Tuesday, July 27, 2021

Goods Reasons for Congress to Object to the RETAIN Act

Today, I posted the following Twitter thread in response to a July 26 Forbes.com article by Diana Furchtgott-Roth about Ligado Networks and the introduction of the RETAIN Act in the U.S. House: For more on what's right with the FCC's L-Band Order and what's wrong with the RETAIN Act, see my blog posts from May 26 and July 1 of this year.

Saturday, July 24, 2021

Twitter Thread on the Infrastructure Bill and Broadband Access

Congress is currently hammering out an infrastructure bill that includes a section on broadband. The following Twitter thread from July 23 that provides a response to the broadband section of a recent draft bill that was produced in the course of Congress's ongoing negotiations:


Friday, July 23, 2021

Commissioners Phillips, Wilson Object to FTC's Rescission of Policy Statement on Prior Approval and Prior Notice Merger Provisions

At its July 21, 2021, Open Commission Meeting, the FTC voted along party lines to rescind its 1995 Policy Statement Concerning Prior Approval and Prior Notice Provisions in Merger Cases (1995 Policy Statement).

When it adopted the 1995 Policy Statement, the FTC abandoned what had become routine practice: requiring that transacting parties agree to obtain prior approval, and/or provide advance notice, of future acquisitions within the relevant product and geographic markets.

As a result of this substantial departure from longstanding policy, there is widespread concern that the FTC will expand significantly its exercise of authority over the merger and acquisition activities of companies that enter consent orders with the agency.

The two Republican Commissioners have made their objections to this action known. Commissioner Noah Joshua Phillips issued a Dissenting Statement and Commissioner Christine Wilson posted the text of her oral remarks to the FTC's website "[t]o facilitate transparency."

*    *    *

After objecting to the majority's decision to rescind the 1995 Policy Statement "with the minimum notice required by law, virtually no public input, and no analysis or guidance," Commissioner Phillips set forth two substantive criticisms in his Dissenting Statement.

First, he argued that, by once again broadly subjecting merging companies to prior approval and/or notice provisions, "the majority chooses to impose a decade-long M&A tax on anyone who enters a merger consent." This, he maintained, will discourage companies from entering consent decrees and, in turn, "abrogate" the Hart-Scott-Rodino Act of 1976, which "Congress enacted … to protect the public from anticompetitive mergers and acquisitions before they occur."

With the 1995 Policy Statement no longer in place, Commissioner Phillips concluded that "companies will be less likely to work with the Commission to resolve competitive concerns – contrary to the express purpose of the HSR Act, and leading to less efficient merger enforcement. As consent negotiations become more difficult, we will have to go to court more – wasting precious taxpayer dollars, and accomplishing less."

Second, he argued that "[a] blanket policy of routinely requiring prior approval" unreasonably will place at a competitive disadvantage those subject to consent decrees, as they "may have to bid higher … to compensate the seller for the uncertainty and the longer lead time required to obtain prior approval."This, in turn, will lead to suboptimal transactions, create inefficiencies, and reduce overall consumer welfare.

*    *    *

Commissioner Wilson offered three primary reasons for her opposition to the agency's decision to rescind the 1996 Policy Statement. First, she questioned why the majority chose to remove this important "guardrail to prevent … questionable exercises of enforcement discretion."

Commissioner Wilson pointed out that the 1995 Policy Statement was implemented "following nearly nine years of highly resource-intensive litigation undertaken by the FTC against an abandoned transaction" involving the Coca-Cola Co. (Coke) and the Dr Pepper Company that "some observers viewed … [as] a punishment for Coke's temerity to exercise its legal rights and litigate."

By contrast, a contemporaneous attempt by PepsiCo, Inc. to acquire Seven Up Co. was abandoned without a fight when the agency voted to challenge it – that is, without a legal challenge – and therefore did not lead to the imposition of a prior approval order.

