House Judiciary Subcommittee Issues Testimony From FTC Commissioner Wilson

WASHINGTON, Oct. 6 -- The House Judiciary Subcommittee on Antitrust, Commercial and Administrative Law issued the following testimony by Federal Trade Commissioner Christine S. Wilson for a Sept. 28, 2021, hearing entitled "Reviving Competition, Part 4: 21st Century Antitrust Reforms and the American Worker":

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Thank you for the opportunity to testify. In recent years, this Committee has played a pivotal role in spurring a rich dialogue on our antitrust laws.

It is an honor to appear before you today.

In my opening remarks, I will first provide context for the monopsony and labor issues we will discuss today. Then, I will address antitrust enforcement and proposals that impact labor markets, including occupational licensing, monopsony, and non-compete and no-poach agreements. These issues are important, and worthy of the time we are devoting to them today.

Finally, I will briefly touch on procedural irregularities at the Federal Trade Commission that have precluded a robust dialogue on these and other key policy issues among Commissioners, and between Commissioners and stakeholders.

The Big Picture

The U.S. antitrust laws were enacted more than a century ago. The Sherman Act was passed in 1890 and the Clayton Act, which supplemented the Sherman Act, was passed in 1914.

Periodically, given the time that has passed since their enactment, commentators question whether those Acts remain capable of addressing issues that arise in new industries and dynamic markets. This question was asked in the 1990s when commentators wondered whether the antitrust laws were suited to address rapidly evolving technology markets. The D.C. Circuit made clear in the Microsoft case that the antitrust laws were sufficiently flexible to support a holding that the dominant technology firm of that time had violated the antitrust laws.1

Congress asked the question again in 2002 when it created the Antitrust Modernization Commission. As described in the first chapter of the Antitrust Modernization Commission's Report issued in 2007:

The term 'new economy' can describe a diverse array of markets in which new information, communication, and other technologies have produced significant changes in recent decades. For purposes of this Report, the key question is whether antitrust analysis can properly account for the economic characteristics of these markets. Those characteristics include innovation, intellectual property, and technological change.2

Following an extensive inquiry, the Antitrust Modernization Commission concluded:

Commenters and witnesses largely agree that antitrust analysis has sufficient grounding in solid economic analysis, openness to new economic learning, and flexibility to enable the courts and the agencies properly to assess competitive issues in new economy industries. Most importantly, commenters noted, the economic principles on which antitrust is based do not require revision for application to those industries. As one economist [Carl Shapiro] noted, basic economic principles do not become 'outdated' simply because industries become highly dynamic.3

In other words, previous periods of reflection have concluded that the antitrust laws are sufficiently broad and flexible to address the issues of the day, including rapidly evolving tech markets.

In recent years, the same question again has arisen: are our antitrust laws capable of addressing the concerns that have been raised about so-called Big Tech? This time, though, the discussion differs in notable ways.

First, while antitrust issues contribute to this question, the concerns about Big Tech are many and varied. Some observers are concerned about the seemingly limitless collection of consumer data by tech platforms, and the ways in which those data are used, shared, and monetized. Others are concerned about content curation and censorship. And still others are concerned about traditional antitrust issues, including serial acquisitions by large tech companies and refusals to deal with competitors.

Each of these concerns is worthy of discussion. But just because we hold the hammer of antitrust law in our hands does not mean we should treat every concern as a nail, lest we risk bludgeoning our entire economy. The better approach is to disaggregate the varied concerns about the tech sector and address each concern with the appropriate tools. For example, privacy concerns require federal privacy legislation, which I heartily support. And Congress may conclude that content curation concerns require reforms to Section 230.

That leaves the competition concerns. I believe the antitrust laws as currently written are sufficiently broad and flexible to address the competition issues in the dynamic and rapidly evolving tech sector. As noted above, the Department of Justice in the 1990s won its antitrust case against Microsoft, the dominant tech firm of that era. In December 2020, the FTC launched an antitrust challenge against Facebook.4 Even before that, the FTC initiated an antitrust case against Surescripts, a multi-sided platform that facilitates electronic prescribing, alleging monopolization of two markets.5 In October 2020, the DOJ and 11 State Attorneys General brought an antitrust case against Google;6 State Attorneys General subsequently filed three additional cases against Google.7 The press has covered reportedly ongoing investigations into other Big Tech companies.8 The FTC is analyzing transactions made by Amazon, Apple, Facebook, Microsoft, and Google owner Alphabet that fell below pre-merger notification filing thresholds.9 And the District of Columbia sued Amazon in May.10 Prudence would dictate allowing these cases and investigations to play out before implementing sweeping legislative reforms.

