software unavailable, and developing products with designs that make independent repairs less safe or more difficult. The Report also concluded that manufacturers do not have strong evidence to justify most repair restrictions and, in fact, are both restricting competition and burdening consumers with these practices. The EO, which addresses business practices that inhibit competition, specifically focused on repair markets and encouraged the FTC to consider using its rulemaking authority to address “unfair anticompetitive restrictions on third-party repair or self-repair of items.”
The policy statement unanimously adopted by the Commissioners states that the Commission will devote more enforcement resources to combat repair restriction practices that prevent small businesses, workers, consumers, and government entities from fixing their own products. The Commission will rely on its authority under the Magnuson-Moss Warranty Act, which prohibits, among other things, tying arrangements that condition a consumer product’s warranty on the use of a third-party service provider or on the use of a particular product, unless the warrantor provides the services or products for free or obtains a waiver from the FTC. See 15 U.S.C. § 2302(c). It also signaled that it would rely on its authority under Section 5 of the FTC Act, which prohibits unfair or deceptive acts or practices, as well as unfair methods of competition, in or affecting commerce, and encompasses violations of the Sherman Act, which prohibits certain exclusionary and other anticompetitive conduct.
The FTC specified several ways in which it will achieve increased enforcement in this area. Specifically, the Commission will:
- Review complaints and other information provided to the FTC to determine whether there are instances where the Commission should file suit against violators to seek appropriate injunctive relief.
- Closely monitor private litigation to determine whether the Commission may wish to investigate a pattern of unfair or deceptive acts or practices or file an amicus brief.
- Explore rulemaking, as appropriate.
- Scrutinize repair restrictions for violations of the antitrust laws, for example, restrictions that may constitute tying arrangements or monopolistic practices—such as refusals to deal, exclusive dealing, or exclusionary design—that violate the Sherman Act (which would also violation Section 5 of the Federal Trade Commission Act)
- Assess whether repair restrictions constitute unfair acts or practices that are prohibited by Section 5 of the FTC Act, as well as analyze any material claims made to purchasers and users to ascertain whether they are similarly prohibited under Section 5.
- Coordinate with policymakers and state law enforcement officials to ensure compliance with existing laws and regulations.
Care Labeling Rule
The Care Labeling Rule, which has been in effect since 1971, requires manufacturers and importers to attach labels with care instructions to clothing. As part of its regular review of the rule, the Commission published a proposal to repeal the rule in July 2020. At the open meeting, the Commissioners voted 5-0 not to repeal the rule. The reasons given for the decision was that most of the public comments received in response to the proposed repeal were largely supportive of the rule, and that it did not make sense to devote resources to revising the rule at the present time given the Commission’s other (more pressing) priorities. The Commissioners did, however, indicate in a statement that they would consider ways to improve the rule in the future.