Questioning the "purported rationale" put forth by the majority – that the justification for rescinding the 1995 Policy Statement "lies in saving agency resources that it would otherwise spend to review a transaction the Commission previously considered" – Commissioner Wilson expressed her concern "that the Commission intends to revert to the vindictive approach that led to the nine-year litigation against Coke" and "fear that rescinding the policy statement is being sold to the public under false pretenses."

Second, Commissioner Wilson highlighted the fact that, even with the 1995 Policy Statement in place, the FTC could, and often did, incorporate prior approval and/or notice provisions into consent decrees under certain scenarios, such as "where there [was] a credible risk that a company would attempt the same or approximately the same merger" or "would engage in an otherwise unreportable anticompetitive merger."

Raising doubts as to "whether rescission of this policy will facilitate further constructive use of" such provisions and echoing the sentiment of Commissioner Phillips, she expressed her fear that instead "it will facilitate a massive end-run around Hart-Scott-Rodino ('HSR') filing requirements and, for mergers subject to prior approval provisions, a shifting of the burden of proof that will chill procompetitive deals and hurt consumers." Such a drastic step, she argued, should only be taken by Congress.

Third, Commissioner Wilson agreed with Commissioner Phillips that, "by rescinding the 1995 Policy Statement without providing further guidance, the Commission substitutes uncertainty for a policy that has worked for more than 25 years." In that regard, she noted that this action will create a conflict between the FTC and the Department of Justice's Antitrust Division, which takes a similar approach to prior approval provisions as the FTC did pursuant to the 1995 Policy Statement.

Commissioner Wilson also took issue with the majority's decision to rescind the 1995 Policy Statement without first seeking input from the public, a step the FTC did take prior to its adoption.

*    *    *

Finally, I would be remiss if I didn't mention that Commissioner Phillips and Commissioner Wilson both participated in a Fireside Chat with FSF President Randolph May in March as part of the Free State Foundation's Thirteenth Annual Telecom Policy Conference. Video of that wide-ranging discussion is available here.

Thursday, July 22, 2021

Bill Would Require FCC to Consider Big Tech Contributions to Universal Service Fund

On July 21, three Republican members of the Senate Commerce Committee announced the introduction of legislation that could revitalize the Universal Service Fund (USF) via contributions from so-called edge providers such as YouTube, Netflix, and Google.

With the Funding Affordable Internet with Reliable (FAIR) Contributions Act, Senator Roger Wicker (MS), ranking committee member, along with Senators Shelley Moore Capito (WV) and Todd Young (IN), would have the FCC consider the viability of an approach first articulated by Commissioner Brendan Carr in a May 2021 Newsweek op-ed.

As Mr. Carr explained, the USF's reliance upon steadily decreasing "telecommunications" revenues, through a monthly tax on bills for traditional voice offerings, is "now hopelessly outdated" and "on the verge of collapse."

The facts bear this out. Once below 6 percent, the USF contribution factor (that is, the rate at which consumers are taxed) surpassed 30 percent for the first time shortly before Mr. Carr wrote his op-ed. Not long thereafter, it rose even higher – 33.4 percent – for the second quarter of 2021. The proposed contribution factor for the third quarter of 2021 did dip slightly, but only back to the first-quarter level that gave Mr. Carr pause: 31.8 percent.

The reason the contribution factor continues to rise is no mystery. Consumers today use traditional telecommunications services far less – and Internet-based offerings far more. Rather than continuing to ratchet up the burden on the former, Mr. Carr instead proposed that "[w]e should start requiring Big Tech to pay its fair share."

Simply put, the anachronistic and unsustainable USF mechanism regressively taxes the dwindling user base of "telecommunications" services in large part to subsidize high-speed Internet service in high-cost areas. Edge providers utilize broadband infrastructure to generate billions and billions of dollars in revenues — without any obligation to help pay to close remaining digital divides.

In the words of Mr. Carr, "Big Tech has been enjoying a free ride on our internet infrastructure while skipping out on the billions of dollars in costs needed to maintain and build that network…. It is time to end this sweetheart deal. Big Tech should stop passing its costs onto the American people."

In a series of tweets at the time, FSF President Randolph May argued that Mr. Carr "makes a persuasive case" and that his "proposal deserves serious consideration."

