Yesterday, Lina Khan was named chair of the Federal Trade Commission, shortly after her confirmation by the Senate. The appointment as chair was a closely guarded secret that administration officials and anti-monopoly activists had been working on for weeks. This gives the FTC a temporary Democratic majority, as Rohit Chopra, nominated to run the Consumer Financial Protection Bureau, for now remains in place as an FTC commissioner. Khan, a top young scholar for more aggressive antitrust enforcement, will have significant authority to set the agenda for the agency, and get to work on rulemaking and enforcement matters within the FTC’s authority. In 2019, as part of our Day One Agenda series, Sandeep Vaheesan, who worked with Khan at the Open Markets Institute, sketched out what that anti-monopoly agenda could look like at the FTC and elsewhere. It’s really a road map for what Khan would be able to do. With the opportunity now a reality, we are reposting this piece.
The next presidential administration has the legal authority to tackle corporate power. On the surface, that claim may seem surprising. After all, won’t a president committed to going after mergers and monopolies be stymied by a judiciary hostile to antitrust and regulation of big business and by a Congress unlikely to enact major antitrust reforms?
The reality is quite different: The president already has extraordinary authority under decades-old statutes. The question is will he or she appoint officials—to the Department of Justice (DOJ) Antitrust Division, Federal Trade Commission (FTC), U.S. Department of Agriculture (USDA), and other agencies—determined to tame corporate dominance of our economy and politics. The Trump administration has failed to tap into its standing authority, and the Obama administration, while certainly better, had only a modest record of achievements. A new president could reverse that pattern by aggressively deploying the anti-monopoly powers spread across numerous federal regulatory bodies.
What are the things a progressive president could do to revive antitrust law and anti-monopoly policy? Although the list is long, I will focus on four items that should be high on the antitrust agenda. Using their untapped authority, the DOJ, FTC, and USDA can restrict unfair and exclusionary business practices, block further corporate consolidation, restore Americans’ right to repair everything from farm equipment to smartphones, and protect livestock producers from powerful meat-packers.
To be sure, the next administration should not be blind to the legal risks posed by a hostile Supreme Court, but those risks do not counsel inaction. Corporate concentration has meant that ordinary Americans pay more for essentials, earn less at work, lose opportunities to start businesses, and are forced to accept corporate control of politics. By making methodical and strategic use of the powers that Congress has vested in federal agencies, the next administration can achieve tangible and popular gains that will be firmly rooted in statutory law and existing legal precedent.
Ending Unfair Competition and Practices Through the FTC
The Federal Trade Commission, established in 1914, has the power to make national antitrust policy. In 1890, Congress had passed the Sherman Act, the first federal antitrust law. But in a 1911 case, Standard Oil Co. of New Jersey v. United States, the Supreme Court held it had the ultimate power to interpret the Sherman Act and determine what antitrust would mean in practice. In response to this judicial activism, Congress created the FTC to be an expert investigative and policymaking body that would recapture authority from the Court and operate under the watchful eye of the public and its elected representatives.
Section 5 of the Federal Trade Commission Act gives the agency authority to identify and prohibit “unfair methods of competition.” Congress purposely drafted the language in broad terms and delegated expansive policymaking power to the commission. In FTC v. Sperry & Hutchinson Co. (1972), the Supreme Court stated that the FTC, in establishing rules of the marketplace, can consider “public values beyond simply those enshrined in the letter or encompassed in the spirit of the antitrust laws.” Furthermore, under modern administrative law, agencies like the FTC are entitled to judicial deference for their interpretations of open-ended terms such as “unfair methods of competition.” In practice, this means that the FTC has a broad mandate to create a fair marketplace and prohibit abusive, exclusionary, and predatory business practices.
While the FTC has many worthy targets, it should start with a rule against oppressive contracts limiting worker mobility. Employers have imposed noncompete provisions on approximately 30 million workers in a wide range of industries and occupations. These contracts prevent workers from taking a new position or starting a business in their field or industry after leaving their current employer. For instance, until it was named and shamed in 2015, Amazon prohibited its warehouse workers from accepting employment with any business that did or could compete with any Amazon product or service (a very long list) for 18 months after they left Amazon. Noncompetes impair worker mobility and depress wages, reduce the formation of new firms, and prevent workers from leaving abusive or unsafe environments. Using its rulemaking power, the FTC should ban noncompetes for all workers, as a coalition of labor and public-interest groups requested in a March 2019 petition. (Full disclosure: The coalition includes the Open Markets Institute, where I work.)
