In a serious blow to its reputational capital, the two Republican commissioners at the Federal Trade Commission (FTC or Commission) resigned before their terms expired, frustrated with current leadership. As a result, the typically bipartisan Commission is now led by three Democratic commissioners, with no Republican counterparts. President Biden has selected two nominees to fill the Republican slots, and the Senate Commerce Committee is now poised to consider their qualifications in confirmation hearings before recommending them to the full chamber.
Given the recent activity across both the Commission’s Competition and Consumer Protection Bureaus (described in more detail here), small companies in the app economy have a handful of burning questions for the Republican nominees to serve as important litmus tests for the Committee:
- How do you think the Commission’s Hart-Scott-Rodino (HSR) proposal affects small businesses in the app economy?
Ideal Answer: For ACT | The App Association members, barriers to exit are barriers to entry. Proposals like the one pending at the Commission would add serious costs and uncertainty to the ability for firms to exit via an acquisition, one of the most popular and lucrative ways of exiting for a small business. Fortunate entrepreneurs with long-lasting companies, especially those in fast-moving markets like mobile software, have a few potential “retirement” options: acquisition, initial public offering (IPO), or passing the company along to someone else (often, family members). Rightfully, when investors consider supporting a newer company, they need to think about the lifespan of that company, and that includes viable exit strategies. Make one of those pathways impossible or much more costly, and it becomes less attractive to invest in that business, killing it before it gets off the ground. The paperwork burdens this proposal would impose on 98 percent of mergers subject to the HSR requirements would seriously increase the risks and costs associated with acquiring a company, narrowing small companies’ paths to exit and entry.
- How do you think the Commission’s and the Department of Justice’s (DoJ’s) proposed Merger Guidelines affect small businesses in the app economy?
Ideal Answer: The proposed guidelines create the same problems as the proposed HSR rule, needlessly eliminating exit paths for small businesses. Specifically, the proposed guidelines would generally adopt an approach from the 1960s that would treat a wider range of proposed mergers as presumptively illegal. Current law is far more permissive of acquisitions, especially by companies with online platforms or marketplaces. The guidelines therefore attempt to convince federal courts to ignore modern antitrust law to remove acquisitions as a possible exit strategy for app economy companies. The policy goals animating deadly skepticism of mergers fail to recognize that in general, entrepreneurs fortunate enough to sell valuable businesses use the proceeds to start up new companies, often in an adjacent market. The notion that an acquisition leads to the death of a smaller competitor is an erroneously static conception of how acquisitions affect relevant markets.
- Are online marketplaces “super-premium ice cream?” In other words, are they a series of separate, extremely narrow antitrust markets?
Ideal Answer: No, they’re not. In its challenge to a merger between Dreyer’s Grand Ice Cream, Inc., and Nestle Holdings, Inc., the FTC alleged the deal would result in anticompetitive effects to the market for super-premium ice cream. The challenge serves as an example of how narrowly an antitrust plaintiff sometimes needs to define a market in order to show that too few competitors remain and that, therefore, harm to competition and consumers will result from a given merger or activity. In recent years, the FTC and other antitrust enforcers have sought to draw arbitrary and unrealistic lines around online marketplaces in order to arrive at a valid antitrust market where their chosen target has an artificially high market share. If they succeed and courts ignore competitive pressure from actual competitors, these enforcers would be able to impose ill-fitting and poorly defined remedies like breaking up online marketplace companies and prohibiting wrap-around services. Small companies selling on those online marketplaces disproportionately rely on these wrap-around, vertically integrated services. It is important for FTC commissioners to resist the temptation to skip analytical steps on market definition in order to manage the app economy based on antitrust authority.
- Does the FTC have the legal authority to conduct its Commercial Surveillance rulemaking?
Ideal Answer: If it does, small businesses are in trouble—but it doesn’t. One of the primary rules of thumb for the FTC as it considers impacts on small businesses is to ensure that they have certainty and the opportunity to follow the law in good faith. Since 1914, the FTC has enjoyed exceedingly broad authority to enjoin unfair or deceptive acts or practices (UDAP). The breadth of its purview led to the Commission to adopt an enforcement—rather than rulemaking—role. Congress officially curtailed its rulemaking power in 1975 with the Magnuson-Moss Warranty Act, responding to the FTC’s overreaching rulemaking effort, earning it the nickname the “national nanny.” Although it might appear at first that rules defining UDAP actually help with uncertainty, the opposite is true. The current FTC’s views of UDAP are significantly different from the previous Administration’s, and if rules are finalized, violations would carry first-time offense civil penalties rather than injunctions. With the commercial surveillance rulemaking, the FTC is trying to go down this path again and small businesses would bear the costs of greater uncertainty and the specter of civil penalties for shifting concepts of UDAP.
- Can the FTC enforce its Health Breach Notification Rule (HBNR) as a broad health privacy law?
Ideal answer: No. Again, small businesses need certainty and clarity as to what the law is. The FTC’s HBNR requires certain kinds of companies to notify certain consumers if there is a data breach involving certain kinds of health records. The recent FTC proposal to broaden that rule to apply to situations where any health information is shared with a third party does not match the authority Congress gave to the Commission. Health privacy is far too important to consumers and the app economy to be protected by a haphazard reading of a narrow rule. Instead, Congress should enact a comprehensive, preemptive federal privacy law calibrated to the risk posed by processing, collection, and transfer of sensitive information like health data.