More recently, Justin (Gus) Hurwitz, a member of the Free State Foundation's Board of Academic Advisors, asserted that, in the context of the ongoing congressional infrastructure funding debate, "[be]fore we decide how much to spend on [universal service] we should discuss, as Commissioner Carr rightly suggests, who should pay for [it]."

Senators Wicker, Capito, and Young clearly agree.

The FAIR Contributions Act, among other things, would require the FCC to:

  • Seek input from the public "on the feasibility of collecting USF contributions from internet edge providers" and prepare, within 180 days, a report detailing its conclusions;
  • Consider possible revenue sources;
  • Evaluate the fairness of both the current system and one in which Big Tech contributes;
  • Determine the feasibility of requiring such contributions;
  • Estimate the impact on Tribal, low-income, and elderly populations; and
  • Identify any statutory changes that may be required.

Tuesday, July 20, 2021

Ohio Legislators Introduce the Latest Comprehensive State Data Privacy Bill

The data privacy legal landscape grows steadily more complicated as more states take steps to occupy the void created by the absence of a much-needed federal statute.

Just last week, I noted in a post to the Free State Foundation's blog that Colorado had become the third state, after California and Virginia, to adopt comprehensive data privacy legislation. (Please click here and here for Perspectives from FSF Scholars addressing the two laws passed in California and here for a blog post describing the Virginia Consumer Data Protection Act.)

And now it appears that Ohio could be next.

Introduced on July 12, the Ohio Personal Privacy Act (OPPA) is a product of Governor Mike DeWine's InnovateOhio technology initiative, which is led by Lieutenant Governor Jon Husted.

Considered in isolation, the OPPA includes a number of relatively palatable provisions. Indeed, commenters have characterized the OPPA as a bill "that would impose fewer restrictions on businesses" and "more limited in scope than other state data protection laws that recently have been enacted."

Most notably, the OPPA expressly rejects a private right of action: "Any violation of this chapter shall not serve as the basis for, or be subject to, a private right of action, including a class action lawsuit, under this chapter or under any other law." The Ohio Attorney General's Office would have "exclusive authority" to enforce the OPPA.

It also would (1) provide businesses with a 30-day opportunity to cure alleged violations, and (2) create an affirmative defense to liability for any business that "creates, maintains, and complies with a written privacy program that reasonably conforms to" the Privacy Framework promulgated by the National Institute of Standards and Technology (NIST).

With some exceptions, the OPPA generally would cover those businesses that (1) earn at least $25 million in gross annual revenues within Ohio, (2) control or process the personal information of at least 100,000 consumers, or (3) derive more than half of their gross revenues from the sale of data and process/control the data of at least 25,000 consumers.

Businesses would be required to make available "a reasonably accessible, clear, and conspicuously posted privacy policy" that, among other things, details (1) the categories of personal information processed, and (2) the reasons for collecting or selling that data.

Where a business seeks to make a material change to its privacy policy, it would have the option to (1) obtain prior affirmative consent from affected consumers or (2) provide them with notice and "a reasonable means to opt out."

The OPPA would empower consumers in a number of ways, such as by establishing a right to know what personal information is collected, a right to request a copy of that information once during a twelve-month period, a right to demand that that data be deleted, and a right to prohibit its sale.

As Carrie Kuroc, deputy director of InnovateOhio, recently explained, "[o]ur goal isn't to copy, we want to lead. We wanted to craft privacy legislation that other states and the federal government can use as a model."

The big-picture problem with that goal, of course, is that the passage of yet another unique state law, regardless of the particulars of its approach, would serve to further confuse consumers as to their rights and exacerbate the compliance challenge for businesses.

The only solution to this increasingly complicated legal scenario is a comprehensive federal data privacy statute. Specifically, one that requires adequate consumer disclosures, establishes reasonable individual rights, embraces an "opt out" approach for non-sensitive personal information, treats all businesses equally, preempts state laws, and rejects a private right of action in favor of exclusive FTC enforcement.