The second way in which today's iteration of the question differs is this: the doubts that have been raised about the adequacy of our antitrust laws are not limited to dynamic and rapidly evolving markets. Instead, would-be reformers propose sweeping changes to our antitrust laws that would result in a fundamental transformation of our economy. The breadth of their aspirations is confirmed by the sweeping range of topics covered in President Biden's recent Executive Order on competition.11 The topic of today's hearing - labor and monopsony - highlights just one of those broader goals.

To be clear, the issues we will discuss today are important ones. But we should keep two points in mind during this discussion. First, the antitrust laws as they exist today embody concepts like monopsony and prohibit anticompetitive agreements like no-poach agreements and unreasonable non-competes. Second, antitrust enforcement as it exists today supports challenges to anticompetitive conduct that harms labor, middlemen, and other entities beyond the end consumer.

I am deeply troubled by proposals to replace modern antitrust enforcement and market forces with government micromanagement. Attempting to regulate the economy into competition, instead of engaging in antitrust enforcement based on sound economic principles, has harmed Americans in the past.12 This approach will undermine the American economy at the very moment it is struggling to recover from the COVID-19 pandemic. In addition, abandoning fact-based enforcement and sound economic principles for a highly interventionist competition policy that picks winners and losers will create incentives for rent-seeking and regulatory gamesmanship instead of competition and innovation. This result will harm everyone, including American labor.

Today's Antitrust Standards Address Monopsony and Labor Issues

I will discuss occupational licensing, monopsony, and non-compete and no-poach agreements in turn.

Occupational Licensing

States have a legitimate interest in protecting the health, safety, and welfare of their residents, and occupational licensing regimes may help advance these goals. But all too frequently, occupational licensing regimes are used by incumbents - those already licensed in a state - to erect barriers to entry and insulate themselves from competition.13 Rent-seeking by incumbents limits consumer choice, drives up prices, and may decrease quality.14

The FTC has challenged attempts by market incumbents to suppress competition through state boards. For instance, the Commission challenged actions by the North Carolina State Board of Dental Examiners that excluded non-dentist providers of teeth whitening goods and services from selling their products to consumers in North Carolina.15 In a similar vein, the FTC challenged actions by the South Carolina Board of Dentistry that restricted the delivery of preventive dental services by licensed dental hygienists to economically disadvantaged children in South Carolina schools.16

In addition to bringing enforcement actions, the FTC has a rich history of analyzing, and seeking to inform policymakers of, the impact of occupational licensing restraints.17 The agency provides input to courts, legislatures, agencies, and self-regulatory entities on initiatives that may raise barriers to entry, limit choice, or otherwise hinder competition. It is of course appropriate for government bodies to promote goals other than competition, including public health, safety, and security. But through Commission-authorized comments, FTC staff seek to identify the potential harms to competition so that policymakers can weigh those harms against other benefits to consumers and the public interest.

The FTC has submitted literally hundreds of comments and amicus briefs to policymakers across a wide range of industries.18 For example, the FTC staff consistently has urged state and federal agencies to avoid imposing restrictions on the scope of practice for advanced practice registered nurses and physician assistants unless those restrictions are necessary to address wellfounded patient safety concerns.19

Developments during the COVID-19 pandemic demonstrated that easing restrictions on occupational licensing can increase the availability of professionals to the benefit of consumers.

In particular, the pandemic highlighted the pitfalls of occupational licensing regimes that restrict the mobility of medical professionals and preclude them from providing services within their scope of medical expertise. Both state and federal agencies waived or repealed regulations that constrained the mobility and supply of health care professionals, reducing delays and restrictions on the availability of care.20

It was gratifying to see these changes, although unfortunate that a global pandemic was necessary to prompt them. As a society, we can choose to focus on the positive and preserve, even after the pandemic subsides, the enhanced levels of choice and competition in health care now emerging. Legislators and regulators should consider which laws and rules are truly necessary for patients' safety, and which ones create unnecessary barriers to market entry.

