Senate Commerce Subcommittee Issues Testimony From Kelley Drye, Warren
"Thank you for inviting me to testify today. I am
"It was my honor to serve as Chair of the Section of Antitrust Law of the
"The Section of Antitrust law is the leading professional organization for the practice of laws pertaining to antitrust and competition, trade regulation, consumer protection and economics. Its members include attorneys and non-lawyers from private law firms, in-house counsel, non-profit organizations, consulting firms, federal and state government agencies, as well as judges, professors and law students. The Section's objectives boil down to four words that appear on its logo: Promoting Competition / Protecting Consumers. These were the objectives that guided the work of the
"For the composition of the
"At the outset, it should be noted that the
"The Report's recommendations covered both competition and consumer protection, and many of the observations apply to both sides of Commission enforcement, but my testimony today will focus on the consumer side of the agency. For years, consumer protection has consumed more resources, generated more cases, and garnered more public attention than the competition mission.7 In 2016, for example, consumer protection actions and orders outnumbered their competition counterparts by more than two to one.8 Consumers lodged three million complaints last year with the Commission,9 and they have registered over 226 million phone numbers on the Commission's Do Not Call Registry.10 From care labels on clothes to disclosures in advertisements to privacy and security of personal information, consumers encounter the effects of
"The Report covered a broad spectrum of consumer protection. Today I will focus on three areas that the
A Rising Tide of Unreviewed Regulations
"Since 1996--the past 20 years--the
"The Commission obtains about 150 consumer protection orders a year against corporations and individuals.12 Some of the orders keep common con artists away from consumers. But many of the defendants and respondents include the largest corporations in the world, and the orders they must observe can impose extensive regulations - obligations that go beyond injunctions against violations of the law. The Commission typically will seek ancillary relief in the form of specific obligations that make it easier for future enforcers to prove that the company violated the terms of the order. For example, a company alleged to have made unsubstantiated claims about the efficacy of a dietary supplement may face an order that requires prescribed levels of substantiation for claims about the health benefits, efficacy, or performance of any food, drug, or dietary supplement.13 Once under order, a company faces the peril of civil penalties or a contempt citation for a violation if the
"Recognizing the potential anticompetitive effects and regulatory burdens of perpetual orders, the Commission decided in 1995 to limit administrative orders - those entered in the course of the agency's internal adjudication - to twenty years duration.14 But the agency declined to limit federal court orders, because it said those orders primarily addressed fraudulent activity.15 To this day, most of those orders are perpetual, and they now account for two-thirds of the orders the
"The Commission's insistence on twenty-year orders and permanent decrees stands in contrast to the practice of other agencies. The
Divining the Meaning of Messages and the Need for Disclosures
"The agencies have pursued failure to disclose theories and imposed "clear and conspicuous" disclosure requirements with increasing vigor in recent years. This has created considerable uncertainty for businesses in determining what information is sufficiently important (e.g., material and necessary to prevent unfairness or deception) that it must be disclosed and where the disclosures must appear (e.g., in advertising or at point of sale). The different opinions on claim interpretation and disclosure clarity at the Commission in POM Wonderful were not reconciled in the decision of the D.C. Circuit, leaving additional uncertainty as to whether and what kind of substantiation is needed for a claim, what claims trigger a disclosure, and how much information should be disclosed. 20
"What does an advertisement communicate? How much information must an advertisement disclose to prevent deception or injury? How should the medium in which an ad appears affect disclosures? These are questions that have preoccupied advertising authorities for decades, and the answers are more elusive today than they were when TV, radio, and print delivered most ads. As long ago as 1992, the
"As the
"Not surprisingly, the
"A laudable example of the Commission's efforts to tailor its guidance to the advance of technology can be found in the Online Disclosure Guidelines (often called the Dot Com Disclosures) in which the agency has acknowledged that smaller screens can justify shorter disclosures. Nonetheless, the latest revision of the guidance contained an ominous warning:
"If a disclosure is needed to prevent an online ad claim from being deceptive or unfair, it must be clear and conspicuous. Under the new guidance, this means advertisers should ensure that the disclosure is clear and conspicuous on all devices and platforms that consumers may use to view the ad. The new guidance also explains that if an advertisement without a disclosure would be deceptive or unfair, or would otherwise violate a Commission rule, and the disclosure cannot be made clearly and conspicuously on a device or platform, then that device or platform should not be used.
