Subcommittee Continues Review of the FTC at 100 in Effort to Modernize Agency for the Innovation Era

February 28, 2014

WASHINGTON, DC – The Subcommittee on Commerce, Manufacturing, and Trade, chaired by Rep. Lee Terry (R-NE), today continued its review of the Federal Trade Commission as it celebrates its 100th anniversary. The subcommittee heard from academic experts about their perspective on the FTC’s mission and authority and ideas to modernize the agency. The subcommittee is examining the commission’s mission, operating budget, and statutory authorities and what improvements are needed to help the agency protect consumers and promote competition in an ever-changing market.

“Like many other federal agencies, the FTC finds itself in an era that doesn’t necessarily fit its original design. Standard Oil and American Tobacco have been replaced by Apple and Google. Increasingly, the economy the FTC oversees crosses international borders — and is defined by a constant and ubiquitous interconnection over the Internet,” said Chairman Terry.

George Washington University School of Business Professor Howard Beales spoke to the broad authority and jurisdiction of the FTC and urged the commission to focus its resources and efforts on protecting consumers from identifiable harms to avoid unnecessary and potentially harmful regulation. “The Commission can reduce the risks of overregulation by focusing on real and identifiable harms. That is a proper role for consumer protection in general, and privacy regulation is no different. Regulation to prevent hypothetical problems, however, poses far greater risks that the next big innovation will be precluded, not because it would have caused a problem, but simply because no one had previously considered the possibility,” said Beales.

Geoffrey Manne, Executive Director of the International Center for Law and Economics, explained the need for the commission to exercise regulatory restraint and embrace sound economic reasoning. He testified, “The most important, most welfare-enhancing reform the FTC could undertake is to better incorporate sound economic- and evidence-based analysis.”

Witnesses also urged the commission to adopt enforcement guidelines under Section 5 of the FTC Act to help enhance the commission’s consumer protection authority and its ability to protect competition. University of Michigan Law Professor Daniel Crane explained that guidelines would also help judicial interpretation. He said, “Although guidelines issued by the Commission may not be legally binding, they can provide a set of principles that can be invoked initially before the commission and ultimately in court to limit the commission’s discretion. Given that the FTC acts principally as a law enforcement agency rather than as a legislative or judicial body, it is important that it be constrained by principles announced in advance that can be fairly contested in litigation and ultimately resolved by the courts.”

Chairman Terry concluded, “As we start thinking about how to modernize the FTC, I believe there are a few important principles to keep in mind. First, we should aim to sharpen the commission’s guidance to provide clearer signals as to what is a prohibited business practice. Second, we should maintain the commission’s flexibility to update this guidance — which means maintaining broad overarching authority. Third, I believe the commission should re-commit itself to basing its decisions on consumer welfare effects — and those decisions should be supported by empirical evidence.”