Specifically, changes made to address COVID-19 give policymakers the opportunity to observe how the absence of these restraints has impacted patients. Moreover, the fact that states have responded differently during the pandemic will enable comparative analyses, highlighting the benefit of states as laboratories of democracy.

Monopsony Resulting From Mergers or Collusive Agreements

A monopoly arises when a market has only one seller but many buyers; conversely, a monopsony arises when a market has many sellers but only one buyer.21 Both the FTC and DOJ have brought cases premised on monopsony concerns, and litigants in private antitrust cases have prevailed on monopsony allegations. As the following examples demonstrate, monopsony power may serve as the basis for violations of the Clayton Act and the Sherman Act, even when ultimate downstream markets are not impacted. In other words, existing antitrust standards do not preclude cases based on monopsony harms to labor and middlemen.22

In the merger context, the 2010 Horizontal Merger Guidelines devote a section to explaining that "[m]ergers of competing buyers can enhance market power on the buying side of the market, just as mergers of competing sellers can enhance market power on the selling side of the market."23 Notably, the 2010 Horizontal Merger Guidelines provide that monopsony concerns may arise "even if the merger will not lead to any increase in the price charged by the merged firm for its output."24

Applying the Guidelines, the antitrust agencies examine proposed mergers to identify potential monopsony issues. For instance, the FTC recently required global health care company Grifols S.A. to divest blood plasma collection centers in three U.S. cities to resolve charges that Grifols' acquisition of Biotest US Corporation would be anticompetitive.25 The FTC's analysis stated that Grifols and Biotest were the only two buyers of human source plasma in three U.S. cities, and that these three cities constituted relevant geographic markets because plasma donors typically do not travel more than twenty-five minutes to donate plasma.26 Absent divestitures, Grifols likely would have been able to exercise monopsony power by unilaterally decreasing donor fees in the three cities.27

Also applying the 2010 Horizontal Merger Guidelines, the DOJ filed a complaint against the proposed acquisition by Aetna Inc. of the Prudential Insurance Company of America.28 The complaint alleged that the acquisition would eliminate head-to-head competition between the parties for the sale of health maintenance organization and HMO-based point-of-service health plans in two relevant geographic markets (Houston and Dallas).29 This claim rested on the merging parties' role as sellers of HMO and HMO-POS services. But for today's purposes, it is notable that the complaint also alleged that the acquisition would enable Aetna to unduly depress physicians' reimbursement rates in those same cities, resulting in a reduction in quantity or a degradation in quality of physicians' services.30 This allegation focused on the role of the merging parties as buyers of physicians' services - in other words, the ability of the entity to exercise monopsony power. The proposed settlement required divestitures of certain assets sufficient to preserve competition both for the sale of HMO and HMO-POS plans and for the purchase of physicians' services in the relevant geographic markets.31

Agency challenges premised on monopsony concerns are not limited to mergers. For instance, in 2018, the FTC obtained a settlement with two companies that provided therapist staffing services to home-health agencies. According to the FTC's complaint, the two owners agreed to lower their therapist pay rates to the same level, and they also invited several of their competitors to lower their rates in an attempt to keep therapists from switching to staffing companies that paid more.32 The complaint charged the staffing agency and the two owners with violating Section 5 of the Federal Trade Commission Act by "unreasonably restraining competition to offer competitive pay rates to therapists," "fixing or decreasing pay rates for therapists," and "depriving therapists the benefits of competition among therapist staffing companies."33 And the DOJ brought an action against firms that procure billboard leases that had agreed to refrain from bidding on former leases for a year after a conspirator lost or abandoned the space.34 The challenged agreement was limited to the input market--the procurement of billboard leases--and did not extend to downstream sales where the parties also competed.35

Non-Compete Provisions

Non-compete agreements that are unreasonable as to temporal length, subject matter, and/or geographic scope will be found to violate both federal36 and state antitrust laws.