"The consequence the Commission contemplates for a disclosure that does not fit - disqualifying a medium for a message - emphasizes the importance of determining whether a disclosure is necessary in the first place (and if so how much is necessary) to cure deception, avoid unfairness, or comply with a rule. If a disclosure mandated for other media would fill an entire screen of a smartphone, it is worth asking whether all the required language is necessary to cure deception. That is what the Commission does when it investigates advertising restraints that trade associations and professional societies adopt. If a restraint is not necessary to cure deception or avoid injury, then the agency may prosecute it as an antitrust violation.25 The Commission has traditionally taken a dim view of private restrictions based on speculative harm. Under Section 5 of the FTC Act, deception depends on a representation or omission, likely to mislead reasonable consumers, to their detriment,26 and unfairness turns on the threat of substantial injury, not reasonably avoidable by consumers and not outweighed by benefits to consumers or competition.27 Whether imposed by cases, guides or self-regulation, a thorough examination of an advertising restraint advances the mission of the Commission. The same analysis of a regulation or other mandate addresses the requirements in the First Amendment of the Constitution.28
Inconsistent Rules Undermine Consumer Protection
"This Report notes numerous initiatives of the
"It is inevitable in an economy as complex as ours that companies will face multiple regulatory agencies, and that the standards those agencies apply to the same conduct will differ. Those differences can stifle economic activity and diminish consumer protection. The examples cited in the Report deal with approaches to privacy and definitions of unfair and abusive conduct. Inconsistent approaches to privacy have contributed not only to inconsistent standards that companies must try to follow, but also gaps in coverage that could leave loopholes for sectors of the economy without federal regulation at all. Such a prospect loomed when the
"Based in part on its negative perception of the
"History provides many examples of unintended consequences of regulations. The lawyers and economists at the
Progress on Transparency
"The Section recommends that the
"At the outset of this testimony, I noted a 1969 ABA Report that was credited for sound suggestions on the future of
"The process reforms announced today address CIDs (Civil Investigative Demands) in consumer protection cases, and include:
* Providing plain language descriptions of the CID process and developing business education materials to help small businesses understand how to comply;
* Adding more detailed descriptions of the scope and purpose of investigations to give companies a better understanding of the information the agency seeks;
* Where appropriate, limiting the relevant time periods to minimize undue burden on companies;
* Where appropriate, significantly reducing the length and complexity of CID instructions for providing electronically stored data; and
* Where appropriate, increasing response times for CIDs (for example, often 21 days to 30 days for targets, and 14 days to 21 days for third parties) to improve the quality and timeliness of compliance by recipients.35
"I look forward to the
"And of course, I would be happy to answer any questions the Committee might have."
* * *
Footnotes:
1
2 Available at: https://www.americanbar.org/content/dam/aba/publishing/antitrust_source/jan17_full_source.authcheckdam.pdf
3 Report at 1. The Task Force was co-chaired by
4 Id. at 2.
5 Id. at 27.
6 In 1969, and again in 1980, the Commission faced intense criticism for straying from its mission. An ABA Report on the
7 See, e.g., Report at 24; FTC Annual Reports, collected at https://www.ftc.gov/policy/reports/policy-reports/ftc-annual-reports.
8
9 Id.
10
11 Report at 29 (footnotes omitted).
12
13 Report at 30, n. 94, citing POM Wonderful v.
14 Report at 30, n. 93.
15 Id.
16 Id. at 31.
17 See, e.g.,
18 See, e.g.,
19
20 Report at 33-34, citing POM Wonderful v.
21
22 Id.
23 See, e.g., AM. BEVERAGE ASS'N V. CITY & CTY. OF
24 Report at 35.
25 See, e.g., Release, Professional Associations Settle FTC Charges by Eliminating Rules That Restricted Competition Among Their Members, (
26 Fed.
27 Fed.
28 See generally,
29 Report at 3.
30 Report at 25.
31 See, e.g., Comments of the Staff of the
32 See, e.g., Lacko & Pappalardo, Improving Consumer Mortgage Disclosures/
33 See, e.g., Ohlhausen, "Advancing Economic Liberty," Remarks at the George Mason Law Review's 20th Annual Antitrust Symposium,
34 Report at 27.
35 Release, Acting FTC Chairman Ohlhausen Announces Internal Process Reforms: Reducing Burdens and Improving Transparency in Agency Investigations,
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