By Shane Tews and Mark Jamison

Under Chairwoman Lina Khan’s leadership, the Federal Trade
Commission (FTC) is undergoing a number of process reforms that are poised to
make the commission less democratic by allocating more power to the chair
herself. If successful, what impact will these reforms have on the future of
the commission — and on the laws it’s tasked with enforcing?

We recently sat down with Bilal Sayyed, a TechFreedom senior adjunct fellow and former director of the FTC’s Office of Policy Planning, for an “Explain to Shane” discussion on the situation at the FTC. Bilal shared his insights on how Khan’s reforms will reshape long-standing policies around how the FTC is run, and on the challenges companies may face under the new FTC’s scrutiny.

Below is an edited and abridged transcript of our talk. You can listen to this two-part discussion and other episodes of “Explain to Shane” on AEI.org (here and here) and subscribe via your preferred listening platform. You can also read the full transcripts of our discussion here and here. If you enjoyed this episode, leave us a review, and tell your friends and colleagues to tune in.

Shane Tews: Bilal, to get us started, give
us an overview of what the FTC does and why it matters to consumers,
corporations, and everyone involved in US government.

Bilal
Sayyed: The FTC is one of two federal agencies focused on competition across a
broad range of industries. The other federal agency or executive-branch
department that focuses on competition in the same way the FTC does is the
Antitrust Division of the Department of Justice (DOJ).

The two are
a bit different in setup; the FTC is thought of as a legislative agency and has
a five-member commission that at least theoretically oversees the work of
mostly career staff. Although there’s a chair, each commissioner gets a vote —
in the ordinary course — about how the agency directs and uses its resources.
The DOJ’s Antitrust Division is part of the executive branch, and its officials
report to the attorney general. So there’s a single decision maker there.

The FTC is
also the nation’s only broad-based consumer protection agency dealing with
fraud in advertising claims, as well as many other things (e.g., privacy
issues) that arise across industries and the economy. There are other federal
regulatory agencies that arguably deal with consumer protection and competition-related
issues, but they’re relatively narrow in scope.

Mark Jamison: Over the past two to three
months, the FTC has undergone some significant changes. Give us the big picture
of what’s going on.

The incoming
chair and at least one of the retained Democratic commissioners — maybe both —
have a really different view of the FTC’s role than previous commissions did,
regardless of their political makeup. Chair Lina Khan and her Democratic
colleagues believe there’s been insufficient enforcement over the last 30–40
years on both the competition and consumer protection side. And they are
aggressively moving to undo the local framework and procedural guardrails that
I think they believe supported this under-enforcement of antitrust laws.

Most of what
the FTC has done over the last 40 or so years has been enforcement-oriented.
They identify a potential violation of law — even sometimes a potential
violation of a consumer protection rule — and proceed with an investigation and
evaluation of evidence. Then they enact an enforcement action, or not, against
the respondents in that investigation. But what you see now is the beginning of
an effort to put more of the economy under rule-based regulation. I think we
will move away from the case-by-case method into a regulatory model in which
firms of any type have to adhere to certain rules. And if they don’t adhere to
those rules, they’ll be found in violation. This, I think, is consistent with
the belief that there’s been under-enforcement of the law, and that one reason
for this is that one-by-one enforcement actions take too much time and don’t
give you much bang for the buck.

So the key
change, I think, is moving to a rule-based system in which the FTC probably
drafts rules that apply industry-wide or economy-wide and then looks for
adherence to those rules. That would be a significant change and not something
the agency has done or attempted to do since the 1970s.

An issue that has been hot in the media is
the idea that some of the Big Tech companies have been acquiring smaller firms
that could rise up and provide potential competition. What are your thoughts on
that, and what do you think the FTC might do in that space?

Look, I think
it’s important for the FTC and the DOJ’s Antitrust Division to look to identify
and potentially challenge acquisitions that will eliminate a strong future
competitor to the acquiring firm or one of the parties to the merger. We
operate in an innovative economy in which firms develop new products and new
ways of distributing products, and that’s been the driving force of our economy
for a long time. So if allegedly dominant firms acquire future competitors and
either seek to bury what those firms are doing or in some way eliminate
competition, that is a problem.