The FTC should also enact a rule against exclusive dealing and similar practices that monopolists use to block new rivals, handicap competitors, and deprive customers of choice. Dominant firms in a range of markets have demanded that customers, wholesalers, and suppliers not deal with rivals, or they have rewarded them for not doing business with competitors. In July 2018, the European Commission found Google liable for protecting its search monopoly by, among other tactics, paying mobile handset makers to pre-install the Google search app exclusively. In beer, craft brewers have accused Anheuser-Busch InBev of encouraging and pressuring distributors not to carry competing brews. The FTC has challenged exclusionary contracts by several corporations with dominant market positions, including Intel. The FTC should issue a rule prohibiting dominant firms from locking up customers, distributors, and suppliers through exclusivity arrangements and foreclosing fair competition.
The FTC should also play a central role in taming runaway prescription drug prices. Under the FTC Act, as well as existing Sherman Act precedents, it has substantial authority to challenge branded drug companies’ improper extension of their monopolies. To its credit, the agency, under both the Obama and Trump administrations, has gone after branded drug companies for paying rivals in exchange for not introducing lower-priced generic versions. But much remains to be done.
The commission should attack drug evergreening in which branded drug companies obtain a new round of patent protection on trivial reformulations of existing drugs and then encourage doctors to prescribe the new drug in place of the current version. It should also stop the regulatory fraud and deception of drug companies. Branded drug manufacturers have shut out generic competition through such tactics as obtaining patents through fraud on the Patent and Trademark Office and filing erroneous patent information with the Food and Drug Administration.
Stopping Further Corporate Consolidation
Although they have adopted a tolerant attitude toward corporate consolidation in recent decades, the DOJ and the FTC have the power to restore strict anti-merger rules. Some of the Supreme Court’s most important decisions on the anti-merger section of the Clayton Act date from the 1960s. These rulings, in line with the text and intent of the Clayton Act, restricted mergers and acquisitions between direct rivals and customers and suppliers. For instance, the Supreme Court in a 1962 decision recognized that Congress feared both the economic and political consequences of consolidation and corporate concentration. In deciding whether a merger was illegal, the Court at the time looked to market shares and a history of rising market concentration. It refused to accept the argument that economies of scale and other “productive efficiencies” justified mergers that would otherwise be illegal mergers. These rulings remain good law.
Since 1982, the DOJ and the FTC have used the guidelines to weaken merger law. They have steadily raised the market share threshold at which they’ll challenge mergers between direct rivals and practically legalized mergers between customers and suppliers and corporations in unrelated industries. In a clear disregard for the rule of law, the agencies, in their guidelines, have ignored still-valid Supreme Court decisions from the 1960s and permitted several mega-merger waves over the past four decades.
By issuing new merger guidelines, the DOJ and the FTC can breathe new life into the musty but important Supreme Court anti-merger decisions and restore a merger policy in line with Congress’s original vision. What would guidelines true to the Clayton Act and Supreme Court interpretation resemble? The DOJ and FTC should hew to legislative intent and strive for simplicity, in place of the pro-merger bias and complexity of the current framework. In new guidelines, the agencies should establish simple market share and concentration thresholds for deciding whether a merger is illegal. Drawing on 1960s merger practice, the agencies, for instance, should treat a merger that creates a firm with 10 percent or more of a market as illegal and state they will block it in court. And illegal mergers should not be permitted on “efficiency” grounds.
A strong anti-merger policy would foster decentralized market structures. It would also compel businesses to grow through product improvements and investment in new plants and facilities, instead of by swallowing existing firms. Growth by acquisition eliminates rivals and can create and entrench market dominance.
Restoring Consumers’ Right to Repair
The agencies should seek to restore consumers’ right to repair their smartphones, automobiles, and other durable goods at independent repair shops or on their own. Product manufacturers, including Apple, John Deere, and Honda, have engaged in tactics such as limiting the availability of spare parts and schematics, bundling new parts with repair service, and redesigning products to limit easy servicing. As a result, owners of a wide range of durable goods are compelled to get costly repairs done by manufacturers or manufacturer-authorized technicians, or to purchase new products.
The Supreme Court in a 1992 decision gave government enforcers a powerful tool with which to attack restrictions on the right to repair. In Eastman Kodak Co. v. Image Technical Services, Inc., the Court held that a manufacturer can violate the antitrust laws by limiting access to replacement parts. In that case, Kodak had restricted the sale of replacement parts for its photocopiers and forced most copier owners to obtain parts and servicing from Kodak technicians.