Moreover, state and common law provide rich guidance on this topic. And to date, the economic evidence regarding the impact of non-competes in the labor arena is mixed. For these reasons, I believe we should heed the wise guidance of Justice Brandeis, who noted that "a single courageous state may, if its citizens choose, serve as a laboratory" and "[d]enial of the right to experiment may be fraught with serious consequences to the nation."37

Studies analyzing the impact of non-competes in the labor arena have revealed mixed results. Some studies have found that non-competes suppress employee wages and mobility. For example, one study found that a ban on non-competes for technology workers increased mobility by 11 percent and new-hire wages by four percent.38 Another study concluded that moving from the 10th to the 90th percentile in enforceability on non-competes decreased earnings by three to four percent.39 For low-wage workers, the group that has received the most attention,40 Michael Lipsitz (of the Federal Trade Commission) and Evan Starr found that Oregon's 2008 ban on noncompetes for low-wage workers increased hourly wages by up to roughly three percent.41

Other studies have found that non-competes have a beneficial impact on employee wages and other employee benefits. For example, one study concluded that physicians who sign noncompetes tend to earn more money.42 Another study found that non-competes increase incentives for firm-sponsored employee training.43 And other research has revealed that employee awareness of non-competes before offers are accepted generates higher wages relative to employees without non-competes.44

It is also important to consider the impact of non-competes on stakeholders other than employees. Non-compete agreements can facilitate innovation by assuring firms that trade secrets and other firm know-how will not be transferred to a rival.45 One study compared high and low non-compete enforceability regimes and concluded that enforceability facilitates riskier research and development investments.46 Another study of financial advisors found that ending enforcement of non-competes lowered prices to consumers, but also led to a larger than 40 percent increase in incidents of misconduct because firms were more reluctant to discipline advisors.47 Non-competes can also help firms and workers match more appropriately based on separation costs.48

States have or are moving to adopt laws in this area. In California,49 North Dakota,50 and Oklahoma,51 non-competes are prohibited. And several states have considered or passed legislation that limit non-competes for certain types of employees (e.g., Hawaii,52 New Mexico,53 and Oregon54). Many states are considering bills or adjusting already passed legislation to address employee non-competes.55

Despite mixed evidence on the impact of non-competes and the growing number of states with not just common law but legislation, some commentators continue to advocate for a federal solution. They assert that even when non-competes violate state law, employees who cannot afford a lawyer may experience an in terrorem effect.56 But state attorneys general are wellpositioned to take an active role in this arena, as the New York Attorney General did in its heavily publicized settlement with Jimmy John's.57

As Justice Brandeis wrote, "[t]o stay [state-by-state] experimentation in things social and economic is a grave responsibility."58 The elected officials in each state are best situated to weigh the costs and benefits of non-competes and make decisions tailored to the unique circumstances in their jurisdictions. And as with occupational licensing suspensions during the pandemic, state-by-state changes will provide beneficial opportunities for research in this area. A federal solution at this time is premature.

No-Poach Agreements

Antitrust laws prohibiting price-fixing and market allocation apply to labor markets, including no-poach and similar agreements among competitors to constrain labor. Guidance published jointly by the FTC and the DOJ states clearly that wage-fixing and no-poach agreements may be prosecuted as criminal antitrust violations. Enforcement in this area, including by the state attorneys general, underscores the message to the business community that these agreements will not be condoned.

In 2016, the FTC and the DOJ issued guidance for human resources professionals.59 The guidance explains that "[n]aked wage-fixing or no-poaching agreements among employers, whether entered into directly or through a third-party intermediary, are per se illegal under the antitrust laws."60 The guidance then warns that "the DOJ intends to proceed criminally against naked wage-fixing or no-poaching agreements. These types of agreements eliminate competition in the same irredeemable way as agreements to fix product prices or allocate customers, which have traditionally been criminally investigated and prosecuted as hardcore cartel conduct."61 According to the guidance, criminal charges can be brought against both the individuals and the companies involved.62

Beyond clear warnings to the business community, the federal antitrust agencies have a history of challenging no-poach and related agreements that harm labor. The FTC's history in this area dates back to at least the 1990s. In 1992, the FTC reached a consent with Debes Corp. for entering into agreements to boycott temporary nurses' registries in order to eliminate competition among the nursing homes for the purchase of nursing services, which depressed the price of those services.63 In 1995, the FTC reached a consent with the Council of Fashion Designers of America and the organization that produces the fashion industry's two major

fashion shows for attempting to reduce the fees and other terms of compensation for models.64 In 2007, the DOJ reach a consent with the Arizona Hospital & Healthcare Association for acting on behalf of most hospitals in Arizona to set a uniform bill rate for temporary and per diem nurses.65 And in 2010 and 2014, the DOJ filed civil complaints and reached consents in three cases against eight technology companies - including Apple and Google - for agreeing not to cold call each other's employees and in two of the cases outright agreeing to limit hiring current employees from certain competitors.66