But of
course, there are difficulties with identifying future competitors. Not every
new firm is a future competitor or even a significant or meaningful player in
the markets they operate in. There are large hurdles to developing from a
startup to an effective competitor. That makes the analysis of such
acquisitions more difficult and speculative than acquisitions of existing
competitors. And the analysis is further complicated by the fact that it’s
uncertain whether the smaller companies will develop into competitive threats,
even if they have interesting technologies or products. One thing the agencies
do consider (and should consider more) is, “Does the merger, in fact,
either bring that product or technology to market more quickly or make it more
likely that the technology or product comes to market?”

The concern
has been that the agency doesn’t have a framework for evaluating such
transactions, but that’s just incorrect. Often, you hear people in congressional
hearings talk about Facebook’s acquisition of Instagram or WhatsApp as
acquisitions that may have eliminated a potential or future competitor. Now,
the FTC has brought a case against Facebook that was intended to look at those
acquisitions, so I won’t comment on those specifically. But the agency has, in
the last 20–25 years, brought by my count something in the range of 100 what
I’d call “potential or future” competition cases. They’ve done this across a
variety of industries, and they’ve largely been successful in preventing the
acquisition or combination of existing and future competitors in those roughly
100 matters.

So I think
the agency leadership — and Congress as well — may now be operating under the
misconception that the FTC needs either greater resources or statutory
authority to challenge such transactions. The record should put that in perspective.

We’ve also seen several procedural changes
at the FTC under its new leadership. One is eliminating the requirement that a
majority of commissioners vote to approve the start of an investigation. Now, a
single commissioner can sign off and launch an investigation. What are your
thoughts?

I have mixed
thoughts on that. I think I have concerns about the commission structure as a
five-member body to begin with. It doesn’t always allow for speed, and it
allows for conflicting messages either through the public or the staff. It also
potentially allows for delays in investigation. However, the place was set up
as a commission, and removing what could be a deliberative exchange between the
commissioners before the start of an investigation could be harmful.

I think a
better approach would’ve been to try to impose some deadlines on the approval
of such things. There are, under the commission’s internal rules, some
deadlines. But they’re often not adhered to and somewhat flexible. Speed is
often a virtue (though not always), but I think this change loses some benefits
of deliberation pre-investigation or before expanding an investigation’s scope.
In that sense, it was a mistake.

Shane Tews: Christine Wilson, a Republican
commissioner, has cited difficulties obtaining information from FTC staff. They
have basically refused to work with her, and she’s apparently had to go outside
the FTC to get data she wants. How does that even happen?

The agency
has been largely collegial for the whole time I’ve been practicing, and the
chair doesn’t ask the staff to stiff commissioners of a different party. It’s
counterproductive, and it probably isn’t even effective. Now, although each
commissioner — at least prior to some of these changes — gets a vote, the chair
is the person who sort of runs the agency, either directly or through its
leadership designees. So it is possible, of course, to direct the staff to
stiff other commissioners. It’s not good policy, but it can be done. I think
it’s ineffective because it’s very easy for the commissioners to indicate
they’re not getting information that otherwise would’ve been normal to share.

In some
respects, Wilson was complaining about information shared with the parties or
directed requests to the parties. And so there you just can reach out to
parties either directly or indirectly and say “we’re just not hearing
about what’s going on” at the early stages of an investigation. And I
think people will then provide that information.

Of course, if
you set up a commission to be bipartisan, stiffing people at the beginning of
an investigation probably hurts your ability to move things forward later,
whether it’s because you don’t get the benefit of input from people or because
things just get slowed down later on. It is hard to see who benefits from this.

The post What’s going on at the Federal Trade Commission? Highlights from a conversation with Bilal Sayyed appeared first on American Enterprise Institute – AEI.