The Court held that Kodak’s restraints on competition in the market for copier parts and service could violate antitrust law. It critically concluded that competition in the market for copiers did not necessarily prevent abuse in the aftermarkets for parts and service. The Court questioned economists’ heroic assumptions of how real-world customers behave when deciding between competing products. It reasoned:
For the service-market price to affect equipment demand, consumers must inform themselves of the total cost of the “package”—equipment, service, and parts—at the time of purchase; that is, consumers must engage in accurate lifecycle pricing. Lifecycle pricing of complex, durable equipment is difficult and costly. In order to arrive at an accurate price, a consumer must acquire a substantial amount of raw data and undertake sophisticated analysis. The necessary information would include data on price, quality, and availability of products needed to operate, upgrade, or enhance the initial equipment, as well as service and repair costs, including estimates of breakdown frequency, nature of repairs, price of service and parts, length of “downtime,” and losses incurred from downtime.
The Court noted that purchasers compare the sticker price and quality of machines and may not evaluate the life-cycle costs of purchasing a Kodak copier versus a Xerox copier. Then, once an individual or office purchased a Kodak copier (costing thousands of dollars), Kodak could exploit them in the markets for maintaining and repairing their machines.
The antitrust agencies should use the Kodak decision to resurrect consumers’ right to repair their own products where they want. For instance, the DOJ and the FTC can challenge manufacturers’ bundling of products and services, which limits consumers’ and farmers’ ability to get their cars, smartphones, and tractors repaired at independent shops. Prevailing antitrust doctrine proscribes bundling by a firm with dominance: A manufacturer with power in one market (say, parts) cannot extend its dominance into another market (say, service) by requiring customers to purchase the two as a bundle. The antitrust agencies can also strike down manufacturers’ restrictions on the sale of parts and tools and ensure that independent service shops can obtain the items they need to repair equipment. While action from Congress, the Patent and Trademark Office, Copyright Office, and other policymakers is critical for fully restoring the right to repair, antitrust enforcers have significant power to curtail manufacturer monopolization of repair services.
Protecting Farmers From Agricultural Middlemen
The USDA has the authority to protect cattle ranchers, hog farmers, and poultry growers from powerful buyers and processors. Congress enacted the Packers and Stockyards Act in 1922 to protect these farmers and ranchers from deceptive, discriminatory, and unfair practices by packers and other agricultural processors. In practice, the USDA has broad power to establish rules of fair market conduct and protect chicken, hog, and livestock producers from abusive processors.
Following a legislative mandate in the 2008 Farm Bill, the Obama-era USDA sought to establish robust protections for producers. In rules proposed in June 2010, the USDA announced it would restrict processors’ ability to engage in price discrimination, protect producers from arbitrary or retaliatory termination of their contracts, ban mandatory arbitration, and regulate the tournament system in which some producers receive bonuses at the expense of others. These bonuses or pay cuts are based on the size and quality of fattened livestock, even though the packers determine the quality of the animals, feed, and medicines that farmers receive. Congress, following massive lobbying from industry trade groups and the 2010 midterms in which Republicans captured the House, barred USDA from finalizing these rules for the next several years. In December 2016, the USDA issued an interim final rule that would establish significant (though incomplete) protections for producers. The Trump administration has since moved to repeal these protections and even abolish the office at USDA in charge of enforcing the Packers and Stockyards Act.
The USDA should expand on the 2010 proposed rules. It should establish a presumptive ban on price discrimination, prohibit packers from using short-term contracts that they can terminate at will, outlaw retaliation against growers for airing grievances or engaging in cooperation with other producers, and grant producers an effective right to decline arbitration of legal disputes. USDA should also ban the tournament system and create clear criteria for unfair and discriminatory practices in each livestock sector.
While these rules would not remedy the basic power disparity between producers and processors and not eliminate the need for structural solutions, they would limit the discretionary authority of processors. In restricting how processors can exercise power, USDA rules would protect producers from some of the worst abuses that exist today. They would be a major step toward a more equitable agricultural sector.
In all the areas I’ve mentioned—unfair business practices, excessive corporate concentration, consumers’ right to repair, and farmers’ dependence on dominant middlemen—the next presidential administration has great power to tackle the monopoly crisis. Even without new legislation, the next president can limit corporate power with the awesome anti-monopoly authorities already vested in the DOJ, FTC, USDA, and other federal agencies. The next president can free workers from the grip of noncompete clauses, stop monopolists from walling out rivals, promote affordable prescription drugs, brake corporate consolidation, restore consumers’ right to repair their possessions, and protect farmers from abusive meat-packers. A president determined to achieve those goals will have the tools to do it on January 20, 2021.