More recently, in 2018, the FTC obtained a consent with two companies - including an owner and former owner - that provided therapist staffing services to home-health agencies.67 The complaint alleged that the companies agreed to lower their therapist pay rates to equal levels and invited several competitors to do the same, all to prevent therapists from switching to staffing companies that paid more.68 The complaint charged the staffing agency and the two owners with violating Section 5 of the FTC Act by "unreasonably restraining competition to offer competitive pay rates to therapists," "fixing or decreasing pay rates for therapists," and "depriving therapists the benefits of competition among therapist staffing companies."69 The DOJ followed by indicting one of the former owners as part of this conspiracy and charged him with obstruction of the FTC's proceedings for false and misleading statements.70

State attorneys general have also played a key role in challenging unlawful no-poach agreements. Notably, Washington State investigated and reached settlements with seven fastfood corporations (Arby's, Auntie Anne's, Buffalo Wild Wings, Carl's Jr., Cinnabon, Jimmy John's, and McDonald's) to remove "no-poach provisions" from their franchise agreements that acted as restrictions on low-wage workers.71 This work caused the companies to end these practices in thousands of locations nationwide.72 Washington State Attorney General Ferguson continued his efforts against no-poach agreements, which at the time of his June 2020 report on the initiative, had resulted in more than 200 companies at over 197,000 locations nationwide ending these no-poach provisions.73 The guidance and enforcement history in this area shows that the FTC, the DOJ, and state attorneys general take this conduct and resulting harms to labor markets seriously.

Procedural Irregularities at FTC Preclude Robust Dialogue on Key Policy Issues

The issues that we are discussing today, together with other antitrust reforms under consideration, merit a thoughtful discussion. Traditionally, the FTC has played a significant role in the antitrust policy debate, and has long enjoyed strong bipartisan dialogue on cases and policy issues. Moreover, this dialogue among Commissioners has benefited from the input of stakeholders obtained through hearings, workshops, notice and comment, and 6(b) studies. New agency leadership unfortunately has made meaningful dialogue among Commissioners, and between the Commission and its stakeholders, difficult by:

* Muzzling staff internally and externally;74

* Stifling the flow of agency records and information from staff to the Commission;75

* Largely abandoning the tradition of comprehensive staff recommendations discussing legal and economic issues, prudential considerations and litigation risks for matters before the Commission;76

* Giving minimal notice to Commissioners (and the public) of sweeping policy changes;77

* Giving no written explanations for sweeping policy changes until after those changes are implemented;78

* Evading meaningful dialogue at the Commission level;79

* Voting against notice and comment on major policy changes;80 and

* Short-circuiting public input by adopting policy statements during ongoing rulemakings that address precisely the topics at issue.81

These major changes represent a departure from decades of tradition at the agency. The result?

* Stakeholders are deprived of clarity and guidance regarding the FTC's enforcement intentions in both conduct investigations82 and merger cases.83 A lack of clarity regarding what constitutes lawful and unlawful behavior harms honest businesses that seek to comply with the law.

* The FTC is diverging from the DOJ with respect to its enforcement intentions, the antithesis of good government.84 This widening gap gives fodder to those who support the One Agency Act.85

* The majority is making fundamental substantive errors in areas in which the Commission supposedly holds expertise.86 In other words, faulty processes lead to substantive mistakes.

* The FTC's rich bipartisan tradition - which is so important, given our broad statutory mandate, and which took decades to build - has been torn down in a few short months.

Unfortunately, I fear that our successors at the agency will have a terrible time restoring the agency's reputation with Congress and the public.

In closing, I thank the Committee for this opportunity to testify, and look forward to answering any questions you may have.

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The footnotes can be viewed at: https://docs.house.gov/meetings/JU/JU05/20210928/114057/HHRG-117-JU05-Wstate-WilsonC-20210928.pdf