In a July 16 letter to President Biden, four Republican lawmakers – Senators Roger Wicker (MS) and Marsha Blackburn (TN) and Representatives Cathy McMorris Rodgers (WA) and Gus Bilirakis (FL) – "urge[d him] to prioritize comprehensive data privacy legislation as part of [his] Administration's agenda."

Monday, July 19, 2021

Unsolicited Advice for FTC Chair Khan

By Richard J. Pierce, Jr., the Lyle T. Alverson Professor of Law at George Washington University and Member of the FSF Board of Academic Advisors

New FTC Chair Lina Khan has not sought my advice, but here it is. In his July 9 Executive Order, President Biden described an antitrust agenda that he wants the FTC and the other agencies with antitrust responsibilities to implement. His agenda consists of 72 major changes in competition law. Any agency that attempts to implement an agenda that includes that many major changes in law at the same time is doomed to failure. No agency has the resources required to implement an agenda that ambitious. Chair Khan and her colleagues need to choose no more than half a dozen parts of the president’s agenda to pursue immediately.

The FTC can begin the prioritization process by deferring pursuit of the long list of changes in law that Chair Khan proposed in her famous student Note and her first meeting as Chair. I described some of those changes in my July 1 essay[1] and my July 3 essay.[2] The Supreme Court would reject those changes because they are inconsistent with the approach to antitrust law that the Court has pursued for fifty years. Absent enactment of a statute that clearly compels the Court to reject everything that it has said and done for half a century and to head in a direction that it has long rejected, pursuit of any of those proposed changes would produce nothing but headlines followed by judicial rejections. 

There are five changes in law in President Biden’s list that the FTC has been attempting to make for many years, with limited success in court. I described those proposed changes in my July 12 essay.[3] The FTC should continue to pursue those socially-beneficial changes, but with the understanding that they are long-term goals. The FTC is unlikely to succeed in persuading the courts to acquiesce in most of those changes during President Biden’s first term in office.

 

 

The FTC’s number one short-term goal should be to eliminate most of the non-compete clauses in employment contracts. President Biden emphasized the severity of the problems caused by non-compete clauses in the speech that he made when he announced his antitrust agenda. As he noted, they now exist in about 30% of employment contracts, including contracts for employment as a hamburger flipper in a fast food restaurant. They inflict significant harm on employees by prohibiting them from taking jobs that would improve their pay or working conditions.

Non-compete clauses significantly impair the performance of the labor market by limiting the role of competition. They are responsible for a significant part of the large gap between our constantly increasing labor productivity and our stagnant wage levels. That gap has grown over the past thirty years. They also have contributed to the vast gaps in our income and wealth that have increased dramatically in recent years.

The Supreme Court’s June 21 opinion in NCAA v. Alston provides powerful evidence that the Court would be receptive to an FTC campaign to outlaw most non-compete clauses. The Justices made it clear that they unanimously support efforts to improve the performance of labor markets. They are prepared to hold unlawful any anticompetitive practice that employers adopt as a means of artificially depressing wages. Noncompete clauses fit that characterization perfectly.

There is a large body of scholarship, including excellent empirical studies, that documents the severe adverse effects of noncompete clauses on the performance of labor markets. There is no evidence that they have offsetting social benefits in most contexts. The FTC staff has already gathered and analyzed most of the evidence it needs to launch a successful campaign against non-compete clauses. It hosted an excellent workshop on the subject in 2019.[4]

Elimination of most noncompete clauses would also benefit consumers by improving the performance of markets for goods and services. Small firms and startups cannot compete effectively with the large firms that now dominate many markets unless they can hire some of the experienced workers that work for the large established firms. Noncompete clauses preclude them from being able to lure those workers away from the market incumbents, thereby crippling their efforts to succeed in entering a market and thriving in that market. Because of non-compete clauses, a new market entrant cannot succeed even if it would be able to offer a superior product or service if it could hire experienced workers.

The FTC should exercise caution in two ways if it decides to prioritize elimination of most non-compete clauses. First, the FTC should not overreach substantively. Most employers have no chance of proving that their noncompete clauses further any socially beneficial purpose. In a few narrow contexts, however, there is some theoretical and empirical support for the argument that noncompete clauses yield net social benefits. Thus, for instance, noncompete clauses may produce net benefits in the context of high-paid scientists and senior executives who have unique access to a firm’s trade secrets. The FTC should focus initially on the goal of eliminating noncompete clauses in the contracts of low-paid employees.

Second, the FTC should not overreach procedurally. The FTC will be tempted to rely on the D.C. Circuit’s opinion in National Petroleum Refiners v. FTC,[5] to support issuance of rule that bans noncompete clauses in most employment contracts. In that opinion, the court held that the FTC can use notice and comment rulemaking to issue a rule that implements section five of the FTC Act. The FTC should resist that temptation. The D.C. Circuit’s 1973 opinion was based on a type of reasoning that no court has used in decades, and courts have always been reluctant to uphold FTC actions that are based solely on section five. The Supreme Court is virtually certain to overrule the D.C. Circuit precedent if the FTC tries to rely on it.[6] I can even predict the language the Court would use to overrule that opinion. In 2019, the Supreme Court overruled a 1974 D.C. Circuit precedent with this explanation: “National Parks’ contrary holding is a relic from a bygone era of statutory interpretation.”[7]

It would be a shame if the FTC went through the lengthy and resource-intensive notice and comment process only to have the Supreme Court reject its work product on procedural grounds. The FTC can easily accomplish the goal of eliminating most noncompete clauses by using a combination of procedural tools and substantive authority that it has long used and that courts have long accepted. It can issue a statement of enforcement policy in which it announces, explains, and supports with solid evidence, its policy of banning most noncompete clauses. It can then initiate one or more high visibility, well-chosen enforcement actions in which it finds that the noncompete clauses in the employment contracts of the low-paid employees of a particular firm violate the Sherman Antitrust Act. By using that approach, the FTC can implement one of President Biden’s most important goals in a relatively short period of time.


[1] Richard Pierce, Fasten Your Seatbelts, the FTC Is About to Take Us on a Rollercoaster Ride, Notice & Comment (July 1, 2021).

[2] Richard Pierce, Questions for Proponents of Major Changes in Antitrust Law, Notice & Comment (July 3, 2021.)

[3] Richard Pierce, The Biden Antitrust Agenda, Notice & Comment (July 12, 2021).

[4] See Richard Pierce, The U.S. Federal Trade Commission Workshop on Noncompete Clauses, 23 Utilities Law Reports (2020).

[5] 482 F. 2d 672 (D.C. Cir. 1973).

[6] See Richard Pierce, The Rocky Relationship Between the Federal Trade Commission and Administrative Law, 83 G.W. L. Rev. 2026 (2015); Thomas Merrill & Kathryn Watts, Agency Rules with the Force of Law: The Original Convention, 116 Harv. L. Rev. 467 (2002).

[7] Food Marketing Institute v. Argus Leader Media, 139 S.Ct. 2356, 2364 (2019).

[This blog is cross-posted at the Yale Journal on Regulation Notice and Comment website.]

 

 

Friday, July 16, 2021

SAVE THE DATE: FSF's 15th Anniversary Gala on October 15, 2021

WHAT: FSF's Fifteenth Anniversary Gala Lunch Celebration


WHERE: National Press Club, Washington, DC


WHEN: Friday, October 15, 2021, 11:30AM - 2:30PM 

The Free State Foundation invites you to join in celebrating the Fifteenth Anniversary of our founding on Friday, October 15, 2021, at the National Press Club in Washington, DC.


We are pleased to be able to hold an in-person celebration so we can share with our friends our excitement at reaching this important milestone! With our speakers, we will look back at the past fifteen years, and, most importantly, look forward, with confidence, to the years ahead, knowing that there is much work yet to be done.


A complimentary lunch will be served, subject to space limitations and reservations.


MORE DETAILS TO FOLLOW, BUT PLEASE MARK YOUR CALENDAR NOW FOR OCTOBER 15, 2021!